Creating a level playing field in the cross-border transactions space

Significant imbalances have existed within the cross-border transactions space for many years. These not only impact those operating within the sector but also affect the end consumer. Despite this, historically, little has been done to address these disparities and move towards a level playing field. The regulatory role held by Visa and Mastercard has meant that they have long been able to dictate the rules and costs of providing any alternative service, leading to an anti-competition environment. 

Within this article, we aim to examine why now is the time to take steps in addressing these discrepancies. We will look at the role the Cross-Border Payments EU Regulation (2019/518) is playing in enabling this important shift, at what this means in practical terms, and at why creating a level playing field is critical for protecting the future of the entire payments industry. 

The current context 

The cross-border payments sector has seen significant imbalances for many years – which continue to exist today, despite the fact that recently these issues have been in the spotlight more often. While Brexit is certainly not the catalyst by any means, it has uncloaked the power of card issuers Visa and Mastercard, revealing just how significant the duopoly is and its impact on the overall industry. According to reports, starting with October 2021, there will be an increase in merchants interchange fees from 0.3% of the transaction value to 1.5% when a UK credit cardholder makes an online purchase from continental Europe, while debit card fees will rise from 0.2% to 1.15%. 

There is a strong argument for supporting innovation, while also ensuring that competition can exist within the payments sector, so that every player involved can benefit from it and receive fair treatment. Taking steps to address these disparities is more critical than ever, not just for those players operating within the space, but also for the end cardholder, who is becoming more aware of cross-border payment choices. 

Why does this need to be addressed? 

Considering all the media attention that has been paid regarding the cardholders’ best options when undertaking cross-border transactions, historically, the media didn’t concentrate as much on the matter of transparency of the costs involved in making a purchase in the local currency where Visa, Mastercard, and the issuers manage the conversion after the transaction is completed. 

As mentioned above, in holding the regulatory role within the space, card schemes have been able to decide upon the rules and costs of providing any alternative service, such as dynamic currency conversion (DCC). To this end, Visa and Mastercard have gradually imposed costly operating regulations and increased the process and compliance fees specifically relating to DCC, directly impacting the ability of DCC service providers to compete effectively. Undoubtedly, this has a knock-on effect on the availability of fairly priced conversion services to consumers. Addressing this imbalance is not only critical for cardholders in the short and medium term, but paramount to the future of the payments industry as a whole. 

The European Commission has recently undertaken a review of the entire cross-border payments industry to identify how to improve choice, transparency, and competition in retail financial services; all of which were intended to benefit the end consumer. This was the right choice, considering that there is a need for solutions that would offer consumers and businesses alike better products, more choice, greater opportunities, and above all more consistency (inclusive of providers of DCC and providers of traditional, international card payment services). The policymakers’ chance of taking a holistic view over the currency conversion market and addressing imbalances has been vital. 

The changes brought by the Cross-Border Payments EU Regulation (2019/518) 

The Regulation has brought a set of standardised transparency requirements for both providers of DCC and providers of traditional, international card payment services, giving cardholders consistent and comparable information at the point of purchase. Cardholders are given two separate values showing the price in their home currency and the local currency – the comparable exchange rate being offered, and the percentage mark-up being applied, which is calculated against the ECB reference rate. For a non-DCC offer, card scheme providers are also required to detail their policy around currency conversion on credit and debit cards as part of the standard terms and conditions, to make the customer aware of this prior to a transaction. This legislation applies to card-based transactions and credit transfers, and it allows consumers to evaluate different conversion options in order for them to choose the best suited payment option when making a cross-border purchase. 

Protecting the future of the payments space 

The Cross-Border Payments EU Regulation (2019/518) certainly marks an important step forward, but it is only the tip of the iceberg, as the matter requires much more action. We believe that operating an anti-competition environment is going to cause a long-term damage for many of the players within the space. However, opening up this space to other players and making room for more alternative payment products/services that have the potential to improve processes will ultimately be beneficial for the end consumers – but this is only going to be possible if there is a level playing field. The health of the payments space is reliant on this, and therefore the right time to address this topic within the industry is now. 

About Gino Ravaioli 

Gino Ravaioli has been a Director of the DCC Forum from its establishment to 2016 and later its non-Executive Chairman. He has a twenty-year experience in the electronic payments industry, matured first as a Senior Vice President Product DCC at Global Blue and later as an independent advisor. 

About DCC Forum 

The DCC Forum is an international body, led by representatives from eight organisations in the Dynamic Currency Conversion (DCC) industry. The Forum has been set up to oversee best practices in the delivery of the DCC service, helping merchants to ensure consumers benefit from having more clarity and confidence when completing a card payment abroad.