Transcript HearingatBudgetandFinanceCommittee

Ludovic Espitalier-Noël
Vice-President – Head of Public Affairs Baltics Benelux France
EU Card Legislation
Update and impact
Hearing at Budget and Finance Committee
June 4, 2014
©2014 MasterCard.
©2013
Proprietary and Confidential
EU Card Legislation
Page 2
• What MasterCard does and does not
• How the card system works and its benefits
• The trends in general
• The Latvian payment market
• The EU legislative proposal
• Our key concerns
• Statements beyond MasterCard
• Q&A
©2013 MasterCard.
Proprietary and Confidential
EU Card Legislation
Page 3
• What MasterCard does and does not
• How the card system works and its benefits
• The trends in general
• The Latvian payment market
• The EU legislative proposal
• Our key concerns
• Statements beyond MasterCard
• Q&A
©2013 MasterCard.
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What MasterCard does… and does not
Page 4
• 3 activities:
–
Licensing
–
Processing transactions
–
Advising banks
• What we do not do:
–
Earn money from interchange
–
Set the price of terminals, cards and card-related services
–
Issue cards, and rent or sell terminals
–
Have direct relationships with merchants and cardholders
• Our slogan: being at the heart of commerce
©2013 MasterCard.
Proprietary and Confidential
EU Card Legislation
Page 5
• What MasterCard does and does not
• How the card system works and its benefits
• The trends in general
• The Latvian payment market
• The EU legislative proposal
• Our key concerns
• Statements beyond MasterCard
• Q&A
©2013 MasterCard.
Proprietary and Confidential
How the 4-party system currently works
Page 6
Cardholder
fees
Issuing
Bank
Acquiring
Bank
Cardholder
Merchant
©2013 MasterCard.
Proprietary and Confidential
Merchant
Service
Charges
How the 4-party system currently works
Page 7
Cardholder
fees
Issuing
Bank
Interchange
Acquiring
Bank
Merchant
Service
Charges =
Bank Fees
+
Interchange
Cardholder
Merchant
©2013 MasterCard.
Proprietary and Confidential
Some benefits brought to merchants,
consumers and governments by cards
Page 8
• Convenience, flexibility and physical security
• Less tax evasion and shadow economy
• Payment guarantees
–
Against fraud (merchant and consumer’s benefit)
–
Against cardholders’ default (merchant’s benefit)
• Incremental sales
–
Increased transaction value (28 € more for debit vs cash; 46 € for credit)
–
Increased transaction value within the credit card category (23€ more for premium vs
standard credit)
–
More clients for SMEs, as more opportunities to compete with big retailers
• Savings (cash on average 3x more expensive than debit cards)
–
Time to count; going to bank; payment delays; ATM surcharges; black market;
production and transportation; counterfeited money; etc
• More time dedicated to core business, less accounting mistakes
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The card market
Page 9
A fragile ecosystem…
…as everyone depends on the other…
…and as we all win if the market is efficient…
…but we all lose if one is unhappy
©2013 MasterCard.
Proprietary and Confidential
EU Card Legislation
Page 10
• What MasterCard does and does not
• How the card system works and its benefits
• The trends in general
• The Latvian payment market
• The EU legislative proposal
• Our key concerns
• Statements beyond MasterCard
• Q&A
©2013 MasterCard.
Proprietary and Confidential
Electronic payments: the trends
Page 11
• More e-commerce transactions
–
Key obstacles are consumer rights and logistics, not payment costs
• More innovation and payment solutions
• More players
• Better understanding of the benefits (especially by merchants and
governments)
• More transparency pressure
• Cash still king: around 70% of all payment transactions in Europe
• 95% of card transactions still domestic transactions
• Domestic card schemes still dominant in most EU countries
–
MasterCard processes only 40% of its own card transactions
• Evolution of fraud (from physical attacks to phishing, etc.)
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Page 12
©2013
MasterCard.
Source: European Innovation Academy – Based
in Tallinn
Proprietary and Confidential
March 10, 2014
Page 13
ECB Slide - 2012
©2013 MasterCard.
Proprietary and Confidential
March 10, 2014
Page 14
©2013 MasterCard.
Proprietary and Confidential
March 10, 2014
EU Card Legislation
Page 15
• What MasterCard does and does not
• How the card system works and its benefits
• The trends in general
• The Latvian payment market
• The EU legislative proposal
• Our key concerns
• Statements beyond MasterCard
• Q&A
©2013 MasterCard.
Proprietary and Confidential
In brief: the Latvian market (2013)
Page 16
Payments with cards increased by 18.5% in 2013
cash payments in
stores (est.)
card payments in
stores (est.)
35%
65%
2.2%
POS
Wire transfer
Payment cards
Online
18.80%
Other
46.9%
50.9%
84.20%
©2013 MasterCard.
Proprietary and Confidential
In brief: the Latvian market
Page 17
The shadow economy (% of GDP)
45.00%
40.00%
36.6%
38.1%
35.00%
Estonia
30.2%
30.00%
25.00%
20.2%
20.00%
15.00%
17.7%
21.1%
19.4%
18.9%
18.8%
17.1%
23.8%
19.2%
18.2%
Lithuania
15.7%
15.3%
10.00%
5.00%
0.00%
2009
2010
2011
2012
Latvia
2013
©2013 MasterCard.
Proprietary and Confidential
Page 18
©2013 MasterCard.
Proprietary and Confidential
March 10, 2014
Consumer survey by LNACP, 2013
1/2
Page 19
Payment method used most often
Do payment cards play a significant role in
fighting shadow economy?
Payment cards
Yes
6%
Cash
3%
No
Other
Other
29%
34%
60%
68%
©2013 MasterCard.
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Consumer survey by LNACP, 2013
2/2
Page 20
Would use more cash if costs of using cards
went up
Would merchants lower the prices if paid less IC
fee?
Hard to believe 38%
Yes
Are sure they won't 29%
2%
No
8%
3%
Not sure
It's possible 18%
12%
Are sure they will 12%
Other
13%
38%
Other 3%
18%
77%
29%
©2013 MasterCard.
Proprietary and Confidential
EU Card Legislation
Page 21
• What MasterCard does and does not
• How the card system works and its benefits
• The trends in general
• The Latvian payment market
• The EU legislative proposal
• Our key concerns
• Statements beyond MasterCard
• Q&A
©2013 MasterCard.
Proprietary and Confidential
The EC legislative proposal
A package of 2 proposals on
payments services, including a
review of the PSD and a draft
regulation, for all countries in
Europe, presented by the
European Commission on 24 July
2013
©2013 MasterCard.
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The EC legislative proposal: objectives
Page 23
More competition
More innovation
More transparency
More harmonisation
Less costs
©2013 MasterCard.
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The EC objectives in the Latvian market
Page 24
• Competition
–
11 acquirers http://www.mastercard.com/lv/merchants/becoming-a-mastercard-merchant.html
–
1 key player on the processing side (not MasterCard)
• Innovation
–
Contactless payments - PrePaid cards - PaySafe card – SecureCode - iZettle
• Transparency
–
Interchange levels publicly available on MasterCard website
http://www.mastercard.com/us/wce/PDF/Latvia.pdf
–
Details provided to merchants when transactions processed by MasterCard
• Harmonisation
–
developed market, high card penetration
–
SEPA
• Acceptance costs (interchange)
–
MC Interchange around or below the EU average (0.5% for debit; 0.9% for credit)
©2013 MasterCard.
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The Card Regulation Legislative Process
European
Council
(28 Member
States)
European
Commission
Proposal
Law
amendments
European
Commission
European
Parliament
Law directly
applicable
throughout EU
28 EU
Member
States
today
EP First
Reading
3 April 2014
24 Jul 2013
Not a law
Not binding
Can be modified
negotiations
Long and complex decision making process – can take months or even years to complete
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Some details about the timing
11
22
33
44
55
The process
Council and Parliament
begin analysis
Discussions in Parliament
and Council
Parliament and Council
agree their positions
Discussions between
Parliament and Council
and Commission
Formal Adoption of the
Interchange Regulation
Milestones
Parliament Rapporteur
Appointed
Rapporteur ‘s Report
Report voted by
Parliament
(Committee & Plenary)
Compromise
agreement reached
Directly applicable in all
EU Member States
(potential media
milestones in bold)
[Council works
towards consensus]
Sep
Oct
Nov
Dec
Jan
2015
Feb
Mar
Apr
Current EP
closes
Timing
1
2
3
May
Jun
Jul
Aug
Sep
Institutional
Changeover
Oct
Nov
Dec
New Commission
Timeline
2014
EP Elections
2013
©2013 MasterCard.
Proprietary and Confidential
Jan
Feb
4
Mar
Apr
5
EU Card Legislation
Page 27
• What MasterCard does and does not
• How the card system works and its benefits
• The trends in general
• The Latvian payment market
• The EU legislative proposal
• Our key concerns
• Statements beyond MasterCard
• Q&A
©2013 MasterCard.
Proprietary and Confidential
Our key concerns, in brief
Page 28
• Card players having the same type of business would not be treated the
same way (especially the most expensive and the less transparent)…
• Merchants’ contribution to the card system would be arbitrarily reduced at
the expense of consumers…
• Consumers and merchants would experience higher prices for the same
level of services and products…
• Payment delays would be longer for companies being paid with
commercial cards, and the same companies would have less cash-flow
facilities…
• Consumers would no longer be sure all their categories of cards would be
accepted by merchants…
Cash usage will be encouraged
Innovation and investments will be discouraged
Only big retailers would benefit
Some consequences have not been assessed
©2013 MasterCard.
Proprietary and Confidential
Our key concerns
Page 29
• Card players having the same type of business would not be treated the
same way (especially the most expensive and the less transparent)…
©2013 MasterCard.
Proprietary and Confidential
How the 4-party system currently works
Page 30
Cardholder
fees
Issuing
Bank
Interchange
Acquiring
Bank
Merchant
Service
Charges =
Bank Fees
+
Interchange
Cardholder
Merchant
©2013 MasterCard.
Proprietary and Confidential
How the 3-party system works
Page 31
Internal transfer
Issuing side
Acquiring side
Cardholder
fees
Cardholder
Merchant
©2013 MasterCard.
Proprietary and Confidential
Merchant
Fees
How the 3-party system works
Page 32
Incentive
Fee
Cardholder
fees
Merchant
Fees
Issuing
Bank
Cardholder
Merchant
©2013 MasterCard.
Proprietary and Confidential
Our key concerns
Page 33
• Merchants’ contribution to the card system would be arbitrarily reduced at
the expense of consumers…
©2013 MasterCard.
Proprietary and Confidential
Page 34
Cardholder
fees
Issuing
Bank
Interchange
Acquiring
Bank
Merchant
Service
Charges =
Bank Fees
+
Interchange
Cardholder
Merchant
©2013 MasterCard.
Proprietary and Confidential
Our key concerns
Page 35
• Payment delays would be longer for companies being paid with
commercial cards, and the same companies would have less cash-flow
facilities…
©2013 MasterCard.
Proprietary and Confidential
Page 36
Cardholder
fees
Issuing
Bank
Interchange
Acquiring
Bank
Merchant
Services
Charges :
Bank Fees
+
Interchange
+
Interchange
Corporate
card users
Merchant
©2013 MasterCard.
Proprietary and Confidential
Our key concerns
Page 37
• Consumers would no longer be sure all their categories of cards would be
accepted by merchants…
©2013 MasterCard.
Proprietary and Confidential
Page 38
©2013 MasterCard.
Proprietary and Confidential
March 10, 2014
Our key concerns
Page 39
• Consumers and merchants would experience higher prices for the same
level of services and products…
©2013 MasterCard.
Proprietary and Confidential
Before
Page 40
Licensing
Cardholder
fees
Issuing
Bank
Cardholder
Processing
Acquiring
Bank
Merchant
©2013 MasterCard.
Proprietary and Confidential
Merchant
Service
After
Page 41
Increased costs
Cardholder
fees
Issuing
Bank
Cardholder
Increased prices
Licensing
Processing
Increased costs
Acquiring
Bank
Merchant
Service
Charges
Merchant
Increased prices
©2013 MasterCard.
Proprietary and Confidential
EU Card Legislation
Page 42
• What MasterCard does and does not
• How the card system works and its benefits
• The trends in general
• The Latvian payment market
• The EU legislative proposal
• Our key concerns
• Statements beyond MasterCard
• Q&A
©2013 MasterCard.
Proprietary and Confidential
Some comments beyond MasterCard
1/5
Page 43
• Latvian National Association of Consumer Protection (LNACP): «We are concerned about the
potentially damaging effects of these legislative propositions since they would, if voted, lead to higher
card fees and harm the interests of consumers, particularly socially unsecure ones.» / « Compared to
EU average, even the smallest price rises in Latvia may have an extremely adverse effect on
consumers, particularly on socially less protected groups, by forcing them to refuse using payment cards
and making them return to cash, which in turn is less secure for consumers as related to larger risks of
fraud and theft. In the modern world, the system of electronic card payments is a basic need, alleviating
consumers' life in several aspects. Indeed, the representatives of the Latvian National Association for
Consumer Protection are convinced that the merchants benefit from the payment card system at least as
much, if not even more, than the consumers do, and the latter should not suffer at the expense of the
former.”
• Latvijas Tirgotajs (Latvian SME organisation): «Any forced harmonisation and regulation, if the
national market specifications are ignored, is likely to impair the fragile balance in the card market and
posts a threat to its existence. […]. The EC has not explained so far what would be the gains from such
an intervention in the market. The situation demands a thorough appraisal of consequences by all
involved parties. Nobody likes to join the club of losers! But alas! The EC seems unwilling to listen to
customers and small entrepreneurs. Even worse, the Commission is not committed to analyse the
evidence and experience of other countries.»
• Association of Commercial Banks of Latvia : «If income is capped but expenditure remains the same,
other alternative ways must be found to get the income. In this case the alternative way, in fact, is the
individual who does not pay the higher commission fee at the shop but then his card’s annual fee will
probably be increased...» / «In case of messy situations when the consumer does not understand which
shop accepts credit cards and which debit cards, ultimately, the consumer will
choose
©2013
MasterCard.to pay in cash.»
Proprietary and Confidential
Some comments beyond MasterCard
2/5
Page 44
• American Chamber of Commerce in Latvia: «The goal of the regulation was to harmonize
European Union market of payment cards, plus, enhance innovation and to use payment cards in
more efficient way and provide higher security, however we see that some of the provisions might
harm ecosystem of payment cards and hinder the fight with shadow economy. We believe that there
is no need to change system that works well and does not detect any market failures. Arbitrary
intervention, for instance through the EC regulation, may hinder further development of Latvian
payment card market.»
• Alliance of Lithuanian Consumer Organizations: «We would welcome any initiative which might
result in benefit to the consumer, but in this case we see very different intentions. It is not by chance
that major European merchants' associated organisations are actively pursuing the fee limiting.
Unaccountably, it is thought that the regulation will also benefit to consumers, because after the
reduction in the fee burden for merchants the price of the goods sold by them will purportedly
decrease. Unfortunately, the regulation in no event would reduce maintenance costs of the payment
system; there is merely an intention to divide them otherwise. Experience and economic theory say
that in such cases a consumer is always the final payer.»
• Estonian Consumer Protection Association: “Considering the fact that in Estonia the monthly card
fees, for example, are differentiated and the fees for seniors, children and youth are smaller, the
planned regulation will bring an increase in prices to all consumers, but will especially limit
purchasing power among the consumers with the smallest incomes. It can also be expected that the
development of new payment options and safety functions (i.e. mobile payments) will be slowed
down and the risks of economic environment will be increased. Neither does the regulation take into
account the local characteristics of each member state.”
©2013 MasterCard.
Proprietary and Confidential
Some comments beyond MasterCard
3/5
Page 45
• Moovcard (French innovative company): “As an online merchant, I am worried about the European
Commission’s plans. I should be the first one to be satisfied since I should theoretically anticipate a
decrease of my bank fees. But, in fact, the whole model would be damaged while e-commerce has
been able to develop in France and in Europe precisely because of its components (e.g. confidence
in payment cards; efforts made to secure and generalize online payments).”
• Polish Consumers’ Federation: “The rules designated by the legislator will surely have a positive
impact on the merchants' market, but it is difficult to predict how the other market participants will
react. The simplest consequence may be an increase in fees for using cards or keeping bank
accounts. Great precaution must also be taken regarding another privilege of merchants – the Honor
All Cards rule. When we decide on a subsequent lowering of interchange fees, it seems unjustified to
add another priviledge to sellers, especially if this comes at a cost – of both confort and payment
security – to the consumers.”
• Czech Association of Enterpreneurs and Employers: “The entire legislative process is a result of
pressure from supermarket chains for whom – unlike for small businesses – interchange fees
constitute the largest cost linked to accepting payment cards. Our Association opposes the MIF
regulation. We deem European Commission's approach (absence of impact assessment on
consumers) as totally undue even in case it was beneficial for the customers. […] As banks and card
issuers play a significant role in trade policy, problems can be solved by the market and not by
European regulation...I understand that it could be confusing that various countries pay different
levels of fees, however at the same time, different countries have different tax burden. If we wanted
to downplay it a bit, subway tickets or fuel prices are also different in different countries and they
won't get regulated, even though it might not be beneficial for the consumers."
©2013 MasterCard.
Proprietary and Confidential
Some comments beyond MasterCard
4/5
Page 46
• Negative consequences - Estonia
On 17 January 2014, the Estonian Parliament required the
Government to oppose the interchange capping provisions of the
European Commission, and their vote is binding:
– “The committee does not support capping interchange fees on card payments,
as this can restrict free competition and prevent new participants from entering
the market.”
– We do not support administratively set caps on interchange fees, as this does
not encourage competition in the market and can endanger the security and
development of services.”
– The Estonian Government also “supports equal treatment of card payment
systems” and considers that three-party schemes (as well as hybrid schemes)
should be treated as four-party schemes
©2013 MasterCard.
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Some comments beyond MasterCard
5/5
Page 47
• Subsidiarity and lack of data - France
On 28 November 2013, the French Senate (France represents 1/3 of
all card transactions in the EU) stated that the EC has not respected
the subsidiarity principle, and criticized the EC on various items:
– The impact assessment misses many data and information
– The underlying methodology (MIT) to set interchange rates is not consistent
enough
– The EC fails to show what would be the predominant consequence(s) of its
proposed measures
– There are not enough elements from the EC to explain why and how it has
correctly defined the appropriate level of actions
– There are not enough elements from the EC to explain why and how any action
from Member States would not be able to better achieve the objectives set by
the EC
©2013 MasterCard.
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Some arguments in favour of the regulation
Page 48
“The aim of the regulation is to promote competition and innovation, and to
strengthen the market.”
 How can the EC promote competition if not players are not regulated the same way?
 How can the market be strenghtened if the less transparent players are not regulated?
 Why has the consequences of some measures not been assessed at all?
 What are concretely the market failures in Latvia, and in each country?
 Why does the EC consider that forced harmonisation will work, although all countries are
not the same, and one solution cannot fit all?
 Why does the EC never mention the Monet Project which was abandoned in 2012 because
of the upcoming card legislation?
 Why does the EC say there is not enough competition and innovation, whereas it proposed
a revision of the PSD to regulate “the growing number of payment institutions”?
 Where are the data and studies showing that what several academics studies will never
happen, and that all the fears expressed above are vain?
 How can the EC foster innovation if it weakens certainty about card acceptance and if it
makes consumers pay more?
©2013 MasterCard.
Proprietary and Confidential
March 10, 2014
Some arguments in favour of the regulation
Page 49
“The IC regulation will lower prices for consumers”
 Why do merchants (EuroCommerce; ERRT) lobby so much for this regulation, if they
actually want to transfer all their new savings to consumers?
 6 billion euro will be saved by European merchants every year. Why do not we have any
exact figure for consumers? Why does the EC only “trust” retailers?
 Why is the EC so sure that merchants will reduce prices in shops, whereas we have no
evidence of price reductions in other markets (rather the opposite) and in countries where
VAT was reduced?
 Does the EC ignore that several banking associations warned they would increase
cardholder fees (France, Latvia, UK, etc.) in other markets (for instance Spain, in 2005, i.e.
before the crisis; or Poland, last year?)
 Why does the EC ignore so many consumer organisations in Europe (including Latvia)
which express regularly their concerns?
 Where are the data and analysis which show that similar regulations concretely benefited
consumers and merchants?
©2013 MasterCard.
Proprietary and Confidential
March 10, 2014
Some arguments in favour of the regulation
Page 50
“The payment card market in the EU is controlled by two players,
MasterCard and VISA, limiting the competition and innovation”
 How can MasterCard be a dominant player when it processes nearly none of the
transactions in the Baltics, and only 40% of transactions made on its own cards in Europe?
 How can MasterCard be a dominant player when most of the transactions in Latvia are
processed by one competing company?
 How can MasterCard be a dominant player for e-commerce transactions when most of them
are processed by PayPal?
 How can MasterCard be a dominant player in various sector when AmericanExpress has at
least two-third of these markets (e.g. tourism industries, hotels, airlines, luxury products,
etc.?)
 Cards in Europe must be SEPA compliant, which is possible thanks to international brands
 How can MasterCard bring people using cash and chèques to electronic payments, if not
developping innovation?
 Why does MasterCard partner so much with Public Authorities to innovate (e.g. Greece,
Nigeria, etc.)
©2013 MasterCard.
Proprietary and Confidential
March 10, 2014
Page 51
Paldies!
©2013 MasterCard.
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