State of the Industry Report September 2024

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CMSPI – IAC State of the Industry Report

Some jurisdictions, such as the United States, require global card networks to permit merchants to offer a discount for cash or certain types of debit 236 or credit cards. 237 While cash discounting has become more prevalent in environments like petroleum and convenience stores, 238 individual price discount labeling has potentially created barriers for broader industry adoption. 239 Section 5.1.4 – Government-Mandated Payments The development of alternative payment methods is a common global trend. However, it’s often the case that not all parties are equally motivated to develop, launch, and adopt such payment methods. A good example of this is Pay-by-Bank solutions where industry- wide government mandates, such as UPI in India and Pix in Brazil, have driven adoption and injected competition to cards. In contrast, in the U.S., the adoption of Pay-by-Bank is voluntary. This has likely led to a slower uptake, as well as less streamlined industry tools for enablement, such as common features in Application Programming Interface (API). Overall, government mandated payments may be a way to increase optionality and competition amongst different payment types. Section 5.1.5 – The Challenges of Regulating Payments From improving price signals, to increasing inter-network competition, to capping fees, regulatory bodies have tried to address the challenges of the payments industry in myriad ways. While each may make sense in theory, the practical implications for merchants of all sizes can differ significantly. 240 In the remainder of this section, we examine four markets that have seen some benefit from payments regulation, and the partial or full erosion of these benefits. Summarized in the table below, the case studies reveal many commonalities amongst merchants’ experiences.

COUNTRIES THAT PERMIT SURCHARGING Of the 20 countries reviewed, Australia, Canada, and the United States have surcharging rights for merchants – although these rights vary extensively. The European Union’s PSD2 ban on surcharging has certain exceptions and allows for Members States to extend their own surcharge bans. In Chile, Transbank automatically applies a surcharge to Visa and Mastercard credit cards without the involvement of the merchant. 233 In some jurisdictions, surcharging rules are governed by the card networks, while in others there is government oversight, and in others it may be a combination of both. In Canada and Australia, governments require consumer transparency and cap surcharge fees with guidance available in the latter via the Australian Competition Commission. 234 In other jurisdictions like the U.S., national surcharging is largely dictated by card networks. Such rules may include requirements to pre-register with your acquirer 30-days prior to implementing a surcharge, ensure the surcharge is applied only to the applicable card type, and ensure the surcharge does not exceed pre-determined maximum value. In many countries where surcharging is allowed, variations in the global network rules can hinder a merchant’s ability to apply a surcharge or influence the type and amount of surcharge permitted. 235

Jurisdictions Permitting Surcharge Type

Surcharge Type

Description

Pros

Cons

A surcharge based on the network and card type. The level of the surcharge will vary depending on the network and the card proffered by the consumer A surcharge based solely on the network of the card. The level of surcharge will vary between networks, but all card types of that network will incur the same surcharge

Australia New Zealand European Union Member States not extending PSD2 United States, if not accepting Amex and Discover Canada, if not accepting Amex and Discover

Full cost recoupment, as each card can be charged at the effective rate

Resource intensive to calculate average effective rate by card type

Product-level

Less effective than product-level at fully recouping costs Resource intensive to calculate average effective rate by brand

Easier to calculate than product-level

Brand-level

United States, if accepting Amex and Discover Canada, if accepting Amex and Discover

Surcharging of all card brands at the effective rate averaged across all card brands

Easier to calculate than rand-level surcharging

Less effective than product-level at fully recouping costs

Blanket Surcharge

Increasing overall costs by the average effective rate, but decreasing cash or non-card payments by the average effective rate across all types

Near global permissibility, given wide-spread regulatory acceptance

Requires increasing costs to ensure full cost recoupment

Cash Discounting with Price Increases

Near global acceptance

236 Microsoft Word - Final Text of Durbin Amendment (thomsonreuters.com) 237 MasterCard, Visa settle antitrust case with DOJ; AmEx fights on – Center for Public Integrity 238 Guide to Cash Discounting at Gas Stations (nrsplus.com) 239 Visa’s rules allow a merchant to offer a discount or incentive to a cardholder to pay with an alternative method other than their Visa card known as a “discount offer” or commonly a “Cash discount”. However, in or- der to do so correctly, the merchant must display their prices in either of these ways: o Only the card price per item o Both the card and the cash price listed side-by-side per item.https://usa.visa.com/content/dam/VCOM/ global/support-legal/documents/merchant-surcharging-qa-for-web.pdf 240 Market review card-acquiring services (psr.org.uk)

Table 5.3 – Types of Surcharging

tions. 233 https://publico.transbank.cl/manualpos 234 Card surcharges | ACCC; Merchant surcharges, service and convenience fees, and discounts - Canada.ca 235 U.S. Merchant Surcharge Q and A (visa.com)