Visa Europe has launched a publicity campaign to derail payment-card reforms passed last year by the European Commission that include caps on interchange fees, rollbacks of many of Visa’s rules for merchants, and encouragement of new players and alternative forms of payment.
The revised version of the EC’s Payments Services Directive (known as PSD2) was approved by the commission in July 2013. Visa Europe is hoping that it can either convince new EC members to revisit the changes, or convince national legislatures within the EU countries to reject legislation implementing the changes.
The most obvious change: Capping the interchange fees for consumer debit card transactions at 0.2 percent, and for consumer credit cards at 0.3 percent — a proposal that would apply to all card transactions in the Euro zone starting in mid-2015, and one that Visa Europe says would actually raise costs for consumers.
Interchange rates currently vary wildly throughout the Euro zone, and even within the same country between card brands. For example, according to the EC, in 2013 Visa-branded credit interchange rates ranged from 1.8 percent in Germany to less than 0.5 percent in France, while Visa debit rates topped out above 1.7 percent in German, dropping to 0.2 percent in Italy, Ireland, Sweden and five other countries — and even lower in Finland. (Cross-border debit interchange is already capped at 0.2 percent.)
The problem with the EC’s low interchange caps is that, while they’re well intentioned, they’ll actually increase costs for consumers, reduce convenience and innovation, encourage a shadow economy and promote the use of cash, wrote Marc Temmerman, Visa Europe’s Director European Affairs, in a series of columns in the Economist’s European Voice.
Consumer costs will rise because “it is unlikely that retailers will pass on all, if any, of the savings that they gain” from an interchange cut, said Temmerman. Meanwhile, banks “may have no other option but to restructure their fee models which may result in consumers facing new or increased charges for the privilege of having a debit card or even a current account.” Temmerman also points to estimates that use of cash costs between €200 and €300 per person per year.
A better solution, Temmerman said, “would be to introduce a yearly weighted average with a higher absolute cap, set at a reasonable level, leaving some flexibility to differentiate between secure and non-secure transactions and low value transactions to incentivize innovations to the benefit of consumers, retailers and all participants in payments.”
Some of the rule changes will also make payments less convenient and more confusing, Temmerman said. The new EC payments directive eliminates the Honor All Cards rule, a move that the EC says that will let merchants reject commercial cards that aren’t covered by the interchange caps. But consumers won’t be sure their Visa card will work at all stores displaying the Visa brand, and “their logical reaction will be to revert to cash or abandon the purchase if they don’t have cash immediately available,” said Temmerman.
Another new rule will require consumers to choose which network to use every time they pay by card, which will cause long lines at checkout and make contactless payments technically impossible, Temmerman said, adding that a new blanket requirement for strong authentication would also slow purchases and deter customers.
Visa Europe is also worried about the risk that the changes might disrupt the traditional payment-card business model and thus reduce investment for new innovations. The EC said last year that a specific goal of the new rules is to “promote the emergence of new players and the development of innovative mobile and internet payments in Europe.”
To the contrary, “we need government support to ensure a sector that is structured in order to avoid unfair competition,” Temmerman said.
Temmerman also called for a complete ban on surcharging for card transaction (which is limited to costs but not banned by the new EC rules) because that encourages the use of cash, which in turn encourages an untaxable shadow economy that “represents a revenue threat of up to €2.3 trillion to the European economy,” he said.
“This is why Visa Europe is calling on the European Commission to encourage alternatives to cash when reforming the payments landscape. This requires co-ordinated action between banks, payment networks and legislators to ensure that the right infrastructure is in place and that consumers are rewarded for using non-cash options,” according to Temmerman.
“In turn,” he added, “increasing public realization of the convenience of electronic payments and awareness of the benefits that they bring can lead a behavior shift within a considerable share of the population, and particularly amongst the unconscious participants in the shadow economy.” In Italy, after “incentivizing the use of cards over alternative payment methods, an additional €9.1 billion in tax revenues was generated in 2011 alone,” Temmerman said.
Ironically, at least one thing that Visa Europe objects to has been officially approved by Visa in the U.S. Visa changed its own long-held rules to allow merchant surcharging as part of the $7.25 billion interchange settlement between card brands, banks and merchants in 2012.
Visa Europe is owned and run by its European member banks, and is not currently a subsidiary of Visa. However, the Visa Europe banks have the option to be bought out by Visa for $10 billion. If that happened, it’s not clear how many different sets of rules the card brand would lobby for on both sides of the Atlantic.