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Payments Regulation in Asia
These areas of progress are extremely valuable for merchant cost transparency. However, there are currently no co-badging rules and routing rights for Japanese merchants to leverage with the networks. About 80% of merchant clients reported that they were highly dependent on international brands for their transactions. Without co-badging and routing rights, merchants have little control over which network via which to send the transaction, resulting in lower cost-savings and reduced efficiencies. The report addresses the threat of contactless payments to merchants as international card brands require the mandatory acceptance of contactless payment methods and the installment of compatible terminals. Most of the local issuer acquiring partners quoted in the report express harsh concerns against this ruling, with one business estimating an annual cost increase of several billion yen (in the USD millions) annually which they will “have no choice but to pass on to merchant fees”. The report also evaluates the network rule bans on merchant “price steering”. JFTC highlights its concern that the prohibition of steering clauses limits a merchant’s negotiation levers and may be in conflict with Japan’s Antimonopoly Act. It mentions the following concerns about making steering possible for Japanese merchants. 1. Not many merchants wanted to utilize payment steering. If steering was possible, over 60% of merchant respondents stated they would not promote consumers to use payment methods with lower fees. 2. Steering prohibitions may protect cardholders’ preference of payment method. Depending on the transaction size, 60-70% of cardholders stated that, if requested, they would use an alternative payment method, while 30-40% said they would stop shopping at that store all together if it was not essential. The positive impacts of merchant fee reduction from 2019 to 2022 and the JFTC and METI’s reforms on transparency could be offset by the lack of merchant protections and tools on hand for driving competition between networks, given the absence of co-badging mandates in Japan.
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