SMALL FIRMS ASSOCIATION

Transcription

1 SMALL FIRMS ASSOCIATION SMALL FIRMS ASSOCIATION SUBMISSION ON INTERCHANGE FEES FOR CARD-BASED PAYMENT TRANSACTIONS Presented to: Department of Finance June 2015

2 BACKGROUND The Small Firms Association is the voice of small business in Ireland and internationally, with 8,500 members and seven affiliated organisations in all sectors and parts of the country. We specialise in the provision of valuable business-focused advice, developing connections for our members, and effective public representation of small business issues, which allow us to influence government policy. Ireland is a nation of small businesses. We have 200,000 businesses in Ireland, of which 97% have less than 50 employees (small) and 84% have less than 10 employees (micro). These firms provide 56% of private employment that s jobs for some 863,175 people. An additional 49,195 people are self-employed. Each year in the region of 13,000 new businesses start up. We welcome this opportunity to contribute to this important consultation on behalf of the small business community. INTRODUCTION The SFA supports the government s vision of Ireland as an advanced payments country, with the associated opportunity for a paradigm shift in terms of competition, innovation and security. As acknowledged in the National Payments Plan, this will be possible only by incentivising both merchants and consumers to move towards electronic payments by both reducing the excessive financial burden of these transactions as well as augmenting nonprice incentives such as making the electronic payments regime easy to use and transparent. Making card payments attractive to small businesses in particular would represent a significant step towards the objectives of the National Payments plan on account of the number of companies in this category and their geographical diversity. INTERCHANGE FEES OVERVIEW AND OUTSTANDING ISSUES Interchange fees represent the largest element of the cost to merchants of accepting card payments, amounting to tens of thousands of euro per year even for small businesses. Unlike other business costs, merchants have no option to shop around on interchange fees, which makes it imperative that the parameters set by government are fit for purpose. The European Commission and European Central Bank have produced data which clearly show that zero or very low interchange fees are associated with high uptake of electronic

3 payments, with five 1 of the top seven card using countries in Europe having zero interchange and the other two 2 also having relatively low levels. The SFA welcomes, therefore, the EU-wide cap on interchange fees introduced in the MIF Regulation (EU) 2015/751. Our recommendations for the levels to be set under the Member State derogations are detailed below in response to the specific questions in the consultation document. The partial nature of this cap, however, has raised concerns amongst our membership. The cap relates to personal debit and credit cards only. The exclusion of business debit and credit cards from the Regulation has created what is effectively a loophole which is now being exploited by banks and card schemes to the detriment of merchants. They are increasing the interchange fee on business card payments to offset the reduced revenue on personal card transactions as a result of the cap. The result is that the merchant will not feel the benefit of the MIF cap and will not be in a position to pass the associated savings on to their customers. Indeed, in some sectors it may force merchants to refuse to accept business card payments, to apply a surcharge to these transactions, or to limit card usage to low-value transactions due to the ad valorum nature of the charges. This may pose problems for the merchant in their relations with customers and is in direct contradiction to the overarching goal and spirit of the National Payments Plan. OTHER CHARGES TO MERCHANTS It must be recognised that any discussion on interchange fees only addresses one element of the charges faced by merchants. There are a multitude of issues relating to the other elements of the Merchant Service Charge (MSC) that also play a role in (dis)incentivising card acceptance. These issues are compounded by the lack of transparency for merchants. Two such issues that have been raised by SFA members are acquirers fees and charges around PCI compliance, both of which are rolled into the MSC in an inconsistent and often opaque way. 1 Norway, Denmark, Finland, Netherlands and Luxembourg 2 Sweden and the United Kingdom

4 QUESTION 1 & 2 It is the view of the SFA that the interchange cap and other elements of the MIF regulation should apply equally to all card schemes, including three party schemes. The key principle is to create a level playing field and eliminate opportunities for regulatory arbitrage. Exemptions add further complexity to the system, making it more difficult for small businesses in particular to navigate. In addition, while the overall value of the transactions carried out using these schemes is low when viewed at national level, use of these cards is often concentrated in specific regions and sectors. Therefore, individual businesses may be highly exposed and the impact of an exemption on those businesses would be considerable. In general, the SFA is satisfied that the measures contained in the final text of the Regulation will benefit merchants and consumers and see no justifiable reasons to allow some schemes to operate outside of those measures. QUESTION 3 & 4 In order for Ireland to become an advanced payments society, interchange should be kept to an absolute minimum. European Commission and European Central Bank data demonstrate that countries with zero (or near zero) interchange have the highest levels of card adoption in Europe. In this context, the SFA calls for zero interchange on domestic debit card transactions in Ireland by setting the cap at 0.0%. This would create an incentive towards card payments for both merchants and consumers relative to the status quo and even relative to the more favourable Laser card rates which previously obtained. In the case that a non-zero interchange cap is imposed for domestic debit card transactions, SFA members would prefer this to be structured according to option (ii) a combination fee cap. This cap should not exceed the Laser card charge of 3.8c, notwithstanding the significantly increased charges that have been imposed by the replacement schemes. Setting the cap below Laser card levels is significant in terms of merchant perceptions of the charges. It is also critical to achieving the goal of increasing card usage relative to the Laser card era.

5 QUESTION 5 & 6 The SFA calls for the Irish government to take the opportunity to set the per transaction fee cap for domestic credit card transactions at a lower level than specified in the Regulation. This would allow Ireland to take a leadership role in Europe on this issue and add another dimension to the incentivisation towards card payments. Specifically, the SFA advocates zero interchange for domestic credit card transactions. This would have a number of advantages. Firstly, by mirroring the proposed rules for debit card fees it would eliminate the potential of banks to promote credit card transactions over cheaper debit card transactions. Secondly, it would represent a significant reduction in business costs for merchants and in charges for the consumer, directly contributing to the overall policy objectives of the MIF Regulation and the National Payments Plan. Thirdly, it would be a powerful symbolic gesture, signalling the government s intent to make Ireland one of the leading countries in Europe in terms of card payment penetration. CONCLUSION Setting appropriate and business-friendly limits on interchange fees is crucial if Ireland is to become an advanced payments country. Card acceptance is also a key factor in trading online, so increased e-commerce, in particular amongst small firms, would be an added benefit to arise from a fair and attractive interchange regime. Overly burdensome interchange levels, on the other hand, squeeze companies margins, which in many cases are already under pressure from a variety of other factors. They work against the objectives of the National Payments Plan by discouraging merchants and consumers to engage in card-based transactions. This is particularly the case in relation to small firms, as the number of companies in question and their reach into every city, town and village in Ireland is key to developing the nationwide culture envisioned in the National Payments Plan. In this context, the SFA urges the Department to implement the proposals outlined in this document in its transposition of Regulation (EU) 2015/751. For further information, please contact: Linda Barry, SFA Assistant Director, tel: , linda.barry@sfa.ie