This article is part of our special report Payments services directive II.
The Spanish experience of lowering multilateral interchange fees for debit and credit cards was not positive, says Gustavo Matías Clavero, who is pessimistic about the European Commission's chances of achieving its goal of a single payments area through an updated Payments Services Directive.
Gustavo Matías Clavero is an economics professor at the Autonomous University of Madrid and serves as an expert at European Economic and Social Committee for its forthcoming opinion on the European banking union project. He spoke to EURACTIV’s Jeremy Fleming.
What did your research into the effects of decreases to multilateral interchange fees (MIFs) – charges incurred by retailers when consumers use credit and debit cards – in Spain?
The Spanish experience hasn't been positive and holds five or six negative consequences on the economy: income adjustments for the agents and imbalances of the market; fee and price upsurges for consumers; lower growth of electronic payments versus cash; more underground economy; less innovation; less convergence with the rest of Europe, and so on.
When Interchange Fees are forced down, issuing and acquiring banks, damaged by lower revenues, defend their income statements [by] increasing other costs. These new costs will be paid by consumers or even by the merchants: different kinds of cardholder fees and interest rates in credit and debit cards, or new ATM costs.
On the other hand, merchants do not take advantage of the savings of the new merchants service charges reductions applied by acquiring banks trying to lower consumer prices. Instead they use them to improve their margins and profitability, mainly because at the moment the retailers are badly hit by the austerity plans which remain in Spain and other European Union countries less open to competition, innovation, productivity and competitiveness.
Do you think there is a direct correlation between lower MIF and higher consumer charges. After all the Commission is confident this did not happen in France?
This was reported on many occasions by consumer organisations before we proved it through the study of several professors from Spanish universities including myself, developed using official statistics and data.
Our findings were also upheld by other studies in Spain, which demonstrate that cards use has slowed down in Spain and other countries since 2008, contributing to lower private consumption and hence a lower GDP and employment rate.
What the Commission says about France is very different from what the Fédération bancaire française and several French consumer organisations have stated. The problem is that the European Commission just addresses the merchants’ opinion and forgets about all the other actors, and does not consider other costs and benefits of the means of payment that affect directly consumers and the economy as a whole.
What are the challenges facing implementation of the new Payment Services Directive?
Judging by the rumours after the white paper, which were submitted after minimum discussion despite its importance, the Commission wants to amend the last three directives related to payments methods and repeal the 2007/64 directive which is very important and has not even completed its transposition.
It is laudable the goal to try to achieve an efficient, transparent and competitive payments market similar to the most effective member state market. But that will never happen and will be pure rhetoric if we don´t combine idealism with the right realism.
The reality is that in the EU we have more than 28 payment systems. In the SEPA there are more than 33 (27 until now, 28 with Croatia starting from this month, including the countries involved in the payments methods unit: Iceland, Liechtenstein, Monaco, Norway and Switzerland). Making them converge is different from trying to converge to the best one. It is illusory to achieve it through many more regulations that only increase the complexity and furthermore – as in the case of Interchange fees – they threaten to have an impact opposite to that which they were seeking.
The proposal is to create a new SEPA board, with representation from many different stakeholders. What do you think of that idea?
All participation and transparency will always be welcomed, so long as it does not turn into the joke about the committee that invented the camel by designing a horse.
Until now, in many EU projects, such as the draft regulation that we are dealing with, representatives have helped little. The Single Euro Payments Area already has a European Payments Council formed by 74 members representing banks, national banking associations and institutions from the European Union payments system.
Ideally, the new council should be assisted by a powerful observatory body with the ability to request statistics. It should also be designed as a decision-making forum coordinated with all the actors involved in the unification of national payment systems at European level. But so far it has not worked for the many years since its existence. Until now it has failed to remove the barriers and limitations which would enable the eurozone to standardise an area and break down the borders to electronic monetary transactions.
Can regulation keep up with innovation in this sector?
Regulations often just act as a hindrance to innovation, whether directly or in a roundabout way.
The past decade has shown us that the EU is losing the global battle to become the first and most innovative knowledge-based economy. Its legislative archives contain more than half a million rules. But entrepreneurs or innovative spirits are sometimes held back by regulation, whilst, according to Schumpeter technical and financial innovations, should be fostered by a competitive environment [that is] conducive to risk and benefit.
Thus, the problem is normally greater for innovators when new rules suppress the competitive environment, which the regulators would like to believe they are improving.