• Thierry Spanjaard

A global fight against payment scheme fees

Visa used to say: “cash is dirty, cash is cumbersome, cash is expensive.” Nowadays, many I the payment industry consider card payments regulated by Visa and its equivalents are too expensive. The payment industry being always creative, many are looking for ways to reduce transactions fees.

In Europe, alternatives to card payments develop: SEPA payments provide a full array of solutions that are bringing innovation in the payment ecosystem. SEPA basic operations: SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) are now complemented by Request-to-Pay (RTP). Defined by the European Payments Council (EPC), RTP is an online payment method that allows customers to pay their invoices on the spot using their registered IBAN account or a credit card. RTP can be seen as a complement to SCT as it is essentially a means for notification to an account holder that another account holder wants to receive money from them and to convey the billing data details. Users still have the choice to pay now, later or in instalments, and to elect their preferred payment means. However, the development of SCT can be seen as a means to further develop SEPA-based payments and to reduce the weight of card payments, especially in eCommerce. SEPA-based payments have the advantage of being significantly less costly than card payments for the merchants and for the whole ecosystem as well as reducing the weight of international non-European schemes, namely Visa, Mastercard and others…

After various attempts by merchants to join their forces to displace the card payment schemes, the trend in the US is to take a different approach: regulation. Democrat Senator Dick Durbin, known for his regulation capping transaction fees on debit cards in 2010, this time along with Republican Senator Roger Marshall, are introducing their “Credit Card Competition Act of 2022.” This new bill would generally mandate that merchants have access to at least two unaffiliated credit networks other than Visa and Mastercard for routing credit card transactions, considering increased competition would in the mid-term lead to a reduction of the interchange fees. Durbin and Marshall argue the fees paid by US merchants for use of the networks “are among the world’s highest,” with US$ 77.48 billion (EUR xxx billion) in fees paid in 2021.

Payments are evolving worldwide, but this evolution is never straightforward as it is directly dependent on technology developments. For instance, from 2005, the Japanese have published the exchange value of something called the Asian monetary unit, a precursor to what would one day become the region’s equivalent of the Euro. Political evolutions of both the Eurozone and the ASEAN have led its supporters to abandon the idea of an Asian single currency. Now, the reaffirmed goal for governments in South East Asia (Singapore, Malaysia, Thailand, Indonesia and the Philippines) is to make cross border payments easier by setting up a multilateral network of payments by 2025. The project is to interconnect national payment schemes thanks to the Nexus scheme, which has been conceived by the Bank for International Settlements.

Once the system is set up, international banks will be able to propose competitive currency conversion services. The goal is to bring the average cost of paying a business in another country to 1% or less, while, as of now, the average cost of cross-border remittances is still as high as 6%, according to the World Bank. Asian banks want to avoid Swift, as their transfers may be slow in some cases, and also as Swift transfers are essentially completed in US dollars and recent sanctions against Russia have demonstrated Europeans and North Americans are in a position to decide to cut users from the Swift network.

Innovation is well alive in payment even if the complexity of the ecosystem and the need for standardization and regulation may make it appear slow. Whenever new specifications are ready, it is the right time for the industry to take possession of them. “We are moving to a world where payments are invisible and irrelevant, but the customer experience is not,” said Philip Panaino from Standard Chartered.

Photo credits: Photos by Heidi Fin, by Alexandru Acea and by Blake Wisz on Unsplash.

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