Interview with Andrew Cregan on the card fee landscape in the EEA

What does the card fee landscape look like today in the European Economic Area (EEA)? 

Interchange fees remain the largest contingent of card fees for merchants across Europe and globally. However, with the of the Interchange Fee Regulation (IFR), we have seen that the fees have been capped at the levels set in the regulation. Since the introduction of the IFR, we have experienced an increase in the other fees that apply to merchants, as it has been demonstrated in our annual BRC Payment Survey released in September 2018. Three components – interchange fees, scheme fees, and acquirer fees – have an impact on costs for the merchant and, in recent years, the constant pressure is coming from scheme fees. 

The scheme fees coming through to merchants have increased dramatically: more than 30% in 2017 and 56% in 2018. There is huge concern in the industry that these additional charges will, over time, erode all of the benefits of the IFR and will end up moving in Europe towards a similar cost base for card payments as it exists in the US. 

In the current review of the IFR taking place at the European level, we want to see the Commission’s recommendations for the scope of the Regulation extended to cover all fees, all card types, and all charges that merchants are subject to for taking various kinds of card payments. The Commission has recognised the absence of regulation over INTER-regional card fees and has therefore negotiated bilaterally with Visa and Mastercard to cap those fees from October 2019. However, this deal has an expiry date and it is something that should be formalised in legislation, namely the IFR. From our perspective, the IFR should also be extended to cover corporate cards as the current legislation only applying to credit, debit, and prepaid cards. 

What are the implications of regulatory changes in the EEA and how will their implementation affect financial institutions and acquirers? 

Strong Customer Authentication (SCA) is one of the most significant regulatory changes in payments. However, it was predicted that its introduction in September 2019 would lead to 25-30% of online transactions being declined in the UK and across Europe due to a widespread lack of readiness. 

All the players in the payments ecosystem and their trade associations have pulled together to secure an extension, which will allow the industry more time to prepare for SCA and to ensure a good state of readiness among consumers, businesses, merchants, and PSPs. SCA readiness has been our priority over the past year and it will continue to be in 2020 for retailers and the payments industry because it has the greatest potential for disruption. 

How will future regulatory changes in this space influence UK retailers? 

We’ve got 18 months to develop, test and roll out solutions and ensure a higher state of readiness so that when we get to March 2021, when the enforcement of SCA rules does happen, the UK will be a lot better placed to deal with this new regulation. Merchants and payment service providers must have the solutions in place to facilitate a smooth experience and customers must be made aware of the new changes coming down the line and of what they should expect. 

What should retailers or merchants that want to expand into the UK know about interchange fees? What are the main challenges that can arise for retailers and how can they be overcome? 

There are several consultancies in the UK that can assist merchants in identifying which particular acquirer or group of acquirers can be utilised to minimise cost and maximise control across their payment portfolio. Larger merchants tend to lean towards an ‘interchange plus plus’ contract, which will break down a merchant’s costs so that they are much more transparent. 

For smaller merchants, the introduction of the IFR may have resulted in either no change in their card costs or even increases, as other fees (such as those applied by card schemes) have grown. 

This interview was first published in our Cross-Border Payments and Commerce Report 2019 – 2020, which provides a comprehensive overview of the major trends driving growth in cross-border payments, cross-border commerce, and marketplaces.

About Andrew Cregan 

Andrew coordinates industry engagement with Government, regulators, and providers on matters relating to retail payments and consumer credit, and acts as a spokesperson for the industry. He has led the industry response to the IFR, PSD2, and domestic initiatives, including the Payments Strategy. 

About British Retail Consortium 

The BRC campaigns for the retail industry and is the authoritative voice of retail, recognised for powerful campaigning and influence within Government and as a provider of in-depth retail information. The BRC leads the industry and works with its members to tell the story of retail, shape debates, and influence issues and opportunities that will help make that positive difference.