Business brief We tend to take these payment methods for granted yet they are only possible because the card industry has invested substantially in state of the art electronic payments infrastructures. It’s an efficient market mechanism that provides the greatest good to the greatest number and drives growth and prosperity.
Interchange – ‘One size doesn’t fit all’
The results of decades of investment can be seen around Europe in constantly improving security, growing e-commerce, ever increasing number of cards in circulation and the number of electronic transactions. Since cards guarantee payments to retailers where consumers can’t, we have also seen a huge increase in the number of card acceptance points. This has increased retailers’ turnover, created more satisfaction for consumers, reduced the grey economy and driven growth. All these benefits and innovations have partly been funded by interchange which the European Commission now is suggesting to cap. Capping interchange fees would remove this essential funding and force card issuers to choose between two equally undesirable options: reduce service levels and investment, or charge consumers higher and/or additional fees to make up for the lost investment capital.
Javier Perez, President of MasterCard Europe
At the start of 2012 the European Commission is launching a consultation on whether to reduce retailers’ card acceptance costs by capping interchange fees at a uniformly low level across the EU. Javier Perez, President of MasterCard Europe, believes that the best way to develop card payments across Europe is by market led evolution not imposed regulation. MasterCard and the European Commission share a common goal – to develop world class electronic payment systems that will drive growth across Europe, facilitate trade across borders and bring benefits to businesses, consumers and Government. We are already bringing many of these benefits to European economies in different ways: when you pay for your groceries in your local supermarket, buy a rare out of print book on Amazon, book a holiday to the other side of the world or take money out of a cash machine in an Alpine ski resort. The market continues to drive ever greater innovation, creating value added services and products such as: Contactless - that increases convenience and reduces cost of doing business; InControl - which provides increased ability to manage and control spending and Prepaid - which extends the benefits of electronic payments to the underbanked just to name a few. Today we don’t just use cards to make payments but can also use mobile phones and PDAs. You are benefiting from a payment system that has evolved over more than 40 years. 10
OECD Yearbook 2012 © OECD 2012
Being able to make and receive payments by cards provides value not only to consumers but also retailers. Today, because of interchange fees, consumers and retailers fairly and equitably share the costs. Consumers contribute through annual card fees, interest on credit cards etc., while retailers contribute through card acceptance fees of which interchange is a part. A reduction of interchange, and consequently the retailers’ card acceptance costs, means that their contribution towards providing for and improving the payment service will fall. But the cost for running an efficient payment system will remain. In fact, as a consequence, either through higher fees or reduced service levels, consumers will ultimately have to make up the shortfall – which we think is neither fair nor equitable. MasterCard and the European Commission are also in agreement on the benefit of unified interchange rates. Eventually we would like to see standard rates across all the EU Member States, but the main factor to consider here is the time component. An immediate harmonisation of interchange across all Member States and products is simply not possible now or in the foreseeable future, since each Member State is at different stage of development and has different investment requirements. For instance, the Nordic payment markets are very advanced with high rates of acceptance and card usage. In contrast for Poland and other Eastern European countries, acceptance is a major issue since, outside the major cities, few card
2012 OECD Yearbook