Payments and Regulation Competition, Caps, and Cost Controls by Regulators Around the Globe
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A Number of Regulatory Interventions in the Payments Industry Aim to Reduce Merchant Costs of Card Acceptance and Enhance Merchant Control Over Their Payments Experience.
What lessons have been learned by these interventions, and what does the State of the Industry Report tell us about the efficacy of global payments policy intervention and regulation? For country-level analysis please read the State of the Industry Report.
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Policymakers are Paying Attention
NUMBER OF UNIQUE REGULATORY INTERVENTIONS GLOBALLY
120
100
There have been over 100 interventions globally into interchange and merchant service fees over the past thirty years, making them the most common.
80
60
40
20
0
Interchange and Merchant Service Fees
Surcharges and Discounts
Other
Government Development of New Payments
Co-badging
Intervention Type
Source: CMSPI Estimates and Analysis
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Interchange Caps Can Vary
While various approaches can yield substantial savings for merchants, none can be deemed superior or inferior as each possesses its own advantages, risks, and limitations.
Date of Passage
Cost vs. Competition Methodology
Jurisdiction
Credit
Debit
2015
0.3%
0.2%
Competition
EU
0.05% + $0.21 plus $0.01 (fraud prevention adjustment)
-
2010
Cost
U.S.
1.4% weighted avg; for SMBs - 0.95% (in-store) and reduction of 10 basis pts (online) 1
-
-
Canada
2018, 2023
Mexico
2006
1.91%
1.15% max MXN 13.50 (~$0.73)*
Competition
2022
-
Brazil
0.5%
Cost
Chile
2021
1.14% (0.8% in Oct 2024)
0.5% (0.3% in Oct 2024)
Competition
AUD 0.08 (~$0.05) weighted avg ($0.10 or 0.2% for individual transactions)
0.5% weighted avg (0.8% for individual transactions)
Australia
2003
Cost
2016
China
0.45%
0.35%
-
0.9% (POS/online), 0.8% (QR code); for SMBs 0.4% POS/ online, 0.3% (QR code)
2017
-
India
Competition
1. This cap is a voluntary commitment between Visa, Mastercard, and the Department of Finance that will only apply until May 2025. Additional interchange cap restrictions apply for eligible small businesses as of fall 2024. * Exchange rate as of 7/26/2024
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Card Fees Rise Elsewhere After Interchange Caps Introduced
Following interchange being capped, non-regulated fees, such as scheme or network fees, increased substantially in the U.S., Australia, UK, and the EU.
One study indicates that 45% of the savings earned through interchange fee regulations were retained by acquirers. 2
A report commissioned by the European Commission estimated €280 million was gained in 2017 by card networks via higher network fees to merchants. 3
2-3. copenhagen-economics_march_ifr-report.pdf (copenhageneconomics.com)
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Co-badging is Being Used to Increase Competition
Co-badging has been introduced in several markets to counteract the escalating cost pressures resulting from ‘perverse competition’ in card markets. 4
U.S.*
FRANCE
GERMANY
JAPAN
Local Card Networks: U.S. Debit Networks (STAR, Nyce, Pulse, Accel) Local Market Shares: <9%
Local Card Networks: Suica, Aeon, J-Debit Local Market Shares: 4-10%
Local Card Networks: Cartes Bancaires Local Market Shares: 84%
Local Card Networks: Girocard Local Market Shares: 63%
CANADA
SOUTH KOREA
Local Card Networks: Interac Local Market Shares: 28%
Local Card Networks: South Korea Card Networks (e.g., BC Card, KB Kookmin, Samsung Card) Local Market Shares: 98%
AUSTRALIA*
MEXICO
Local Card Networks: eftpos Local Market Shares: 20%
Local Card Networks: Carnet Local Market Shares: <0.03%
INDONESIA
BRAZIL
Local Card Networks: GPN Local Market Shares: 10%
Local Card Networks: Elo, Caixa, Hipercard Local Market Shares: 24%
CHILE
SINGAPORE
Local Card Networks: Redcompra Local Market Shares: 22%
Local Card Networks: NETS Local Market Shares: 17%
INDIA
Local Card Networks: Trans Link Local Market Shares: 1% NETHERLANDS
Local Card Networks: RuPay Local Market Shares: 14%
ITALY
TURKEY
Local Card Networks: Mada Local Market Shares: 92% SAUDI ARABIA
Local Card Networks: PagoBancomat Local Market Shares: 28%
Local Card Networks: Troy Local Market Shares: 5-14%
* Countries with Cobadging Oversight
4. constantinecannon.com/wp-content/uploads/2016/03/NYB104.pdf Source: Euromonitor 2023. Brazil, Mexico, Indonesia, Turkey are from Euromonitor 2021. Saudi Arabia is from Worldpay GPR Report 2023. The United Kingdom and Spain are not included due to a lack of local card presence. China’s UnionPay, although originating from China has not been included due to its widespread global acceptance; the same is the case for JCB in Japan.
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Merchant Surcharging Rights Are Largely Prohibited
Of the 20 countries reviewed, merchants have surcharging rights in Australia, the U.S., and Canada.
Surcharging is allowed on PayPal and Sofort transactions. GERMANY
PSD2 default ban applies. FRANCE
Surcharging ban applies to all card-based payments and SEPA transfers with certain exceptions. UNITED KINGDOM
Surcharging can be allowed by banks, however cash discounts is allowed for all merchants. MEXICO Federal law allows states to determine their own surcharging laws. [See section on U.S. State Surcharging Rules] U.S. Canadian merchants have the right to surcharge on credit cards with exceptions to Quebec. CANADA Surcharging is banned under the Second Payment Services Directive (PSD2) with certain exceptions. EUROPEAN UNION
PSD2 default ban applies. NETHERLANDS Prohibited under the Legislative Decree of 2010. ITALY
Surcharging is prohibited on all transactions as per Real Decreto-ley 19/2018, article 35(3). SPAIN
Illegal under the Specialized Credit Finance Business Act. SOUTH KOREA
Network rules apply. JAPAN
Network rules apply. BRAZIL
From our primary resources, it is not common practice for merchants to surcharge in China. CHINA No government regulation against surcharging but networks have demonstrated leniency. SINGAPORE Merchants are allowed to surcharge up to the cost of acceptance. AUSTRALIA
Surcharges are automatically applied by Transbank to Visa and Mastercard debit cards. CHILE
Network rules apply. SAUDI ARABIA
Guaranteed by Law Some Methods Can be Surcharged, Others Cannot Network Rules Apply/Surcharging Prohibited
INDIA
Network rules apply. INDONESIA
Network rules apply.
Source: CMSPI Estimates and Analysis. This should not be treated as exhaustive of all surcharging restrictions and exceptions.
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About the State of Industry Report Developed alongside 11 of the world’s leading payments experts, CMSPI’s flagship report aims to empower merchants and advocates with the information they need to execute payments for their organizations in the market today. Want to understand how tokenization works, which payment methods to offer in different geographies, or why payments regulation differs by market? CMSPI’s Insights team has created the SOIR to be the first of its kind, developed with merchant input, to fuel merchant decision-making.
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What you’ll learn in Section 5 of the SOIR
How have different countries approached payments regulation?
What is co-badging, and how does it affect competition?
Do interchange fee caps work, and how are they calculated?
In what ways can savings from regulation be eroded?
What guarantees can regulators provide for consumers and merchants in order to protect the benefits of regulation?
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Page 10 This document is for informational purposes only and does not guarantee the functionality or features of any CMSPI product or service. CMSPI does not represent nor warrant that this document is complete or error free. Copyright © 2024 CMSPI All rights reserved.
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