As previously reported, in March 2015 the Payment Systems Regulator (the PSR) launched a cards work programme when it released its policy statement on how it intends to regulate the payments industry. This programme is one of the PSR’s main workstreams for 2015/2016. On 24 June, the PSR launched a Call for Input on card payment systems, Call for Input: Card Payment Systems PSR CFI 15/1 (the CFI).
The CFI covers the Interchange Fee Regulation (the IFR), which came into force on 8 June 2015 (see our briefing on the key timelines of the IFR) as well as governance and indirect access issues relating to card payment systems.
Among other things, the IFR caps interchange fees for card transactions to 0.2% of the value of the transaction for debit cards and 0.3% for credit cards. Under Article 13 of the IFR, each member state is required to designate one or more bodies as the ‘competent authority’ to enforce the IFR provisions in its jurisdiction. Competent authorities will have investigative and enforcement powers in respect of the IFR. The PSR expects to be the competent authority for the IFR in the United Kingdom. It is therefore seeking to gather more information on the card payment industry.
Call for Input
The CFI contains a series of questions directed at stakeholders in the card payment industry focused on four areas:
1. Fees and cost sharing
The PSR is seeking information concerning the breadth of monetary transactions within each system, including: fees, charges, fines, rebates, incentives, bonuses, and other cost sharing mechanisms (such as scheme fees and rules governing chargebacks – where a card payment is reversed).
Furthermore, the PSR is seeking input on the likely impact on various parties (three- and four-party card schemes, issuers and acquirers) of the introduction of interchange fee caps and the effect they will have on innovation, which is one of the PSR’s objectives. Overall, the evidence gathered from responses to these questions will enable the PSR to assess the likely impact of the IFR caps on other fees within the system.
2. Business rules in the IFR
The IFR includes a series of ‘business rules’. Among them are provisions concerning functional separation, co-badging, unblending of rates, and the Honour All Cards rule.
The PSR wishes to understand whether there are points of interpretation that firms would like greater clarity on and what the operational challenges of implementing them are. It is also asking for information on the timescales and costs of compliance. This represents an excellent opportunity for firms in the sector to share the questions that have arisen in the context of implementation of the business rules with the body that is likely to be enforcing them.
In addition, the PSR is considering the best ways to monitor compliance with the business rules and specifically seeks stakeholders’ views on the most appropriate way to approach this.
3. Governance of card systems
The PSR’s directions on governance (as well as indirect access, discussed below), announced in March 2015, related to the PSR-regulated interbank payment systems only. The PSR is therefore seeking, as part of this work programme, to understand whether there are areas in the governance arrangements of card systems that need to be addressed. The PSR is particularly interested in scheme ownership arrangements, how service-users are represented in card system decision-making and how transparent the decision-making processes are.
In addition, the PSR is gathering evidence in relation to card system rulebooks. Its questions concern how transparent and accessible they are, as well as whether there could be any improvements as to how the rules and requirements of card systems are communicated to service-users (such as merchants).
4. Access to card systems
Finally the PSR is also considering indirect access as part of this workstream. The PSR wishes to understand why some payment service providers choose to access card systems indirectly, rather than directly, or not at all. The PSR’s interest is focussed on commercial, rather than intra-group provision of indirect access. It wishes to know whether there are sufficient options for, and information about, gaining indirect access to card payment systems. It is also seeking information as to whether there are barriers to trying to obtain this kind of access.
The deadline for responses to the CFI is 5pm on 31 July 2015.
The PSR acknowledges that the CFI is simply the start of the process of determining how it will regulate card payment systems.
The CFI represents a valuable opportunity for stakeholders in the card payment industry to provide their views and influence future regulation and enforcement of the cards industry. It potentially provides an opportunity for stakeholders to find out how others are interpreting the IFR and, importantly, offers the possibility of shaping how the PSR will interpret and enforce the regulation, assuming it will be the competent authority under the IFR.
The CFI noticeably does not commit to any particular outcomes for the work programme. Given the challenges that firms are facing with interpretation and implementation of the IFR, guidance on both is likely to be welcomed. The work programme could also result in the PSR using its regulatory or competition law powers to address governance or access issues that are identified in responses to the CFI.
Stakeholders are advised to take advantage of this opportunity to submit a response. The CFI document can be accessed here.