Interchange fees • By Amon Cohen


EXEMPTION ISSUES When drafting the legislation in 2013, the EC originally exempted commercial cards, which it defined as cards used for business expenses only. The logic was that commercial cards cost more to operate because of the provision of management information and other spe- cialised services. However, the European Parliament shocked the card world in February 2014 when it voted to remove this exemption. It was a decision which could have seriously distorted the commercial card market, because while issuers on the Visa and Mastercard networks faced introduc- ing fees to make their services profitable, Amex would have been left untouched and able to hoover up the market with zero fees and customer rebates, as is the norm today. All Amex cards are exempted from the regulation because Amex is a three-party scheme (it is both the issuer and acquirer) and so does not have in- terchange fees – although it does charge other fees to merchants.


Companies which favour individual pay usually do so in the belief it makes travellers more careful about expenses


Hasty lobbying led to a so-called trilogue in which the Commission and the Council of the European Union per- suaded the parliament to think again, and just before Christmas 2014 the regulation was finalised with the commercial cards exemption reinstated. However, there was one more shock in store. The original text defined commercial cards as being funded either “directly or indirectly” by the corporate client. Without warning, the words “or indirectly” were deleted from the final draft.


The upshot of this last-minute al-


teration is that individual pay corporate cards are considered consumer cards, not


IS YOUR CARD PROGRAMME AFFECTED BY THE INTERCHANGE FEE REGULATION?


Lodge card CARD TYPE


Virtual card


Plastic corporate card issued on Visa or Mastercard – payment taken directly from the bank account of the company/ public sector entity/self-employed person (known as corporate pay)


Plastic corporate card issued on Visa or Mastercard – payment taken directly from the individual cardholder (known as individual pay)


WILL IT BE DIRECTLY AFFECTED?


No. All lodge cards are centrally billed accounts, so they are exempt from the regulation as commercial cards.


No. All virtual cards are settled through a centrally billed account, so as above.


No. These are considered to be commercial cards, so they are exempt. However, there are likely to be minor changes to terms and conditions.


Yes. This is not considered to be a commercial card. Expect your issuer to issue a new card with charges such as transaction fees and/or annual subscription fees. Alternatively, your issuer may stop offering cards that are not corporate pay.


Plastic corporate cards issued by three-party scheme (in other words, American Express)


In association with


No. Three-party schemes are exempt from the regulation.


commercial cards, and therefore subject to the cap, a point re-emphasised (despite heavy lobbying) by the UK Payments Systems Regulator in its guidance on the regulation published in late March.


PLASTIC PROBLEMS So what does it all mean? If you are an Amex client, you are not affected directly. If you use a lodge card or any other form of centrally billed account (like a purchas- ing card), you are not affected either. The regulation only applies to plastic cards, and even then only those issued to indi- viduals who pay the issuer themselves. In Germany, this is a significant


problem. Airplus International says 83 per cent of the plastic cards it issues in its home market are individual pay. In the UK, corporate pay is much more popular. “Only a low proportion of our book is individually billed,” says Barclaycard commercial cards product director Maria Parpou. Another card executive, request- ing anonymity, says: “Across Europe, it’s a significant minority of our business.” Airplus has already shown what the


future looks like. In Germany, it is with- drawing corporate cards for individual pay customers and introducing instead what it calls the Airplus Travel Expense Card. Users incur a transaction fee of 1.09-1.19 per cent for all transactions within the EU plus an annual negotiable transaction fee


and an extra Ð20 if they spend less than Ð500 per year. Parpou warns that Barclaycard’s indi- vidual pay customers face paying more, too. “The economics are changing for us and we are having to ask if this product is still viable,” she says. “We will continue to offer it but we will probably have to adjust the fee.” However, Parpou thinks a much better solution would be for individual pay customers to shift to corporate pay. Not only does it avoid the cap, but she argues it makes for better travel and expense management. Companies which favour individual pay usually do so in the belief it makes travellers more careful about ex- penses because they are obliged to reclaim them – and that this also encourages more punctual submission of claims. But Parpou says travellers are actually less disciplined on individual pay, for example mixing in personal expenses. “We are asking customers why they


want individual pay, which often leads to greater policy leakage,” Parpou says. “A lot of companies will start looking at their


BBT CORPORATE CARDS SUPPLEMENT 2016 11


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