European Commission Consultation Document on Transparency and Fees in Cross-Border Transactions in the EU

Transcription

1 European Commission Consultation Document on Transparency and Fees in Cross-Border Transactions in the EU ESBG (European Savings and Retail Banking Group) Rue Marie-Thérèse, 11 - B-1000 Brussels EU Transparency Register ID October 2017

2 ESBG Position Paper on European Commission Consultation Document on Transparency and Fees in Cross-Border Transactions in the EU Non-Euro transactions (1) Cross-border transactions in currencies other than the euro can be priced differently than transactions in euro. (a) Do you know the cost of making transactions from your country to other EU Member states in currencies other than the euro? (yes/no) No, ESBG, as a European Association ESBG don t know. (b) How expensive are fees for making transactions from your country to other EU Member states in currencies other than the euro? From 1 to 5 (1: not expensive at all 5 very expensive + don't know) Differences exist between banks and countries; however, ESBG believes that these prices reflect the true cost of processing such transactions. (c) How transparent/clear are fees for making transactions from your country to other EU Member states in currencies other than the euro? From 1 to 5 (1: not transparent at all 5 very transparent + don't know) 5; ESBG believes that all relevant fee structures are available for consultation by the Payment Service Users (PSUs) and that the actual prices for transactions can be derived from these. The Terms & Conditions of PSPs have to comply with the requirements of PSD1, PAD and possibly national legislation. (d) Could you provide examples of fees that you have paid for such transactions? (Please provide the amount transferred, the countries involved (from X to Y) and the total fees paid for the transfer) (Text) ESBG believes that this particular question is aimed at PSUs. (e) Should the EU regulate the cost of these transactions or should this be left to individual Member States or the market? (choice EU level / Individual MS / it should not be regulated (be left to the market) / don't know). ESBG believes that it should not be regulated and be left to the market. The law of supply and demand will drive the cost of these transactions. (2) An option is that the Regulation on cross-border payments is fully extended to all currencies of Member States. This would mean that a money transfer to another Member State would cost the same as a similar domestic transaction. (a) Should the scope of the Regulation be extended so that a money transfer to another EU Member State costs the same as a money transfer within the country? (Yes/No/don t know) (b) If not, what would be the main reasons for not doing so? (Text) 2

3 As cross-border transactions in other currencies are faced with higher transaction costs, the ad valorem fee supports offering low-value payments cheaper. Furthermore, transactions in currencies other than the national currency attract higher processing cost than transactions in the national currency. See also our comments under question 8. Moreover, Article 14 of the Regulation 924/2009 already allows Member States that do not have the euro as its currency to extend the application of this regulation to their national currency. The principle of subsidiary should be maintained and the legal tool to extend the above-mentioned regulation to all currencies of Member States should continue to be article 14. There is therefore no need to review the Regulation 924/2009. (3) Cross-border transactions in currencies of Member States other than the euro are often priced ad valorem i.e. as a percentage of the total amount transferred. (a) Do you consider that this type of pricing practice make transactions too expensive? (Yes/No/don t know) (b) What is the rationale behind such a pricing model? (Text) As cross-border transactions in other currencies are faced with higher transaction costs, the ad valorem fee supports offering low-value payments cheaper. Furthermore, transactions in currencies other than the national currency involve a currency conversion, which by default trigger some form of ad valorem charge due to the currency conversion cost incurred, and besides such transactions determine other, higher costs in general. (c) Does this practice reflect the internal costs of payment services providers? (Yes/No) Yes. (4) Often, a minimum fee has to be paid for cross-border transactions in currencies of Member States other than the euro. (a) Is this practice preventing low-value transactions? (very much so, to some extent, No, don t know) (b) What is the rationale behind this practice? (Text) Transfers in currencies other than the national currency determine always basic costs that have to be covered (other payments systems for a very low volume of transactions, maintaining a wide network of correspondent banks, currency conversion, complexity of processing, no bulk, ). (c) Should minimum fees be regulated to avoid disproportionate costs of low-value transactions? (Yes/No/don t know) (d) What rules on minimum fees would be reasonable and fair, taking into account internal costs? (Text) ESBG believes that there should be no rules on minimum fees. 3

4 (e) What would be the economic or social impact of your proposed rules? (Text) As ESBG believes that there should be no rules on minimum fees, we don t have a view on the economic or social impact. (5) Sometimes there is no maximum fee for cross-border transactions in currencies of Member States other than the euro. (a) What is the rationale behind this practice? (Text) Transactions in currencies other than the national currency involve a currency conversion, which by default trigger some form of ad valorem charge due to the currency conversion cost incurred, and as such cannot be capped. Besides, currency conversions involve additional risks for banks such as the unlimited liability for each transaction that need to be factored in for the full transaction amount. (b) Is this practice reflecting internal costs of payment services providers? (very much so, to some extent, No, don t know) Very much so. (c) Should there be a mandatory cap on fees? (Yes/No) (d) If yes, at which amount should this cap be set? (Text) ESBG believes that there should be no mandatory cap on fees. (e) What would be the economic or social impact of such cap (Text) As ESBG believes that there should be no mandatory cap on fees, we don t have a view on the economic or social impact. (6) Markets may be developing solutions to the problem of high costs of cross-border transactions. (a) What market practices or solutions do you know that reduce the costs of cross-border transactions in currencies of Member States other than the euro? (Text) Regulators should take into consideration that their considerations to harmonise the prices will influence the customers in very negative way in the sense that banks cannot be able to compensate the loss of cost recovery by limiting the investments in very near future. If any regulator pushes banks violently to lose this part of cost recovery it could cause that banks would stop investing into an enhancement of the processing which would slow down innovation and the introduction of new more customercentric products and services and in the end, it will have final negative impact on all the clients. Moreover, introducing a harmonisation of prices could even worsen the problem because it may force banks to work at a loss and therefore, a minimum amount could also be set so as to ensure that costs are recovered. (b) Should they be encouraged and, if so, how? (Yes/No and Text) No, a market driven approach is favoured. 4

5 (7) The costs of cross-border transactions in currencies of Member States other than the euro are determined by various factors, including correspondent banking fees, Swift fees and currency conversion fees. (a) What is the weight of each of these factors in the total cost of transactions? (Text) With respect to this point, we would like to explain that in general, cross border payment transactions that involve a currency conversion entail a considerably higher cost than transactions limited to a single currency. According to the McKinsey Global Payment Map for 2016, the cost of an international payment transaction is made up of the following elements: Payment operations 7%, Nostro- Vostro liquidity 35%, Claims and treasury operations 27%, Compliance 13%, FX costs 15%, Network management and Overhead. (b) Are there other factors that come into play? (Text) ESBG believes that the facts that these transactions have very low volumes and that these transactions cannot be processed in a standardised way such as in SEPA are also contributing factors. Please see also our reasoning in our response to Question 8. (c) What scope is there for reducing such costs and how can this be achieved? (Text) Regulators should take into consideration that their considerations to harmonise the prices will influence the customers in a very negative way, in the sense that banks cannot be able to compensate the loss of cost recovery by limiting the investments in very near future. If any regulator pushes banks violently to lose this part of cost recovery it could cause that banks would stop investing into an enhancement of the processing, which would slow down innovation and the introduction of new more customer-centric products and services, and in the end, it will have final negative impact on all the clients. (8) Are there further comments that you would like to make in relation to cross-border transactions in a currency of a Member State other than the euro? (Text) Please find the full ESBG wording related to this question below. As the Commission s tool had a limitation on the number of characters that could be inputted, the below text was summarised. ESBG welcomes the opportunity to review and comment on these draft Guidelines. For banks, especially within the Euro area, all non-euro transactions attract higher costs than transactions in Euros within the Euro area. This is because banks within the Euro area can processes all cross-border transactions denominated in Euros in batch using common pan-european standards on efficient and bespoke Clearing and Settlement Mechanisms that have been designed to process Euro transactions in bulk. The underlying payment systems within the Euro area and non-euro currencies differ significantly. In contrast to transactions within the Euro area, every non-euro transaction must be individually processed using a plethora of different and separate payment systems that are required to fulfil the different legal and payment requirements globally. Furthermore, a bank processing such a transaction must individually check how the foreign currency amount may be transferred to the recipient bank. Moreover, the fluctuation of the currency values on a daily basis creates risks to the providers and these risks need to be covered. Compared to the world of fashion one can say that a Euro cross-border payment transaction is a mass-produced T-shirt whereas a non-euro cross-border payment transaction is a tailor-made suit. 5

6 However, new technologies, like distributed ledger technology, have the potential to cut down on costs. We believe that current pricing that reflect the actual costs is well presented in the customer framework agreements required to meet PSD2 requirements and that no additional regulation should be considered on the eve of the PSD2 entering into force. Besides, there are 19 member states that are part of the Euro area, there is one member that already opted in (Sweden) so there remain 8 member states that are not part of the Euro area (and the largest one of those is in the process of leaving the Union). The total number of Credit Transfers in the EU, according to the European Central Bank (their Payment Statistics over 2016, published 15 September 2017), were ,6 million in If we subtract the UK share from that, ,3 million transactions remain. Out of these, ,4 million were within the Euro are plus Sweden, so a minority of Credit Transfers (22%) was processed in non-euro. This is summarised in the table below. Millions of Credit Transfers European Union ,6 United Kingdom 4.233,3 Total Relevant Transactions in the European Union (ex UK) ,3 Euro area plus Sweden ,4 Non-euro transactions (ex UK) 5.828,9 Share of non-euro transactions (ex UK) 22% It should be noted though that the figures mentioned so far are the total for domestic transactions plus cross border transactions. Looking at cross-border transactions only, the European Central Bank (in their Economic Bulletin, Issue 3 / 2017 Articles Harmonised statistics on payment services in the Single Euro Payments Area, p71) states that for the European Union as a whole, only 2,9% of all credit transfers are carried out cross border and this figure includes the cross-border transactions within the euro area. Estimating the non-euro cross border transactions by taking 2,9% of all noneuro transactions means that 169 million transactions are in scope. This is only 0,82% of all transactions within the euro area. Besides, it could be questioned what incentives could remain, from a payments point of view, for countries that are willing to join the Euro area when their citizens are given the same advantages by harmonising their transaction fees. In fact, all EU countries (bar those that opted out) need, at some point in time, to meet the conditions for adopting the single currency. The Commission efforts could be better focused on the latter than focusing on the interim symptoms of fees for cross border transactions in non-euro currencies within the European Union. The pricing for cross-border transactions should be free of price regulation, as is the case for pricing for most items consumers or corporates buy and sell to each other in the world. Any regulation risks to distort the market and/or the service level and quality offered since regulations mostly aim at restricting the freedom to price or to put a cap on the price level. The payments market is provided for by commercial entities and the PSD2 opens up this market for new entrants. It is unlikely that new entrants step into a market where pricing freely according to the actual cost level and customer value provided is not allowed. If the EU restricts the possibility to make an adequate profit from the payments market as a solid commercial enterprise in a market economy, it will over time be underserviced, less innovative, and will become of sub-standard, unless the public authorities take it over and finance such services with tax revenues. A price regulation carries a number of risks: 6

7 The EU consists of 28 member states and conditions vary between the states and thus also the service levels offered, the quality, cost level and also the existing market pricing is different per PSP in the different member states. When regulated the one size fits all may benefit some users and disadvantage other users. A maximum price cap regulation would most likely be implemented as the going price most providers charge and then the price competition option has been eliminated but also the option of offering an improved service above the standard for a higher price. This is the case for the interchange fee cap almost all international card schemes charge this cap pricing and thus it has become the floor level as well. A long-standing price regulation will also cement the services and quality offered since nobody can recoup investment cost in improvements or new services. The difference in cross-border and domestic/sepa payments costs and pricing is due to the difference in the services. If the pricing is aligned artificially below the normal market pricing, the providers would need to recoup themselves from the domestic or SEPA payments pricing. This would mean that customers not using these costlier services would be charged more for their less costly services to close the revenue gap created by a regulation. This reversed Robin Hood or rather Sheriff of Nottingham policy would put the increased cost burden on the customers that cannot afford to travel abroad and therefore not need the services. In view of this, we encourage the Commission that when considering eventual proposals in relation to this action, it takes into account the fact that possible individual higher fees for non-sepa transactions are largely based on higher transaction costs and that the proposal reflects the size of the institution performing such transactions and the frequency thereof. Euro transactions (9) Euro transactions are priced at a very low level in euro countries. However, this is not the case in non-euro countries even though payment services providers offering these services can benefit from the same infrastructures as payment services providers from euro area Member States for transactions in euro. (a) Do you know the cost of making euro transactions in non-euro area Member States? (yes/no) ESBG is not aware of these costs. (b) How expensive are fees for euro transactions in non-euro area Member States? From 1 to 5 (1: not expensive at all 5: very expensive + don't know) ESBG is not aware of these costs. (c) How transparent/clear to you are fees for euro transactions in non-euro area Member States transparent? From 1 to 5 (1: not transparent at all 5: fully transparent + don't know) ESBG is not aware of these costs. 7

8 (d) Could you provide examples of fees that you have paid for such transactions? (Please provide the amount transferred, the countries involved (from X to Y) and the total fees paid for the transfer) ESBG believes that this particular question is aimed at PSUs (e) Should the EU regulate the cost of these transactions or should this be left to individual Member States or the market? (choice EU level / Individual MS / it should not be regulated (be left to the market) / don't know). ESBG believes that it should not be regulated and be left to the market. The law of supply and demand will drive the cost of these transactions. (f) Which elements still justify such a difference in pricing for euro transactions between payment services providers of the euro area and payment services providers outside the euro area? (choice) Volume Correspondent banking fees Other (please detail) (text) ESBG believes that the elements of volume, correspondent banking fees but also currency conversion fees are factors that drive cost for such transactions. (g) Should the Regulation on cross-border payments mandate that euro transactions in non-euro area Member States be priced as domestic transactions in local currency? (Yes/No/don t know) (h) If not, what would be the best way to bring these transaction costs for consumers to a lower level? (Text) All EU countries (bar those that opted out) need, at some point in time, to meet the conditions for adopting the single currency. As an interim alternative, Member States have the option to opt out of Regulation (EU) 924/2009 like Sweden did. The Commission efforts could be better focused on the latter than focusing on the interim symptoms of fees for cross border transactions in within the European Union. (10) Are there further comments that you would like to make in relation with cross-border transactions in euro between two Member States of which at least one does not have the euro as national currency? (Text) We refer to our response to Question 8. United Nations Sustainable Development Goals (11) The costs of remittances (the transfer of money by expatriates to their home country) can be significantly higher than the goal set by the United Nations. (a) How far is the EU from attaining the goal set in the context of the Sustainable Development goals? (text) ESBG is not aware of these costs, so we cannot make this judgement. (b) To what extent can the market be expected to drive down costs in the the foreseeable future, notably through FinTech innovations including virtual currencies? (text) 8

9 ESBG believes that costs should be left to the market. The law of supply and demand will drive the costs of these transactions. Various factors in the foreseeable future can have an impact on this. (12) Remittances occur both within the EU and between EU Member States and countries outside the EU. The most important flows of remittances involve countries outside the EU. (a) Should an amendment to the Regulation on cross border payments aim at implementing the UN target and explicitly prohibit fees higher than 3% for all transactions within the EU? (Yes/No/don t know) As stated previously, cross border payments that involve a currency conversion attract specific costs, and it is for PSPs to decide how they factor in these costs in their pricing to the Payment Service Users. ESBG believes that this should not be regulated and be left to the market. The law of supply and demand will drive the costs of these transactions. (b) With regard to non-eu countries, should the target be achieved through action at EU level or should this be left to individual Member States or the market? - EU level - Member State level - The market (no regulation) - Other (please explain text) ESBG believes that this should not be regulated and be left to the market. The law of supply and demand will drive the costs of these transactions. (c) In particular, should the Regulation be amended to apply also to remittances between Member States and third countries? (Yes/No/don t know) No, the setting adequate prices for payment services is a key responsibility of the PSP. (d) Should another EU instrument be envisaged? Please detail (Yes/No/don t know + text) (e) What actions could non-eu countries take in particular with regard to limiting the costs of cross-border transactions? (Text) No action. Currency conversion (13) Currency conversion can be done for the consumer by the payment services provider (PSP) of the consumer/payer, the PSP of the payee or a dynamic currency conversion provider working with the merchant or ATM operator. (a) How big are the differences in the costs between these various options? Which one is less costly for payment services users? (text) ESBG has no clear view on the differences in costs for PSUs as the actual currency conversions are performed by other parties than the bank of the PSU. (b) How are currency conversion costs priced by payment services provider and what is the usual pricing model applied? (text) 9

10 ESBG has no view on this. (c) How aware are consumers of the different options for currency conversion that exist and their prices? (From 1 to 5 1: not aware 5: fully aware + don't know) ESBG believes that this particular question is aimed at PSUs (d) How empowered are consumers to make the best choices for service provider for currency conversions? (From 1 to 5 1: not empowered at all 5: fully empowered + don't know) ESBG believes that this particular question is aimed at PSUs (14) Better information would allow consumers to choose the most advantageous currency conversion option. (a) Are the current transparency and information obligation regarding currency conversion in title III of the Payment Services Directive fully complied with when consumers are making cross-border transactions? (very much so, to some extent, No, don t know) ESBG believes that their Members fully comply with the requirements on transparency and information obligations regarding currency conversion as set out in the PSD. (b) Are the transparency and information obligations regarding currency conversion in title III of the Payment Services Directive sufficient for consumers nowadays? (very much so, to some extent, No, don t know) ESBG believes that the requirements on transparency and information obligations regarding currency conversion as set out in the PSD are very much so sufficient. (c) If changes are needed, what could be the changes required and in which time frame? (Text) ESBG believes that no changes are needed. (d) Could real-time exchange rate quotation and estimates of real time final fee/price quotation be a reasonable target for all currency conversion service providers? (very much so, to some extent, No, don t know) A real-time exchange rate quotation would lead to fundamental, worldwide, complex and costly technical adjustments for providers, merchants and PSPs and will involve multiple changes. These technical adjustments could lead to less competition for conversion services between banks and merchants. (e) Could, over the longer term, terminal upgrades be envisaged to provide this information to users? (very much so, to some extent, No, don t know) ESBG does not envision ATM upgrades for Members that operate ATMs. (f) How much time would be required to implement these changes? (choice) - Less than 3 years - 3 to 5 years - More than 5 years 10

11 Not applicable. (g) Should ancillary transparency measures be taken on the technical side (e.g. imposing obligations on currency conversion service providers or users' banks to offer publicly available online calculators and applications on currency exchange) (Yes/No/don t know) ESBG don t know. ESBG does not envision this for Members that operate ATMs. (15) Dynamic currency conversion (DCC / option to pay or withdraw cash using a service converting the amounts into their home local currency see explanation in opening paragraph) could, in principle, provide more choice for consumers and bring more competition into the market for currency conversion. (a) How justified are concerns about DCC services misleading consumers towards more costly currency conversion options? (Text) ESBG believes that this a service ( pay in your own currency ) that consumers can opt for if they wish so. (b) Are there situations in which DCC services enhance competition and allow consumers to benefit from better currency conversion deals? (Yes/No/don t know) Yes. (the following information could not be entered into the Commission consultation tool: ESBG believes that this service ( pay in your own currency ) that consumers can opt for can make sense when the rate between the two currencies involved is subject to major fluctuations). (c) Please provide examples of good practices. (Text) Various ESBG Members have implemented such solutions on their ATMs. (d) If this is not the case, should DCC services be banned or are there ways in which it could be ensured that they benefit consumers? (Text) ESBG believes that these services should not be banned as long as the relevant operators comply with the requirements on transparency and information obligations regarding currency conversion as set out in the PSD. (16) DCC users may not be aware that merchants proposing the service may receive as a reward part of the margin earned on the transaction through the DCC service provider. (a) Should consumers be made aware of the interests of merchants/atm operators to promote their own DCC services? (Yes/No/don t know) ESBG believes that this particular question is aimed at PSUs. (17) It may be technically too difficult to provide full information on the different currency conversion options at the point of sale or cash dispenser. (a) Could merchants or ATM operators be obliged to reimburse customers making a payment within the EU if the currency conversion they proposed was not economically beneficial to their customers? (Yes/No) 11

12 (the following information could not be entered into the Commission consultation tool: ESBG believes that this is a service ( pay in your own currency ) that consumers can opt for if they wish so. The relevant operators should comply with the requirements on transparency and information obligations regarding currency conversion as set out in the PSD). (b) How could a consumer be made aware of the prejudice suffered as a result of having been oriented towards an unfavourable currency conversion option? (Text) ESBG believes that this particular question is aimed at PSUs. (18) EU consumers travelling to countries outside the EU and non-eu consumers travelling in the EU may also face high currency conversion costs. (a) What measures could be envisaged to protect EU consumers against high currency conversion charges in third countries and should such measures be taken? (text) ESBG believes that this particular question is aimed at PSUs. (b) What measures could be envisaged to protect non-eu consumers staying in the EU against high currency conversion charges and should such measures be taken? (text) ESBG believes that this particular question is aimed at PSUs from outside the EU. (19) Are there further comments that you would like to make in relation with currency conversion or DCC services? (Text) ESBG supports the open for competition market on the level playing field for conversion or DCC services and are of the opinion that the adequately informed customer will make the choice that benefits him. ESBG believes that DCC is a service ( pay in your own currency ) that consumers can opt for if they wish so. The relevant operators should comply with the requirements on transparency and information obligations regarding currency conversion as set out in the PSD. The DCC should never be allowed to be implemented as the default service for the foreigner which is often the case today. A clear choice decision must be offered together with pricing information based on the existing legislation of the PSD. 12

13 About ESBG (European Savings and Retail Banking Group) The European Savings and Retail Banking Group is a Brussels-based association that helps its member savings and retail banks thrive, focus on providing service to local communities and boost SMEs. ESBG brings together nearly 1000 savings and retail banks in 21 European countries that believe in a common identity for policy in Europe. Its members represent one of the largest European retail banking networks, comprising one-third of the retail banking market in the European Union, with 190 million customers, more than 60,000 outlets, total assets of 7.1 trillion, non-bank deposits of 3.5 trillion, and non-bank loans of 3.7 trillion. ESBG members come together to agree on and promote common positions on relevant regulatory or supervisory matters. Learn more about ESBG at European Savings and Retail Banking Group aisbl Rue Marie-Thérèse, 11 B-1000 Brussels Tel: Fax : Info@wsbi-esbg.org Published by ESBG. October