THE INTERCHANGE FEE CAP ARCHITECT
Wezenbeek crafted the EU interchange fee cap at 0.3 percent on credit cards, including individual pay corporate cards. As dynamics change, merchants may impose transaction fees, issuers may halt some products for the corporate market.
According to Rita Wezenbeek, the Dutch lawyer who heads the European Commission’s Payment Systems Unit, the EU interchange fee regulation she designed “could lead to a reduction of about €6 billion annually in hidden fees for consumer cards ...generally passed on to consumers by the retailer in the form of higher prices.” But there are unintended consequences for some corporate card users: Card issuers may impose heavy transaction fees on them or halt some products for the corporate market altogether.
Wezenbeek’s regulation, which took effect in December, caps at 0.3 percent (or 0.2 percent for debit cards) the interchange fee that the bank that issues a credit card can charge to the bank that accepts payment on behalf of the merchant. Previously, the average interchange fee for MasterCard and Visa commercial credit card transactions was around 1.5 percent. The regulation exempts three-party schemes like American Express, as well as commercial cards, from the cap. But in a last-minute twist, individual-pay cards were excluded from the regulation’s definition of what counts as a commercial card. In other words, if the employee pays the bill on a corporate card, there is a cap on the interchange fee; if the company pays the bill, there’s no cap. “This prevents possibilities [for card issuers] to circumvent the caps for consumer cards,” said Wezenbeek, and it minimizes the degree to which consumers with low-fee cards subsidize high-fee cards.
The snag is that in some EU countries, corporate cards are overwhelmingly individual pay. For AirPlus International, the leading issuer of corporate cards in Germany, 83 percent of its plastic card customers are individual pay. AirPlus has introduced a transaction fee of 1.09 to 1.19 percent for those customers. Visa, meanwhile, has predicted that other issuers will withdraw individually billed cards, leaving a vacuum that the three-party providers will fill.
Even users of corporate-pay commercial cards may find consequences, including reduced acceptance of their cards. The interchange fee regulation “allows retailers to refuse high-fee commercial cards,” said Wezenbeek. “Also, the EU Payment Services Directive 2 will in principle allow retailers to surcharge [cardholders] for the use of such cards."
Some corporate card professionals believe the exemption for commercial cards could be scrapped within five years. Asked if this was likely, Wezenbeek replied: “The commission will submit a report on the application of the regulation by June 2019. One of the elements to be considered is the effect on the market of the exclusion of commercial cards from the caps.” If the exemption disappears, expect transaction fees every time a corporate card is used in the EU and perhaps fees for services like management information, not to mention more issuers withdrawing from the market.