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CMSPI – IAC State of the Industry Report
CMSPI – IAC State of the Industry Report
Section 5.3.3 – Discounting and Surcharging in Europe THE EUROPEAN UNION The second European Payment Services Directive (PSD2), which went into effect in 2015, applies to all EU countries. PSD2 prohibits surcharging on cards to which the IFR applies, namely four-party consumer cards, as well as three-party cards which are otherwise exempt from some aspects of the IFR. Additionally, PSD2’s surcharging ban applies to Business-to-Business (B2B) and Business- to-Consumer (B2C) SEPA direct debit and SEPA credit transfer transactions. According to the European Commission, many member states have exercised their article 62(5) right in extending the scope of the surcharging ban beyond what is required as part of PSD2. THE UNITED KINGDOM Although no longer part of the EU, the UK transposed PSD2’s surcharging ban into national law through the relevant statutory instruments. Additionally, the ban covers all non-card-based transactions, excluding those that meet the definition of commercial card transactions as defined by Article 2(6) of Regulation (EU) 2015/751. 300 The surcharging ban also applies to SEPA credit transfers and direct debits where both the payer’s and payee’s payment service provider are in the EU. CONCLUSION The caps imposed by the European Commission have successfully reduced interchange fees, but we have seen network fee increases in their place. Europe’s domestic debit networks mostly managed to maintain their position, possibly as a result of factors such as consumer preference and the lack of incentive to push them out due to interchange caps. Meanwhile, SEPA direct debit in Germany could be an interesting tool for other jurisdictions to consider since debit cards access the same funds as pay-by-bank networks. Section 5.4 – Payments Industry Regulation in Australia Section 5.4.1 – Interchange Caps in Australia Australia was one of the first countries to introduce interchange fee caps in 2003, when the Reserve Bank of Australia 301 recognized the negative impact growing card acceptance fees were having on
the economy. Shortly thereafter they instituted a weighted average cap on four-party card credit card interchange fees. 302 The decision to regulate interchange fees was prompted in 2002 by specific concerns: 303 “[the] configuration of fees and restrictions on merchants [created] a set of price signals to
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cardholders that were not promoting the overall efficiency of the payments system.” “restrictions on access were judged to be limiting competition and were tighter than necessary to preserve the integrity of the payments system.”
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The initial standards for interchange fees, effective October 30, 2003, utilized the cost methodology (see Section 5.1.1) to establish network-specific benchmarks for credit card networks: Visa, Mastercard, and Bankcard ( Australia’s first credit card network). 304 At the time, the goal was to reduce weighted average credit interchange fee from 0.95% to below 0.55%. The benchmarks set in the standard were as follows:
Card Type Electronic Standard Commercial
Bankcard
Mastercard
Visa
0.49% 0.49%
0.46% 0.62% 1.12%
0.436% 0.595% 1.095%
N/A
Table 5.7 – Cost-based Benchmarks for Credit Card Transactions by Network in Australia 305
Additionally, in 2006 the RBA decided to cap debit card interchange fees. The new interchange fee caps set on the EFTPOS system were estimated to reduce interchange fees from an average of 20 cents per transaction to 5 cents per transaction. Meanwhile, caps set on weighted-average interchange fees on Visa Debit were estimated to reduce per transaction fees to 15 cents per transaction from 40 cents per transaction. The Visa Debit benchmark fee was set at 15 cents in April 2006, then lowered to 12 cents in November 2006. The Mastercard system was not regulated by the RBA, as they agreed to follow the regulations put on Visa Debit in an official undertaking. 306
1959. 302 The RBA also made important interventions in surcharging at this time – see Section 5.4.3 for more informa- tion 303 https://www.rba.gov.au/payments-and-infrastructure/payments-system-regulation/past-regulatory-reviews/ review-of-card-payment-systems-reforms/pdf/review-0708-issues.pdf 304 https://www.rba.gov.au/payments-and-infrastructure/credit-cards/cc-fees-benchmark/pdf/cc-fees-benchmark. pdf 305 https://www.rba.gov.au/payments-and-infrastructure/credit-cards/cc-fees-benchmark/pdf/cc-fees-benchmark. pdf 306 The Bank’s Card System Reforms | Review of Card Payments Regulation | RBA
300 Specifically, non-card-based transactions on instruments issued to businesses, public sector entities, or self-em - ployed individuals are exempt, particularly when these transactions are used for business expenses and charged directly to the respective account. However, the surcharging ban does apply to all other types of non-card-based transactions. As outlined in The Consumer Rights (Payment Surcharges) Regulations 2012, Section 6A. Relevant sec- tions have been amended by The Payment Services Regulations 2017. 301 The Reserve Bank of Australia (RBA) oversees the regulation of payment systems and interchange fees through the Payment Systems (Regulation) Act 1998, the Payment Systems and Netting Act 1998 and the Reserve Bank Act
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