Since 2015 the EU driven regulation concerning interchange fees for card-based payment transactions has been discussed extensively both within the trade press and naturally within many organisations across the continent. One easily got the impression that it was all about the reduction in interchange fees to 0.2% for debit and 0.3% for credit cards as it took center stage.
Most industry experts were equally engrossed by closely related subjects such as how to define a commercial card or when is a 3-party model a 3-party model.
There are of course significant implications from such fee reductions to both issuers and acquirers and the amount of publicity that this part of the regulation got was more than warranted.
However, already in November 2015, many organisations and especially acquirers were far more concerned about the business rule requirements that were to come into force on June 9th 2016, exactly six months after the fee reductions kicked in. Just to recap, these business rules are outlined in articles 7-10 in the Regulation and address the following issues:
- Article 7 – Separation of payment card scheme and processing entities
- Article 8 – co-badging and choice of payment brand or payment application
- Article 9 – Unblending
- Article 10 – ‘Honour All Cards’ rule
Given that we are less than two weeks away from the June 9th deadline, one would assume that compliance with those rules has been achieved or is at least close to being achieved. Well, the reality seems to be a bit different.
Some markets are for example struggling with the electronic identification of cards which is an essential component for facilitating the Honour All Cards rule and compliance by June 9th for them is completely out of the question.
But an even bigger area of concern is the scheme and application selection at the POS (article 8 (6)). This particular article of the regulation stipulates that terminals should not have any automatic mechanisms or software that would limit the choice of payment whilst at the same time enabling the cardholder to override any priority selection by the merchant on their POS machines.
Implementing such ‘requirement’ is not straight forward especially once you start considering different channels (in-store POS vs e-commerce) or different acceptance methods (PIN entry vs contactless). Having spoken to acquirers in many European markets it becomes apparent that solutions are driven at market level or at acquirer level and that there will not be a consistent approach across the EU. Harmonisation of payments anyone?
Germany, as I am happy to say, appears to be the front runner and is pursuing a national solution that effectively adds an ‘Options menu’ on the terminal display. Merchants will pre-select their preferred payment method and once the transaction is initiated and the terminal is activated, the new menu appears. Such approach is being rolled out across the country and appears to have the blessing from the EU. Relevant industry players should be applauded for the efforts to make this work considering that, according to the same people, the expectation is that 99% or cardholders will never select the new Options menu!
In the UK there clearly is no national solution in place and it is up to acquirers in conjunction with terminal providers to ensure compliancy. Individual acquirer solutions for chip and PIN based transactions appear to be ready but contactless will not be. The recently issued consultation paper by the PSR provides some guidance as it refers to ‘technical feasibility’. “The consumer should be given the ability to override the merchant’s selection unless it is not technically feasible to do so. An example where it may not be technically feasible could be contactless payment terminals in transport networks …”. So the Oyster/TfL terminals are out of scope (makes sense) but what about all other contactless transactions at in-store POS? The document also states that final guidance concerning the requirements will be provided later in the year and once that has happened, market players are expected to submit their initial compliance reports. That seems to suggest that compliance will not be achieved before the end of the year the earliest.
Finally France, where local players admit that they will not be compliant by June 9th. Acquirers work independently on the issue but terminals will not be upgraded on time. Consequently market players bundled their interests and the French Banking Federation, on behalf of all banks, has told the regulator that compliance will not be achieved whilst at the same time presenting a roadmap and action plan. A compliant solution might be achieved in early Q4 2016.
Overall is seems fair to say that when June 9th comes, we will be a long way from where the regulation wanted stakeholders to be. Bear in mind that the above is only one of the many elements covered within the business rules of the regulation. Compliance by June 9th was always a challenge and it seems that it was just too big to achieve. We will continue to monitor the situation.