Interchange fees fear or confidence
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Interchange fees, Fear or Confidence ?. PaySys Friday 23rd April 2004 - Frankfurt Dr. Pascale Brien - Fidelis -. Interchange fees, between fear and confidence. I. Factual background II. Multilateral interchange fees (MIFs) and EU competition law III. The way forward.

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Interchange fees fear or confidence

Interchange fees, Fear or Confidence ?

PaySys

Friday 23rd April 2004 - Frankfurt

Dr. Pascale Brien - Fidelis -


Interchange fees between fear and confidence

Interchange fees, between fear and confidence

I. Factual background

II. Multilateral interchange fees (MIFs) and EU competition law

III. The way forward

FIDELIS- April 2004


I factual background

I. Factual Background

What is an interchange ?*

  • Cost allocation devise

  • Set on objective and verifiable criteria

  • Interchange = Interbank agreement

  • Commercial freedom at issuer/acquirer level

  • As such, commercially neutral

    *based on long standing Jurisprudence from the European Commission

FIDELIS- April 2004


I factual background1

I. Factual Background

Acquirer

Issuer

Interchange

M

CH

FIDELIS- April 2004


Ii interchange fees and ec competition law

II. Interchange fees and EC Competition Law

Initial position of the EC (until Sept 2000)

Issuer

Acquirer

M

CH

FIDELIS- April 2004


Ec 2000 the u turn

EC . 2000 - The U Turn

A. EuroCommerce Lobby

Interchange fees = unjustified profit for issuers

  • Merchants are financing advantages provided to cardholders (mileage, insurance…)

  • No objective justification

     “Should be forbidden”

FIDELIS- April 2004


Ec 2000 the u turn1

EC . 2000 - The U Turn

A. EuroCommerce Lobby (cont’d)

If Interchange fees are not forbidden,

  • should only cover processing costs (not cover the guarantee)

  • components must be known and regulated

  • guarantee should only be an option,

FIDELIS- April 2004


Ec 2000

EC. 2000

B. Revisited position of the Commission (on the Visa case)

  • The clients’ captivity allows for abuses without sanctions

  • No objective cost justification

  • No Interchange = Direct Tarification 

    (-) 80% MSC

FIDELIS- April 2004


Interchange fees fear or confidence

2000

B. Revisited position of the Commission

  • Multilateral Interchange fees are not necessary (e.g.ec-karte)

  • Direct tarification should be preferred

  • Guarantee = joint offer should be optional

FIDELIS- April 2004


The 2nd u turn july 2002

The 2nd U-Turn - July 2002

On 24th July, the EC changes its mind again:

  • Interchange fees restrict competition

  • but can be exempted if theyproduce “beneficial efficiencies and economies”

FIDELIS- April 2004


The 2nd u turn july 20021

The 2nd U-Turn - July 2002

  • Visa has presented a “package” in which:

  • It reduces the level of its interchange

    • 0.7% for deferred and credit cards by 2007

    • 0.28 Euro for debit cards

  • Interchanges will be capped to costs based on a cost study.

  • Merchants will be told about the level of interchange fees

FIDELIS- April 2004


The 2nd u turn july 20022

The 2nd U-Turn - July 2002

This decision has been criticized because:

  • The reduction of rate has intervened before any cost study

  • a flat rate is applied to debit cards (quid cost of fraud).

FIDELIS- April 2004


Iii the way forward

III. The way forward

  • Independent of the Visa move to save its interchange,

  • There are other ways to defend interchange fees

FIDELIS- April 2004


Iii the way forward1

III. The way forward

Introduce a proper methodology

Coherent, objective and defendable (debit/credit)

At cross-border level

 In every country

Based on objective cost studies.

Change programs can be implemented quickly

FIDELIS- April 2004


Iii the way forward2

III. The way forward

2. End cross-subsidization

Introduce a proper tarification at both ends (CH and M), as a complement to interchange: New tarification patterns to maintain profitability

Acquirer

Issuer

M

CH

FIDELIS- April 2004


Interchange fees conclusion

Interchange Fees - Conclusion

 Interchange can be saved, both for credit and debit

 Introduce the necessary corrections, gradually but quickly

 To send the right message from within the industry

FIDELIS- April 2004


Interchange fees the best way to pave the future

Interchange fees, the best way to pave the future

?

FIDELIS- April 2004


Interchange fees the best way to pave the future1

Interchange fees, the best way to pave the future

Contact

Pascale-Marie BRIEN

Fidelis

EU Affairs Consulting

Mobile: 00 32 478 31 68 96

Mail: [email protected]

FIDELIS- April 2004


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