The new EU-regulations effects on the card market. Michael Anderberg & Martin Zillén

Transcription

1 The new EU-regulations effects on the card market Michael Anderberg & Martin Zillén Group Cards

2 Agenda 1) Intro & background 2) The regulations making the change: IFR, PSD2, Securepay, PAD, AML2 3) Effects of the regulations 4) Conclusions 2

3 Intro & background

4 The importance of electronical payments Electronic payments impacts society positively Cheaper and more efficient handling Comfort for payers and payees compared to paper based instruments Protects tax income for society when payments goes through bank accounts Necessity for the digital development of society Physical cash state monopoly sponsored by the state Digital payments private business based on agreements Electronical payments substitutes cash Politicians do want to regulate Cards the dominating electronic mean of payment first out But all kinds of payments will be regulated by the politicians just see what s in the pipeline! 4

5 The internal market for payments Goal of EU: One market for payments supporting goods and services to be purchased and transferred seamless throughout the Union The 1999 introduction of the Euro the baseline The majority of payments are domestic - Only Euro area account to account transfers exist since SEPA Direct Debit (SDD) still domestic - Debit cards only domestic in many countries - E-commerce not widely spread within EU - Domestic laws and habits blocks change - E-invoicing x-border within EU don t exists - No common E-identity solution

6 The EU sees problems in Europe Too few card payments cash is still king in many countries in EU The transition to electronic payment is slow Different card payment solutions in almost every member state states and many domestic debit cards Citizens cannot always get bank accounts and cards Expensive card services Card monopolies in some markets Limited access to e-commerce payments and proposes the solution: Regulate the market to achieve: Speed up the transition from cash to electronics Build the internal market for card payments within EU Increase the supply and competition to reduce pricing Payment Services Directive 2, Interchange fee Regulation, Bank account access directive, Secure e-commerce payments (ECB)

7 Card payments in EU an un-even business. Market-leaders 1. Sweden 2. Denmark 3. Finland Runner up s UK Estonia Netherlands Far behind All of them Germany, Italy, Spain etc Common regulations hit the most developed hardest Source ECB

8 The regulations that makes the change: IFR, PSD2, Secure-Pay, PAD, AML2

9 IFR Interchange Fee Regulation Valid for All intra European Card payments Roofing for IC for consumer cards Procedures for how to perform payments Exceptions Cash withdrawals Commercial cards Three Party Schemes, Amex, Diners Cards issued outside Europe Legal Regulation on EU level Member state options A few seems not a reality in Baltics & Sweden Observe Cash back if applicable - not an exception

10 IFR changes Cap on IC fees* (Dec 2015) Debit 0,20% Consumer Credit 0,30%, Corporate card exception Purpose: Decrease in pricing for merchants = decreased pricing for consumers * The Interchange fee is the fee the card acquirer pays to the card issuer to cover their cost for payment guarantee, control and prepayment liquidity. Interchange is one of several cost elements for the Merchant Service Charge Surcharging not allowed for regulated cards (Juni 2015) Purpose: Consumer more willing to use cards Honor all cards- rule (2015) converts to pick and choose Debit/Credit/Commercial cards chose combination Impacts on terminal SW Purpose: merchants shall be able to chose card-types to accept Agreements for merchants reporting : IC fee +format (December 2015) Purpose: Transparency Product identifier in cards -visual & electronically ( Juni 2016) Exchange all cards + terminal software up-date - Purpose: Acceptance /cardtype demand 10

11 IFR changes 2 Change of reporting standards to merchants every transaction shall be listed (Dec2015) New data format between card-issuer and acquirer new EU standard (2016?) EBA will propose a new standard may affect POS terminals Purpose: Total interoperability terminals, acquirer, issuers & processors Most of these actions are meant to increase price competition at all levels in the value chain - through increased acquirer competition and increased card usage - all to make it possible to decrease consumer pricing in the end!

12 Secure Internet payments In force in nearly all member states by Aug

13 SecurePay for all internet payments - August 2015 Demands from EBA: Strong authentication for all payment orders: Biometrics, Two factor, PKI (like national ID s) Risk control program in force at payment service providers Reporting and follow up demands at payment service providers Purpose: - E commerce shall become as safe for consumers as F2F payments - Internet fraud shall be abandoned - Consumers shall be able to have trust in internet payments increase useage - New payment services like mobile paymants shall expand Consequences: - Investments in secure solutions (ex mobile bank ID in Sweden) needed - If no secure way to pay offered consumer free to deny transaction - Can complicate customer payment experience less purchases - Increased cost for all participant in the payment chain Exception: Closed loop payment schemes, as PayPal 13

14 PSD 2 Decision will be taken in EU parliament during winter 2015 To be introduced during 2016/2017 depending on member state Legal process 14

15 Payment Service Directive - PSD 2 Purpose: To increase consumer rights and influence and open up for new competition within the payments area Third party payment provider - TPP Acts as man-in-middle to give consumers access to all financial information through 1 channel User/consumer responsibility Risk and responsibility decreases for consumer Max 50 Euro at stake for consumer Shorter handling times for disputes New demands on Strong Authentication Secure amount through cryptography Consequences New investments and costs for PSP:s (Banks) and merchants 15

16 There is more to come around the corner.. 16

17 More regulations PAD Payment Account directive Purpose: all EU citizens shall have the ability to get an account + debit card in the country of residence Decent priced debit card shall be available: low risk, low price, low service level AML 2 Anti money laundering directive 2 pre-paid cards /gift cards 2016 Purpose: Hinder money laundering and decrease black market Gift cards and other Pre-paid product will have a limit of 250 Euro Re-loadable cards only for domestic use Cash withdrawal of max 100 Euro Anonymous accounts not aloud Will cause lover usage and profitability on pre-paid cards Personal protection directive 2016 Purpose: Increase customer protection for third party to use customer private data Customer must explicit sign or in other way accept use of customer payment data for big data etc Will cause difficulties for creating value added services, bonus programs, using big data solutions etc 17

18 EU Single Digital Market EU is working with a framework for digitalizing Europe from all aspects Enhanced availability to digital services for consumers and corporates Maximize the increase of digital economy I Europe No digital borders buy your TV from any country in Europe same pricing How to go there: Laws, taxes, infrastructure, business rules, security demands shall be leveraged Will cause further regulations concerning Consumer rights VAT Payment routines, standardization Electronic EU ID solutions for individuals and corporates Security undertakings for digital business/environment Forced digital engagement Many of the digital tools that we in the Nordic/Baltics have developed during the years risks to be invented again as electronic ID:s, invoicing, payments due to low standard in rest of Europe today 18

19 Effects of the regulations

20 Cardholders Credit Cards Grace periods of days needs to be financed when IC decreases no good alternatives Increased yearly fee threshold to enrol Interest rate from day one threshold for usage Fee per purchase no low value payments Less service and/or functionality less attractive Not an easy task to keep business Debit Cards Low value payments at IC 0,2% - no profit Low value payments approx 50% of all transactions Increased yearly fee almost the only way for banks to keep product profitable Purchasing fees risk that cash payments increase Decrease service or functionality complaining customers Not an easy task to keep business Card issuers need to invest in card strategy 20

21 Merchants and corporates Corporate cards Risk of discrimination at merchants no acceptance Risk for surcharging - unregulated cards less usage Conclusion: Risk that lower acceptance and charges - will drive us back to ancient solutions like invoices, vouchers, petti cash etc which are all more expensive to handle in total Merchants Debit cards and Credit cards in average cheaper customer decides how to and which card they like to use New terminal software to handle product identification and product choice 2016 Invest in new terminals when EBA standards kicks in Risk of more cash for LVP Other means of payments demands to have access as POS 21

22 Conclusion

23 Long term effects of the regulation Consolidation in Acquiring The amount of card issuers will decrease Credit card issuers with full payers will not survive Small banks will re-sell cards from larger banks Credit card issuers must enter instalment at POS Effects Fewer actors and less competition Risk investors owning acquiring can lead to increased acquirer pricing Consumers will have to pay more Risk that the amount of cash will increase Regulation; good intention, wrong measures 23

24 Thank You! Questions? 24