COMMERCIAL BANKING CARDNET VIEW. A new series of webinars helping businesses navigate the changing payments landscape

Transcription

1 COMMERCIAL BANKING CARDNET VIEW A new series of webinars helping businesses navigate the changing payments landscape

2 INTRODUCTION SETTING THE SCENE Businesses, customers and banks have entered a new world of payments and the many recent developments have triggered a raft of regulatory changes. This White Paper will help guide you through this dynamic landscape. Growth in Electronic Payments: Cash fell into second place behind non-cash payments last year in the UK The UK is at the forefront of the global decline in cash and has the largest card payments market in the EU Spending with contactless cards increased by 255% last year There were over 12 billion UK card transactions last year, totalling more than 566bn in sales We are moving towards a more harmonised payments environment It s clear electronic payments will continue to grow and this is likely to have implications on costs, compliance, operational agility and customer experience. We are moving towards a more harmonised payments environment with greater competition, increased innovation, improved services for businesses and consumers, and open access infrastructure. Governance The pace of change meant a new governance model was required and it arrived on 1 April with the UK s new Payment Systems Regulator (PSR) the only dedicated payment services regulator in the world. It regulates operators who manage payment systems, payment service providers (PSPs) and merchants who use the systems and infrastructure providers for the systems. This White Paper focuses on cards but it s important to point out that the new regulator also covers other areas including BACS and Faster Payments. The PSR has three main mandates: to ensure payment systems are operated and developed in a way that promotes the interests of all businesses and consumers to promote effective competition in the markets for payment systems and services between operators, PSPs and infrastructure providers to promote development of and innovation in payment systems The PSR has set out a broad policy programme, encompassing several strategy setting projects and others to promote competition. Pipeline projects - involving an initial review before a decision on whether further scrutiny is needed include examining ATM interchange fees and consumer redress. Hannah Nixon, PSR s managing director, has previously held regulatory roles at Ofgem and the Office of Rail Regulation. She has indicated

3 6.5bn Annual estimated cost of interchange fees to Eurozone retailers that she wants the PSR to remove barriers to innovations and ensure they are introduced with the interests of both merchants and customers foremost. Evolution The key process of evolution in the industry at present concerns the introduction of European regulations capping the interchange fees that retailers pay to card issuers when customers pay by card. EU regulators have intervened because they believe it costs retailers more to accept cards than to deal with cash payments and they want to correct this to benefit both merchants and consumers. In fact, interchange fees currently cost retailers in the Eurozone around 9bn euros ( 6.5bn) a year, according to the European Commission. The interchange fee is one part of the merchant service fee that merchants pay to acquirers, such as Lloyds Bank Cardnet, every time they process a transaction. It is a pass through cost for acquirers as they then pass it straight onto the bank that issued the Visa card or MasterCard used in the transaction. The new regulations will take effect on 8 December, 2015 and will include four key changes: 1. Interchange fees for domestic debit cards will be capped at 0.2% of the transaction value 2. Interchange fees for credit cards will be capped at 0.3% 3. Implications for surcharging surcharging has been used by merchants to offset the costs of card acceptance (more on this below) 4. The Honour All Cards Rule will change to allow merchants to choose which card products they want to accept The caps will apply at a card-scheme level for the likes of Visa and MasterCard so may or may not impact on any individual transaction - this is dependent on the final national guidance to be given by Her Majesty s Treasury (HMT). Revolution The Payment Services Directive 2 (PSD2) proposals aim to create an integrated single market for electronic payments and futureproof the regulations Europe-wide to account for innovation. In the UK, the Financial Conduct Authority (FCA) rather than the PSR will be responsible for governing PSD2. The new directive will have a wider scope than the existing PSD, which it will replace, to provide a comprehensive set of rules that is better aligned with the modern world. The proposals have been scrutinised intensively by European Parliament committees, EU ministers, banks, industry bodies and other stakeholders. The European Parliament has now agreed to two separate versions, both of which differ from the first draft outlined in 2013 by the European Commission. Much preparatory work remains to be completed and implementation at national level is unlikely until Although full details are obviously yet to be confirmed, we expect a significant strengthening of the rules around customer authentication for online payments. This will impact not only customers but also merchants, payment services providers and acquirers. A second area of significance to some merchants relates to surcharging on card payments, as those that come within the scope of the interchange regulations will be banned under PSD2 in the next two to three years.

4 QUESTIONS AND ANSWERS QUESTIONS AND ANSWERS WITH STEVEN BISOFFI This White Paper summarises the industry insight given by Steven Bisoffi in a Lloyds Bank Cardnet View webinar on 11 June, His presentation prompted a range of questions from webinar participants, which we publish below along with Steven s responses. Q: The regulations coming into effect in December will impact interchange fees from Visa and MasterCard but what about American Express? A: American Express is being treated slightly differently from Visa and MasterCard and at the moment there s still a possible threeyear exception for Amex. That s now to be confirmed by HMT and the PSR. Q: Will the PSR engage with merchants directly about the new regulations? A: We do expect the PSR to engage with merchants and all participants and stakeholders and we have seen examples of this to date. We know a consultation paper will be issued over the next two to three months. Q: How do merchants get the speedier settlement scheme with Lloyds Bank? A: Lloyds Bank has been offering the speedier settlement scheme now for some time. If a merchant wants to have more information, they should contact their relationship manager within Cardnet to understand the scope and rules on eligibility. There are certain restrictions in place, not just within Cardnet but also within the industry. Q: When will the new rules on surcharging come into effect? A: The formal legal position is that the prohibition of surcharging on card payments will take effect under PSD2. The exact timeline hasn t been confirmed and we re awaiting the final draft in July It will likely be within Q: Merchants are anxious about costs. Are we able to include a charge to cover our admin and time in processing a transaction? A: Under the regulation issued in 2012 by the then Office of Fair Trading, now the Competition and Markets Authority, surcharging is allowed today to cover the cost of card acceptance under specific category codes. Going forward, under the Payment Services Directive 2, we expect that Competition and Markets Authority to issue new guidelines as to what will be acceptable. Q: How do we find out exactly what the charges are on a consumer card, as there seems to be some level of variation? A: All merchants receive a merchant service charge statement, an invoice that breaks down the fees being charged by the acquirer. That should give them an indication of the charge and the cost of acceptance. Additionally, other fees may be applied through a payment gateway or a service provider working with the merchant.

5 Lloyds Bank has been offering the speedier settlement scheme for some time now Q: If the caps for interchange fees are reduced, does it mean my merchant service fee will be reduced? A: The caps have been set at 0.2% and 0.3% for debit and credit cards but local regulators have been given a certain amount of power in how to implement them and we don t know yet how they will do it in the UK. We may see them implemented as direct transaction fees or we might see them as weighted average caps, taking into account different value transactions and ensuring, for example, that they don t go above 0.2% for debit cards. These are not caps on individual transactions but caps on the type of transaction and local regulators do have some leeway. Q: How will our telephone sales team know whether they are taking a consumer or commercial card? A: The industry has always worked through something known as the bank identification number (BIN). Discussions are now taking place within the industry, the card schemes and the regulators to ensure merchants in all areas will have a good understanding of how to identify consumer and commercial cards. Q: If we oppose these changes can we make our voice heard? What communications have you had with HMT and the PSR? A: We do know that a number of merchants are communicating with the PSR to understand how the PSR will be implementing and mandating new rules on interchange and other applicable regulations. One of the key items is surcharging and there is now direct communication between the PSR and merchants to help understanding of the regulations. Q: Can you explain what 'unblending' is? A: Unblending is an Article within the interchange regulations to ensure the merchant receives as much information as possible from their card acquirer. It s about transparency and detail on cost. It puts the onus on the acquirer, such as Cardnet, to ensure we pass on good, clear information to the merchant, breaking out interchange fees, card scheme fees and the merchant service fee. Q: Will Cardnet officially notify merchants of the new fees? A: Once we ve received information from the card schemes and the Treasury about what the new fees will look like and once we ve done our analysis internally, we will then share that with our customers. Important Note: The information shared during our Changing Payments Regulation webinar was accurate at the time of recording but many of the regulations we discussed are subject to change. Lloyds Bank Cardnet encourages clients to remain up-to-date on regulations and we will continue to use a range of communications platforms to help you navigate the changing payments landscape.