ACP to drop its sanction against concessions from CB banks
- French CB banks obtained an amiable commitment procedure to be opened on the topic of card interchange (CIP). It has been subjected to a legal procedure with the Banque de France's ACP* since merchants filed a complaint beginning 2008. These were inspired by the European Commission's decisions on MasterCard’s and Visa Europe’s respective interchanges.
See December 2010 Watch
- The litigation is based on the lack of evolution in the interchange calculation mode since its approval by the then French Competition Council in 1986. This fee is paid by the acquirer to the issuer for CB payments. De facto, it forms a part of the MSC (Merchant Service Charge) which cannot be negotiated.
- After they were asked to pay a cumulated fine of 385 million euros for dematerialised cheque interchange from 2002 until 2007, CB banks entered discussions with the ACP. They handed in a report on card payment processing costs last October.
- The ACP will now state its objections to the unjustified CIP level and a its requirements for its later evolutions. In fact, non-compliance with a review commitment on cheque interchange caused French banks to be condemned in autumn 2010.
- Basing on this “statement of objections”, CB banks will have a month to propose detailed concessions. These will be submitted to a market test and all stakeholders, consumers included, will be consulted. Before the ACP can make a decision by the end of May, a final confrontation between merchants and banks will be organised.
- Meanwhile, the FCD -a lobby of the retail sector - is lobbying in favour of an alternative solution: a report ordered in 2010 recommends credit transfers to be used in points of sale.
- The ACP may be expected to follow the methodology used in several other countries. In Spain for instance, an agreement between banks and merchants was reached in 2005 (decrease in MSC over several years); in the United Kingdom, LINK ATM* scheme updates its withdrawal interchange while relying on the most efficient issuer’s costs.
- CB banks’ concessions should rely on an objective measure of issuer costs benefiting to the acquirer (so-called “agency costs” specific of “two-sided” markets). The following cost elements must be taken into account: payment guarantee, transactions processing, fraud prevention and cash advance. The latter represents the float cost between the payment guaranteed to the acquirer upon clearing and the often deferred debit collection on the cardholder’s account.
- In France indeed - unlike in other large Western European markets-, two-third of CB card volumes and amounts are debited from the cardholder's account in the end of the month (deferred debit). The resulting float cost is born by the issuer but benefits to the acquirer and its merchant, generally credited on the day of the purchase or the following day.
- CB banks will try hard to prevent some cost categories to be forgotten, just as other regulators did. They would also avoid reference to the so-called methodology of the “merchant's indifference” with regard to the means of payment used, used by the Commission in its recent decisions (also known as compensation of cash substitution costs, or “tourist test”).
See September 2010 Watch