IKEAs reply to the green paper:

Transcription

1 1(7) Internal Market and Services DG, Unit H3 Retail financial services and consumer policy IKEAs reply to the green paper: Towards an integrated European market for card, internet and mobile payments (COM(2011) 941) IKEA as a multinational retailer with establishments in 18 of the EU member states is a large user of payment services. It is for this reason that we are welcoming the suggestions put forward by the commission in this Green paper, if fully implemented they could help to create healthy competition and an efficient payment market in Europe. We have a particular interest in card payments as an increasing number of our customers is paying with cards in our shops and prices for accepting these cards are still very high, opaque and hardly negotiable with the offering banks. IKEA is a member of both EuroCommerce and the European Retail Roundtable, who have submitted their very thorough position papers, which we fully support. However in this paper we would like to raise some issues that are of specific concern to us in our capacity as multinational retailer: Introduction: Basic Payment The electronic Euro IKEA has been actively working to find new solutions for the problems we face with the card payments system in Europe and elsewhere. Over the years IKEA has tried both to surcharge our customers for inefficient credit card transactions in the UK and given rebates to more efficient pin debit card transaction in US. Neither approach has been more than a band-aid for the problems the current four party model is causing.

2 2(7) In the current business models for payment services, the costs of paying are hidden from consumers via non-transparent and embedded charges. Consumers choose payment instruments without proper cost information, which results in inefficient outcomes. The two-sided market approach and the tourist test methodology are based on nontransparency and (cross) subsidizes and so leads to biased volumes of payment instruments. The alternative business model for payment instrument could be based on transparent price competition, as in most other industries, which could increase the efficiency of the payment industry and customers payment habits. Changing the payment service business models by unbundling service packages, increasing price/cost transparency for all instruments, including cash, and requiring open networks and network governance would increase payment-industry efficiency and considerably speed up development, because of the heightened competition. The current service providers are 'trapped' in their legacy competition-limiting business model and are not greatly interested in supporting general payment efficiency. Therefore it seems to be up to the authorities to break the bad 'spell', if increased payment efficiency is desired. 1 As Harry Leinonen, notes above, there is a need to break the bad spell in the current two sided market- four party model. At the same time, strong regulation can twist the competition that regulation is supposed to create. Therefore, minimal regulation is to be preferred. To unbundle the payment market, IKEA has previously suggested a basic payment functionality on all cards- The electronic Euro in short. Why have IKEA come to this conclusion? High fees for payments, the four party business model does not lend itself to normal competitive pressure Most new schemes based on interchange fees no difference in prices or drivers for innovation and efficiency. Innovation blocked by interchange fees no need for new solutions on the market with such a good income. For the society there is always a reason to ensure general access to the payment system, whether based on cash or electronic transfers. When there is no more cash, who gets access to accounts and electronic payments? Only the profitable customers? Who makes that decision? As with cash, the state 1 Harry Leinonen, National Bank of Finland, FROM TWO-SIDED SUBSIDIZATION TO TRANSPARENT PRICE COMPETITION IN CARD PAYMENTS, Summary p1, 28 May 2010

3 3(7) needs to control the basic payment functionality to ensure access for all citizens. In Europe, this should be done by the European central bank (ECB) Instead of a negative approach where certain detrimental business models are banned or limited, we see the possibility for a positive approach where there is a possibility to create the Electronic Euro, a European basic payment functionality. Not against the current payment schemes, but adding an electronic version of what is already there. An Electronic Euro should be based on current SEPA payment protocol. It should be mandatory on all cards or devices as well as European id cards to give access to accounts or stored value for all Europeans. As with cash, it is mandatory for all who accept cash to also accept the electronic euro. To create a competitive payments market, electronic access to the account by means of the electronic euro should be the decision by the account holder as long as the access is secured and a reasonable fee is paid for the service. The Commissions questions of most concern to IKEA 2) Is there a need to increase legal clarity on interchange fees? If so, how and through which instrument do you think this could be achieved? Yes, as explained above, The Electronic Euro - Basic payment functionality, is a feasible way forward, with limited regulation and stronger competition as result 3) If you think that action on interchange fees is necessary, which issues should be covered and in which form? For example, lowering MIF levels, providing fee transparency and facilitating market access? Should three-party schemes be covered? Should a distinction be drawn between consumer and commercial cards? Given the structure of four party model, with its inability to create efficient competition, certain regulation is necessary. In IKEAs view, this regulation should be to create the electronic euro and the necessary adjustments to the market that is needed to develop this. A MIF is a MIF whatever name it has, whether it s thru a four or three party system. In the end, the function is the same. Any action against only one system would distort the market, giving the unregulated model free access to continue charging excessively high fees. In the case of the three party system, an actor like AMEx or Diners, that cater to the most affluent consumers, would have a strong competitive

4 4(7) advantage against MasterCard and Visa in the most affluent segment if the four party model where regulated and not the three party model. There is no reason why the cards aimed at the most affluent group of society should be unregulated and the cost for these payments shared by all consumers thru higher prices Cross-border acquiring For IKEA, that is present in almost all of the EU memberstates the lack of true cross border acquiring is a problem, not only due to its cost implications but also due to the cost of handling a multitude of different technical systems. A lack of harmonisation means market fragmentation and higher cost for our customers. It does cement the old market structures in the member states where some dominant banks can continue to work without real competition from companies on the single market. 4) Are there currently any obstacles to cross-border or central acquiring? If so, what are the reasons? Would substantial benefits arise from facilitating cross-border or central acquiring? Yes, the international card schemes have in its own regulations limited the possibility for a company like IKEA to receive the best offers from European card acquirers. The regulations stipulate that the MIF of the point of sale should apply. With this, there is no business case for companies or acquirers to do cross border acquiring today. Substantial benefit, both financial but also due to increased competition, would arise from facilitating true cross border acquiring. Increased competition among acquirers and increased pressure on card issuers to keep their costs low will be beneficial to merchants, consumers as well as efficient banks. Ex. Visa regulation on crossborder contracting, se also Visa interchange regulation for more clarity.

5 5(7) 5) How could cross-border acquiring be facilitated? If you think that action is necessary, which form should it take and what aspects should it cover? For instance, is mandatory prior authorisation by the payment card scheme for cross-border acquiring justifiable? Should MIFs be calculated on the basis of the retailer s country (at point of sale)? Or, should a crossborder MIF be applicable to cross-border acquiring? The scheme rules of Visa and MasterCard which prevent cross-border acquiring should be removed. In a Single Market, the fee that applies should be that of the acquiring bank, chosen, in European competition, by the merchant. There is no need to calculate the MIF based on the retailers country (at POS) or a cross border MIF for cross border acquiring. If the market fragmenting proprietary regulations are removed, the market needs to adjust to situation where competition is within the union instead of the memberstate. A crossborder MIF will most likely be pushed to its maximum, as seen with the fees in the US after the debit market was regulated last year. The crossborder fee alternative does not create any real competition in the market and competition is one of the most important parts of a single market, without it there will be no gains, just a large market Access to settlement systems 10) Is non-direct access to clearing and settlement systems problematic for payment institutions and e-money institutions and if so what is the magnitude of the problem? 11) Should a common cards-processing framework laying down the rules for SEPA card processing (i.e. authorisation, clearing and settlement) be set up? Should it lay out terms and fees for access to card processing infrastructures under transparent and nondiscriminatory criteria? Should it tackle the participation of Payment Institutions and E- money Institutions in designated settlement systems? Should the SFD and/or the PSD be amended accordingly? 10. To create a competitive and efficient market for payments, there is a need for non-bank institutions to have fair access to C/S system. Anyone offering a payment service to their customers, which fulfills security requirements and are able to pay the service fee, should have fair access to the clearing and settlement systems on the same conditions as any bank has today. Any company with a new payment solution that can increase competition on the market should not be hindered from developing their ideas and innovations due to structural protectionism. Today, many of the new, green field mobile payment solutions that are developed, doesn t take off due to lack of access to the accounts and C/S system.

6 6(7) 11. In short- yes. A common framework is a necessary basis for a competitive market where other actors than banks can work Information on the availability of funds 13) Is there a need to give non-banks access to information on the availability of funds in bank accounts, with the agreement of the customer, and if so what limits would need to be placed on such information? Should action by public authorities be considered, and if so, what aspects should it cover and what form should it take? Yes. As long as banks keep the total control of this information, there will hardly be any new entry s to the market. Therefore, providing proper security systems are in place, non-banks should be given access to account-holder information. Practical modalities (e.g. remuneration for that service) should be agreed upon between the stakeholders Consumer merchant relationship: rebates, surcharging and other steering practices 16) Is there a need to further harmonise rebates, surcharges and other steering practices across the European Union for card, internet and m-payments? If so, in what direction should such harmonisation go? Should, for instance: certain methods (rebates, surcharging, etc.) be encouraged, and if so how? surcharging be generally authorised, provided that it is limited to the real cost of the payment instrument borne by the merchant? merchants be asked to accept one, widely used, cost-effective electronic payment instrument without surcharge? specific rules apply to micro-payments and, if applicable, to alternative digital currencies? Over the years IKEA has tried both to surcharge our customers for inefficient credit card transactions in UK and given rebates to more efficient pin debit card transaction in US. Neither has been more than a band-aid for the problems the current four party model is causing Surcharging can work as an efficient signaling tool if it is fully automated at the POS, this is today not possible due to lack of information regarding what card type is used. BIN numbers and corresponding fees are not readily available for instant check of the fee. This leads to time inefficiencies and added work for the cashier that is not acceptable for a large merchant. Furthermore, IKEA does not see it as our job to charge our customers for a cost that is due to inefficient business model within the banking system. Surcharging

7 7(7) might be interesting from a regulatory or academic point of view, but for IKEA to bother our customers with a fee that is not in our control to begin with, is not in our interest. The problem comes from the banks and has to be solved by the banks. As mentioned earlier, IKEA fully supports the submitted position by EuroCommerce and European Retail Round Table. Yours sincerely Martin Weiderstrand Manager EU Interest Representative Register ID number