Two regulations are changing the European payments landscape: Payment Services Directive (PSD2) and the Multilateral Interchange Fees Regulation (MIF). A report by PAY.ON – Driving change with PSD2 and the MIF regulation – looks at how they will affect payment service providers, acquirers, merchants and other industry players. So how will corporates be affected?
Multilateral Interchange Fees Regulation (MIF)
This came into effect at the end of 2015 and is composed of four main areas: caps on interchange fees, acquirer pricing transparency, the separation of card schemes and processing and supporting rules.
The main effect of the MIF regulation is that card issuers will lose revenue through the cap on interchange fees, i.e., the amount that the card-issuing bank deducts from the amount it pays the acquiring bank in a payment paid for by debit or credit card. PAY.ON's report states that card issuers stand to lose “significant” revenue as a result of this. It says: “Issuers in countries accustomed to high credit and debit card interchange fees, such as the UK, Ireland, Germany, Spain, Portugal, and several Central and Eastern European countries, will feel the most pain.”
How will MIF affect corporates?
The interchange fee cap may not be good news for card issuers or card-issuing banks but it will introduce a uniform pan-European environment for charges on card payments and this could benefit retailers, who may see cost reductions from their payments providers. However, PAY.ON's report underlines that these cost reductions, which may also be reflected in bundled rates, may take months or years to take effect: “An early sample among the small number of UK PSPs that offer bundled rates shows that by January 2016, one month after the regulation came into force, there was no material effect on prices for SMEs.”
One of the exemptions from the MIF regulation is corporate cards. Cards that are for business expenses only and centrally billed to a company will not be subject to the cap on interchange fees. Three-party schemes and ATM transactions are also exempt.
There is also potential cost savings for consumers but PAY.ON states that this is likely to be offset by higher card fees and less lucrative rewards programmes. It states: “Merchants’ reduced acceptance costs should theoretically result in reduced consumer prices, but whether this has actually happened in other markets with similar interchange regulations is debatable.” If there is little substantial benefit for consumers then they are unlikely to be further incentivised to choose to make payments by debit or credit cards, which is something that corporates might consider when planning an omni-channel payments programme.
The PSD2 regulation will have an impact on three areas of payments that affect companies, payment service providers (PSPs) and consumers:
- it provides more consumer protection,
- there are strengthened requirements around payment security and customer authorization, and
- there are provisions around ‘access to the account’ (XS2A).
How will PSD2 affect corporates?
Online retailers should be considering how to comply with PSD2's requirement that all online payments have two-factor authentication. While this will increase security around online payments, it is also cumbersome and could put consumers off the online shopping experience, which until now has been moving towards being as seamless as possible. PAY.ON notes that “Payment services are trending towards a seamless consumer experience, which two-factor authentication makes more difficult to achieve.”
But while two-factor authentication has a notoriously negative effect on conversion rates, payment categories such as wallets and pre-authorised merchants are exempt from these authentication provisions, which is also something that online retailers might want to consider when choosing how to offer online payment options to customers.
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