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In Europe, MasterCard Seeks To Draw Amex And Diners Club Into Merchant Fee Caps

New research supported by MasterCard not surprisingly shows most merchants would like all card brands to be forced to cap how much they charge for acceptance, not just bankcard brands. Who wouldn’t want their costs reduced? But under current pending legislation, such “three-party” networks as American Express and Diners Club are exempt. Is that about to change?

Not surprisingly, most merchants in the European Union would prefer that a cap on merchant card-acceptance fees be applied to all card networks, not just to bankcards carrying the MasterCard or Visa brands, new research from MasterCard shows.

The European Commission has been battling with Visa Europe and MasterCard since 2000 in an attempt to limit interchange fees. In an effort to seal a victory, the commission drafted proposed legislation that would reduce bankcard credit card interchange fees to 0.3 percent of the sale and debit card fees to 0.2 percent.

The MasterCard poll of 901 “high value retailers” from six European countries found that 55 percent of respondents believe a new rule European policymakers are considering that would create a cap on merchant fees across bankcards in the European Union should apply to all credit card networks, including American Express and Diners Club. Some 34 percent said they would support the legislation if it excluded such companies.

In a statement sent to PYMNTS.com reacting to MasterCard’s survey results, American Express said it doesn’t have interchange fees or collectively agreed pricing, so it has never given rise to the sorts of concerns that have led to the competition investigations in the European Union into Visa and MasterCard pricing. “In fact, American Express has not been subject to any of the multiple investigations that have been initiated by EU and European national antitrust authorities regarding the dominant networks’ pricing practices,” Amex said.

A representative from Discover Financial Services, which owns the Diners Club brand, could not be reached for comment on the survey findings by PYMNTS.com’s deadline.

Support for proposed legislation that would include all payment cards was highest in Germany (66, percent), followed by Spain (65 percent), Italy (59 percent), France (53 percent), Poland (44 percent) and Great Britain (42 percent).

Global research company Ipsos MORI conducted the poll on behalf of MasterCard in April and May. Retailers participating were from France, Germany, Great Britain, Italy, Poland, and Spain. They represented the travel, entertainment or luxury goods, such as airline ticket sales, car rental agency, hotel/resort, travel management company/travel agency, petrol stations, restaurant, theater, museum/gallery, jewelry shop, department store and other “high-value” merchant segments, according to Ipsos.

The cap would cause massive reductions in many countries across the EU. Currently, debit card interchange fees range from an average of 0.1 percent in Denmark to 1.6 percent in Poland. Germany is a bit higher, with an average of 1.8 percent for credit cards, and France has a lower average of 0.5 percent.

Fee limits effects

EU banks that issue debit and credit cards benefit from the fees. The commission reported that it believes EU banks gain about €4.8 billion from debit card fees and €5.7 billion from credit card fees every year. The proposed ceiling reportedly would cause debit fees to fall to just €2.5 billion, and credits to drop to around €3.5 billion, wiping out more than €4 billion in bank revenue per year.

Market Platform Dynamics Chairman David Evans co-wrote a report in 2011 on the economic effects of the proposed legislation in a detailed report.

A year ago, Visa Europe suggested putting a cap on its interchange fees at 0.3 percent for a four-year duration. The drop in fees would amount to a 40 percent to 60 percent reduction in its current interchange fees. The cap would be applicable to both cross-border and domestic interchange fees.

In a statement, MasterCard indicated unfairness in how the legislation is currently written. “Although we appreciate the commission’s and Parliament’s efforts so far to treat all players in the same way, we believe that the proposals could be improved,” said Javier Perez, president of MasterCard Europe. “As they currently stand, they risk playing directly into the hands of the most expensive market players.”

MasterCard last summer released research that found that more than 90 percent of Europeans carry cards while on holiday versus 60 percent who do so while at home. As such, the convenience of electronic payments while traveling is just one example of why consumers increasingly favor cards over cash, the card brand contends.

“The draft regulation should be amended to cover implicit interchange fees operated by three-party schemes (such as Amex and Diners Club cards),” Perez said. “This can be achieved fairly simply through the introduction of rules on accounting separation already applied in other areas of EU legislation, such as telecommunications or energy.”

About 63 percent polled retailers across the six European countries accept Amex cards (though Amex’s share of volume is relatively small compared with that of bankcards). American Express is also rated as having the highest payment charge fees overall. However, unlike most merchants accepting bankcards, retailers negotiate their discount rates (which aren’t interchange) directly with Amex. Amex traditionally has said it can charge merchants more because the generally wealthier clientele who use its cards often spend more.

Legislative reaction

If the proposed legislation takes effect as written, 50 percent of the respondents to the survey claimed they would continue to accept all payment methods, while 31 percent say they would stop accepting the most expensive payment cards.

Asked how they would use any money saved from an interchange-fee cap, 59 percent of all surveyed retailers claimed they would use it to innovate or invest in their business instead of to reduce consumer retail prices; only 15 percent said they would reduce price

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