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National Bank of Poland Payment Systems Department Analysis of the functioning of the interchange fee in cashless transactions on the Polish market Warsaw, January 2012
National Bank of Poland
Payment Systems Department
Analysis of the functioning
of the interchange fee in cashless transactions
on the Polish market
Warsaw, January 2012
2
TABLE OF CONTENTS
Introduction ......................................................................................................................... 4
Chapter 1. Description of the payment card market ......................................................... 6
1.1. Types of payment cards .......................................................................................... 6
1.2. Payment card systems ............................................................................................ 7
1.2.1. Types of systems and business models ............................................................... 7
1.2.2. Examples of schemes .........................................................................................10
1.3. Importance of the payment card market for its participants and the development
of cashless transactions .........................................................................................11
Chapter 2. The development of the payment card market in Poland compared
to other countries ............................................................................................17
2.1. Selected indicators of the development of the Polish payment card market ...........17
2.2. Selected indicators of the development of the payment card market - Poland
against other EU countries .....................................................................................22
Chapter 3. Factors determining the development of the payment card market
in Poland ...........................................................................................................26
3.1. SEPA .....................................................................................................................26
3.2. Payment services directive .....................................................................................29
3.3. Act on Payment Services .......................................................................................30
3.4. Payment card organisations in Poland ...................................................................31
3.4.1. “Visa cards accepted everywhere” programme ...................................................31
3.4.2. „Innovation for Poland” programme.....................................................................32
3.5. Interchange fee policy of the European Commission and European Central Bank .32
3.5.1. European Commission's Action ..........................................................................32
3.5.2. Activities of the European Central Bank ..............................................................38
Chapter 4. Description of the interchange fee ..................................................................42
4.1. Definition of the interchange fee .............................................................................42
4.2. Outline of fees on the payment card market ...........................................................43
4.3. Justification for the introduction of interchange fee from the point of view
of payment organisations .......................................................................................45
4.4. Economic concepts concerning the payment card market ......................................46
Chapter 5. Level of interchange fees and other fees charged in the Polish market .....49
5.1. Rates of interchange fees in the Visa system .........................................................49
5.1.1. Cross-border fees ...............................................................................................49
5.1.2. Domestic rates ....................................................................................................51
5.2. Rates of interchange fees in MasterCard system ...................................................54
5.2.1. Cross-border fees ...............................................................................................54
5.2.2. Domestic fees .....................................................................................................56
5.3. Comparison of interchange fees of Visa and MasterCard in the European market .59
5.4. Comparison of Visa and MasterCard interchange fees in the Polish market ...........61
5.5. Rates of merchant service charges in the Polish market ........................................64
5.6. Other fees determining the level of the merchant service charge ...........................65
3
Chapter 6. Overview of interchange fee in Poland ...........................................................67
6.1. Decision of the Office of Competition and Consumer Protection.............................67
6.2. NBP Report on interchange fee in 2007 .................................................................69
6.3. Programme for the Development of Cashless Transactions in Poland
in 2011-2013 ..........................................................................................................71
6.4. Parliamentary work related to the Act on Payment Services ...................................74
6.5. Activities of the Payment System Council at the NBP and establishment
of the Interchange Fee Task Force .........................................................................80
Chapter 7. Examples of countries which introduced changes to the level or manner
of setting the interchange fee .........................................................................82
7.1. Hungary .................................................................................................................82
7.2. Spain ......................................................................................................................84
7.3. Australia .................................................................................................................86
7.4. United States ..........................................................................................................89
Chapter 8. Scenarios for the development of the payment card market in Poland
in the context of reduced interchange fee rates .............................................92
8.1. Forecast for the growth in the value of cashless transactions in Poland .................92
8.2. Example of a simulation of banks' income when the level of interchange fees
is reduced ..............................................................................................................94
8.3. Interchange fee reduction - scenario analysis.........................................................97
Conclusions ...................................................................................................................... 101
4
Introduction
Payment card market in Poland has been growing rapidly for more than a dozen years.
Consumers use their cards more and more often to pay for goods and services, including low-
value payments, which until now were dominated by cash. The number of retailers that accept
credit cards on the domestic market is also rising steadily. The development of this market is
determined by many factors. One of them is the cost of accepting payment cards. This issue
was clearly highlighted for the first time on the Polish market in the proceedings carried out
by the Office of Competition and Consumer Protection (OCCP) at the request of the Polish
Trade and Distribution Organisation with regard to the application of competition restricting
practices, consisting in the conclusion of pricing agreements and setting the interchange fee,
an essential component of the merchant's fee, jointly by banks associated in Visa and
MasterCard card issuers association. The decision made by the President of the OCCP on 29
December 2006 recognised the practice consisting in banks' participation in the agreement
restricting competition in the market for acquiring services through joint determination of the
interchange rates as a practice restricting competition and prohibited its use. This dispute,
following an appeal by banks and organisations, has not been resolved until today, however
the problem of high merchant fees remains. Dissatisfaction among merchants because of the
fees increased when the requirement to publish interchange rates had been imposed on
payment organisations. It was also reflected during parliamentary debates on the act on
payment services. Large retailer associations demanded that changes be made to the act which
- in the opinion of the NBP - could restrict the development of cashless transactions in Poland.
The Payment Systems Department, fulfilling such basic functions of the National
Bank of Poland as the organisation of monetary clearing (pursuant to Article 3(2)(1) of the
Act on the National Bank of Poland of 29 August 1997 - Journal of Laws of 2005 No. 1, item
2, as amended), oversight of payment systems in Poland (in accordance with the Act of 24
August 2001 on Settlement Finality in Payment and Securities Settlement Systems and the
Rules of Oversight of these Systems - Journal of Laws No. 123 item, 1351, as amended) and
oversight of authorisation and clearing systems operated by acquirers other than banks (in
accordance with the Act on Electronic Payment Instruments of 12 September 2002 - Journal
of Laws No. 169, item 1385, as amended), prepared a report presenting an analysis of the
interchange fee functioning for cashless transactions in the market of payment cards in Poland
against other European Union countries.
5
The results of two surveys conducted among two groups of entities operating on the
Polish market constitute an important element of the report. The first survey was addressed to
payment organisations, while the second one was addressed to seven largest acquirers with a
99% share in the payment card market in terms of the number and value of transactions. The
survey (project, survey questionnaire, data collection and analysis) was prepared by the NBP.
Some data obtained in the survey is protected by business secret clauses. Therefore, despite
the fact that extensive statistical data were collected, the report contains only the analysis of
selected issues.
The main purpose of the report was to diagnose the payment card market in Poland in
the context of issues related to interchange fee, with particular emphasis on the role and place
of this fee in the Polish system of payment cards, rates and fee amount in comparison with
other countries as well as identification of possible courses of action aimed at accelerating the
development of the payment card market in Poland. It is not the purpose of the report to
propose specific solutions to the interchange fee problem in Poland because it is the task of a
separate Interchange Fee Task Force established in October 2011 at the Payment System
Council, a consultative and advisory body to the NBP Management Board. However, the
Payment Systems Department of NBP hopes that this report will contribute to the introduction
of changes in the payment card market which will have a beneficial effect on its further
development.
6
Chapter 1
Description of the payment card market
Payment cards enjoy a great and constantly growing popularity. During several
decades of their functioning, they underwent significant transformations, from cards issued in
the form of metal plates with customer data (in the early twentieth century) to the currently
offered multifunction smart cards or virtual cards (with no material form, in the form of a
string of digits used in the banks' ICT systems). This chapter presents the classification of
cards, business models and main systems operating in the card market, as well as the
significance of the card market for its participants and for the development of cashless
transactions.
1.1. Types of payment cards
Currently there are many types of payment cards in the market, primarily owing to the
dynamic development of modern technologies and the financial services market. These
instruments can be classified in accordance with several criteria.
From the perspective of the method of transaction settlement, cards can be divided
into debit, charge and credit cards. A debit card is a payment instrument that allows to execute
transactions only up to the amount of funds available in the account. A credit card allows to
execute transactions resulting in credit which is repaid in accordance with the terms agreed
with the bank. A charge card offers a deferred payment deadline and the resulting liability is
to be repaid in full at the end of settlement period, usually once a month. In addition, a
prepaid card can be distinguished which can be used only if the account to which the card is
assigned is previously supplied with funds.
Another criterion for the card breakdown is their function. In this context ATM cards,
payment-only cards and payment cards with an ATM cash withdrawal function may be
distinguished. Currently, payment cards with cash withdrawal function are the world's most
widely used cards, while cards equipped with only one of these functions (ATM cards,
payment cards without cash withdrawal function) play a marginal role.
Taking into account the technology of data recording, payment cards can be grouped
into cards with a magnetic stripe, smart cards, hybrid cards (equipped with both magnetic
stripe and chip) and virtual cards. The migration of cards to EMV smart cards standard which
has become common in recent years, particularly in Europe, results from adjustments of the
7
banking sector and payment services to the requirements of the SEPA (Single Euro Payments
Area) project. The principle of liability shift was made an element supporting the above
mentioned process of technological changes.1
When speaking of the method of card's contact with the card reader, smart cards,
contactless (proximity) cards and cards equipped with both technologies may be
distinguished. It should be noted that payment instruments with the contactless feature only
usually take an alternative form of payment cards. These can be items or gadgets equipped
with a chip and an antenna such as key rings, watches or phones with a small-sized card
placed under the telephone cover. Due to their unusual shapes and sizes alternative forms of
payment cards: (1) can now be used only for making payments in points of sale equipped with
proximity card readers, which may pose a certain limitation for users due to the moderate
albeit rapidly and systematically growing network of terminals with the proximity function;
(2) may not be used for cash withdrawals in ATMs. However, there are no technical obstacles
to using the gadgets for the cash back service. Payment organisations are currently testing this
solution.
Another criterion for the breakdown of cards is the card functioning mode at the
time of making a payment by the customer. These may be cards that function on-line and off-
line mode. The first solution has been functioning globally for many years on a wide scale,
while the second solution is much less popular. It can be used in contactless, low-value
transactions that do not require a confirmation of the transaction with PIN.2
Currently issued payment cards can be equipped with many functions. For instance,
the following payment instruments that are available in banks' offer may be listed: chip
contactless credit card, prepaid card with a magnetic stripe or, less commonly, a combination
of a debit and credit function in one card. A wide variety of payment cards reflects their rapid
and continuous development.
1.2. Payment card systems
1.2.1. Types of systems and business models
Payment cards are issued under payment card schemes. These schemes form the
1 SEPA Cards Framework, European Payment Council, 16 December 2009, p. 16-17; More in: M. Polasik, K.
Maciejewski, Innowacyjne usługi płatnicze w Polsce i na świecie, Materiały i Studia, No. 241, National Bank of
Poland, Warsaw 2009, p. 31. 2 In Poland, such transactions are below PLN 50.
3 W. Chmielarz, Systemy elektronicznej bankowości, Difin, Warsaw 2005, p. 104.
4 T. Kokkola, The payment system, European Central Bank, 2010, p. 56.
2 In Poland, such transactions are below PLN 50.
8
payment card market and constitute an essential pillar of the market for payment services in
developed economies. Due to its specific nature involving the use and continuous
development of a complex ICT infrastructure, the payment card market is one of the most
innovative areas of the payment services market.3
The participants of the payment card market usually include:
• Consumers – card holders making card payments for goods or services in certain
retail trade and service outlets,
• Merchants - retailers receiving payment for goods or services effected with the use
of payment cards,
• Acquirers - clearing centres (banks or non-bank entities) which have signed
agreements with merchants on accepting payments with the use of payment cards.
An acquirer also settles transactions between card issuers and merchants.
• Issuers of payment cards - entities (mostly banks) issuing payment cards to card
holders,
• Payment card organisations - embrace card issuers (e.g. as members or customers)
who issue cards with the logo of the organisation, provide the technical
infrastructure to enable immediate authorisation of transactions, set the rules for
accepting and clearing cards, elaborate and develop standards for payment cards as
well as services and products related to payment cards, implement and develop
payment card technologies, advertise and promote the brand of their products
among card holders and merchants.
There are two main business models for payment cards: three-party schemes (closed)
and four-party schemes (open).4 They are presented in figure 1 below. In addition, there are
also two-party schemes which, however, play a marginal role in the market for payment
services.
3 W. Chmielarz, Systemy elektronicznej bankowości, Difin, Warsaw 2005, p. 104.
4 T. Kokkola, The payment system, European Central Bank, 2010, p. 56.
9
Figure 1. Business models for payment cards
Four-party scheme Three-party scheme
MerchantCustomer /Card holder
AcquirerIssuer
Payment organisation
MerchantCustomer /Card holder
Payment organisation /
issuer and acquirer
Source: Own study.
Two-party payment card schemes are the simplest form of cooperation between the
entities forming a payment system. Under this system, payments made by consumers are
accepted only by the card issuer, for instance a network of retailers such as supermarket chain
and its subsidiaries, with the network of retailers also processing and clearing transactions.5
A three-party payment card system refers to the interdependence between three groups
of entities: consumers (card holders), merchants, and the central institution (bank or payment
organisation) which also performs two functions: that of the issuer and the acquirer.6 The
latter, in addition to technical aspects of card issuance and transaction processing, also
determines the conditions for issuing and accepting cards. Examples of three-party systems
include systems organised in many countries by Diners Club and American Express.
The most developed card payment systems operate under the four-party payment
model involving four groups of entities: consumers, merchants, card issuers and clearing
centres. In this model the issuing and clearing functions may be performed by separate,
independent entities (issuing bank and acquirer). Four-party payment card systems are
operated in particular by VISA and MasterCard organisations.
Four-party model differs from other models (two- and three-party models) in that it
separates the function of the card issuer and acquirer and charges the interchange fee.
5 Benefits of Open Payment Systems and the Role of Interchange, MasterCard, 2008, p. 2-4.
6 Report on Interchange fee, National Bank of Poland, Warsaw, 2007, p. 9.
10
With regard to the range of operations, the following three types of payment card
systems can be distinguished: local, national and international. Local systems operate as part
of one or more banks in a limited geographical area, such as a small chain of stores located in
one or several cities. A national payment card system represents a more developed
infrastructure. It includes processing of transactions in a particular country where payment
cards accepted by retail outlets may be those issued under domestic and international payment
systems. On the other hand, international payment card systems process transactions around
the world, regardless of the country in which cards were issued. Due to the fact that the
development of the infrastructure and card acceptance network on a global scale is a costly
and lengthy process, there are only several international card schemes.
1.2.2. Examples of schemes
There are many payment card schemes around the world. The best known
international systems include: VISA, MasterCard, Amex (American Express), Diners Club,
JCB (Japan Credit Bureau) and China UnionPay. All the above mentioned systems, except for
JCB and China UnionPay, have their origins in the U.S. market. The largest payment card
organisations in the world are VISA7 and MasterCard.
8 VISA operates as an association of
card issuers. Within this organisation there are decision-making structures at the national
level in Poland, i.e. Visa Forum Polska. The Forum comprises representatives of issuing
banks and acquirers, with the voting right available only to card issuers and the number of
votes available depends on the number of cards issued or the value of card transactions
handled by a given system. MasterCard operates as a joint-stock company listed on the stock
exchange and it groups together issuers who are both its shareholders and customers. All
decisions concerning the Polish market are made solely by MasterCard.9
The organisations that play a lesser role in the global payment card market are Diners
Club, Amex and JCB. They operate in the form of clubs and issue mostly T&E (Travel and
7 More on the history of the Visa organisation in: Visa Inc. Corporate Overview,
http://corporate.visa.com/_media/visa-corporate-overview.pdf (December 2011);
History of Visa, http://corporate.visa.com/about-visa/our-business/history-of-visa.shtml (December 2011). 8 More on the history of the MasterCard organisation in: Corporate Overview,
http://www.mastercard.com/us/company/en/docs/CorporateOverview_FINAL.pdf (December 2011); The
MasterCard Story, http://www.mastercard.com/us/company/en/ourcompany/the_mastercard_story.html
(December 2011). 9 Until 2008 the Forum of MasterCard Member Banks operated which constituted a decision-making
structure for Poland, however it was dissolved when MasterCard became a listed company.
11
Entertainment) cards. The average value of transactions executed with cards of these
organisations is clearly higher than in the case of Visa and MasterCard cards. Currently,
Diners Club Polska, member of Diners Club International, deals with Diners Club cards on
the Polish market. American Express is a publicly listed company. In Poland, Amex cards are
accepted at most retail and service outlets equipped with payment terminals. JCB organisation
has its roots in Japan where it has had a predominant position for many years. Cards of this
organisation are issued and accepted also on international markets. JCB cards are, as in the
case of Amex cards, widely accepted on the Polish market, however they are not issued in
Poland. By contrast, China UnionPay cards may be used in the Polish market in ATMs of
Citibank Handlowy.
There are many payment card schemes with a local reach. The most popular include:
Dankort (Denmark), Carte Bleue and Cartes Bancaires (France), BankAxept (Norway),
Geldkarte (Germany), Chipknip and PIN (the Netherlands).
1.3. Importance of the payment card market for its participants and the
development of cashless transactions
Payment cards offer many benefits to the participants of the payment services
market.10
They compete not only against cash but also against other payment instruments
such as credit transfers, direct debits and cheques.
Benefits for consumers (users of payment cards);11
- Payment card users have a continuous and extensive access to cash, both at home
and abroad. Using the card they can make purchases at retail and service outlets
equipped with POS terminals (regardless of the amount of cash possessed) and can
obtain cash at ATMs anywhere in the world where cards of a particular card issuing
organisation are accepted. An important advantage of payment cards is the possibility
of making purchases via the Internet (in Poland and abroad) which have become
increasingly popular for several years. The card user can make a purchase at a
10
More information on various benefits for each party of the payment card system can be found in: T. J.
Zywicki, The economics of Payment Card Interchange Fees and the Limits of Regulation, International Center for Law and Economics, ICLE Financial Regulatory Program White Paper Series, June 2010.
11 R. J. Keating, Credit Cards and Small Business: The Benefits, Opportunities and Policy Debate, The
Small Business & Entrepreneurship Council’s Small Business Policy Series, Analysis 34, March 2009, p. 9-10.
12
distance, without leaving home.
- Payment organisations and issuing banks have developed financially attractive terms
and conditions of using payment cards for individual customers. Card holders
generally do not pay any fees for executing cashless transactions.12
However, they
may have to pay fixed charges related to issuing or possessing a card. More and more
banks in the Polish market offer reward or loyalty schemes for card holders,
encouraging them to execute a large number of card transactions in retail and service
outlets. By participating in such initiatives customers may, in addition to being
exempted from charges for possessing the card, count on having a portion of
expenses on shopping made with the use of the card13
refunded or receiving
discounts at selected retailers (e.g. Payback).
- Payment cards offer higher security than cash. When the wallet with cash is stolen,
the cash may come into the thief’s possession without any obstacles, while access to
cash with the use of a payment card requires, apart from the possession of the card, the
knowledge of the PIN.
- The advantage of payment cards over cash and bank transfers in respect of the security
of the transaction is also reflected in the chargeback used in the international payment
card systems. Chargeback consists in refunding card payments to customers under the
claim procedure when no purchase of goods or services was made.14
- Making payments with the use of a payment card is easier. This means a higher level
of comfort for the user of this instrument. There is no need to search for and count
cash (banknotes, coins). On the customer's side, this process is reduced to handing the
card over to the retailer and entering the PIN on the payment terminal or signing the
terminal printout. In the case of a proximity card the process is even more convenient
and faster, since the user only places the card in front of the reader at a several
centimetres distance and the transaction is executed, without having to hand the card
12
There is indeed a phenomenon of a surcharge in the world, i.e. the merchant charges the customer for a
commission on a card transaction. However this solution is not widely used. More information on the impact
of the surcharge on consumer behaviour in the domestic market using the Netherlands as an example: W.
Bolt, N. Jonker, C. Van Renselaar, Incentives at the Counte: An empirical analysis of surcharging card
payments and payment behaviour in the Netherlands, DNB Working Paper No. 196, December 2008. 13
Even up to 5% of the transaction value, i.e. at the level exceeding the value of the interchange fee, more
information in: R. Grzyb, Na konto nie wróci więcej niż 2 proc., Dziennik Gazeta Prawna, 23-08-2011. 14
More information can be found in: M. Polasik, K. Maciejewski, Innowacyjne usługi płatnicze w
Polsce i na świecie, Materiały i Studia, No. 241, Narodowy Bank Polski, Warsaw 2009, p. 55.
13
over to the retailer or entering the PIN15
, in just a few seconds16
.
- The use of payment cards gives the user a greater control over the expenses
incurred. Consumers may examine and analyse their transactions not only on the slips
received at the cash desk but also in the bank account (assigned to the card).
Benefits for retailers (merchants):
- By accepting payment cards retailers may have a higher turnover for several reasons.
The customers' access to additional funds (especially in the case of credit card users)
promotes the growth of customers' total spending. In addition, by accepting cards
retailers have the opportunity to participate in loyalty programs or co-branding
projects and thus to expand the offer to customers and make it more attractive.
- Acceptance by retailers of payment methods that are convenient for customers, i.e.
payment cards, increases customer satisfaction. This results in strengthening the
customer – retailer relationship, perceiving the retailer as a modern company, who
cares for the interests of the customer, and consequently leads to revenue growth.
- The increase in payment card acceptance also reduces the number of fraud
transactions executed with counterfeit banknotes. The correctness of card
transactions is guaranteed by the acquirer who is controlled by supervisory authorities
(e.g. the central bank).
- In the case of payments made with the contactless card, a shorter transaction
execution time than in the case of cash payment or another type of a payment card is
beneficial not only for the consumer but also for the merchant who is able to manage
the line of cash more effectively and limit queues (POS terminals accepting proximity
cards can generate approximately 10% more transactions than other terminals).17
Benefits for card issuers:
- Issuance of payment cards to customers allows banks to increase revenues from
many sources, e.g. from the interchange fee (on each transaction paid out by the
15
For low-amount transactions, in Poland up to PLN 50. 16
If the transaction is executed off-line, i.e. without having to connect to the authorisation centre. 17
M. Polasik, E. Starogarska, Polski rynek płatności zbliżeniowych – rok 2011, Wydawnictwo – Transakcyjność
– Innowacje, Polasik Research, Toruń 2011.
14
acquirer) and fees for card issuance (one-off fee paid by the customer) or for the use of
the card (fee charged to the customer periodically, usually every month). Owing to
such a structure of revenues in the area of payment cards, the increased use of
payment cards by customers results in higher revenues for banks. Moreover, banks
may increase their revenues by cross-selling other products and services to credit card
holders.
- Banks can also enhance their image and position by participating in new market
segments, e.g. promoting the use of payment cards in the areas of the economy until
now dominated by cash (public transportation, mass events), by issuing proximity
cards. Such actions also contribute to the growth of issuing banks’ revenues.
- Offering payment cards to customers reduces queues and customer service costs in
banks' branches. Owing to the provision of ATMs to customers, the number of cash
register transactions has decreased and employees of banks' branches can perform
operations that are more profitable for the bank than the cash pay out (e.g. lending,
advisory services).
Benefits for acquirers:
The most important benefit for acquirers is generation of revenues as operations of these
entities are oriented to making profit from processing transactions executed with payment
cards. The acquirer generates revenues from fees for the lease of the terminal and from
commissions on transactions. Due to the increasing competition in the area of payment card
acceptance, acquirers compensate for declining margins by intensively developing the
acceptance network. This enables them to increase revenues or at least to maintain them at the
current level.
Benefits for the public sector and the economy:
- The growth of cashless transactions, associated with the development of payment
cards, brings significant benefits to the state. It contributes to the reduction of the
costs of cash issuing and handling. Cashless forms of money, as opposed to cash,
are not subject to damage, do not need to be manufactured, transported, counted or
physically stored. The costs of cash issuing and handling are significant.
According to the existing estimates, they can amount to as much as approximately
15
1% of GDP.18
- Wider popularity of electronic payments in a particular country facilitates the
economic growth in this country.19
- One of the main objectives of cashless transactions promotion by the public sector
is an attempt to reduce the “grey zone” in the economy and to combat money
laundering.20
The results of analyses showed that the growth of electronic
payments contributes significantly to the reduction of the size of the shadow
economy.21
In 2005, the “grey area” in Poland reached the level of 29% of GDP,
while in 2009 it accounted for 26% of GDP. In terms of the value, the unofficial
economy in our country reached the value of EUR 70.1 billion (with GDP of EUR
244 billion) and in 2009 - EUR 80 billion (with GDP of EUR 310 billion).
Therefore, even a partial reduction of the shadow economy is of great importance
to the state budget revenues.
- The cashless turnover also allows to reduce operating costs of the public
sector. An example of the benefits achieved by the public sector owing to the
popularisation of cashless transactions include, for instance, a reduction in the high
costs of retirement and disability benefits cash payments by increasing the range of
various types of benefits paid by the Social Insurance Institution to beneficiaries'
bank account or the distribution of benefits as part of the social assistance in the
form of cards.22
- It should also be noted that the popularisation of cashless transactions, particularly
in retail trade, may contribute to the reduction in the costs of Poland's entry to
the euro area related to the production of banknotes and coins and costs to be
borne by the private sector.
The use of payment cards does not only generate benefits for the participants but also
18
Obrót bezgotówkowy. Zalety i wady wynikające z jego upowszechnienia, NBP, Warsaw, 2008, p. 17. 19
The Virtuous Circle: Electronic Payments and Economic Growth, Visa International, Global Insight Inc., p.
4-5; M. Zandi, V. Singh, The Impact of Electronic Payments on Economic Growth, Moody's Analytics,
March 2010, p. 7. 20
H. Brits, C. Winder, Payments are no free lunch, Occasional Studies, Vol. 3, Nr 2, 2005, De Nederlandsche
Bank, p. 32-33. 21
AT Kearney and F. Schneider, The shadow economy in Europe. Using electronic payment systems to combat
the shadow economy, Visa Europe, 2009, p. 8; AT Kearney and F. Schneider, The Shadow Economy in
Europe, 2010. Using electronic payment systems to combat the shadow economy, Visa Europe 2011, p. 7-8. 22
Obrót bezgotówkowy. Zalety i wady wynikające z jego upowszechnienia, NBP, Warszawa 2008, p. 20-23.
16
produce costs, with costs of one group of the payment card system participants constituting, at
the same time, benefits for another group of participants of the system in many cases. Selected
cost-related issues are addressed later in this paper.
Although cash transactions dominate in many economies in the world payment cards
have been an alternative to banknotes and coins for many years, mainly in transactions
executed in retail and service outlets. The importance of payment cards has been increasing
steadily. They have become the most widely used payment instrument among cashless
methods of payment in the European Union. In 2006, the share of cashless transactions
executed with payment cards in the Community amounted to 34.4% (credit transfer 30%,
direct debit 25.2%, cheques 9.2%, electronic money and other instruments 1.3%), and in 2010
card transactions already accounted for 39.2% of the total number of cashless transactions in
the EU (credit transfer 27.8%, direct debit 25.5%, cheques 5.8%, electronic money and other
instruments 1.6%).23
We believe that the importance of payment cards in the world will
continue to grow.
23
Statistical Data Warehouse, European Central Bank, http://sdw.ecb.europa.eu, (September 2011).
17
Chapter 2
The development of the payment card market in Poland compared
to other countries
The concept of a payment card originated in the United States in the early twentieth
century. Cards from this period were usually made of metal and included customer data used
for confirming rights to receive goods and debiting the customer's credit account. Before the
outbreak of World War II, charge cards enabling deferred payment for goods were issued by
larger chains of shops and petrol stations, however they were accepted only in retail outlets of
their issuers.24
The first company to have been successful on the payment card market was
Diners Club. Soon competitors appeared on the market, such as American Express which
offered the world's first plastic card, or Bank of America which issued the world's first credit
card in California.25
The Polish payment card market is relatively young. Although credit cards appeared
in Poland in the late 1960s, they were cards issued by foreign banks and used by tourists for
making payments in a small number of outlets (mainly in outlets related to the Orbis travel
agency, exclusive hotels and restaurants). The domestic market for payment cards began to
develop in Poland as late as in the 1990s.26
This was mainly due to the reforms implemented
in our country after 1989 which also shaped he domestic banking sector. The reforms also had
a direct effect on the transformation of retail banking. At that time banks started to offer new
types of products and services to customers, including payment cards.27
2.1. Selected indicators of the development of the Polish payment card
market
The development of the payment card market can be described on the basis of an
analysis of several key areas, such as:
24
R. Janowicz, Rynek kart płatniczych w Polsce na tle rozwiniętych rynków w krajach Unii Europejskiej. Stan
obecny i perspektywy rozwoju, Materiały i Studia, no. 116, NBP, Warsaw 2001, p. 9. 25
K. Żwiruk, Historia kart płatniczych na świecie, http://kartyonline.pl, 7 July 2003. 26
More information can be found in: R. Janowicz, Rynek kart płatniczych w Polsce na tle rozwiniętych
rynków w krajach Unii Europejskiej. Stan obecny i perspektywy rozwoju, Materiały i Studia, no. 116,
NBP, Warsaw 2001, p. 12. 27
Rynek kart płatniczych w Polsce, NBP, Warsaw 2003, p. 6.
18
- the number and structure of payment cards issued,
- the value of transactions executed with payment cards,
- the acceptance network measured by the number of POS terminals, retail and service
outlets equipped with POS terminals or merchants.
Chart 1 shows the number of payment cards issued by banks in Poland from 2000 to
2011. In the analysed period the number of these payment instruments increased nearly 3
times. The structure of payment cards also changed. In 2000 credit cards accounted for 3.3%
of all cards issued (in terms of volume: 0.4 million cards), while in the third quarter of 2011
they already accounted for 22.4% (in terms of volume: 7.14 million cards).
Chart 1. Number of payment cards issued in Poland, 2000-2011 (millions)
Source: NBP data.
Data for 2000-2010 are presented as at the end of the year and data for 2011 as at the end of
September.
The increase in the number of cashless transactions executed with payment cards was
also very dynamic, which is presented in Chart 2. Over seven years, between 2004 and 2010,
the number of card cashless transactions increased more than 4 times, while the number of
cards issued in this period (2004-2010 - see Chart 1) nearly doubled. This shows that card
holders have been using cards more and more often to make purchases. It is worth noting that
in 2009, for the first time in the history of the Polish card market, the number of cashless
transactions was higher than the number of cash transactions and in the third quarter of 2011
it reached the level of 58% of all card transactions executed with Polish cards.
0
5
10
15
20
25
30
35
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
debit cards charge cards credit cards
16,9
15,1
16,9
20,4
23,8
26,5
30,332,0
33,2
14,4
11,3
31,9
19
Chart 2. Number of cashless transactions executed with payment cards, 2004-2010 (millions)
Source: NBP data.
Between 2004 and 2010 the value of transactions also increased steadily (Chart 3). In
2004, consumers executed transactions with the use of cards issued in Poland for the total
value of PLN 25 billion, of which payments executed abroad amounted to PLN 1.6 billion. In
2010, the total value of card transactions was nearly PLN 90 billion and transactions executed
abroad constituted 6.6% of this amount, i.e. PLN 6 billion.
Chart 3. Value of cashless transactions executed with payment cards, 2004-2010 (PLN billions)
Source: NBP data.
In Poland, a continuous development of the payment card acceptance network has
been observed. As presented in Chart 4, the fastest growth was recorded in the number of card
0
100
200
300
400
500
600
700
800
900
2004 2005 2006 2007 2008 2009 2010
domestic transactions transactions executed abroad
198
264
354
462
577
704
844
0
10
20
30
40
50
60
70
80
90
100
2004 2005 2006 2007 2008 2009 2010
domestic transactions transactions executed abroad
20
accepting devices (mainly terminals and imprinters in a lower number), while the increase in
the number of retail and service outlets equipped with card accepting devices was slower. The
increase in the number of merchants was the slowest: from 60 thousand in 2003 to 110
thousand in the third quarter of 2011. This means that terminals are installed more often in
commercial establishments which had accepted cards before - as additional card accepting
devices - than at new merchants.
Chart 4. Number of POS terminals in Poland and retail and service outlets (RSO) equipped with
POS terminals, 2000-2011
Source: NBP data.
Data for 2003-2010 are presented as at the end of the year and data for 2011 as at the end of
September.
It should be noted that the growth rate of the acceptance network in Poland is much
lower than the growth rate of the number of payment cards and the number and value of card
transactions, as presented in chart 5.
It may be concluded that the much slower development of the payment card
acceptance network than the rise in the number of payment cards or the number of
transactions constitutes an increasing barrier to further faster growth of card payments.
Attention should be also drawn to the saturation of the acceptance network. Data published by
the Central Statistical Office (GUS) show that in 2009 there were 371,839 shops and 9,738
petrol stations in Poland, i.e. 381,577 such entities.28
However, it seems that there are many
more potential retail and service outlets in Poland that could accept payment cards. Experts
estimate that the number of such outlets could be between 500 thousand to 1 million. This
28
Rynek wewnętrzny w 2009 r., Central Statistical Office, Trade and Services Department, Warsaw 2010.
60 69 76 78 70 8293
104 110101
119134 136 135
153176
189206
133143
166176 186
212231
253 258
0
50
100
150
200
250
300
2003 2004 2005 2006 2007 2008 2009 2010 2011
Merchants RSO Devices
21
means that the saturation of the market in Poland with retail and service outlets accepting
payment cards ranges from 19% to 38%, i.e. it is relatively low. Due to the fact that the
saturation of the Polish society with payment cards is much higher (according to the 2009
NBP survey, the share of Poles holding payment cards was 70%), this small share of
merchants accepting payment cards in the total number of retail and service outlets in Poland
means that an increasingly higher number of Poles holding cards will use them practically
only with the group of merchants used now. Card holders will encounter increasing
difficulties in using cards to make payments in new retail and service outlets because they are
faced with the barrier of non-acceptance.
Chart 5. Growth rate of acceptance network and the number of cards and cashless transactions,
2003-2010
Source: NBP data.
It should also be noted that the network of POS terminals in Poland is unevenly
developed territorially, not only in geographical terms (the saturation with POS terminals per
number of inhabitants is generally higher in the western part of Poland than in the eastern
part), but also within individual provinces (much denser acceptance network in large and
medium-sized cities than in small towns and rural areas). Due to the above factors, a
relatively common inability to use cards to make payments in retail and service outlets has a
parallel effect on the continuation of financial exclusion in Poland, calculated as the
percentage of people having a bank account, at a relatively high level in comparison with
other EU countries. People who live in places where there are no shops accepting payment
cards will not be interested in opening a bank account and receiving a payment card which in
22
practice cannot be used. A poor development of the acceptance network in Poland is therefore
one of the major barriers to reducing the financial exclusion and the development of cashless
transactions in Poland.
The analysis of factors affecting the acceptance of payment cards was the subject of a
merchant survey conducted in 2008 on behalf of the NBP.29
Among the factors that determine
whether to start accepting a particular payment method, cost factors were decisive for the
management of large-area stores (a total of 57% of the weight, including the amount of
commission charged on the value of accepted transactions - 14.9%, and fixed costs of
accepting a particular payment method - 37.4%). Yet, in the case of additionally selected
entities, cost factors accounted for 35.1% of the weight, including the commission on the
transaction value standing at 18% (it was the most important factor for this group of surveyed
entities) and fixed costs of accepting a particular payment method at 17.1%. The results of
this survey point to the crucial importance of the level of merchant fees as the factor
determining whether the retailer chooses to accept payment cards or not.
2.2. Selected indicators of the development of the payment card market -
Poland against other EU countries
The indicators presented in this part of the report are based on statistical data
published periodically by the European Central Bank in the Statistical Data Warehouse as
well as in the form of reports, the so-called Blue Book, which cover 27 Member States of the
European Union. Statistical data are presented in the form of charts with indicators describing
and comparing the level of use of payment cards per capita in the EU countries.
Chart 6 shows the number of payment cards per one inhabitant in Poland and other
EU countries in 2010. The group of seven countries with the lowest number of payment cards
per capita in the European Union comprised post-socialist countries of Central and Eastern
Europe. Regretfully, Poland comes out poorly even in comparison with those countries and
with the ratio of just 0.84 payment card per capita it surpassed only Romania (0.59 card per
capita). The highest level of saturation of the payment card market was in Luxembourg where
there were 2.64 cards on average per 1 inhabitant as well as in the UK (2.37 cards per capita)
29
M. Polasik, K. Maciejewski, Innowacyjne usługi płatnicze w Polsce i na świecie, Materiały i Studia, No. 241,
National Bank of Poland, Warsaw 2009, p. 124-125.
23
and Sweden (2.15 cards per capita). In Europe's largest economy - Germany - this ratio was
1.56 card per capita. In the EU countries the average was 1.45 cards per 1 inhabitant.
Chart 6. Number of payment cards per capita issued in Poland and other EU countries in 2010
Source: Own study based on Statistical Data Warehouse, European Central Bank,
http://sdw.ecb.europa.eu, (September 2011).
The highest indicator of the number of card payments per 1 inhabitant was observed in
Sweden and Denmark (197 transactions), as presented in chart 7. In the EU the average level
of payment card use was much lower and amounted to 68 cashless transactions per capita. In
Poland the number of cashless transactions executed with the use of a card was 3 times lower
in comparison with the EU average. Only residents of countries such as Hungary (21), Czech
Republic (20), Greece (7), Romania (5) and Bulgaria (3) used cards for making purchases less
frequently than in Poland.
0
0,5
1
1,5
2
2,5
3
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nia
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ia
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UE average 1.45
24
Chart 7. Number of cashless transactions executed with payment cards issued in Poland and
other EU countries in 2010, per capita
Source: Own study based on Statistical Data Warehouse, European Central Bank,
http://sdw.ecb.europa.eu, (September 2011).
In terms of the card payment infrastructure, Poland also looked very poorly compared
to other EU countries (Chart 8). There were only 6.6 POS terminals per one thousand
inhabitants in our country. A lower rate was recorded only in Romania (5.0). The largest
number of terminals in relation to the number of inhabitants was observed in Finland (37.5
terminals per 1 thousand inhabitants). It is worth noting that this country recorded a very
dynamic growth in devices that accept payment cards. Even in 2006 this indicator was 19.9
which means that in 5 years as many as 18 terminals per one thousand of inhabitants were
installed, while in Poland there were 4.6 terminals per 1 thousand of inhabitants in 2006 and
by 2010 this number increased by 2 terminals per one thousand of inhabitants. The following
countries ranked high in this list: Greece and Spain (respectively 36.5 and 30.1 devices per 1
thousand of inhabitants), i.e. tourist traffic-oriented countries. Among ten countries with the
lowest level of accessibility to terminals there were eight former socialist countries as well as
Germany and Austria. It is worth mentioning that the establishment of a POS terminal
network in our country with the density at the current EU level (17.56) would require an
0
20
40
60
80
100
120
140
160
180
200
Sw
ed
en
De
nm
ark
Fin
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UK
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ia
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Sp
ain
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ia
Cy
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s
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Italy
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ia
Po
lan
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Hu
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ary
Czec
h R
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Gre
ece
Ro
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nia
Bu
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ria
UE average 68
25
increase by 2.7 times in the number of POS terminals, from 251.8 thousand to approximately
670 thousand.
Chart 8. Number of POS terminals per 1 thousand inhabitants in Poland and other EU countries
in 2010
Source: Own study based on Statistical Data Warehouse, European Central Bank,
http://sdw.ecb.europa.eu, (September 2011).
* Data for Cyprus are for 2008.
Based on the above analysis it can be said that the intra-Community payment card
market is characterised by a great diversity. Indicators of the payment card market
development in Poland are low in comparison with the majority of EU countries. In all
presented charts Poland has the least developed payment card market in the EU. This
demonstrates, on the one hand, Poland’s significant backwardness in comparison with the
majority of European countries and on the other hand - a great potential for the development
of electronic payments in our country.
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
Fin
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Po
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UE average 17.56
26
Chapter 3
Factors determining the development of the payment card market
in Poland
Factors determining the development of the payment card market in Poland can be
considered at various levels. These factors may be external and internal. They may be
national, local - arising from the specificity of our economy, as well as international.
Conditions for the development of the payment card market may also relate to business,
regulatory, legal and technical issues. The most important of them are presented below in the
form of comprehensive projects undertaken in the payment services market.
3.1. SEPA
In recent years many initiatives have emerged which are aimed at developing and
regulating the market for payment services. Currently, large projects are being implemented
in the European market which address the integration of the retail payments market.30
In
connection with Poland's integration with the European Union the banking industry and
market regulators are facing a major challenge posed by intra-Community diversification of
the payment services markets (in terms of the structure, operating principles and the legal and
institutional environment) which hinders cross-border payments in particular,
One of the major projects in this regard is the establishment of the Single Euro
Payments Area (SEPA) which was preceded by a long period of preparations undertaken by
many actors and institutions connected with the European payments industry. In line with the
vision of the project initiators, i.e. the European Commission, the European Central Bank and
the European Payment Council (EPC), SEPA is to be an area in which consumers, businesses
and other participants of the economic life will be able to make and receive both domestic and
cross-border payments in euro, within Europe, under the same, simple principles, rights and
obligations, regardless of their location.31
The SEPA project which was launched on 28 January 2008 marks another stage of the
integration of the European financial market, following the introduction of the single euro
30
A. Borcuch, Globalny system pieniężny, CeDeWu, Warsaw, 2009, p. 105-111. 31
Single Euro Payments Area (SEPA). Integrated retail payments market, European Central Bank, 2006, p.7
27
currency and TARGET large-value payments. Its coverage includes mostly euro-area
countries but it also applies to other EU states and 4 countries from the European Free Trade
Association (EFTA) countries, i.e. Iceland, Norway, Liechtenstein and Switzerland. In total,
SEPA covers 31 countries in Europe. It should be noted at this point that the SEPA project
was intended to be of a self-regulatory character, which means that it was to be implemented
without any formal orders or prohibitions from EU or national authorities.32
The SEPA project consists of several components, such as: the single currency, a
single set of euro payment instruments, efficient infrastructure for euro payments, common
technical standards, common business practices, harmonised legal basis, and ongoing
development of customer-oriented services.
The primary component of the Single Euro Payments Area is a set of new SEPA
payment instruments: SEPA credit transfer, SEPA direct debit and SEPA card payments.
These are non-cash instruments offered to customers in accordance with harmonised
standards and principles. From the official launch of the project until the end of 2010, the so-
called transitional period was in force under which SEPA instruments were to be introduced
gradually and coexist with the existing national solutions. According to program guidelines,
starting from 2011 a full migration to SEPA standards should take place.33
The adaptation of payment cards to the SEPA requirements is implemented in
accordance with the principles laid down in the SEPA Cards Framework (SCF). The main
objective of establishing the SCF principles is to create an environment free from
technological, legal and commercial barriers to the issuance of payment cards and to
processing, accepting and executing card transactions. In accordance with the SCF, from 1
January 2008 tol 31 December 2010, i.e. during the transitional period, a gradual migration to
the EMV standard should take place, consisting in replacing magnetic stripe cards with cards
based on the microprocessor technology and adapting the infrastructure of POS terminals and
ATMs so as to handle cards in the EMV standard. In the same transitional period all payment
terminals and ATMs were also to be adapted to accept EMV cards. After this period, i.e. from
1 January 2011, all general purpose payment cards in circulation, issued by SEPA banks
should comply with the SEPA Cards Framework. This means that magnetic stripe cards
32
D. Duziak, R. Kaszubski, Nowe regulacje europejskiego rynku usług płatniczych to korzyść dla polskich
klientów, "Gazeta Prawna" of 12 June 2008, http://biznes.gazetaprawna.pl. 33
Polish Banks Association, SEPA Poland Service, http://sepapolska.pl (December 2009).
28
issued in the SEPA area should be withdrawn from circulation.34
According to the European Commission, in the fourth quarter of 2010 a total of 81%
of payment cards, 96% of ATMs and 90% of POS terminals in the EU countries were
equipped with a chip compliant with the EMV standard.35
In Poland the process of adapting
the infrastructure of POS terminals to the EMV standard is also progressing quite well (80%
of terminals), while migration of ATMs to these standards is much faster (98% of devices).
However, until 2010 the process of equipping payment cards with a chip was slower than the
EU average because the percentage of cards compliant with EMV standard amounted to
49.6% as at the end of 2010, although it increased significantly by June 2011 to 61%.
A payment card transaction consistent with the SEPA principles is a transaction
executed with a "general purpose" payment card (debit, credit or charge card) issued in one of
the SEPA countries, in the area covered by SEPA and with the participation of a SEPA bank.
This may be a payment transaction (at a retail and service outlet or a remote transaction) or
cash withdrawal at an ATM, however always with the use of EMV technology (except for
remote transactions) and settled in euro (the account may be operated in any currency).
Payments will be executed with one card throughout the SEPA area, yet retailers will be able
to impose restrictions on the acceptability of individual brands of cards. It is worth noting that
the SCF guidelines do not include the electronic money and prepaid cards, which creates
opportunities for the development of niche solutions such as: local payments, fees for public
transportation or gift cards. Poland, like other non-euro area Member States and EFTA
countries, may and does participate in the SEPA as part of euro payments and will be able to
adopt SEPA standards for payment instruments in the national currency.
An important element of the SEPA project is the incorporation in the SCF of
provisions prohibiting application of different prices for domestic and cross-border services.
In addition, each system should have a transparent pricing structure, uniform for the whole
SEPA area that will allow the largest possible number of actors to participate in the system.
Consequently, this means a prohibition to differentiate scheme fees geographically (e.g.
depending on the country)36
. Imposing such a shape of pricing policy on card schemes means
34
R. Kaszubski, D. Duziak (edit.), Jednolity Obszar Płatności w Euro - SEPA. Wpływ zmian na rynku
płatności na podmioty prowadzące działalność gospodarczą, Polish Banks Association, 2008, p. 19,
http://www.sepapolska.pl (October 2008). 35
3rd progress report on the state of SEPA migration, European Commission, DG Internal Market and
Services, Brussels, 17 May 2011,
http://ec.europa.eu/internal_market/payments/docs/sepa/progress_report_2010_en.pdf (August 2011). 36
SEPA Cards Framework, European Payment Council, 16 December 2009, p. 14.
29
that they must change their existing beneficial business model, mainly because of the freedom
in setting fees for the participation in the system. Therefore, it can be assumed that the
organisations will attempt to evade the requirements imposed on them.37
However, attention
should be drawn to the provision pursuant to which each payment card scheme is responsible
for its interchange fee, which means that the SCF has not introduced regulations relating to
the interchange fee and that setting it remains, as before, at the discretion of a particular
scheme associating card issuers.38
This approach is explained with the role of the interchange
fee which is to compensate for the costs of operating the scheme, and also with the fact that
the fee is calculated multilaterally, and therefore it applies to all entities participating in the
network. In turn, in the opinion of the European Central Bank a long-term continuation of
rates differentiated geographically is in conflict with the pro-integrative concept of SEPA.39
3.2. Payment services directive
The second project, in addition to SEPA, aimed at creating an integrated market for
payment services is the Payment Services Directive (PSD). The Directive was adopted by the
European Parliament and the Council of the European Union in 2007, and Member States
were required to implement the regulation by 1 November 2009. However, not all countries,
including Poland, met the deadline.40
This document establishes a common legal framework
for the provision of payment services in the European Union which until now were governed
by regulations of separate legal systems of Member States.
The major areas governed by the PSD regulations include;41
- right of public provision of payment services, meaning the harmonisation of
conditions for market entry to be met by non-bank entities intending to provide
payment services. This is to ensure a level playing field for all market participants and
stimulate increased innovation and competitiveness of national markets;
- requirements for transparency of information defining a set of harmonised information
37
J. Chaplin, SEPA – changing the game for cards, First Data International, 2007, http:\\\www.firstdata.com. 38
SEPA Cards Framework, European Payment Council, 16 December 2009, p. 16. 39
5th Progress Report (July 2007), SEPA - from concept to reality, European Central Bank, p. 13. 40
Poland was the last country in the European Union to have implemented the provisions of the Directive into
national law as late as on 24 October 2011, i.e. simultaneously with the entry into force of the Act on
Payment Services of 19 August 2011. 41
Single Euro Payments Area (SEPA), European Central Bank, http://www.ecb.int/pub/pdf/other/sepa_brochure_2009pl.pdf (February 2010).
30
requirements that will have to be presented by all payment service providers;
- rights and obligations of users and providers of payment services which are explained
in the Directive in detail and finally.
The objectives of the Directive which include the support for consumer rights and
integration of national systems as well as the promotion of the transparency and competition
in the market for payment services greatly support the creation of the Single Euro Payments
Area.42
The Directive does not provide for requirements for determining the level of
interchange fees. As far as national options are concerned, only activities related to the
introduction of the surcharge are permitted.
3.3. Act on Payment Services
The Polish Act on Payment Services implements the Payment Services Directive. The
final text of the Act was determined by the Parliament after the consideration of the Senate's
amendments on 19 August 2011.43
The Act on Payment Services was published in the Journal
of Laws on 23 September 2011, and its basic provisions entered into force on 24 October
2011. It is worth noting that the implementation of the Payment Services Directive took a
very long time in our country. Poland is the last EU country to implement the Directive into
the national law. The delays resulted from a very long process of consultations and a large
number of comments and amendments reported at various stages of work on the act. The
provisions of the Act relate to the market which until now has not been regulated in its major
part (except for regulations on, among other things, payment systems, acquirers and
authorisation and clearing systems). According to the Act, payment services and the provision
of such services will no longer be provided, as before, as free economic activity and will be
subject to the supervision of the Polish Financial Supervision Authority.
The Act specifies the conditions for the provision of payment services, in particular in
respect of the transparency of contractual provisions and requirements for informing about
42
(1) Making SEPA a Reality. Implementing the Single Euro Payments Area, European Payment Council, Doc: EPC066-06, Brussels, 28 June 2006, (2) Joint statement by the European Central Bank and the European Commission concerning the adoption by the European Parliament of the Payment Services Directive, European Central Bank, 24 April 2007, http://www.ecb.int/press/pr/date/2007/html/pr070424.pl.html (August 2011).
43 Polish Parliament, Payment Services Act of 19 August 2011, text of the act determined finally after
consideration of Senate amendments,
http://orka.sejm.gov.pl/opinie6.nsf/nazwa/4217_u/$file/4217_u.pdf
31
payment services; the rights and obligations of the parties arising from contracts on the
provision of payment services, as well as the responsibilities of providers in respect of the
performance of payment services and principles for conducting the activity by payment
institutions and payment services agencies, including through agents of these entities, and the
principles for supervision of these entities.
As part of parliamentary debates on the Act, one of the items discussed was the
problem of the surcharge and interchange fees, which is further described in section 6.3.
3.4. Payment card organisations in Poland
Regulations and standards set by VISA and MasterCard which must be observed as
part of civil law contracts by: (i) banks issuing payment cards with the logo of these
organisations, (ii) acquirers and (iii) merchants accepting these cards, are in fact one of the
main factors that contributed to the development of this market. The regulations of these
organisations determine the business model which functions on the basis of a four-party
payment system which requires the involvement of specialised entities operating under
strictly defined rules. There is no competitive national card payment system in Poland,
therefore the Polish payment card market is highly dependent on the regulations of
international payment organisations.
3.4.1. “Visa cards accepted everywhere” programme
One of the recent major projects of the Visa organisation is the programme launched
at the beginning of 2010 aimed at developing a payment card acceptance network, called
"Visa cards accepted everywhere”. The programme aims to double the number of POS
terminals in Poland, i.e. from approximately 200 thousand to 400 thousand terminals in 2015.
The launch of the programme was preceded by market consultations, both with banks issuing
VISA cards and acquirers. The program, which is funded by the banks issuing cards, is
focused on attracting retail and service outlets which so far have not accepted payment cards.
Funds are transferred to acquirers in the form of a subsidy to the installation of new terminals.
Under this programme, Visa member banks in Poland will allocate more than PLN 200
million over 5 years to support the growth of card acceptance. By the end of September 2011
approximately 56 thousand new POS terminals had been installed at nearly 38 thousand
merchants who had not previously accepted payment cards.
32
3.4.2. „Innovation for Poland” programme
MasterCard organisation launched the "Innovation for Poland" programme which
aims at supporting banks issuing payment cards with the MasterCard logo which intend to
introduce innovative products such as: proximity cards, NFC mobile payments, cards with a
display or multi-application cards. Funding may be obtained for a particular project on the
basis of an application submitted by the bank to the MasterCard organisation. Decisions on
granting the financing are made by the group of MasterCard experts, i.e. representatives of
the local market representing the MasterCard office in Warsaw and European experts
responsible for innovative products.
The programme was launched on 1 January 2011 pursuant to the decision of the
MasterCard organisation. The program is expected to create a fund financed by acquirers who
are required to pay an additional fee of 0.025% of the value of transactions executed with
payment cards. It is estimated that in 2011 acquirers will pay approximately EUR 5 million to
the fund.
3.5. Interchange fee policy of the European Commission and European
Central Bank
3.5.1. European Commission's Action
The issue of the interchange fee has been the subject of analyses of the European
Commission for many years. The first complaint which accused Visa and Europay
International of restricting competition through specific arrangements concerning interchange
fees charged for cross-border transactions, was submitted by the British Retail Consortium in
1992. The second complaint, concerning, inter alia, multilaterally agreed interchange fees in
Visa and MasterCard systems, was filed in 1997 on the initiative of EuroCommerce
association representing retail, wholesale and international sellers in the European Union.
The first significant event was the decision of 24 July 2002 on inter-regional
interchange fee determined multilaterally under the Visa Europe association. In this decision
the Commission approved, as an exemption to the competition rules (Article 81 clause 3 of
the Treaty establishing the European Community), the use by Visa of interchange fees for
cross-border transactions, subject to acceptance by Visa of new rules which related to:
- reduction of the interchange fee; for debit cards the interchange fee will be reduced
33
gradually over a period of five years with this reduction amounting to over 50%; for
credit cards the reduction of the interchange fee will also be gradual, so that in 2007
the level of 0.7% is reached; income of banks from charging this fee will fall
gradually to approximately 20% in relation to the income that would have been
achieved if the above mentioned change had not been introduced.
- objectivity, i.e. the use of three cost categories to set the interchange fee:
• transaction processing costs,
• costs of providing customers with a free funding period,
• costs of the so-called "payment guarantee",
- transparency; at the request of the owners of retail and service outlets, Visa member
banks will be required to disclose their rates of the interchange fee and the percentage
share of the above mentioned three cost categories in that fee,
- setting a separate interchange fee for transactions executed by mail or telephone, due
to differences in costs in relation to transactions executed via POS.44
The said exemption expired on 31 December 2007. By this date the adjustment of the
Visa system to the competition rules should have been completed. In March 2008, the
Commission initiated proceedings against Visa Europe to verify the method of determining
the interchange fee for cross-border transactions and certain domestic transactions.45
In April
2010, an agreement was reached under which Visa agreed to reduce interchange fee rates for
cross-border immediate debit card transactions to the level of 0.2% of a transaction value on
the average.46
The European Commission welcomed the Visa decision, noting that it would
primarily benefit consumers who would not pay inflated prices for goods and services. It is
worth noting that the maximum level of interchange fee rates agreed with the European
Commission also applies to domestic debit card transactions in countries where interchange
fees are set by Visa Europe. These countries include: Iceland, Malta, Sweden, Hungary as
44
Commission exempts multilateral interchange fees for cross-border Visa card payments, IP/02/1138,
European Commission, Brussels, 24 July 2002,
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/02/1138&format=HTML&aged=1&language=
EN& guiLanguage=en (September 2011), 45
Antitrust: Commission initiates formal proceedings against Visa Europe Limited, MEMO/08/170,
European Commission, Brussels, 26 March 2008,
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/170&format=HTML&aged=0&langu
age= EN&guiLanguage=en (September 2011), 46
Annual Report 2010. Making money flow, Visa Europe, p. 12, (September 2011).
34
well as the Netherlands, Luxembourg and Belgium. However, in the Netherlands and
Luxembourg these rates apply to prepaid cards as Visa debit cards are not issued and in
Belgium neither debit cards nor prepaid cards are issued.47
The subject of the European Commission analyses also includes the operations of the
MasterCard payment organisation. In its decision of 19 December 2007, the Commission
concluded that multilateral interchange fees charged by MasterCard on cross-border
transactions (within the European Economic Area) for MasterCard and Maestro debit and
credit cards violate the provisions of Article 81 of the EC Treaty and simultaneously they do
not meet the conditions for exemption from competition rules provided for in Article 81 (3) of
the Treaty. In the case of the condition of contributing to technical or economic progress,
MasterCard did not demonstrate a causal link between the interchange fee and objectively
measured efficiency. It merely pointed to the role of the interchange fee consisting in
maximising system output and balancing the expectations of card holders and merchants.
However, it did not present empirical evidence supporting this argument or evidence
indicating positive effects of the discussed fee for the operation of the system and the
associated benefits. The Commission also stressed that the interchange fee set by MasterCard
is based on the model created by William Baxter in 1983 which has severe limitations and is
based on unrealistic assumptions.48
As to the second condition of Article 81 (3) of the Treaty,
MasterCard did not provide sufficient evidence that consumers (merchants and card holders)
get a fair share of the benefits which result from the application of the interchange fee. With
regard to the third condition, MasterCard did not prove that the interchange fee in its current
form is indispensable to maximise system output. The Commission stated that it did not
dispute the existence of the interchange fee. However, the fee had to be consistent with EU
regulations. The Commission also found that interchange fees charged in the absence of a
separate bilateral agreement between the bank that issued the card and the bank receiving the
payment contribute to an excessive increase in card acceptance costs incurred by retailers.
The Commission ordered, as a remedy, to withdraw interchange fees for cross-border
transactions within six months. Otherwise, periodic penalty payments of 3,5% of MasterCard
47
Interchange fees, Visa Europe,
http://www.visaeurope.com/en/about_us/what_we_do/fees_and_interchange/interchange_fees.aspx (September 2011).
48 The main assumptions of this model are as follows: (i) demand from consumers and retailers is constant since
neither of these groups responds strategically to possible actions by the other, (ii) there is no variation in the
benefits that merchants receive from accepting cards (iii) the existence of perfectly competitive banking
industry.
35
Incorporated’s daily consolidated global turnover in the preceding business year will be
imposed on MasterCard.49
On 1 March 2008, MasterCard Europe filed a request with the
Court of Justice of the European Union for the annulment of the European Commission’s
decision.50
MasterCard, unable to find an alternative to the existing fee that would not violate
the above mentioned Community regulations, repealed the interchange fee for cross-border
transactions with effect from 21 June 2008, thus complying with the Commission Decision of
19 December 2007.51
However, in October 2008 MasterCard increased the fees for the
participation in the system (for issuing banks, for acquirers) and revoked the existing
exemption from these commissions. Following the intervention by the Commission,
MasterCard agreed to cancel the increases in the fees in July 2009. In addition, from July
2009, MasterCard undertook:
- to introduce new calculations for multilateral interchange fees on cross-border
transactions so that the weighted average of these fees will be significantly reduced to
0.3% for consumer credit cards and to 0.2% for consumer debit cards,52
- to make modifications that will contribute to transparency and competition in the
payment card market, including to offer to merchants so-called 'unblended' rates, i.e.
varied rates that will be charged according to the type of card used,
- publish all interchange rates for cross-border and domestic transactions on its website.
The European Commission announced that it would closely monitor the implementation of
the agreed changes in the MasterCard system.
On 8 July 2011, a hearing was held in the Court of the European Union with regard to
MasterCard appeal against the decision of the European Commission of 2007. MasterCard
Europe was represented by the President, Javier Perez, who pointed that among the most
49
Summary of Commission Decision of 19 December 2007 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement
(Case COMP/34.579 – MasterCard, Case COMP/36.518 – EuroCommerce, Case COMP/38.580 –
Commercial Cards), European Commission, Official Journal of the European Union, 6.11.2009. 50
Antitrust: Commissioner Kroes notes MasterCard's decision to cut cross-border Multilateral Interchange Fees (MIFs) and to repeal recent scheme fee increases - frequently asked questions, MEMO/09/143, 01/04/2009, European Commission, http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/143&type=HTML (September 2011).
51 Antitrust: Commission notes MasterCard's decision to temporarily repeal its cross-border Multilateral
Interchange Fees within the EEA, MEMO/08/397, European Commission, Brussels, 12 June 2008,
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/08/397&format=HTML&aged=1&language= EN&guiLanguage=en (September 2011).
52 For comparison, depending on the card, multilateral interchange fees for MasterCard cards ranged from
0.80% to 1.90% in 2007, while multilateral interchange fees on cross-border transactions ranged from over
0.40% to over 0.75% of the transaction value.
36
important points and arguments was that the future of electronic payments was at stake and
that the European Commission was trying to fix something that was not broken. He also
expressed his concerns that government intervention could threaten the ongoing development
of the EU payments market and lead to a situation where consumers and merchants would end
up without access to more convenient, more secure and more advanced payment options that
would make consumers’ lives easier and retailers’ businesses more profitable. The President
of MasterCard Europe also pointed out that since the Commission first began examining
interchange fees, a lot has changed in the payments industry, as evidenced by: increased
competition in the market, implementation of contactless and mobile payments, new entrants
from other sectors of the economy, e.g. the telecommunications sectors. As a result, recent
years witnessed major technological advances and a significant growth in electronic payment
transactions and the acceptance of different kinds of payments. Referring directly to the
interchange fee, he argued that it was the most transparent and efficient way to achieve the
balance among all participants in the open four-party system and that MasterCard is focused
on creating an advanced, well-functioning internal market for payments in Europe.53
The European Commission also developed a report on the retail banking sector in the
EU countries which was published in January 2007.54
The report contains the Commission's
position on the interchange fee applied in each EU country. The results of the Commission's
inquiry indicate that the interchange fee is not an indispensable element of the operation of
the card payment systems. After all, some national systems operate without this mechanism,
which translates into lower fees charged to merchants. The results of the inquiry revealed
significant variation of the weighted average interchange fee in Visa and MasterCard
international systems for the credit card in domestic transactions in individual EU Member
States. In 2004, the level of the highest fee (more than 1.5% of the transaction value) was 2.5
times higher than the weighted average of the lowest fees. In the case of Visa and MasterCard
debit cards the highest fees were observed in some new EU Member States. Some
observations may indicate that the level of the interchange fee in some Member States is
determined by using banks’ the market power, which results from high and sustained
profitability ratios of banks in relatively highly developed markets and the use of barriers to
53
‘Don’t Try To Fix What Isn’t Broken’ Declares MasterCard Europe President, MasterCard, Waterloo,
Belgium, 8 July 2011, http://newsroom.mastercard.com/press-releases/%e2%80%98don%e2%80%99t-try-to-
fix-what-isn%e2%80%99t-broken%e2%80%99-declares-mastercard-europe-president/ (September 2011). 54
Report on the retail banking sector inquiry, European Commission, Directorate-General for Competition,
Brussels, 2007.
37
entry by those banks.55
In the Commission’s opinion, interchange fees appear to increase profits generated by
card issuers. According to the results of the inquiry, 62% of all banks surveyed would still
make profits on credit card issuing even if they did not receive any revenues from the
interchange fee. In 23 EU Member States, at least one bank participating in the survey was
able to make a profit from issuing credit cards without charging interchange fees. The inquiry
seems to partly undermine the explanations presented by the banking sector that the total
system output would fall if card issuers were not subsidised through a transfer of revenues
from acquirers. The Commission's aim in this inquiry was not, however, opting for a zero
interchange fee in all systems. Nonetheless, in the light of the results obtained, it is justified to
question the current level of interchange fees in certain countries.56
After the release of the report Ms Neelie Kroes, the EU Commissioner for Competition,
presented the following conclusions regarding the application of interchange fees at the
national level:57
- costs of interchange fees affect final prices of goods and services, paid by consumers,
- this cost element is not transparent and therefore cannot serve as an incentive to
choose the most efficient means of payment,
- all consumers, including those who do not use payment cards, bear the costs of the
interchange fee,
- the Commission does not call for the abolition of the interchange fee, however it
intends to ensure that it is determined at a fair level through the development of
competition and its transparency for market players.
- there is no economic evidence to claim that the reduction of the interchange fee will
cause an increase in other fees for payment card holders. The operations of most card
issuers will be profitable, even if the interchange fee is completely abolished.
55
Report on the retail banking sector inquiry, European Commission, Directorate-General for Competition,
Brussels, 2007, p. 137. According to the Commission's inquiry, the issuing of credit cards is very profitable.
On an EU-wide scale, credit card issuers posted a weighted average profit-to-cost ratio of 65% in 2004 while
debit card issuers - a weighted average profit ratio of 47%. In most EU Member States, the weighted average
profit ratios remained fairly stable over the period 2000 - 2004. 56
Sector Inquiry under Article 17 of Regulation (EC) No 1/2003 on retail banking (Final Report), C0M(2007)
33 final, Brussels, European Commission, 31.1.2007,
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=C0M:2007:0033:FIN:EN:PDF (September 2011). 57
N. Kroes, Introductory Remarks on Final Report of Retail Banking Sector Inquiry, Speech/07/50, Press
conference, Brussels, 31 January 2007.
38
- lack of competition at the retail level, where the uniform interchange fee is charged
(irrespective of the type of the card, issuer, system) is the reason for setting the fee at
such a high level. The Commission criticises this practice, described as "blending".
- the data available to the Commission show that in some new EU member states the
interchange fee is almost four times higher than in others countries. The Commission
has serious concerns about the levels of multilateral interchange fees in those
countries. The Commission did not receive convincing explanations of the reason for
such large variations. In the Commission’s opinion, this results from lack of
competition in the markets where the fees are the highest. A reduction of the
interchange fee will be beneficial for consumers.
- The Commission welcomes the commitment to reduce interchange fee from Austria
and Portugal and a commitment of Ireland to cut the joining fee.
In the communication the Commission jointly with the European Central Bank
expressed concern that as a result of the replacement of national debit card schemes by Visa
and MasterCard, costs of payment card usage will increase for market players and consumer
and the implementation of the SEPA project will be threatened. Moreover, the Commission is
determined to take appropriate action (under the anti-trust rules) if prices are raised.
3.5.2. Activities of the European Central Bank
The issue of the interchange fee is perceived by the European Central Bank from the
angle of the SEPA project. The project is expected to result in a creation of a competitive,
reliable and cost effective payment card market, while having regard to providers of the
infrastructure and other services. The ECB expects that in addition to four-party schemes,
three-party payment card schemes will also comply with the SEPA standards. In accordance
with the views of the ECB, the principles for and the terms and conditions of acceptance, set
for the same type of a payment card, may not differ due to geographical location. It should be
emphasised that this is very important from the perspective of changing the present situation
because according to research published by the Finnish central bank the geographical location
is one of the most important factors affecting the level of the interchange fee.
In the ECB opinion, a payment card system compliant with SEPA should meet the
following conditions:
39
- offer the same services to merchants and card holders throughout the euro area while
different additional services should not reduce the common use of those services,
- have uniform interchange rates (if any) for cards of a particular brand throughout the
euro area,
- define and publicly announce a medium- and long-term strategy compliant with SEPA
objectives,
- make public interchange fee rates and the methodology of their calculation and submit
them to competent authorities,
- be consistent with the future position of the European Commission on market practice
of acquirers and merchants in order to enhance competitiveness,
- effectively separate card system management from other services related to card
processing so as to prevent cross-subsidisation and other practices that would favour
the provision of those services by the card system,
- participate in the creation of compromise-based standards and implement them in
accordance with the set deadline,
- prevent the transfer of disaggregated personal data to countries that do not comply
with the rules applicable in the area of the protection of these rights in the EU,
- implement a strategy to prevent fraud transactions, particularly in cross-border
operations.
The ECB also proposes that the European Commission define as soon as possible
rules for charging interchange fees throughout the euro area. Decisions of national and
European institutions on interchange fees should be in the ECB opinion consistent and
coherent with each other. In the opinion of the ECB the interchange fee which is paid by
acquirers (and ultimately by merchants) to banks-card issuers, is an effective instrument for
the promotion of cards among consumers in EU countries. However, the interchange fee can
also be a barrier to competition because it reduces the possibility of negotiating the fee paid
by merchants to acquirers. The current uncertainty as to the further conditions of charging
interchange fees delays banks in making decisions on the implementation of the SEPA
program and is an obstacle to finalising business plans. In the opinion of the ECB, the recent
report of European Commission on retail banking sector gives a general impression that a
possibility of prohibiting the interchange fee may be considered. The Eurosystem encourages
40
the European Commission to clarify its policy on interchange fees as soon as possible. If this
policy is significantly different from the current practice, the ECB urges the Commission to
establish a sufficiently long transitional period to avoid disruptions in the payment card
market. Decisions of the European Commission and national competition authorities should
be harmonised in the ECB opinion, in particular in respect of the establishment of a coherent
policy in the euro area. This will contribute greatly to facilitating the development of new
market initiatives.
The ECB also promotes all initiatives that lead to increased competition for Visa and
MasterCard throughout the European Union. In particular, a creation of a new payment card
system in Europe is mentioned which would be a major success factor in the implementation
of the SEPA project for cards (opinions: Jean-Michel Godeffroy58
and Gertrude Tumpel-
Gugerell).59
Currently, three initiatives are being implemented to consolidate and create a
pan-European payment card scheme:60
- Euro Alliance of Payment Schemes (EAPS), a project linking national payment card
systems from Italy, Germany, Spain, Portugal and the UK, as well as EUFISERV
(inter-bank system of savings banks). The EAPS integrates many ATM network,
which allows debit card withdrawals abroad.61
- Monnet, a project opened in 2008 by the largest French and German banks in order to
implement a system based on transparent economic and pricing principles.62
- PayFair, an electronic payment processing system, supported by large European retail
chains, which is not based on the interchange fee mechanism and is compatible with
the SEPA and PSD principles and introduces a transparent model of fees (fixed rate
per transaction).63
The most recent position on interchange fees on the payment card market is presented
58
New card schemes for Europe, Speech by Jean-Michel Godeffroy, Director General Payment Systems and
Market Infrastructure, European Central Bank, Télécom-Paris, Paris, 26 October 2007,
http://www.ecb.int/paym/sepa/pdf/telecom_jmg_071026.pdf. (September 2011) 59
The Paypers, ECB: New European cardscheme is "piece still missing in the SEPA puzzle", 11 September
2011 http://www.thepaypers.com/news/cards/ecb-new-european-card-scheme-is-piece-still-missing-in-the-
sepa- puzzle-/739423-23 (September 2011). 60
Word Payments Report 2010, Capgemini, p. 28, http://www.capgemini.com/insights-and-
resources/by- publication/world-payments-report-2010/ (September 2011). 61
Euro Alliance of Payment Schemes, http://www.card-alliance.eu/ (August 2011). 62
A New European Card: the Pan-European Project ‘Monnet’ for a European Card Solution, efinancelab,
2008. 63
PayFair, http://www.payfair.eu/ (August 2011).
41
by the ECB in the report of 2011 "Interchange fee in card payments " . The above report
indicates, among other things, that:
- from an economic point of view, the existence of interchange fee in four-party models
is justified;
- clarity of card schemes is needed so as to foster the creation and development of an
advanced retail payments market. This also applies to the interchange fee on which
knowledge has been so far limited and for this reason the ECB, similarly to other
banks, monitors more closely and analyses the card market.
- a thorough empirical analysis of interchange fees is required to facilitate strategic
decision-making by market actors regarding the development of a new payment
organisation and new payment instruments;
overall, the Eurosystem's stance on interchange fees is neutral. This is an issue within
the field of the competence of the European Commission, however the Eurosystem shares the
view that in order for the SEPA project to be successful, cards must be issued, processed and
used uniformly throughout the euro area and interchange fees (if any) should be set to
promote overall economic efficiency in compliance with competition rules.
42
Chapter 4
Description of the interchange fee
The interchange fee is a highly complex issue. It occurs in the market of payment
cards both in the case of cashless transactions (payments made with cards) and cash
transactions (cash withdrawals from ATMs). This study focuses on the analysis of the
interchange fee for cashless transactions.
4.1. Definition of the interchange fee
Interchange fee is a commission paid by the acquirer to the issuing bank on each
cashless transaction executed with the use of a payment card.64
This fee is a characteristic
element of four-party (open) schemes under which card issuing and transaction clearing may
be performed by separate, independent entities, i.e. issuers and acquirers. There are also
payment card schemes which operate without such fees.
Interchange fees may be set by members of the payment card organisations (Visa) or
by the organisations themselves (MasterCard) in the form of rules. It should be emphasised
that the beneficiaries of the interchange fee system are banks issuing payment cards, while
payment organisations stress that they do not directly achieve any revenues in this respect.65
It is also worth noting that the interchange fee is usually transferred in the opposite
direction to the transfer of funds for goods or services. Every time a card payment is made,
the issuing bank (acting on behalf of the card holder) is obligated to pay the acquirer (acting
on behalf of the retailer) for goods or services. The interchange fee is transferred from the
acquirer to the issuing bank. In this context, the interchange fee is a balancing mechanism in
which the part of the costs incurred by the issuing bank is compensated by revenues generated
by the party servicing the merchant.
There are three types of the interchange fee within international payment card
schemes: national, intra-regional and inter-regional. National interchange fees apply to
64
This is the most common direction of the transfer of this fee, although it may be the opposite;
source: European Commission, Report on sector inquiry on retail banking, Directorate General for
Competition, Brussels, 2007, p. 91. 65
(1) Interchange. What it is. How it work. And why it is fundamental to the Visa payments system, Visa, s.
16, http://www.visa.ca/en/aboutcan/mediacentre/interchange/pdf/interchange_brochure.pdf, (August 2011;
(2) Interchange Myths and Facts, MasterCard Worldwide, p. 5,
http://www.mastercard.com/us/merchant/pdf/021208MythsFacts.pdf, (August 2011).
43
transactions executed in the country where the card was issued. Intra-regional fees (also
called cross-border fees) relate to transactions accepted outside the country of card issue but
in the same geographical region. Inter-regional fees apply to transactions executed between
Europe and Asia or the United States.
Rates of interchange fees vary widely and depend on, among other things:
- the payment organisation,
- type of the card used (debit card, charge card, credit card; consumer card or business
card; card with a magnetic stripe or chip),
- method of authorisation (for transactions using PIN, without using PIN),
- environment in which the transaction was executed (physical presence of the card,
card not present)
- relationship between the merchant's country and the country of card issuance,
- category of the merchant (wholesale, bill payments, public transport).
The structure of the interchange fee also varies. The fee may be defined as:
- a percentage of the transaction value,
- a constant value, regardless of the transaction value,
- a two-component fee, i.e. a combination of the percentage rate and the fixed rate.
4.2. Outline of fees on the payment card market
The interchange fee is only one of the fees present in the business model of the four-
party payment card scheme. This model is presented in diagram 2. In addition to interchange
fee, the following fees can be distinguished: merchant service charges, card holder fees and
system fees.
44
Diagram 2. Business model of the four-party payment card system
Fees in a typical payment transaction Fees possible to occur within the whole system
MerchantCustomer /Card holder
AcquirerIssuer
Payment organisation
Merchant Service Charge
System fees
System fees
Interchange fee
MerchantCustomer /Card holder
AcquirerIssuer
Payment organisation
Merchant Servive Charge
surcharge
Fees for issuing and/or
using a card
System fees
System fees
Interchange fee
Rewards POS terminal fees
Telecommunica-tions fees
Source: Own study based on Report on the retail banking sector inquiry, European Commission,
31 January 2007 r., p. 117.
Merchant Service Charge (MSC) is a fee charged by the acquirer from the retailer for
each accepted transaction (executed with the card). It is usually calculated as a percentage
commission on the transaction value.66
As a result, the merchant does not receive from the
acquirer an amount equal to the price of goods/services or the amount it would receive, when
accepting cash, because its amount due is reduced by the commission charged by the
acquirer.67
It should be noted that the merchant service charge is usually taken into account
when determining the price of goods or services by merchants. An essential element of the
merchant service charge is the interchange fee and the remaining part of this charge is the
margin of the acquirer and a fee paid by the merchant, referred to as Assessment Fee.68
Additionally, merchants are charged fees by acquirers for the lease and servicing of POS
payment terminals and they also bear costs of authorising telecommunications connection
with the acquirer's server. Due to costs of card acceptance charged to merchants by acquirers,
merchants may raise prices of goods and services or introduce additional fees for customers
making card payments (surcharge), if this is permitted by the rules of the organisation or the
law. In turn, card holders do not bear any costs for cashless transactions made with the card,
66
The amount of merchant service charges, as opposed to interchange fees, is determined by negotiations
(between the acquirer and the retailer). Thus, retailers, even if they operate in the same industry, may
have different rates of merchant service charges. 67
Simultaneously, when accepting a card payment, the merchant does not bear the cost of cash handling. 68
The Assessment Fee is a component of the merchant service charge (consisting of three elements:
interchange fee + assessment fee + acquirer's margin) and is transferred to payment organisations.
45
except when the merchant charges a surcharge. They may be charged only small fixed fees for
the issuance or possession of the card, although - as noted in chapter 1 - they are often exempt
from these fees and may be rewarded for a frequent use of cards to make payments.69
In
addition, acquirers and card issuers are charged different types of fees for the participation in
the system of payment cards, also called system fees. These fees constitute revenue of
payment organisations. Therefore, the acquirer's margin is not equal to its remuneration
because fees to payment organisations are paid from the margin.
Based on the above analysis of the flow of fees in the four-party system (business
model) it can be stated that the main beneficiaries of the system are: (1) issuing banks and (2)
acquirers who, although they bear certain costs of participation in the system, receive
remuneration for their activities, and in some cases (3) card holders (exemption from fees,
refund of a portion of money spent). As a result, the group which carries the bulk of the
financial burden in the four-party scheme are retailers who "support" the entire system. It
should also be noted that significant revenue from the organisation and management of the
four-party scheme is achieved by payment organisations which are however not classified as
participants of the four-party scheme. According to the position of payment organisations,
despite the existence of various kinds of fees, all participants of the four-party scheme,
including merchants who achieve benefits when they make a decision to accept payment
cards, are its beneficiaries.70
It is worth noting that the interchange fee is not present (it is not visible) in three-party
schemes because the function of the card issuer and the acquirer is performed by one entity -
the central institution. However, it is very interesting that merchant service charges in three-
party schemes are usually higher than in four-party schemes, which may partly explain a
limited scale of operation of three-party schemes.71
4.3. Justification for the introduction of interchange fee from the point of
view of payment organisations
The application of interchange fees may serve achieving numerous tasks.
Payment organisations indicate that the primary role of this fee is to determine the
69
The issuing bank may also charge the following fees to the customer: interest on the outstanding balance
or fees for late repayment of the loan taken out under the credit card. 70
The benefits arising from the participation in payment card schemes are presented in more detail in chapter 1. 71
Competition and Efficient Usage of Payment Cards, Organisation for Economic Co-operation and
Development, Competition Committee, 2006, p. 25.
46
balance between the issuing side and acquirers who service merchants. The specificity of the
operation of the four-party model consists in the fact that most of the costs are incurred by
issuers of payment cards (card promotion, production, issuance and support; certifications;
adjustment of cards and banking systems to new technologies), while most of the revenue in
the scheme is generated on the side servicing merchants (transaction processing and
registration, lease and service of terminals). Therefore, it is necessary to compensate for this
imbalance by passing funds from the acquirer who services the merchant to the issuer of the
card used for executing the transaction. Without the interchange fee banks would not achieve
sufficient income from just issuing cards, thus the efficiency of the entire system could be
disrupted. In this context, the interchange fee constitutes an important balancing
(compensating) mechanism allowing to maintain the balance between the above mentioned
parties of the system.
The interchange fee is also aimed at encouraging issuing banks to issue payment
instruments with the logo of the system. It constitutes a tool allowing issuing banks to invest
in new solutions and technologies in order to (a) increase the level of security and prevent
fraud occurring in the system and (b) offer more efficient and convenient payment
instruments, which encourages both new and existing customers to use products and services
of the system. In view of these activities it may be concluded that issuing banks transfer, as it
were, a portion of revenues from interchange fee to card holders.
The interchange fee is also a tool allowing payment organisations to connect retailers
and consumers around the world who want to execute transactions. In addition, it creates
opportunities for the development of the entire system by accepting new participants, in
accordance with the idea of the openness of this system.72
Therefore, it is a mechanism
enabling to manage the global system which consists of thousands of financial institutions,
millions of retailers and millions of consumers.73
4.4. Economic concepts concerning the payment card market
The literature points to several economic concepts explaining the functioning of the
72
In the opinion of MasterCard, payment card systems with a zero interchange fee are subsidised or operate,
incurring losses; [source:] The role of interchange fees in providing secure, efficient and transparent card
payments in Europe, p. 3, MasterCard Europe,
http://www.mastercard.com/us/company/en/docs/IF_position.pdf (August 2011) 73
Interchange. What it is. How it work. And why it is fundamental to the Visa payments system, Visa, p. 15,
http://www.visa.ca/en/aboutcan/mediacentre/interchange/pdf/interchange_brochure.pdf (August 2011).
47
payment card market. They include: network effect and the issue of two-sided markets.
A characteristic phenomenon in the payment card market is the network effect
whereby each new user of the system (customer or retailer) increases the value of the system
for all system participants. Therefore, the value of a payment card for its holder is the greater
the larger the network of its acceptance is. In the case of merchants, accession to the system
also brings greater benefits with an increasing number of customers using cards .
It should also be noted that the payment card market is a typical example of a two-
sided market. Two-sided markets are markets that support two distinct user groups interacting
with each other. The more users of the market are on one side, the greater benefits are
achieved by the other side of the market.74
In addition, both sides of the market demonstrate a
different elasticity of demand. In the case of the payment card market systems offer their
products and services to two different groups of users, i.e. to (1) card holders and (2) retailers
who enable their customers to make card payments. Both groups of system users constitute
two different sides of the payment card market. In payment card schemes, prices (fees) are set
taking into account demand from retailers and demand from card holders as well as
maximisation of total revenue for system participants. The pricing structure covering both
sides of the market is also one of the key elements of the two-sided market. It can have a
significant impact on commercial success and stability of the system. Fees for system
participants may take various structures. One of the sides may bear a significantly larger
proportion of costs than the other side. The above mentioned imbalance in the allocation of
costs and revenues in the card market may be caused by different price elasticities of both
sides of the market. It may be assumed that retailers have lower price elasticity. They are less
sensitive to the price of participation in the system (fees) than customers (card holders). The
lower price elasticity of retailers in the card market may be due to the fact that in many
industries such as: hotels, restaurants, petrol stations and supermarkets card acceptance has
become a necessity. The difference between the price elasticity of merchants and card holders
is a key element of the discussion on the level of the interchange fee. The issue of price
elasticity of retailers and customers in the payment card market can constitute a very
interesting area for scientific research, especially because it has not yet been thoroughly
analysed.75
74
J.Ch. Rochet, J. Tirole, Two-sided Markets: An Overview, 2004,
http://faculty.haas.berkeley.edu/hermalin/rochet_tirole.pdf (August 2011). 75
A. Börestam, H. Schmiedel, Interchange fees in card payments, Occasional Paper Series, No 131, European
Central Bank, September 2011, p. 12.
48
One of the most interesting concepts related to the payment card market from an
economic point of view, developed on the basis of the experience of the U.S. credit card
market, is the reverse-Robin-Hood-cross subsidy hypothesis which assumes that when paying
with cash, poorer consumers are forced to actually pay more, i.e. they pay the same price for
the same products as richer consumers pay with credit cards because the higher price of a
product which is the same for those paying with cash and cards, includes costs of credit card
acceptance, so in fact the poor finance in the prices the above costs generated by the richer.76
76
More information can be found in, inter alia: S. Semeraro, The Reverse-Robin-Hood-Cross-Subsidy
Hypothesis: Do Credit Card Systems Effectively Tax the Poor and Reward the Rich?, TJSJ Legal Studies
Research Paper, No. 1265871, September 2008.
49
Chapter 5
Level of interchange fees and other fees charged
in the Polish market
As mentioned earlier in this report, interchange fee rates vary widely and depend on
many variables such as: the type of card used, the method of authorisation, the environment of
the transaction, the relationship between the country of the merchant and the country of card
issue or the category of the merchant. Payment organisations, pursuing their pricing policies,
set interchange fees as: a percentage of the transaction value, a flat fee or a combination of
these two rates. Therefore, in order to compare and determine the exact amount of these fees,
especially in the case of two-component rates (rate expressed as % of the transaction value +
the flat fee expressed in the currency), calculations were based on the average value of a
cashless transaction in Poland. In the second quarter of 2011, the average value of a cashless
transaction in Poland77
was PLN 97.70, while the average exchange rate in the National Bank
of Poland in this period for the euro was PLN 3.9598 and for pound sterling PLN 4.4836.
Basic rates of those fees for transactions in the EMV standard, consistent with the
requirements of the SEPA project, were used for the analysis. Other selected types of
transactions were also taken into consideration.
5.1. Rates of interchange fees in the Visa system
Interchange fees for Visa card transactions in Europe are set by representatives of
banks associated in Visa Europe. Rates of both cross-border and domestic interchange fees
are published on the Visa Europe website at:
http://www.visaeurope.com/en/about_us/what_we_do/fees_and_interchange/interchange_fees.aspx
5.1.1. Cross-border fees
Rates for intra-regional interchange fees applicable in the Visa system in the European
Economic Area are presented below.
77
Domestic transactions executed with the use of a card issued in Poland.
50
Table 1. Interchange reimbursement fees in cross-border transactions - Visa consumer cards
Source: Visa Europe (September 2011).
Table 2. Interchange reimbursement fees in cross-border transactions - Visa commercial cards
Source: Visa Europe (September 2011).
Chart 9. Interchange reimbursement fees in cross-border EMV Chip transactions (%)
- selected types of Visa cards
Source: Own study based on Visa Europe (September 2011).
In the case of cross-border transactions only interchange rates for consumer debit
cards (transactions such as: EMV Chip and contactless low value payment) are considerably
lower in comparison with other categories, which is also consistent with arrangements
concluded between the European Commission and Visa Europe in April 2010. Chart 9
presents interchange fees expressed as a percentage for the average value of a transaction
Payment typeCredit &
deferred debit
Immediate
debit
Contactless Low Value Payment 0.50% 0.15% + €0.025
EMV Chip 0.50% 0.15% + €0.015
Electronic Authorised (EA) 0.60% 0.17% + €0.015
Electronic Data Capture (EDC) 0.70% 0.19% + €0.015
Secure Electronic Commerce 0.50% 0.15% + €0.015
Card Not Present: CVV2 0.60% 0.16% + €0.015
Recurring Transaction 0.60% 0.15% + €0.015
Card Not Present (CNP) 0.70% 0.19% + €0.015
Standard / Non-Electronic 0.75% 0.19% + €0.015
Airline 0.75% n/a
Payment typeCredit &
deferred debit
Immediate
debit
Business: EMV Chip 1.30% € 0.60
Business: Electronic Authorised (EA) 1.40% € 0.60
Business: Standard 1.45% € 0.60
Corporate / Purchasing: EMV Chip 1.35% n/a
Corporate / Purchasing: Electronic
Authorised (EA)1.45% n/a
Corporate / Purchasing: Standard 1.50% n/a
0.21%
0.50%
2.43%
1.30%
0 0,005 0,01 0,015 0,02 0,025 0,03
consumer debit card
consumer credit card
commercial debit card
commercial credit card
51
executed in Poland in the second quarter of 2011. Under these assumptions, the interchange
fee represents 0.21% of the transaction value for consumer debit card payments, while the
interchange fee for commercial debit cards would represent as much as 2.43%, which results
from the flat fee of EUR 0.60 for this transaction value. It is worth noting that interchange
fees for cross-border transactions are differentiated by type of card and transaction
environment.
5.1.2. Domestic rates
Domestic Interchange Reimbursement Fees applicable in the EU countries for Visa
cards were also analysed. Chart 10 presents interchange reimbursement fees for consumer
EMV Chip transactions executed with the most popular debit cards in Poland.
Chart 10. Interchange reimbursement fees in % for EMV Chip transactions - Visa consumer
debit cards
Source: Own study based on Visa Europe (September 2011).
1.60%1.58%
1.50%1.42%
1.10%1.05%
1.00%1.00%1.00%1.00%
0.90%0.90%
0.72%0.70%
0.66%0.63%
0.55%0.41%0.40%
0.37%0.30%
0.25%0.25%
0.21%0.21%0.21%0.21%
0.19%
0,00% 0,20% 0,40% 0,60% 0,80% 1,00% 1,20% 1,40% 1,60% 1,80%
Poland
Germany
Cyprus
Spain
Slovenia
Greece
Austria
Czech Republic
Estonia
Romania
Lithuania
Portugal
EU
Slovakia
Italy
France
Latvia
Ireland
Bulgaria
UK
Denmark
Luxembourg
the Netherlands
Belgium
Hungary
Malta
Sweden
Finland
1.80%1.60%1.40%1.20%1.00%0.80%0.60%0.40%0.20%0.00%
52
It turns out that the value of these fees varies widely across the European Union. The
highest rates among European countries for these fees are applied in the Polish market (1.6%
of the transaction value). This value is more than two times higher in comparison with the
arithmetic mean of the rates applicable in all EU countries (0.72%). A high level of fees was
also recorded in Germany (1.58%), Cyprus (1.5%) and Spain (1.42%). The lowest level of
fees is applied in Finland (0.19% - eight times lower than in Poland) and only slightly higher
(0.21%) in Sweden and Belgium, as well as in Malta and Hungary, i.e. countries where rates
for domestic debit transactions are set within the Visa Europe (based on cross-border rates). It
is worth noting that the level of these fees is also relatively low in Bulgaria (0.4%, i.e. four
times lower than in Poland), Latvia (0.55%) and Slovakia (0.7%). In other countries of
Central and Eastern Europe: in Romania, Estonia and the Czech Republic this fee is also
significantly lower (1%) than in Poland.
Chart 11. Interchange reimbursement fees in % for EMV Chip transactions - Visa consumer
credit and charge cards
Source: Own study based on Visa Europe (September 2011).
1.58%1.50%1.50%
1.45%1.10%
1.00%1.00%1.00%1.00%
0.90%0.88%
0.85%0.85%0.84%
0.77%0.75%
0.70%0.63%
0.55%0.55%0.55%0.55%0.55%0.55%0.55%0.55%0.55%
0.40%
0,00% 0,20% 0,40% 0,60% 0,80% 1,00% 1,20% 1,40% 1,60% 1,80%
Germany
Cyprus
Portugal
Poland
Slovenia
Austria
Czech Republic
Estonia
Romania
Lithuania
Spain
Greece
Latvia
EU
UK
Denmark
Slovakia
France
Belgium
Finland
Hungary
Ireland
Italy
Luxembourg
Malta
the Netherlands
Sweden
Bulgaria
1.80%1.60%1.40%1.20%1.00%0.80%0.60%0.40%0.20%0.00%
53
Significant differences in domestic interchange fees are also present for transactions
executed with Visa consumer credit cards (Chart 11). The level of the fees in Poland (1.45%)
in this category is also among the highest in the European Union. Slightly higher fees apply
only in Germany (1.58%) and in Portugal and Cyprus (1.5%). The average value of
interchange fees for the countries presented in the chart amounts to 0.84% and it is lower than
the rate in Poland by 0.61 percentage point. It is also slightly higher than the fees for Visa
debit cards (0.72%). The lowest level of interchange fees for Visa consumer credit cards
applies in Bulgaria (0.4%). This level is also relatively low (0.55%) in nine countries:
Finland, Sweden, the Netherlands, Belgium, Luxembourg, Ireland, Italy, Malta, Hungary.
However, in several countries, the level of the fees is close to the average for the EU.
Similarly, in the case of Visa commercial credit cards the level of interchange fees in
Poland (1.6%) is one of the highest among EU countries (Chart 12).78
The lowest rate is
observed in Bulgaria (0.4%), while the most common rate for these fees is 1.3% of the
transaction value (9 countries).
Chart 12. Interchange reimbursement fees in % for EMV Chip transactions - Visa commercial
credit cards
Source: Own study based on Visa Europe (September 2011).
78
In the case of Visa commercial credit cards, rates for nine EU countries are missing: Cyprus, Czech Republic,
Estonia, Latvia, Lithuania, Romania, Slovakia, Slovenia, Spain.
1.75%
1.60%
1.50%
1.40%
1.40%
1.30%
1.30%
1.30%
1.30%
1.30%
1.30%
1.30%
1.30%
1.30%
1.24%
1.00%
0.75%
0.75%
0.40%
0,00% 0,50% 1,00% 1,50% 2,00%
Germany
Poland
Portugal
Greece
UK
Belgium
France
Hungary
Ireland
Italy
Luxembourg
Malta
the Netherlands
Sweden
EU
Austria
Denmark
Finland
Bulgaria
2.00%1.50%1.00%0.50%0.00%
54
Under the Visa system, special categories of retailers are also defined for whom
separate, usually lower rates of interchange fee are set. The most common categories of
retailers include: airlines (separate rates in 24 countries in the range of 0.75%-1.5% of the
transaction value), petrol stations (in 9 countries, rates in the range of: 0.45%-0.9% of the
transaction value), supermarkets (in 6 countries, rates in the range of: 0.2%-1.2% of the
transaction value). In Poland two special categories of rates have been introduced for Visa
cards: bill payments and wholesale.
5.2. Rates of interchange fees in MasterCard system
In the case of transactions executed with MasterCard and Maestro cards in Europe,
interchange rates are set arbitrarily by MasterCard Europe, a company which does not operate
as an association of banks jointly determining rates of interchange fees any longer, but gathers
issuers who are at the same time its shareholders and customers. Similarly to the Visa
organisation, MasterCard publishes rates of interchange fees, both cross-border and domestic,
on its website at the following addresses:
(1) http://www.mastercard.com/us/company/en/whatwedo/interchange/Intra-EEA.html
(2) http://www.mastercard.com/us/company/en/whatwedo/interchange/Country.html
5.2.1. Cross-border fees
MasterCard rates for cross-border interchange fees applicable in the European
Economic Area (EEA) are presented in the tables below.
Table 3. Interchange fees for cross-border transactions - MasterCard consumer cards
Source: MasterCard (September 2011).
Fee Tier
MasterCard Consumer,
MasterCard Electronic,
MasterCard Prepaid Consumer
MasterCard
World
MasterCard
World Signia
Debit
MasterCard
PayPass 0.18% + 0.03 € 0.18% + 0.03 € 0.18% + 0.03 € 0.14% + 0.03 €
C hip 0.14% + 0.05 € 0.93% 1.13% 0.10% + 0.05 €
Enhanced E lec tronic 0.16% + 0.05 € 0.96% 1.16% 0.11% + 0.05 €
Merchant UC A F 0.16% + 0.05 € 0.98% 1.18% 0.11% + 0.05 €
Full UC A F 0.17% + 0.05 € 1.00% 1.20% 0.12% + 0.05 €
Base 0.18% + 0.05 € 1.02% 1.22% 0.13% + 0.05 €
55
Table 4. Interchange fees for cross-border transactions - MasterCard commercial cards
Source: MasterCard (September 2011).
Table 5. Interchange fees for cross-border Maestro card transactions
Source: MasterCard (September 2011).
In the MasterCard system interchange fees for cross-border transactions also vary and
their lowest level refers to MasterCard and Maestro debit cards. In view of the fact that some
rates of interchange fees consist of two components (percentage rate and flat fee), for the
purpose of comparison the amounts of interchange fees are presented as a percentage for the
average value of a transaction executed in Poland in the second quarter of 2011 (Chart 13),
similarly to the comparison of interchange fees in the Visa system. For these assumptions, the
interchange fee for MasterCard consumer card payments is 0.34% of the transaction value and
for MasterCard and Maestro debit cards - 0.3%. The highest fees are set for MasterCard
Corporate cards (1.5%).
Fee Tier
MasterCard
Corporate,
MasterCard
Electronic Corporate
MasterCard BusinessCard,
MasterCard Electronic
BusinessCard, MasterCard
Professional Card,
MasterCard Prepaid
Commercial
MasterCard
FleetCard
MasterCard
Purchasing Card
Chip 1.50% 1.25% 1.25% 1.25%
Enhanced Electronic 1.60% 1.35% 1.35% 1.35%
Merchant UCAF 1.60% 1.35% 1.35% 1.35%
Full UCAF 1.75% 1.50% 1.50% 1.50%
Base 1.90% 1.65% 1.65% 1.65%
Large Ticket Level 1 N.A. N.A. 1.00% + 20.00 € 1.00% + 20.00 €
Large Ticket Level 2 N.A. N.A. 0.75% + 45.00 € 0.75% + 45.00 €
Incentive -0.30% -0.30% -0.30% -0.50€
Fee TierMaestro, Maestro
Prepaid Consumer
Maestro Prepaid
Commercial
Chip 0.10% + 0.05 € 0.40% + 0.05 €
Chip - Late Presentment 0.12% + 0.05 € 0.75% + 0.05 €
PIN-verified 0.11% + 0.05 € 0.50% + 0.05 €
Signature verified 0.12% + 0.05 € 0.75% + 0.05 €
Secure E-Commerce 0.13% + 0.05 € 1.05% + 0.05 €
Mail Order/ Telephone
order0.13% + 0.05 € 1.05% + 0.05 €
PayPass 0.14% + 0.03 € 0.45% + 0.03 €
56
Chart 13. MasterCard interchange fees for chip transactions executed with selected types of
cards - in %
Source: Own study based on MasterCard (September 2011).
5.2.2. Domestic fees
Domestic rates of interchange fees for MasterCard and Maestro cards applicable in the
European Union countries were also analysed. MasterCard publishes tables with domestic
Intra-Country Interchange Fees applicable only in some EU countries on its website. In the
case of 8 countries (Austria, Bulgaria, Cyprus, Denmark, Portugal, Romania, Slovakia, and
Spain) no fees are published. MasterCard has announced that intra-country fees for
MasterCard and Maestro cards are set by local banks in these countries. Moreover, for the
same reason in Finland, Germany and Lithuania no data are available on domestic fees for
MasterCard cards and in Estonia - for Maestro cards.
Chart 14. Interchange fees for consumer Debit MasterCard cards
Source: Own study based on MasterCard (September 2011).
0.34%
0.30%
0.30%
1.50%
0 0,002 0,004 0,006 0,008 0,01 0,012 0,014 0,016
MasterCard Consumer
Debit MasterCard
Maestro
MasterCard Corporate
1.64%
1.16%
1.10%
1.05%
0.85%
0.77%
0.75%
0.60%
0.41%
0.37%
0.36%
0.23%
0,00% 0,50% 1,00% 1,50% 2,00%
Poland
Hungary
Czech Republic
Estonia
Lithuania
EU
Greece
Latvia
Ireland
UK
Sweden
Finland
2.00%1.50%1.00%0.50%0.00%
57
Chart 14 shows the rates for interchange fees applicable in 11 EU countries for
consumer MasterCard debit cards. The highest rate is applied in Poland (1,64%) and it is more
than 2 times higher than the average for the EU. The lowest fees are applicable in Finland
(0.23%).
Data on rates for interchange fees for Maestro cards are published for 17 EU countries.
In the case of transactions executed with these cards (Chart 15), the highest fees apply in the
UK (2,74% of the transaction value), followed by Poland. It should be noted that in the UK
the rate with a fixed value of GBP 0.6 was set for Maestro cards. Therefore, the interchange
fee expressed as a percentage will decrease together with an increase in the transaction value.
At the transaction value of approximately PLN 172 the highest interchange fee for Maestro
card transactions will apply in Poland.
Chart 15. Interchange fees for consumer Maestro cards
Source: Own study based on MasterCard (September 2011).
For MasterCard consumer cards (Chart 16) the highest interchange fees are also
observed in Poland (1.5%). In 9 EU countries the level of these fees is at 0.8% of the
transaction value, while the average for the EU is 0.89%.
2.74%
1.64%
1.10%
0.73%
0.68%
0.60%
0.60%
0.60%
0.60%
0.60%
0.60%
0.60%
0.55%
0.50%
0.30%
0.28%
0.23%
0.14%
0,00% 0,50% 1,00% 1,50% 2,00% 2,50% 3,00%
UK
Poland
Czech Republic
EU
Hungary
Finland
France
Greece
Lithuania
Malta
Slovenia
Sweden
Italy
Latvia
Luxembourg
Ireland
Belgium
the Netherlands
2.00%1.50%1.00%0.50%0.00% 3.00%2.50%
58
Chart 16. Interchange fees for MasterCard Consumer cards - private customers
Source: Own study based on MasterCard (September 2011).
Currently, the highest interchange fees for MasterCard corporate cards (Chart 17)
apply in Poland (2%), while in most countries these fees reach the level of 1.5% of the
transaction value.
Chart 17. Interchange fees for MasterCard Corporate cards
Source: Own study based on MasterCard (September 2011).
1.50%1.20%
1.16%1.10%
0.89%0.80%0.80%0.80%0.80%0.80%0.80%0.80%0.80%0.80%
0.73%0.70%
0.67%
0,00% 0,20% 0,40% 0,60% 0,80% 1,00% 1,20% 1,40% 1,60%
PolandGreece
HungaryCzech Republic
EUBelgiumEstoniaIreland
LuxembourgMalta
the NetherlandsSloveniaSweden
UKLatvia
ItalyFrance
1.60%1.40%1.20%1.00%0.80%0.60%0.40%0.20%0.00%
2.00%
1.76%
1.54%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.43%
1.40%
0,00% 0,50% 1,00% 1,50% 2,00% 2,50%
Poland
Hungary
EU
Italy
UK
Sweden
Slovenia
Malta
Luxembourg
Ireland
the Netherlands
France
Czech Republic
Belgium
Latvia
Greece
2.00%1.50%1.00%0.50%0.00% 2.50%
59
It should be pointed out that there are types of cards in the Polish market for which the
level of interchange fee is even higher than presented above. These are cards issued to private
customers, such as: MasterCard World (2%), and MasterCard World Signia (2.2%).
In the MasterCard system special categories of retailers and interchange fees assigned
to them were established. The categories that were implemented in the largest number of
countries (18) include mobile top-up at ATMs and bill payments. Petrol stations and
supermarkets constitute separate categories of retailers r in 4 and 3 countries, respectively. It
is worth noting that categories such as: Utilities & Transportation & Telecom; Wholesale,
Post Office and Parking & Vending) exist only in Poland.
5.3. Comparison of interchange fees of Visa and MasterCard in the European
market
The above analysis showed, in particular, that domestic rates of interchange fees in
our country - both in the Visa and MasterCard system - are among the highest in the
European Union. In addition, the level of fees in domestic transactions is usually much higher
than in cross-border transactions.
Another interesting observation is a noticeable difference between the fees for debit
and credit cards in domestic transactions executed by individual clients. Three groups of
countries with the following characteristics can be distinguished in the two systems:
- debit card transactions are cheaper than credit card transactions,
- debit card transactions have the same level of the fee as credit card transactions,
- debit card transactions are more expensive than credit card transactions.
Charts 18 and 19 present debit card and credit card transactions in the Visa and
MasterCard systems respectively.
60
Chart 18. Interchange fees for Visa consumer debit and credit cards
Source: Own study based on Visa (September 2011).
Chart 19. Interchange fees for MasterCard Consumer and Maestro consumer cards
Source: Own study based on MasterCard (September 2011).
0,00% 0,50% 1,00% 1,50% 2,00%
PolandSpain
GreeceItaly
GermanyCyprus
SloveniaAustria
Czech RepublicEstonia
RomaniaLithuaniaSlovakia
FranceBulgariaPortugal
EULatvia
IrelandUK
DenmarkLuxembourg
the NetherlandsBelgiumHungary
MaltaSwedenFinland
Immediate debit Credit & deferred debit
2.00%1.50%1.00%0.50%0.00%
0,00% 0,50% 1,00% 1,50% 2,00% 2,50% 3,00%
UK
Poland
Czech Republic
EU
Hungary
Greece
Malta
Slovenia
Sweden
France
Italy
Latvia
Luxembourg
Ireland
Belgium
the Netherlands
Maestro MasterCard Consumer
2.00%1.50%1.00%0.50%0.00% 3.00%2.50%
61
Interchange fees for debit cards transactions are lower than for credit card transactions
for 44% of countries in the Visa system and 80% of the countries in the MasterCard system.
The second group (interchange fees for debit cards are the same for other types of cards)
comprises 40% of the countries covered by the Visa system and only 7% of countries covered
by the MasterCard system. The third group (interchange fees for debit cards are higher than
for other cards) comprises 15% of the countries in the Visa system and 13% of the countries,
including Poland, in the MasterCard system.
5.4. Comparison of Visa and MasterCard interchange fees in the Polish
market
The Polish market of payment cards is the most expensive in the European Union and
it is difficult to find a justification for such high rates of the interchange fees. Payment
organisations apply different structures for those rates in our market. In the case of consumer
debit cards the Visa system applies a one-component fee rate expressed as a percentage, while
in the MasterCard system the rate consists of two components and it additionally depends on
the transaction value. There are two thresholds in terms of the amounts involved. When they
are exceeded, the value of the components used for charging the fees changes. A detailed
business model for Visa and MasterCard cards is presented below in table 6.
Table 6. Interchange fees for debit cards - Visa and MasterCard model
Source: Own study based on Visa Europe and MasterCard (September 2011).
In addition, chart 20 shows the evolution of interchange fees depending on the
transaction value.
from to
Visa
PLN 0 PLN 20.00 0.50% + PLN 0.09
PLN 20.01 PLN 40.00 0.80% + PLN 0.14
PLN 40.01 1.45% + PLN 0.19
Payment
organisation
Transaction amount Interchange fee
- 1.6%
MasterCard
62
Chart 20. Interchange fees for Visa and MasterCard debit cards - in % for amounts
from PLN 1 to PLN 50
Source: Own study based on Visa Europe and MasterCard (September 2011).
A detailed analysis showed that interchange fees in the MasterCard system are lower
compared to Visa in the transaction value ranging from PLN 8 to PLN 40, however in the
ranges of PLN 0 to PLN 8 and PLN 40 to PLN 125 they are higher. Examples of transaction
values and interchange fees are presented below in table 7.
Table 7. Interchange fees for Visa and MasterCard debit cards depending on transaction value
Source: Own study based on Visa Europe and MasterCard (September 2011).
In the case of very low value transactions (e.g. PLN 5), interchange fees in the
MasterCard system are significantly higher (2.3%) than in the Visa system (1.6%). In turn,
significantly lower interchange fees in comparison with the competitor are offered by
0,00%
1,00%
2,00%
3,00%
4,00%
5,00%
6,00%
7,00%
8,00%
9,00%
10,00%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49
MasterCard VISA
3.00%
2.00%
5.00%
4.00%
7.00%
6.00%
8.00%
10.00%
9.00%
1.00%
0.00%
Transaction
valueMasterCard Visa
PLN 1 9.50% 1.60%
PLN 5 2.30% 1.60%
PLN 10 1.40% 1.60%
PLN 15 1.10% 1.60%
PLN 20 0.95% 1.60%
PLN 21 1.47% 1.60%
PLN 30 1.27% 1.60%
PLN 40 1.15% 1.60%
PLN 41 1.91% 1.60%
PLN 50 1.83% 1.60%
PLN 100 1.64% 1.60%
PLN 125 1.60% 1.60%
PLN 150 1.58% 1.60%
63
MasterCard for transaction values of PLN 20 (MasterCard 0.95% - Visa 1.6%) and PLN 40
(MasterCard 1.15% -Visa 1.6%). It should also be noted that the lowest rate in the
MasterCard system (0.95% but only for the transaction value of PLN 20) generally does not
change the position of Poland in comparison with EU countries. This rate is only better than
the rate applicable in the Czech Republic (1.1% for all transactions, regardless of the value).
However, with the transaction value of PLN 41 the interchange fee in the MasterCard system
is 1.91% and in the Visa system it is invariably 1.6% of the transaction value. The application
of such a structure of the business model allows retailers, on one hand, to achieve financial
savings in the case of specific purchase value, and on the other hand, it may lead to a
significant increase in acceptance costs in the case of specific ranges of transaction values.
The following amount ranges are particularly disadvantageous for retailers: (i) from PLN 0 to
PLN 8, and (ii) from PLN 40 to PLN 125. The profitability of the MasterCard model depends
on the specificity of the company's activities and price ranges for the most frequently
purchased products or services.
Another interesting issue is the growth rate of the payment card market in Poland. As
indicated earlier in this report, the Polish market is a young market but it is quite large and has
a high growth rate. Chart 21 presents the growth rate of the transaction value and banks
revenue from interchange fees.
Chart 21. Growth rate of the transaction value in Poland and banks' revenue from interchange
fees, 2005-2010.
Source: Own study based on NBP data and results of the survey.
An important observation is that the value of interchange fees has been increasing
since 2007 faster than the payment card market in terms of the transaction value. Despite the
64
creation by the organisations of new categories of merchants with lower rates of interchange
fees, the total value of the fees has been increasing rapidly in recent years.
5.5. Rates of merchant service charges in the Polish market
In order to obtain a more complete picture of the four-party payment card system, the
National Bank of Poland conducted a survey among acquirers operating in the Polish market.
The questionnaire for this survey was addressed to the following seven entities: Bank BPH
S.A.; Bank Polska Kasa Opieki S.A.; eCard S.A.; EFG Eurobank Ergasias S.A., Branch in
Poland; Elavon Financial Services Ltd. (Sp. z o.o.), Branch in Poland; eService S.A., First
Data Polska S.A. The acquirers taking part in the survey had a share of over 99% in the Polish
market of payment cards in terms of value and number of processed transactions.
The analysis of the collected data showed that the level of merchant service charges in
the Polish market is varied. It depends primarily on the industry (sector) in which the
merchant operates. Acquirers vary merchant service charges also in relation to: the payment
organisation, rates of interchange fees (e.g. micro-payments, low-value payments) and types
of payment cards (debit cards, credit cards, charge cards). In several cases other approaches
are also used, such as: flat fee for micro payments or the interchange fee plus model.
The lowest commissions were observed for petrol stations and supermarkets, while the
highest - for travel offices and the hotel and catering industry. It is also worth noting that e-
commerce transactions demonstrate a slightly higher level of merchant service charges in
comparison with transactions executed in POS. Table 8 presents the percentage range of the
merchant service charge in transactions executed in POS in the Polish market between 2004
and 2011. The values presented do not include charges in e-commerce.
Table 8. Level of merchant service charges in Poland between 2004 and 2011
in POS terminal transactions - % ranges
2004 2006 2008 2010 2011
1.63% - 2.21% 1.53% - 1.87% 1.59% - 1.85% 1.56% - 1.93% 1.55% - 1.89%
Source: Own study based on a questionnaire survey of acquirers.
In 2004 the level of merchant service charges was slightly higher than in subsequent
years. From 2006, the values of merchant service charge ranges have not changed
considerably.
65
The results of the survey also allowed to determine the share of the interchange fee in
the merchant service charge in the case of transactions processed by acquirers in Poland
between 2008 and 2010 in POS (excluding Internet transactions), as presented in table 9.
Table 9. Share of the interchange fee in the merchant service charge in terminal transactions
in Poland, 2008-2010
2008 2009 2010
79.0% 80.7% 84.9%
Source: Own study based on a questionnaire survey of acquirers.
It may be concluded on the basis of the data presented that in recent years the share of
the interchange fee in the merchant service charge on the Polish market has been increasing.
In 2008-2010, it increased by nearly 6 percentage points, from 79% to 84.9% of the merchant
service charge. Taking into account the fact that in recent years merchant service charges have
remained stable in the Polish market, it should be concluded that the average level of
interchange fees has been increasing. The increasing share of the interchange fee in the
merchant service charge also demonstrates a fierce competition among acquirers where these
entities compete with each other for gaining new customers or retaining their customers, i.e.
merchants accepting payment cards.
As part of the questionnaire survey conducted among acquirers it was also pointed out
that the introduction of other, additional rates of the merchant service charge for MasterCard
cards is considered shortly in connection with the launch of the Innovation for Poland
programme by MasterCard.
5.6. Other fees determining the level of the merchant service charge
The results of the questionnaire survey have confirmed that the interchange fee is the
only fee paid by acquirers to issuing banks.
However, acquirers pay a number of additional fees to payment organisations. In this
regard, 3 groups of fees paid by acquirers to payment organisations are distinguished:
- marketing fees,
- processing fees (related to transaction processing),
- licence fees
66
It should be noted that the list of additional fees incurred by acquirers includes many
cost items (from several to a dozen types of fees, depending on the payment organisation and
the acquirer). According to preliminary NBP estimates made on the basis of the questionnaire
survey, those fees ranged from 0.08% to 0.16% of the transaction value.
Additional fees are added by acquirers to the merchant service charge which consists
of: interchange fee, additional fees and the acquirer's margin. The amount of additional fees in
relation to interchange fees is approximately 10 times lower, but it is a noticeable value in the
business based on low margins. In addition, the information provided by the Polish Trade and
Distribution Organisation shows that increases in additional fees are planned in the coming
months, which for retailers implies an increase of the already high costs of payment card
acceptance.
Therefore, it must be stressed that monitoring of the market of fees related to payment
card acceptance in Poland should cover not only the level of interchange fees but also the
value of all fees paid by acquirers to payment organisations. Otherwise, a situation may arise
where the level of interchange fees is reduced with a simultaneous increase in additional fees,
which consequently will not trigger the reduction of fees paid by acquirers and merchant
service charges.
67
Chapter 6
Overview of interchange fee in Poland
6.1. Decision of the Office of Competition and Consumer Protection
The issue of the interchange fee in the Polish market was analysed in detail by
government institutions in 2001. From 20 April 2001 antitrust proceedings were conducted
before the Office of Competition and Consumer Protection (OCCP) regarding the interchange
fees, pursuant to the application filed by the Polish Organisation of Trade and Distribution
(POHiD). These proceedings related to the charge of the application of competition-
restricting practices, consisting in concluding agreements on prices and joint determination of
the interchange fee by banks associated in the Visa Poland Forum (later changed to: Visa
Poland National Organisation) and the Europay/MasterCard Poland Forum.
POHiD pointed to too high, in its opinion, costs incurred by merchants in connection
with each accepted payment card transaction, which in their view implied a reduction in profit
from the sale of goods or services. Several years ago, the amount of the commission paid by
merchants for each card transaction in Poland ranged on average from 1.7% to as much as
4.5% of the transaction value, depending on the type of merchant (only the largest
supermarket chains could count on the lowest commissions). The commission consisted of
two components: a part payable to the acquirer (determined, as a result of fierce competition
between acquirers operating in the market, at the level allowing in most cases only the
reimbursement of expenses) and the interchange fee. The second part of the merchant service
charge, determined jointly by banks associated in the Visa Poland Forum and
Europay/MasterCard Poland Forum, posed a problem.79
The proceedings were conducted
against 20 banks, Visa International, Visa Europe and MasterCard Europe organisations and
the Polish Banks Association. The OCCP levelled against banks a charge of restricting
competition by setting jointly the rates of the interchange fee in the VISA and the MasterCard
system. A separate charge was levelled against banks, Visa Europe, Visa International,
MasterCard Europe and the Polish Banks Association of coordinating activities in order to
restrict third party access to the market. On 29 December 2006, the OCCP made a decision
and announced it to the public. The decision:
- recognised as competition- restricting the practice consisting in banks' participation in
the agreement restricting competition in the market for acquiring services through the
79
MasterCard Member Banks Forum ceased to exist in 2008. Since then (2008) MasterCard has been taking
decisions on the level of the interchange fee for its cards unilaterally, i.e. independently of banks..
68
joint setting of the interchange fee rates and banned the use of this practice,
- did not establish that Visa and MasterCard organisations and the Polish Banks
Association applied a competition restricting- practice, consisting in the coordination
of activities aimed at restricting access for traders not being members of issuers'
agreements to the market of acquiring services,
- pecuniary penalties were imposed on 20 banks with the total value of PLN 164
million,
- clause 1 of the decision (order to refrain from applying the practices in question) was
made immediately enforceable.
Pursuant to Article 78 of the Act on Competition and Consumer Protection all banks
with the status of party to the proceedings before the President of the OCCP (as well as
MasterCard Europe) filed an appeal against the decision of the President and a complaint
against the order of immediate enforceability. In its judgement of 12 November 2008, the
Court for the Competition and Consumer Protection (CCCP), concluded that the agreements
in question did not infringe the prohibition of anticompetitive agreements as the interchange
fee is not related with the market for acquiring services, and therefore cannot restrict
competition in that market. The President of the OCCP, refusing to accept the judgement of
the CCCP, filed an appeal. On 22 April 2010, the Court of Appeal revoked the decision of the
court of the first instance, thus sharing the arguments of the OCCP. In the opinion of the
Court of Appeal the relevant market was properly defined by the President of the OCCP and
the analysis of settlement mechanisms between the transactions parties showed that the prices
for processing transactions were in principle determined by the agreement of banks rather
than free competition. The Court also agreed with the arguments of the European
Commission, contained in decisions regarding cross-border interchange fees in Visa and
MasterCard systems, which were relied on by the President of the OCCP. The Court of
Appeal referred the case back for consideration to the court of the first instance. The date of
the hearing was set for 20 December 2011.
In addition, it should be noted that in the opinion of the OCCP the argument that banks
are allegedly not able to reduce interchange fees due to pending court proceedings is
unfounded. If banks indeed feared the liability for actions inconsistent with competition law,
they would give up the determination of the interchange fee. Consequently, in accordance
with Visa rules, a cross-border fee rate would apply which is many times lower than currently
69
used domestic rates (see chapter 5). An example of adopting such a solution is the response of
Hungarian banks to the initiation of proceedings by the Hungarian competition authority.
6.2. NBP Report on interchange fee in 2007
Following the decision of the President of the OCCP of 29 December 2006, the issue
of interchange fees also became the subject of NBP interest in 2007. From the perspective of
the National Bank of Poland whose role in the payment system is in accordance with Article 3
clause 2 of the Act on the National Bank of Poland of 29 August 1997, among other things, to
organise cash settlements and ensure conditions necessary for the development of the banking
system, it was very important to identify the impact of this decision and the appeal proceeding
pending at that time with regard to the interchange fee on the payment card market and the
development of cashless transactions in Poland.
At the meeting of the Payment System Council held on 22 April 2007,,a discussion
was initiated on the assessment of the effects of changing the principles for setting the
interchange fee or reducing it on the functioning of the payment card market in Poland.
During the meeting, representatives of the banking community expressed the opinion that the
decision of the President of the OCCP could have a number of negative consequences for the
development of the payment card market in Poland and its individual participants as well as
card holders. During the discussion, a proposal was made to establish a task force dedicated to
the subject of the interchange fee which was accepted by the Council.
The Interchange Fee Task Force comprised representatives of the National Bank of
Poland and the Polish Banks Association. The primary objective of the work of the Group
was to be the development of a report containing a comprehensive analysis of the interchange
fee. In accomplishing this objective, the NBP received a wide range of detailed data on
interchange fees from card organisations and acquirers and representatives of the Group held
a series of meetings with the participants of the payment card market in Poland, including
with experts associated with acquirers, banks, OCCP, POHiD, MasterCard International and
Visa Europe. As a result of receiving the above mentioned data and information as well as
analyses and meetings held, the Report on Interchange Fee was prepared which was
presented first (on 1 October 2007) to the Payment System Council (in a version not
containing confidential information submitted by card organisations and acquirers) and
subsequently (on 29 November 2007) to the Management Board of the NBP (full version).
The report presented the issues related to the interchange fee in a comprehensive way,
70
in particular it presented the role and place of the interchange fee in the Polish payment card
system. The first part of the report dealt with theoretical and international issues and included
a description of the existing payment card systems from the perspective of the interchange
fee, illustrated with examples from several EU countries, and also presented the views of the
European Commission and the ECB on the interchange fee. The second part of the report was
devoted to the domestic payment card market, in particular, it presented data (valid at that
time) on the level of the interchange fee in Poland, ranging from 1.35% to 1.9% of the
transaction value. Despite two reductions in the interchange fee in the previous two years, its
level in Poland was regarded as one of the highest in the EU, which resulted from a
comparison with relevant data for 2004, contained in a report of the European Commission
from January 2007. A later part of the report presented the result of a discussion with OCCP
experts pursuant to which the OCCP did not question the level of the interchange fee and the
only questioned issue was the manner of setting it, and conclusions from meetings with banks,
POHiD and VISA and MasterCard organisations. At the end of the report the following
conclusions from the work of the Group were presented:
- the issue of the interchange fee is complex and no easy solutions should be expected,
- possible courses of action depend on internal factors, mainly on the results of the
appeal proceedings of banks against the decision of the President of the OCCP, and on
external factors, including in particular the decision of the European Commission in a
the case involving MasterCard, and on the progress of the EU banking environment on
implementing the SEPA Card Framework,
- the interchange fee is an integral component of four-party payment card schemes and
it would be difficult to imagine the functioning and further development of these
schemes without this fee. Changing this scheme to another, i.e. three-party scheme or
a scheme based on bilateral agreements, would be very difficult. Regardless of the
above, the above mentioned solutions have several disadvantages, as clearly evidenced
in the examples from other countries.
- the assessment of the amount of the interchange fee applicable in Poland was not
unambiguous. Taking into account the stage of the development of the Polish market,
as compared to developed markets in the European Union, the Polish market fared
very poorly in many aspects and was still in the early stage of development. This was
true for both the number of payment cards and the universal use of payment cards in
cashless transactions - these indicators per 1 inhabitant would position Poland in last
places in the European Union. On the one hand, arguments were raised that a
71
reduction in the interchange fee could contribute to increased use of payment cards,
and on the other hand, a feedback could occur and in the opinion of many experts only
a further development of the market could lead to a reduction in the interchange fee
rates.
A general conclusion from the Group's work was that a four-party nature of payment
card schemes in Poland should be maintained and an attempt should be made to find new
ways of setting the interchange fee and its rate under the existing scheme. Despite the above
mentioned uncertainties, according to the Interchange Fee Task Force, there was a potential
for further reduction of the level of the interchange fee in Poland, in view of, among other
things, its level in some EU countries. However, this would require a legal certainty and clear
rules of the functioning to assure market participants which manner of setting the interchange
fee is consistent with competition law. The authors of the report expressed the hope of finding
a solution that would, on one hand, respect the decision of the OCCP and on the other hand,
would allow to maintain the four-party nature of payment card schemes in Poland.
At its meeting on 1 October 2007 the Payment System Council accepted the Report on
the Interchange Fee and recommended it should be submitted to the NBP Management Board
which examined and accepted it on 29 November 2007. The report was officially submitted to
the OCCP on 10 December 2007.
6.3. Programme for the Development of Cashless Transactions in Poland in
2011-2013
The issue of the interchange fee was also included in Measure No. 10 of the draft
Programme for the Development of Cashless Transactions in Poland in 2011-2013.80
This
document was preceded by the draft Strategy for the development of cashless transaction in
Poland for 2009-2013. The draft Strategy was developed in 2008-2009 at the initiative of the
National Bank of Poland in cooperation with the Polish Banks Association, the banking sector
and other entities operating in the payment card market, including Visa and MasterCard
payment organisations as well as the Ministry of Finance. In 2008, the Strategy was the was
on the agenda of the meeting of the Payment System Council and in January and February
80
Ministry of Finance, Programme for the Development of Cashless Transactions in Poland in 2010-2013
(draft), December 2010, p. 143-145,
http://www.mofnet.gov.pl/_files_/instytucje_finansowe/uslugi_platnicze/program_rozwoju_obrotu_bezgoto
wkowego_w_polsce_na_lata_2010-2013.pdf (September 2011).
72
2009 it was accepted by the Management Board of the Polish Banks Association and the
Management Board of the National Bank of Poland, respectively and in March 2009 it was
submitted to the Ministry of Finance. Based on the above mentioned strategy, the draft
Programme for the Development of Cashless Transactions in Poland in 2010-2013 was
developed.
As part of Measure No. 10 of the Programme: Changing the structure of interchange
fees for particular types of merchants and card payments and eventually adjusting those fees
to the average EU level its purpose, description, roadmap and monitoring indicators were
defined. The objective of the measure was set to be an optimal adjustment of the rates of the
interchange fee to the structure and specificity of various groups of merchants and various
types of card payments. The expected effect of this measure is an increase in the number of
transactions at merchants, including those entities that had previously not been interested in
accepting cards, as well as stimulation of the development of micropayments and low-value
payments. In addition, commissions of acquirers and the fee for terminal lease should also
change accordingly with the decrease of interchange fees. In the justification it was stated that
the payment card market in Poland was at its development stage and the smaller number of
cards and the number of transactions per capita in comparison with the EU average suggested
that necessary measures should be undertaken, such as: a change to the structure of fees for
certain types of merchants and modification of payments made with payment cards and a
gradual adjustment of these fees to the level of the EU average. The roadmap specified that
the change to the interchange fee structure (different rates depending on the transaction value,
substitution of the percentage fee with an amount-based fee in certain operations) will be the
responsibility of banks and payment organisations. However, the deadline for the introduction
of these changes was not specified at that stage of arrangements. Nonetheless, it should be
expected that this process should be completed by the end of 2013. Monitoring indicators are
presented in table 10 below.
73
Table 10. Monitoring indicators
No. Indicator Indicator base
value
Expected
value of the
indicator in
the target
year
Frequency of
indicator
measurement
Data source
1. Value of the Merchant
Service Fee (MSF) for
different types of
merchants
1.59%-5.00% cannot be
assessed
once in 2-3
years
acquirers,
banks
2. Rate of interchange fees
for different types of
merchants and
payments
0.95%-1.90%* EU average once in 2-3
years
Card
organisations,
banks
* The above range of the interchange fee applies to all merchants, the fee varies depending on the type
of card, the technology used, method of transaction authorisation etc.
The draft Programme was submitted for deliberations in December 2010 by the
Ministry to the Council of Ministers which requested its update and did not adopt the
Programme at its meeting in January 2011 (the programme was to apply to the period of
2011-2012 instead of 2010-2013). The update was performed by June 2011, however, due to
various factors, including other urgent ministerial and governmental work in connection with
the Polish Presidency and the approaching expiration of the Parliament’s term in office aas
well as the emergence of the problem of high interchange fees incurred by merchants in
respect of cashless card payments during parliamentary debates on the act on payment
services, the draft Programme was not presented again. The adoption of the programme by
the Council of Ministers would give it the status of a government programme, which would
allow for a more effective implementation of all measures under the programme. Some
measures provided for in the Programme which do not depend on decisions of government
institutions are, however, already being undertaken by the banking sector and the NBP.
Among such measures are those in support of changing the structure of interchange fees and
the reduction thereof. It should therefore be assumed that as a result of market activities,
supported by the future government policy, the rate of interchange fees could and should be
reduced in the coming years and, consequently, the costs of payment card acceptance in our
country would also fall.
It should also be noted that the demand to change the structure of interchange fees for
different types of merchants and payments and adjust these fees to the average for the
European Union, provided for in the Programme, was included in the document prepared and
presented by the Polish Banks Association at a press conference on 21 September 2011,
74
which was entitled Position of the Polish Banks Association on the main directions
supporting the economic development of the country,. The document had been developed as a
set of key issues for the country and the society in connection with parliamentary elections in
October 2011.81
6.4. Parliamentary work related to the Act on Payment Services
The interchange fee was also an important issue raised during the parliamentary work
in 2011. It was the subject of a parliamentary question and the work of the Sejm and Senate
committees dealing with the payment services act. Comments and suggestions to the act were
motioned by large associations of merchants which, via the media and requests addressed to
MPs, expressed their dissatisfaction with the high level of interchange fees in our country.
On 20 April 2011, Member of Parliament, Paweł Poncyljusz, submitted a
parliamentary question no. 22608 to the Minister of Finance regarding excessive fees for the
usage of payment cards.82
In its question, the MP drew attention to a very disturbing
phenomenon of inflated fees for the acceptance of card payments and stressed that the
problem concerned entrepreneurs who were charged with costs at 1.5% of the transaction
value for allowing customers to make card payments. Referring to the NBP data on the value
of card transactions in Poland amounting to PLN 80 billion per year, the MP calculated that
the annual revenues of banks from the interchange fee amounted to PLN 1.2 billion. He
remarked that a portion of this amount could remain with entrepreneurs and indicated that
interchange fees in Poland were the highest in Europe (compared to 1% in the Czech Republic
and 0.4% in Bulgaria). He also added that according to payment organisations the level of
rates of these fees resulted from market conditions, while in banks' opinion higher or lower
fees could not be set until the 2006 OCCP proceedings were finalised. According to the MP,
the matter could be resolved through the implementation of the EU directive on payment
services, which Poland should have done as early as in 2009, but a relevant draft act had not
been delivered yet by the Ministry of Finance. The MP stressed that all errors and omissions
in this matter mostly affected entrepreneurs.
Therefore, the MP addressed the following questions to the Minister of Finance:
- was the Minister of Finance aware of the problem presented?
81
Position of the Polish Banks Association on the main directions supporting the economic development of
the country, Polish Banks Association, http://www.zbp.pl (September 2011). 82
The Sejm of the Republic of Poland, Parliamentary question no. 22608,
http://orka2.sejm.gov.pl/IZ6.nsf/main/31DE6CCA (September 2011).
75
- why had not the Ministry of Finance undertaken any action to implement the EU
directive regulating the designated area?
- did the Ministry of Finance have the instruments allowing to regulate the designated
area?
The Ministry of Finance replied to the MP on 6 September 2011. With regard to the
awareness of the problem of interchange fee rates in Poland, the Ministry of Finance pointed
out, among other things, that this issue was the subject of its special attention in connection
with the consequences it produced for the operation of the entire trade and services market
and in the light of the need to enhance cashless transactions. The issue of interchange fees on
the Polish market had already been analysed by the Ministry of Finance during work on the
payment services act and work on the development of the Report on the interchange fee
prepared by the NBP and the Polish Banks Association in 2007, as part of the Strategy of the
development of cashless transactions in Poland for 2009-2013, prepared by the NBP, the
Ministry of Finance, the Polish Banks Association, the banking sector and other market
operators, and as part of the draft Programme for the Development of Cashless Transactions
in Poland in 2011-2013 which was created on the basis of the above mentioned Strategy. The
Ministry pointed out that a detailed report comparing the rates in Poland with other EU
countries was to be developed and presented by the NBP in October 2011. The Ministry
expressed the opinion that any reduction in the interchange fee which constituted a major part
of the merchant service charge should help reduce the cost of the activities of the merchant
offering cashless payment method to its customers. Otherwise, the cost of using cashless
payments would only change the beneficiary. According to the Ministry, the main purpose of
the reduction of the interchange fee should be to reduce the cost of cashless transactions,
which consequently should help stimulate the consumption, and therefore bring higher
benefits to retailers in connection with the acceptance of payment cards. It was stressed in the
answer that the cashless transactions market in Poland was still at its development stage and
the development of the acceptance network and payment processing generated costs. Yet, the
problem of the highest interchange fee in Poland among EU countries had been noted. The
Ministry of Finance also commented on the progress of the said OCCP proceedings and the
decision of December 2006 and indicated that the duration of the dispute and the number of
appeals against the judgements show that these proceedings were extremely complex and the
manner of banks' operations had not been determined yet by a court judgement.
With regard to the questions contained in the parliamentary question which concerned
the implementation of Directive 2007/64/EC and instruments for the regulation of the
76
interchange fee by the Ministry of Finance, the Ministry replied that the Directive did not
introduce direct price regulation tools (including for the interchange fee) and did not relate in
any way to the issue of its regulation by the authorities of the Member States. In addition, the
issue of one of the options of the directive was stressed, namely the possibility of choosing by
the Member States whether to permit or prohibit charging by entrepreneurs single fees to
customers for a single card payment which allow the use of POS terminals, i.e. a surcharge.
The purpose of the surcharge is to cover costs of the merchant service charge, which should
lead to a reduction in overall product prices, since costs of the payment would be borne
directly by the payer, while entrepreneurs may benefit from increased price competitiveness.
In its reply the Ministry of Finance pointed to the fact that after the entry into force of
the payment services act the regulator and supervisors of this market (Ministry of Finance,
NBP, PFSA) would gain greater access to data on the operation of the previously unregulated
market, which should create opportunities for more detailed analyses of the cost structure and
actual prices of payment instruments. The Ministry also indicated that it was examining
possible instruments which, in the light of the results of such an analysis, could be used by the
regulator if the interchange fee was not reduced by the banking sector in the form of self-
regulation. If a legislative tool had be used, it would be subject to arrangements, including
with the OCCP, in order to achieve the best effect of both consumer and competition
protection, while ensuring the development of cashless transactions.83
In turn, on 8 July 2011, four major business associations, namely: the Polish
Organisation of Trade and Distribution together with the Polish Organisation of Oil Industry
and Trade, the Polish Chamber of Liquid Fuels and the Chamber of Commerce of the Polish
Hotel Industry sent a letter to the member of the Public Finance Committee at the Sejm of the
Republic of Poland, Member of Parliament Sławomir Neumann, proposing to include the
following two issues in the payment services act being the subject of the committee's work:
- the right of surcharging, understood as charging additional fees or giving discounts for the
use of specific payment instruments by the recipient (retail and service outlets, petrol
stations, hotels, restaurants); i.e. charging fees only up to the amount of costs incurred by
merchants for the benefit of payment organisations (the aim of recipients is not to earn
income from fees but only to recover costs incurred);
- introduction of a solution allowing to regulate the market in respect of: (i) the level of the
interchange fee and (ii) solutions imposed arbitrarily on market participants by Visa and
83
The Sejm of the Republic of Poland, Parliamentary question no. 22608,
http://orka2.sejm.gov.pl/IZ6.nsf/INTop/22608?0penDocument (September 2011).
77
MasterCard international payment systems; in this context it was proposed the Polish
Financial Supervision Authority be granted powers to control decisions made by the
above mentioned systems with regard to restricting competition and introducing
economically unjustified charges.
Arguments in favour of introducing the right of surcharging included:
- higher effectiveness when negotiating with the bank the level of charges for accepting
cards,
- possibility of overcoming the barrier to the promotion of card payments, i.e. high costs of
acceptance in Poland,
- possibility of preventing a high inflationary pressure which occurs when there is no
incentive to lower transaction costs (therefore, retailers are forced to include the costs that
are not related to direct operations in the price of goods or services),
- possibility of liberalisation of the payment services sector by allowing customers (who
know the transaction costs) to select the payment instrument at the time of the transaction,
- introduction of this charge by many other countries within the framework of national
options permitted by the Directive,
- weakening of the monopolistic position of the international payment organisations.
The following arguments were, in the opinion of the authors, in favour of granting the
powers indicated in the proposal to the Polish Financial Supervision Authority:
- fees applicable in Poland are among the highest in Europe, and this situation has persisted
for nearly 20 years,
- the market has no influence on arbitrary decisions of payment systems, despite the
decision of the President of the OCCP (prohibiting the use of those charges) and the
pending proceedings,
- it is impossible to correct decisions of the card systems concerning interchange fees
because these decisions are made arbitrarily, are not negotiable and are determined by
way of cartel agreements or using the market position gained,
- regulation of activities of entities with a dominant market position is practised in the
energy and telecommunications market,
- the proposed regulation is consistent with the purpose of the transposed Directive, i.e.
liberalisation of the payment services market and increasing competition on this market (it
will therefore allow the regulation of agreements restricting the competition, i.e. arbitrary
78
fixing of interchange fees by payment organisations).
The letter also stressed that the proposed amendments to the act were designed to
enable Polish entrepreneurs to compete on the EU market under the same terms as
entrepreneurs established in other Member States. The letter also included a ready proposal
for the articles of the payment services actl (articles 38, 102, 105, 118, 119, 120).
On 26 July 2011 a meeting of the Senate's Budget and Public Finance Committee was
held which dealt with the draft payment services act. Representatives of the NBP were also
invited to the meeting. In addition, a day before the above mentioned meeting the NBP sent a
letter to the Chairman of the Budget and Public Finance Committee of the Senate of the
Republic of Poland, Kazimierz Kleina, in which it negatively evaluated the proposals of large
merchant associations for the introduction of amendments to the above mentioned act, in
particular the inclusion in the act of the principle that entities accepting card payments cannot
be restricted by providers in terms of a surcharge imposed on consumers for card usage.
These proposals had already been unsuccessfully motioned by the above mentioned
associations in the earlier stages of work on the act, i.e. at the stage of public consultation, as
well as at the stage of the Sejm work when they were analysed by the Ministry of Finance and
the NBP. The government - with a favourable opinion of the NBP - concluded that the most
desirable situation was for the legislative acts to interfere into contractual relationships
between the entities on the payment services market as little as possible (especially if such
interference would adversely affect the position of consumers). In the government's draft of
the act, the issue of charging fees was left to market solutions (maintaining the current legal
order – applying such fees would not be prohibited but, at the same time, applying them
would not be treated as a requirement), i.e. it would be negotiated between acquirers and
merchants who may specify in the agreements whether such fees will or will not be imposed
on consumers.
According to the NBP, the proposal to introduce an unconditional possibility for merchants to
impose surcharges on consumers was a wrong solution for several reasons:
1. The proposal of the association seeks to recover expenses incurred by merchants
(interchange) at the expense of consumers (surcharge), and therefore change the
mechanism of fee distribution functioning currently in Poland and in almost all
markets worldwide. Therefore, the proposal does not refer to the basic reason
addressed in the letter submitted by the authors, i.e. the high level of the
interchange fee in Poland but concerns the issue of retaining this fee, albeit in a
different form and incurred by another group of the four-party card model.
79
2. The proposal of the authors is a solution that interferes too far into the sphere of
mutual market relations. The basic reason for motioning the proposal by its
initiators (the high level of interchange fees) may be eliminated in the near term as
a result of the activities of the market itself, supported by Government policy
(rather than statutory regulation), in particular owing to the Programme for the
Development of Cashless Transactions in 2011-2013. As part of the work on this
Programme representatives of Visa and MasterCard payment organisations
approved the provisions on activities related to the interchange fee, including a
reduction in interchange fees in Poland to the EU average level.
3. The introduction of a surcharge may - according to the associations - increase the
number of outlets where cards are accepted. However, the introduction of charges
for the use of the card can effectively discourage card holders to use this payment
instrument, and this can cause a decrease in the number of acceptance points and
therefore the effect may the opposite of what was intended.
4. The payment services act is not the right place for regulating the phenomena
indicated by the associations of merchants, such as the lack of fair competition in
the internal market. Relevant laws prohibiting anti-competitive practices are
already in place and are being enforced (OCCP proceedings on interchange fees).
To conclude, the NBP stressed that the acceptance by the Senate of the Republic of
Poland of merchant associations’ demands would contribute to constraining the growth of
cashless transactions in Poland and could give rise to negative public opinions. As a result of
actions undertaken, among others, by the NBP, proposals of large merchant associations for
the introduction of surcharges and powers for the PFSA to regulate the dominant payment
service providers or agreements between payment service providers on the payment card
market were not included by the Senate into the draft act concerned.
In response to the position taken by the NBP, on 3 August 2011, the Chairman of the
Budget and Public Finance Committee at the Senate of the Republic of Poland, Kazimierz
Kleina, sent a letter to the President of the NBP, Marek Belka, asking to submit information
to the members of the Committee on measures taken by the NBP with respect to interchange
fees and surcharges. He also noted that the rate of the interchange fee and the introduction of
surcharges were widely discussed during the debate on the act on payment services.
On 11 August 2011, First Deputy of the President of the NBP, Piotr Wiesiołek, in
response to the letter from the Chairman of the Budget and Public Finance Committee at the
Senate of the Republic of Poland, Kazimierz Kleina, pointed out that the NBP did not have
80
the legal capacity to interfere in the level of fees charged by acquirers, banks and payment
organisations. In this area the NBP may act indirectly, by performing the function of the so-
called catalyst for change. NBP is making efforts to influence the directions of the payment
system development and the operation of market players through cooperation and discussion
with the banking sector, including at the forum of the Payment System Council and the
Coalition for Cashless Transactions and Micropayment as well as through research and
analytical, educational and promotional activities. The issue of interchange fees has long been
of interest to the NBP. The first major document was the Report on the Interchange Fee
developed in 2007 by experts from the Payment Systems Department of the NBP and the
Polish Banks Association. The above report, which was accepted by the Payment System
Council in October 2007, examines in detail the principles for the functioning of the
interchange fee in Poland and other countries, and presents the role of this fee in the Polish
system of payment cards. The letter also informed of work conducted by the NBP in 2011 on
the next report on the interchange fee where rates of interchange fees in individual EU
countries will be compared. This study will be presented to the Payment System Council in
October 2011 and in the opinion of the NBP will represent a valuable contribution to the
discussion conducted with payment organisations and card issuing banks on re-examining the
rate of interchange fees applicable in the Polish market. Attention was also drawn to the
inclusion of the issue of interchange fees (as part of measure no. 10) into the draft
Programme for the Development of Cashless Transactions in Poland in 2011-2013, the
content of which was accepted by actors operating in the market for payment services,
including payment organisations.
6.5. Activities of the Payment System Council at the NBP and establishment
of the Interchange Fee Task Force
In accordance with previous announcements (see section 6.4), on 3 October 2011 at a
meeting of the Payment System Council a report prepared by the Payment Systems
Department of the NBP entitled Analysis of the functioning of interchange fee in cashless
transactions in the Polish market, version 1.0 was presented. Based on the submitted
material, the Council decided to establish an Interchange Fee Task Force (IFTF) which would
comprise representatives of all interested parties, including merchants, issuers of payment
cards, card organisations, acquirers, consumers and government institutions. On the basis of
the above mentioned document and the provisions of the Programme for the Development of
81
Cashless Transactions and taking into consideration the essential role to be played by the
interchange fee, i.e. setting the balance between the issuing side and the accepting side, the
IFTF was obligated to analyse the possibility of changing the structure and rate of the
interchange fee in Poland. The coordination of Task Force's work was entrusted to the
National Bank of Poland.
At the same time, the Payment System Council stated that it expected that:
- The results of IFTF work will be prepared and presented at a Council's meeting in
March 2012, after which
- card organisations will prepare a schedule of activities aimed at achieving the
expected structure and rate of the interchange fee and that it will be presented at a
Council's meeting in June 2012.
Therefore, the Payment System Council expressed its expectation that although the
proposals for changes in the structure and level of the interchange fee, including the pace and
level of changes in the fee rate in the coming years, conditions for introducing these changes
and indicators of monitoring the changes, should be developed by the IFTF, they should, in
addition to being presented to the Council, also be presented to competent decision-makers in
respect of the possibility of making such changes, i.e. to relevant structures and bodies in
Visa and MasterCard organisations.
By the end of 2011 two meetings of the Task Force were held: on 21 November 2011
and on 14 December 2011.
82
Chapter 7
Examples of countries which introduced changes to the level or
manner of setting the interchange fee
The problem of the interchange fee level was the subject of discussions as well as
regulatory actions or decisions of relevant bodies in many countries around the world. Given
the limited possibility to describe all the cases in full, this study presents in more detail only
four most characteristic and widely commented examples of countries where such activities
were conducted, including two EU countries (Hungary and Spain) and two non-EU countries
(Australia and United States).
7.1. Hungary
The Hungarian Competition Authority initiated proceedings in 2008 in connection
with a high level of the interchange fee against banks and payment organisations.84
Due to the
opening of these proceedings Hungarian banks decided that they did not want to hold
responsibility for the multilateral setting of this fee and that cross-border rates will be applied
by default instead of the previously existing rates,. The decision contributed to a significant
reduction in the fee for Visa cards, from about 1.4% of the transaction value to EUR 0.28 for
debit transactions and to 0.7% of the transaction value for credit card transactions. The above
rates for both types of cards were subsequently reduced as a result of decisions made by the
Management Board of Visa Europe in March 2009, and then in February 2011 fees for debit
card were further reduced to 0.2% following the entry into force of the second agreement
concluded between Visa Europe and the European Commission.85
In 2009, interchange fees
for Maestro and MasterCard cards were also significantly reduced.86
However, it should be
noted that according to the data collected by the NBP, in September 2010, interchange fee
rates were higher for MasterCard cards than for Visa cards.
While effects of these changes should be assessed only after a few years from their
introduction, when analysing statistics on the growth rate of the number of POS terminals in
Hungary compared to other selected EU countries and the EU average, it can be concluded
that the acceptance network in Hungary is developing much better than the EU average,
84
A. Turján, É. Divéki, É. Keszy-Harmath, G. Kóczán, K. Takács, Nothing is free: A survey of the social cost
of the main payment instruments in Hungary, Magyar Nemzeti Bank Occasional Papers 93., 2011. 85
Data provided by Visa Europe. 86
Data provided by Mastercard Europe.
83
however slightly worse than in Finland, for instance, where the level of interchange fees is
one of the lowest in Europe. A decline in the growth rate in 2010 was observed not only in
Hungary but also in Finland, in Bulgaria and Poland which has the highest level of
interchange fees in the UE, and on the average in the EU.
Table 11. Growth rate of the number of POS terminals in Hungary compared to other selected
EU countries, 2006-2010.
Source: Own study based on the Statistical Data Warehouse, ECB, December 2011.
It should also be noted that the interchange fee is one of the components of costs of
payment card acceptance incurred by merchants. In addition to the costs of the lease or
purchase of terminals, the merchant service charge plays a major role for retailers. The level
of merchant service charges offered in the Hungarian market is quite high and it varies
depending on the acquirer in the range from 1.5% to 2% of the transaction value.87
Although
these are rates of the preliminary offer, it appears likely that they do not deviate significantly
from the actual, finally agreed level between the acquirer and the merchant. It should be
noted, however that in comparison with the Polish market, the difference between the level of
the interchange fee and the level of the merchant service charge in Hungary is several times
higher, which may be a factor causing a slower than expected growth of the acceptance
network in Hungary. In addition, the reduction in the interchange fee could produce more
visible results if both payment organisations reduced rates to a similar level. In this way a
potential migration of banks to products with a higher interchange fee rate, i.e. from the Visa
system to MasterCard, could be avoided.
It is also worth noting that according to the data of the Hungarian Central Bank there
are currently approximately 59 thousand payment card acceptance points (66 thousand POS
87
Data obtained from Visa Europe.
Country Variable 2006 2007 2008 2009 2010 2006-2010
Number of POS terminals 45,840 54,580 60,780 70,960 78,440
Growth rate 19.1% 11.4% 16.7% 10.5% 71.1%
Number of POS terminals 31,640 48,900 53,990 59,450 60,760
Growth rate 54.6% 10.4% 10.1% 2.2% 92.0%
Number of POS terminals 105,000 135,000 153,000 176,000 201,000
Growth rate 28.6% 13.3% 15.0% 14.2% 91.4%
Number of POS terminals 176,480 186,610 212,340 230,580 251,830
Growth rate 5.7% 13.8% 8.6% 9.2% 42.7%
Number of POS terminals 7,090,760 7,644,830 8,222,290 8,550,420 8,806,430
Growth rate 7.8% 7.6% 4.0% 3.0% 24.2%
Hungary
Finland
Poland
Bulgaria
EU
84
terminals) in Hungary, while the number of all retail outlets is estimated at 235 thousand. This
implies that the level of saturation of the acceptance network in Hungary is around 25%. It
can therefore be concluded that this level is close to the Polish market and has a large
development potential (a significant market area to be developed, particularly outside
Budapest which according to AT Kearney estimates represents more than 1/3 of the total base
of installed POS terminals in Hungary).
7.2. Spain
Disputes over interchange fees have lasted in Spain for many years. In 1999 an
agreement was reached (between banks, associations of card issuers, retailers and
representatives of the government), under which associations of payment card issuers agreed
to gradually reduce the interchange fee by 0.125% per year to the level of 2% in 2007. In the
meantime, associations of payment card schemes were obligated to submit an application to
the Court of Competition Protection for obtaining an individual permission to apply their
existing rules of setting the interchange fee. After long-lasting consideration, in June 2005 the
Court of Competition Protection in Spain issued a decision which refused or revoked
individual permissions for payment card systems and established specific conditions which
had to be satisfied by these systems in order to obtain a permission to apply the interchange
fee:
- the level of the interchange fee must be different for credit card transactions and debit
card transactions, in accordance with the costs associated with these transactions,
- the interchange fee for debit cards should be fixed in accordance with the authorisation
and transaction processing costs which include costs of the payment process from the
moment of authorisation to the final payment. In addition, these costs should be
expressed as a fixed amount for each transaction.
- the interchange fee for credit cards should be fixed in accordance with the
authorisation and transaction processing costs which include costs of the payment
process from the moment of authorisation to the final payment. These costs should be
expressed as a fixed amount for each transaction. In addition, the fee should take into
account the fraud component which is affected by the risk of the use of a credit card in
a fraud transaction.
- the level of the interchange fee must vary depending on whether the transaction is
made via POS terminals, phone or the Internet,
85
- any changes in setting the principles and the level of interchange fees must be
approved by the Court of Consumer Protection,
- the level of interchange fees must be made public to banks and retail outlets.
This decision was appealed to the Spanish court, however the interested parties, i.e.
national payment card schemes, retailers, banks and the Ministry of Commerce immediately
started negotiations in order to reach an agreement. The agreement was reached in December
2005. It refined the provisions of the Court's decision and agreed, among other things:88
- a schedule for a gradual, annual reduction in fee rates in a period of three years from
2006 to 2008 (transitional period) and a simultaneously resuming discussions on the
methods of determining the level of interchange fees,
- starting from 2009, rates of the interchange fee will be set on the basis of a cost
analysis which should be performed by each of the systems by the end of July 2008
and submitted to the national Competition Authority. If the Competition Authority
does not approve a particular methodology applied, the transitional period may be
extended until 2010.
- commitment to gradually reduce these rates to the level of fees applied in other
countries of the European Union,
- establishment of a Task Force consisting of representatives of the interested parties, in
order to monitor the implementation of the provisions contained in the agreement and
to promote card usage.
A schedule of the agreed reduction in interchange fee rates taking into account the
type of card and the turnover achieved by retailers as part of payment card acceptance is
presented in table 12.
Table 12. Maximum rates of interchange fees in the payment card market in Spain as set as in
the 2005 agreement
Turnover 2006 2007 2008 2009-2010
Euro (€) Credit
(%)
Debit
(€)
Credit
(%)
Debit
(€)
Credit
(%)
Debit
(€)
Credit
(%)
Debit
(€)
0 – 100 million 1.40 0.53 1.30 0.47 1.10 0.40 0.79 0.35
100 – 500 million 1.05 0.36 0.84 0.29 0.63 0.25 0.53 0.21
500 million + 0.66 0.27 0.66 0.25 0.54 0.21 0.45 0.18
Source: Materials provided by Visa Europe (November 2011).
88
S. Carbo-Valverde, s. Chakravorti, F. Rodriguez Fernandez, Regulating two-sided markets, an empirical
investigation, ECB Working Paper Series, European Central Bank, 2009, No. 1137, p. 18.
86
The transitional period was extended until the end of 2010 because the Competition
Authority had not approved cost studies submitted by the interested parties.89
At the end of
the transitional period, the Competition Authority issued a statement that the systems were
permitted to freely set the level of interchange fees provided that it complied with the EU and
Spanish competition law.
It should also be noted that the Spanish Competition Authority pointed to an important
fact that the establishment of a transitional period allowed banks to adjust to the new rules,
while avoiding rapid changes that could be harmful to both card holders and the system itself.
The results of research conducted on the basis of, among other things, Spanish
experience by the authors of the publication entitled: Regulating two-sided markets, an
empirical investigation, published under the auspices of the European Central Bank, are worth
noting. They show that the reduction in interchange fees in Spain resulted in a significant
increase in acceptance and use of payment cards in this country. According to the authors, this
effect may be particularly strong in countries where card acceptance is very low. These results
also show that in such markets a reduction in the level of the interchange fee to a certain level
contributes to increased card usage owing to which banks' revenues are not reduced.90
7.3. Australia
One of the first countries to note the issue of the interchange fee was Australia. In
1999, the Australian central bank - Reserve Bank of Australia (RBA) and the Australian
Competition and Consumer Commission (ACCC) jointly analysed competition in the
payment card market in Australia. The analyses related to the credit card market and led to
the conclusion that some of the principles applied in this market hinder the proper and
effective functioning of this payment instrument. The objections raised related to, among
other things, joint setting of the interchange fee, the prohibition for retailers to charge
additional fees to customers who make credit card payments ("no surcharge" rule) and
restrictions on access to payment card schemes participation for non-credit institutions.
In March 2001, the ACCC formally asked the central bank to prepare a reform
programme relating to the payment card system with regard to MasterCard, VISA and
Bankcard cards. Following the process of analyses and consultations, in August 2002 RBA
89
Materials provided by Visa Europe (November 2011). 90
S. Carbo-Valverde, s. Chakravorti, F. Rodriguez Fernandez, Regulating two-sided markets, an empirical investigation, ECB Working Paper Series, European Central Bank, 2009, No. 1137, p. 15-16, 27-28, 34-35.
87
published standards for the interchange fee and the no-surcharge rule which must be met by
the above mentioned schemes. Initially, the manner and legitimacy of introducing these
regulations were challenged by VISA and MasterCard, however the appeal of these
organisations was rejected in September 2003 by the Australian Federal Court.
As a result of these actions, the reform of credit card schemes began as of 1 January
2003. It was based on three main principles:
- ensuring an objective, transparent and cost-based methodology for setting interchange
fees (payment organisations were obligated to set and publish new rates of the
interchange fee by 31 October 2003),
- abolishing the existing ban on applying a surcharge by retailers to customers who pay
with credit cards (from 1 January 2003),
- abolishing restrictions and allowing the issue of payment cards and conducting the
activities of an acquirer to all entities, provided they meet the requirements set by the
Australian Prudential Regulation Authority (APRA). The requirements were published
in February 2004.
The introduction of the new standards reduced the average level of the interchange
fee for credit cards from 0.95% to 0.55% of the transaction value.
Table 13. Level of the interchange fee for credit cards in Australia (% of the transaction value)
Description Before the
reform
After the reform
Bankcard MasterCard VISA
Standard transactions 1.2% 0.49% 0.62% 0.60%
Electronic transactions 0.80% 0.49% 0.46% 0.44%
Source: Reserve Bank of Australia.
The reduction in the level of interchange fees resulted in a reduction of commissions
paid by retailers to acquirers from the average of 1.41% to 0.99% of the transaction value. It
was estimated that the reduction in fees would lower the Consumer Price Index by
approximately 0.1 to 0.2 percentage points. At the same time it was pointed out, however
that this change would be difficult to observe since this ratio may increase by an average of
approximately 2.5% per year.
The results of this reform are monitored and discussed all over the world as a classic
case study. The first assessment of the effects of this reform indicated that retailers achieved
88
great benefits as the reduction in the interchange fee level lowered the cost of payment card
acceptance and increased their revenues. However, analyses and opinions criticising the
effects of the reform also started to appear. For instance, Capco Institute, a consulting firm,
disputed the effects of the above mentioned reform. It argued, among other things, that
contrary to the intentions of the central bank, the effects of this reform could affect card
holders because it allowed retailers to impose additional charges on them in the case of
credit card transactions. However, until now few retailers have decided to introduce fees for
card transactions fearing they may lose customers paying with cards. The companies that
introduced such fees include companies with a dominant market position. Moreover,
according to Capco Institute, card issuers, seeking solutions to reduce their own costs,
started to reduce some of the additional benefits and programmes previously offered to card
holders, such as insurance, loyalty programmes etc. Card issuers also started to migrate from
the four-party card scheme which became less profitable for them to local three-party
schemes (where the issuer is at the same time an acquirer), which were not covered by the
reform. To summarise, in the opinion of Capco Institute consumers not only did not benefit
from the reduction in prices of goods and services in retail stores, but they lost a number of
additional benefits previously attached to the card. Currently, a payment card is a more
expensive instrument for consumers due to, among other things, higher fees for using the
card and the possibility to charge a surcharge by retailers to customers paying with a credit
card.91
Recent analyses of the effects of the interchange fee reduction in the Australian
market suggest that credit card users pay higher fees to issuers than debit card users. On the
other hand, the cost of credit card acceptance decreased and that of debit cards slightly
increased. In addition, according to a survey conducted in 2010, 40% of large and 20% of
smaller merchants charge a surcharge on card transactions. The average rate of this charge
was 1.7% of the transaction value for Visa and MasterCard cards and 2.7% of the transaction
value for Amex and DinersClub cards. According to preliminary estimates of the central
bank, the net cost of credit and debit cards is almost identical for card holders, taking into
account systems of rewards associated with credit cards, provided that card holders duly
repay debt. The regulation allowed retailers to save costs of USD 1 billion per year.92
In addition, the analysis of statistical indicators for the payment card market in
91
F. Burelli, Capco Institute on European Commission decision on InterChange, Capco Institute, 2007. 92
M. Bullock, A Guide to the Card Payments System Reforms, Bulletin, Reserve Bank of Australia, September
http://www.rba.gov.aU/publications/bulletin/2010/sep/7.html#f (December 2011).
89
Australia shows that this market is growing rapidly, as shown in table 14.
Table 14. Payment card market in Australia - selected statistical data
Indicator 2006 2007 2008 2009 2010
Number of card payment transactions per capita
total
debit cards
credit cards
125.4
64.5
60.9
134.8
71.2
63.6
146.5
80.7
65.8
157.5
90.2
67.3
172.8
102.5
70.3
Value of card transactions (in USD) per capita 9,221 11,249 12,46
4
12,253 15,09
6 Number of POS terminals in thousands 570,4 628,8 669,6 697,8 707,3
Source: Own study based on: Bank for International Settlements, Committee on Payment and
Settlement Systems, Statistics on payment, clearing and settlement systems in the CPSS countries,
Figures for 2010, September 2011, Preliminary release, p. 413-461,
http://www.bis.org/publ/cpss98.pdf (December 2011).
In the analysed period (2006-2010), both the number of transactions executed with
each type of cards per capita, the value of card transactions per capita and the number of POS
terminals grew quite rapidly. Therefore, it can be concluded that the regulation of the level of
interchange fees affected the market positively rather than negatively.
7.4. United States
The issue of the interchange fee is also an element of extensive analyses and
discussions in the United States. The Durbin amendment, which forms part of the Restoring
American Financial Stability Act of 2001 (referred to as: the Dodd-Frank Act) has been in
force since 1 October 2011. This Act was passed as a result of the financial crisis and sought
to protect American consumers from financial industry abuse. The U.S. President Barack
Obama signed it on 21 July 2010. The amendment authorises the Federal Reserve Bank to
regulate the payment card market in respect of fees for transactions made with payment cards.
The author of the amendment is Senator Richard Durbin who concluded that the level
of the interchange fee is not based on actual expenses incurred by banks and payment
organisations on the development and functioning of the payment system, but instead is
determined top-down by these institutions in order to achieve high profits. Such action was
therefore treated as an illegal price fixing arrangement.
The rate of the interchange fee for each debit card transaction was set at no more than
21 cents + 0.05% of the transaction value. In addition, issuers who develop and implement
fraud preventing procedures may receive additionally no more than 1 cent on each
90
transaction. The total maximum value of the interchange fee for the issuer cannot exceed 22
cents + 0.05% of the value of a debit card transaction.93
The amendment does not apply to
issuers who have assets of less than USD 10 billion.
It is worth noting that the regulation does not apply to credit cards. In the U.S. the
number of credit cards issued is much higher than the number of debit cards (in 2009: 1.1
billion cards, i.e. 3.694
cards per capita and 278.8 million, i.e. 0.91 cards per capita,
respectively). In 2009, the value of debit card transactions and credit card transactions
amounted to USD 1.4 trillion and USD 1.9 trillion, respectively, although in terms of the
number of transactions the number of debit card transactions prevailed. In 2009, there were
125.3 debit card transactions per capita and 72.7 credit card transactions per capita, while in
2006, these rates were only 87.1 for debit cards and 74.8 for credit cards.95
It can therefore be
expected that revenues of issuers from this business will decrease. The response of banks to
these changes was immediate. Bank of America announced its decision followed by several
other banks that announced their plans to increase monthly fees for the debit card usage from
USD 5 to USD 10. Shortly after the decision of Bank of America its customers began a
protest. One of the Bank's customers posted information on one of the social networks in
which she did not agree to the increase in fees. This protest gained an overwhelming support
from Internet users who joined the protest. Under the pressure of this initiative Bank of
America withdrew from the previously made decision and other banks abandoned their
intentions. Another recent initiative of customers dissatisfied with the activities of banks is a
"Bank Transfer Day" which promotes the resignation from bank's services in favour of
alternative banking services offered by credit unions. As a consequence of the social
initiatives commercial banks such as Bank of America, JP Morgan Chase and Citibank have
lost thousands of customers who closed their bank accounts. Credit unions operating in the
U.S. gained more customers during one month than during the whole of the previous year, i.e.
650 thousand customers who invested funds with the total value of USD 4.5 billion.96
It may
be argued that the scale of the protest would not have been so large if it had not been for the
manifestations of outraged Americans as part of the Occupy Wall Street movement which was
93
Board of Governors of the Federal Reserve System, Press Release, Release Date: June 29, 2011.
http://www.federalreserve.gov/newsevents/press/bcreg/20110629a.htm (December 2011). 94
In recent years there has been a significant decrease in the number of credit cards in the U.S. In 2006, there
were still as many as 4.41 cards on average per 1 inhabitant of this country. 95
Bank for International Settlements, Committee on Payment and Settlement Systems, Statistics on payment,
clearing and settlement systems in the CPSS countries, Figures for 2010, September 2011, Preliminary
release, p. 413-461, http://www.bis.org/publ/cpss98.pdf (December 2011). 96
J. Kitowska, M. Lewkowicz, Ucieczka z banku, Gazeta Finansowa, December 2011, p. 71-73,
91
an expression of public discontent against the abuse by banks of their position and causing a
global financial crisis by these institutions of public confidence.
At the same time, it turned out that many merchants instead of passing to consumers,
as previously declared, quite large savings from the reduction in the interchange fee in the
form of lower prices, increased or maintained prices in the first two months after the
introduction of the Durbin amendment, thus increasing their profits.97
When presenting the above examples of countries which changed the level or method
of setting the interchange fee, it should also be added that one of the major differences
between EU and non-European countries was the role of the central bank in these actions.
While in Australia and the U.S. the central bank performed an important regulatory and
decision-making role due to a wider scope of statutory responsibilities of the central bank, in
Hungary and Spain and other EU countries the central bank's role in the described actions was
much less active. This stems from the fact that under the provisions of the European law the
interchange fee issue is an element of competition law and falls within the competence of the
European Commission and national competition and consumer protection authorities.
97
Retailers and banks step up war of words over interchange fee cuts, Finextra, 9 December 2011.
92
Chapter 8
Scenarios for the development of the payment card market in
Poland in the context of reduced interchange fee rates
8.1. Forecast for the growth in the value of cashless transactions in Poland
An important aspect from the perspective of the assessment of the payment card
market in Poland is not only an analysis of statistical data for previous periods but also a
forecast for the future development of this market. In the context of the interchange fee
issue, the value of cashless transactions is of particular importance.
Based on the graphical evaluation of the time series of cashless transaction values
made in Poland in successive quarters from the third quarter of 2003 to the second quarter of
2011, the following components can be distinguished in the chart: trend, seasonal variations
and random fluctuations. In practice, many methods are used for forecasting phenomena with
a periodic component. In this case the method using trend models with seasonal variation will
be applied. The method consists in estimating parameters of the analytical trend function
separately for individual phases of the cycle. The forecast is obtained by extrapolating the
estimated trend function separately for each phase. It should be noted that the trend lines
found are the tool of statistical analysis (in this case) of the increase in the analysed
phenomenon. Therefore, the application of this method requires a clear formulation of the
assumption that the factors affecting the analysed phenomenon will not change over the
forecast period.
Table 15. Forecasts of the value of cashless transactions executed in Poland and values of ex ante
evaluation of prediction errors
Quarter Forecast for 2012 Ex ante evaluation of
mean prediction error
Ex ante evaluation of relative
prediction error
1 Py 1,201223 172 550 134 PS 1,2012
707 993 380 Pv 1,20120,0306
2 Py 2,201226 196 891 686 PS 2,2012
815 682 107 Pv 2,20120,0311
3 Py 3,201226 581 376 560 PS 3,2012
1 187 670 035 Pv 3,20120,0447
4 Py 4,201228 246 144 701 PS 4,2012
892 774 389 Pv 4,20120,0316
Quarter Forecast for 2013 Ex ante evaluation of
mean prediction error
Ex ante evaluation of relative
prediction error
1 Py 1,201325 550 947 424 PS 1,2013
758 626 766 Pv 1,20130,0297
93
2 Py 2,201328 860 559 394 PS 2,2013
874 017 042 Pv 2,20130,0303
3 Py 3,201329 239 514 216 PS 3,2013
1 276 310 863 Pv 3,20130,0437
4 Py 4,201330 894 904 780 PS 4,2013
959 405 910 Pv 4,20130,0311
Quarter Forecast for 2014 Ex ante evaluation of
mean prediction error
Ex ante evaluation of relative
prediction error
1 Py 1,201427 929 344 714 PS 1,2014
815 246 284 Pv 1,20140,0292
2 Py 2,201431 524 227 102 PS 2,2014
939 248 623 Pv 2,20140,0298
3 Py 3,201431 897 651 872 PS 3,2014
1 372 508 754 Pv 3,20140,0430
4 Py 4,201433 543 664 859 PS 4,2014
1 031 718 093 Pv 4,20140,0308
Quarter Forecast for 2015 Ex ante evaluation of
mean prediction error
Ex ante evaluation of relative
prediction error
1 Py 1,201530 307 742 004 PS 1,2015
876 692 892 Pv 1,20150,0289
2 Py 2,201534 187 894 810 PS 2,2015
1 010 041 514 Pv 2,20150,0295
3 Py 3,201534 555 789 528 PS 3,2015
1 474 785 642 Pv 3,20150,0427
4 Py 4,201536 192 424 938 PS 4,2015
1 108 599 873 Pv 4,20150,0306
Quarter Forecast for 2016 Ex ante evaluation of
mean prediction error
Ex ante evaluation of relative
prediction error
1 Py 1,201532 686 139 294 PS 1,2015
942 022 472 Pv 1,20150,0288
2 Py 1,201536 851 562 518 PS 1,2015
1 085 307 994 Pv 1,20150,0295
3 Py 1,201537 213 927 184 PS 1,2015
1 581 962 911 Pv 1,20150,0425
4 Py 1,201538 841 185 017 PS 1,2015
1 189 165 281 Pv 1,20150,0306
Source: Own study based on calculations in a Microsoft Excel spreadsheet and Gretl econometrics
package.
As shown in table 15, the relative ex ante prediction errors range from 2.88% to
4.63%.
A graphical representation of the obtained forecasts is presented in chart 22. The blue
colour marks the values of cashless transactions executed in Poland in the period from the
third quarter of 2003 to the second quarter of 2011, while the red marks mark their predicted
values for the subsequent quarters in 2011-2016.
94
Chart 22. Value of cashless transactions (PLN million) executed in Poland in 2003Q3 - 2011Q2
and forecasts for the subsequent quarters in 2011-2016
Source: Own study based on NBP data.
The obtained forecasts show that with the current growth trend of the analysed
phenomenon the value of cashless transactions executed in Poland in the last quarter of 2016
may even exceed PLN 38 billion.
8.2. Example of a simulation of banks' income when the level of interchange
fees is reduced
Based on NBP statistics and the related forecasts, a comparison of values of cashless
transactions executed with payment cards in Poland in 2004-2016 (Chart 23) was prepared. In
2004, the total value of such transactions in Poland amounted to PLN 23.6 billion and in 2010
this figure reached nearly PLN 84 billion. In turn, the predicted value of card payments in
2016 totals as much as PLN 145.6 billion, i.e. PLN 60 billion more than in 2010. It should
also be noted that since the date of the OCCP decision (end of 2006) the payment card market
in Poland grew in terms of cashless transaction value more than twofold and from 2016,
assuming that current trends are maintained, it may increase up to 3.5 times.
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
2003 Q
32004 Q
22005 Q
12005 Q
42006 Q
32007 Q
22008 Q
12008 Q
42009 Q
32010 Q
22011 Q
12011 Q
42012 Q
32013 Q
22014 Q
12014 Q
42015 Q
32016 Q
2
95
Chart 23. Value of cashless transactions (PLN billions) executed in Poland in 2004-2010
and the related forecasts for 2011-2016
Source: Own study based on NBP data.
Based on the transaction value, the value of income generated by banks issuing
payment cards in Poland between 2004 and 2016 was estimated under two scenarios: (1)
assuming the level of fees to remain at 1.5%, and (2) taking into account the proposal for
changes in the level of the interchange fee, as presented in charts 24 and 25 respectively.98
The analysis also assumed that other factors will not change.
The analysis of the estimated income of banks from the interchange fee achieved after
2006 showed that in 2007-2016 the issuers of payment cards may achieve, provided that the
interchange fee remains at 1.5% (Chart 24), a total income of PLN 14.9 billion, in particular
this income is estimated in 2011 at PLN 1.4 billion and in 2016 at PLN 2.2 billion. The
financial surplus, defined as income earned above the level of 2006 income (reference point -
the decision of the OCCP of December 2006), is estimated at 8.9 billion, i.e. income earned in
each subsequent year (from the beginning of 2007 until the end of 2016) above PLN 590
million (area above the blue dashed line). It is also worth noting that the increase in this
income, starting from 2007 until the end of 2016, i.e. shortly after the announcement of the
decision of the OCCP, may increase by 270% (from PLN 0.59 billion to PLN 2.18 billion).
98
The analysis serves only as an example and shows the dependence of banks' income on the level of the
interchange fee. A development of appropriate scenarios of changes in the level and structure of the
interchange fee is the task of the Interchange Fee Task Force (see section 6.5).
23,630,6
39,551,3
63,172,6
83,995,1
104,2114,5
124,9135,2
145,6
0,0
20,0
40,0
60,0
80,0
100,0
120,0
140,0
160,0
96
Chart 24. Estimated income of banks (PLN billions) from interchange fees in Poland in 2004-2016
assuming the interchange fee is left at 1.5%
Source: Own study based on NBP data.
In the second scenario (Chart 25) the average level of interchange fees of 1.5% for
2004-2011 was assumed for estimating the income (as an example of an assumption), and
1.3% in 2012, 1.1% in 2013, 0.9% in 2014, 0.8% in 2015 and 0.7 % in 2016 (figures at the
bottom of chart 25).
Chart 25. Estimated income of banks (PLN billions) from interchange fees in Poland in 2004-2016,
assuming a gradual reduction in the average fee level
Source: Own study based on NBP data.
0,350,46
0,590,77
0,95
1,091,26
1,431,56
1,721,87
2,032,18
0,00
0,50
1,00
1,50
2,00
2,50
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
270%
PLN 8,9 bn
0,350,46
0,59
0,77
0,951,09
1,26
1,43 1,35
1,26
1,12 1,081,02
0,00
0,20
0,40
0,60
0,80
1,00
1,20
1,40
1,60
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
73%
PLN 5,4 bn
IF rate 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.3% 1.1% 0.9% 0.8% 0.7%
97
The above analysis, which serves only as an example, showed that along with a
gradual reduction in interchange fees to the current EU level (0.7% - 0.8% depending on the
organisation or type of card), banks' annual income from interchange fees:
- would increase nearly 2 times from the announcement of the OCCP decision to the
end of the analysed period, i.e. from PLN 0.59 billion in 2006 to PLN 1.02 billion in
2016 and would reach the level similar to that generated in 2009,
- would decrease by nearly 20% in comparison with 2010, i.e. from PLN 1.26 billion to
PLN 1.02 billion, respectively.
In addition, the analysis of this scenario shows that the total income of banks in the
period of 2007-2016, even with the proposed steady reduction of rates from 1.5% to 0.7% of
the transaction value, may reach PLN 11.3 billion and the financial surplus (as defined above,
under the first scenario) - approximately PLN 5.4 billion (the area above the blue line).
However, it should be further noted that the estimated increase in the value of
cashless card transactions presented in chart 23 has been prepared as an extrapolation of
current trends, i.e. without taking into account a likely surge along with the implementation of
measures laid down in the Programme for the development of cashless transactions in Poland
in 2011-2013, and without accounting for the positive impact of the reduction in the
interchange fee on the growth of the acceptance network, the increase in the number of
persons using banking services and thus an additional increase in the value of cashless card
transactions. It can therefore be expected that along with the reduction of interchange fees in
Poland the payment card market will grow faster than in recent years and the total value of
transactions will be higher than forecast, which will also have a positive impact on the size of
banks' income from the interchange fee.
8.3. Interchange fee reduction - scenario analysis
In order to determine the possible directions of the development of the payment card
market in Poland a scenario analysis was performed. The fundamental problem raised as part
of this analysis concerns the reduction in the level of interchange fees for cashless
transactions on the Polish market or no reduction.
Scenario no. 1 - No reduction in the level of interchange fees in Poland
If the level of interchange fees in Poland is not reduced, there will be strong pressure
on introducing a surcharge in our country (as a national option as part of the implementation
98
of the Payment Services Directive) owing to which retailers would be able to offset costs
related to payment card acceptance. Activities aimed at introducing the surcharge were
already undertaken by large associations of Polish merchants, in particular during the
parliamentary debates on the act on payment services in 2011. However, they were not
approved at that stage, after, among other things, the intervention of the National Bank of
Poland which considered it detrimental to the development of cashless transactions in Poland
and concluded that the problem of interchange fees could be solved in Poland through market
activities and not through regulations.
However, the introduction of the surcharge option into the Polish legal system in the
near future cannot be completely ruled out given the increased efforts of organisations
associating thousands of merchants. Making the application of surcharges possible may
cause negative effects for the development of the payment card market in Poland. Charging
additional fees to customers by merchants could effectively discourage card users from
making payments, who will use cash more often. In turn, a decrease in the usage of cards by
to pay for purchases will provide a strong argument for retailers to abandon the services of
acquirers. Such a combination of developments in the market will contribute to a decrease in
the number and value of cashless transactions in Poland, which, in turn will contribute to the
reduction in income: (i) for banks from interchange fees, and (ii) for payment organisations
from fees charged to acquirers and issuing banks. Currently it is difficult to estimate the scale
of financial losses, however it may be expected to be significant. Efforts undertaken for many
years to stimulate the development of cashless transactions in Poland (in particular the
development of the payment card market) may be wasted in a very short period of time. It
should be stressed here that constraining the development of a particular market, by e.g. a
wrongly conducted pricing policy, seems a much easier process than restoring the growth
path in the market.
According to the declarations of merchant associations, if the option for retailers to
charge a surcharge to customers using payment cards to make purchases is not implemented
in the Polish law, other activities on the part of retailers aimed at reducing card acceptance
costs should be expected,. The results of the analyses show a slowdown in the growth of the
number of merchants and outlets equipped with POS terminals. In the absence of any
improvement in financial conditions for merchants, a further slowdown in the growth of the
acceptance network, or even a halt in its development, should be expected. Moreover, not
only will potential merchants not decide to accept cards but also the existing merchants will
give up using POS terminals. This will have a negative impact on the income of banks issuing
99
cards and payment organisations. Merchants clearly emphasise that the main reason for high
card acceptance fees is the interchange fee. Therefore, they are openly looking for solutions,
other than the surcharge, which will allow them to reduce the costs of card acceptance. One
of the examples of this situation is the fact that merchants are investigating the possibility of
processing transactions executed in our country with cards issued in Poland as cross-border
transactions - through a foreign head office of the retailer operating in Poland. Other
alternatives analysed by merchants may include: (1) the possibility of accepting cards only of
organisations with a lower level of the interchange fee, (2) limiting merchant loyalty
programs only to customers paying by cash, (3) temporary suspension of payment card
acceptance, (4) permanent withdrawal from payment card acceptance. The lack of a solution
competitive to Visa and MasterCard systems is also indicated as one of the reasons for the
current situation. The creation of a payment system with a more favourable business model
for retailers than the current payment card systems could foster the development of retail
payments market. However, the problem that should be analysed is whether wide interest of
retailers in a new payment system is actually able to encourage commercial banks to assume
the function of issuers of such instrument, if the business model is less favourable for banks
than under the current payment card systems.
An important aspect of the reduction in the level of interchange fee in Poland is the
commitment by payment organisations and issuing banks to act accordingly under the
Programme for the Development of Cashless Transactions in Poland. In the opinion of the
NBP, activities aimed at achieving this goal should be undertaken regardless of the formal
adoption of the Programme by the Government.
The National Bank of Poland will make every effort to avoid compromising the
development of cashless transactions in Poland. However, if it concludes that an inflated
interchange fee in Poland poses a risk to further development of the payment card market, it
will not stop regulatory initiatives in this area while analysing them in detail and assessing
whether or not they are clearly disadvantageous for the consumer and for further development
of cashless transactions.
Scenario 2 - Reduction in the level of the interchange fee in Poland to the average level
of the fee applicable in the EU countries
It should be expected that in the case of a significant reduction in the interchange fee
in Poland, the development of the payment card market in Poland will be maintained.
100
Therefore, it may even be expected that this market will grow faster than before. The number
and value of transactions will increase significantly enough for the income from the
interchange fee to also be considerable, despite a reduction in its rates. However, banks
issuing payment cards will not suffer losses, but will achieve a slightly lower income,
depending on the scale of the reduction. For instance assuming a reduction in the interchange
fee proposed in the example in section 9.2 in the period of 2012 - 2016, this income would
not be lower than the income earned in the previous three years, i.e. 2008, 2009 and 2010.99
Retailers will certainly generate financial benefits but these changes may also benefit
consumers who should pay for goods and services less than in the case the level of fees was
not reduced.
A reduction in the level of interchange fees may prompt some issuers to consider a
decision to introduce fees for customers, such as for the possession or usage of a card, or
giving up the existing price promotions. Taking into account the fact that most customers are
very sensitive to changes in prices that are adverse for them, one would expect a mass
resignation from banking cards by customers, and also from other banking services, including
the possession of any account or - if the US scenario were to be repeated - a mass migration
from banks to co-operative savings and loan associations (SKOK). This will affect negatively
not only banks' income from interchange fees but also income earned from the provision of
other services such as maintaining accounts, lending or raising such sources of capital in the
form of bank term deposits. Therefore, banks' strategy should consist in not charging
additional fees to customers for card usage so as not to compromise the development of the
payment card market and not to motivate customers to leave the bank at all or migrate to
another entity. It should also be noted that the level of interchange fees should be reduced
while keeping the same level of other cost items that determine the amount of merchant fees.
The level of interchange fees Poland is the highest in Europe. The Polish payment card
market has sufficiently large potential to allow banks to earn higher than before income when
the average EU level in the number of cashless card transactions is achieved. The reduction in
the interchange fees may thus accelerate the achievement of average EU levels of indicators
of payment card market development by Poland.
99
In the opinion of one of the card organisations, not shared by the authors of this study, a reduction in
interchange fee rates and a decrease in banks' income may not only lead to an increase or introduction of new
charges for customers by banks, but may also result in a significant reduction in investments in card
products, which will, in turn, lead to a halt in the development of cashless transactions.
101
Conclusions
Poland is a country where despite intensive measures undertaken in recent years to
develop cashless transactions, the level of cash payments is still relatively high. The share of
notes and coins in circulation in the M1 money supply, i.e. in cash in circulation, including on
demand funds in bank accounts is still higher almost by half than in the euro area countries.
As far as numerous indicators concerning various categories related to cashless turnover per
number of inhabitants are concerned, Poland still ranks at the bottom of rankings in the
European Union. A high share of cash transactions and high costs related to the organisation
of this turnover are not beneficial for the banking sector and cause certain consequences for
the entire economy.
One of the payment instruments which could replace notes and coins primarily as
regards payments at retail and service outlets is a payment card. The development of the
payment card market, often measured by the number and value of transactions executed with
payment cards, requires, however not only an increase in the number of cards itself and their
dissemination among consumers and economic actors, but also a development of the
acceptance network, measured by the number of retail and service outlets and the number of
POS terminals.
The analysis of the growth of the above indicators for Poland may lead to the
conclusion that while the number of payment cards and the number and value of cashless card
transactions has grown at a fairly high rate in recent years, the growth of the acceptance
network has not followed the same trend. The number of cashless transactions grew rapidly
mainly in the last seven years - from 2004 to 2010 the number of cashless transactions
increased more than 4 times from PLN 198 million to PLN 844 million. Similarly, the value
of cashless transactions grew fast - in 2010 the value of cashless transactions amounted to
PLN 90 billion and it was more than 3.5 times bigger than in 2004 (PLN 25 billion). In turn,
the number of payment cards increased in 2000-2010, almost three times, from 11.3 million to
32 million. On the other hand, the growth of the acceptance network in Poland was relatively
low in comparison with the above growth rates. For example, the number of merchants
increased from 69 thousand in 2004 to 104 thousand in 2010, i.e. it was higher only by 50%,
and the number of retail and service outlets equipped with POS terminals in the same period
increased by only 58% (up from 119 thousand to 188 thousand). It should be added that
taking into account the size of the entire market for retail and service entities operating in
102
Poland (according to experts, the entire market may be in the range from 500 thousand to as
many as 1 million outlets), the number of retail and service outlets accepting cards represents
only between 19 - 38% of all retail and service outlets, which implies that the resulting
saturation of the Polish market in terms of payment cards is very low and thus constitutes, in
the opinion of the Payment Systems Department, a barrier to further development of the
payment card market and the possibility of increasing the number of persons using banking
services.
If the situation does not improve significantly in the coming years, in the form of an
abrupt growth in the network of new acceptance outlets in locations where this network is
underdeveloped, we may soon observe a gradual depletion of the potential of further fast
growth of cashless card transactions, both in terms of the number and the value. This will be
largely a result of saturation with transactions of card holders. Given the above data, it seems
very likely that such high rises are achieved through increased activity of customers who
already use payment cards. Therefore, in order to prevent a decrease in the value of turnover
related to cashless payment, it is necessary for banks to acquire new customers, i.e. the
number of persons using banking services should increase and the network of entities
accepting card payments should grow, especially in the regions where it was not developed
so far, i.e. villages and small towns of up to 50 thousand inhabitants.
One of the obstacles indicated by retail and service outlets accepting payment cards
and potential merchants is the level of fees charged by acquirers in which interchange fees set
by payment card organisations or banks associated in them constitute the main part
(sometimes representing up to 85% of the fee charged to card acceptance outlets). Currently,
as shown in the presented material, these rates are often the highest in Europe.
Since this barrier had already been identified, the issues were included in the
Programme for the development of cash payments in 2011-2013 as measure no. 10 of
Changing the structure of interchange fees for particular types of merchants and card
payments and adjusting the fees to the average EU level. The above mentioned measure
defines the purpose, description, implementation schedule and monitoring indicators. The
objective of the measure was set to be an optimal adjustment of the interchange fee rates to
the structure and specificity of various groups of merchants and various types of card
payments. The expected effect of this measure was to be an increase in the number of
transactions at merchants, including entities that were not previously interested in accepting
cards, as well as a stimulation of the development of micropayments and low-value
103
payments. The justification stated that the payment card market in Poland was at its
development stage and the smaller number of cards and transactions per capita in comparison
with the EU average suggests that necessary measures should be undertaken, such as: a
change to the structure of fees for certain types of merchants and payments made with
payment cards as well as a gradual adjustment of these fees, estimated for the purposes of the
Programme at 0.95%-1.90%, to eventually reach the level of the EU average.
Taking into account the results of the analysis contained in this document and due to
the fact that the date of the adoption of the Programme by the Government of the Republic of
Poland has been postponed, we believe that given the need for an abrupt development of
cashless transactions in Poland in the coming years and the need for further expansion of the
acceptance network for payments cards, it is necessary to undertake activities aimed at
implementing tasks provided for in this document, including measure no. 10, regardless of
the date it is approved by the Government.
The Payment Systems Department of the National Bank of Poland believes that such
activities will be worked out in 2012 by the Interchange Fee Task Force at the Payment
System Council, a consultative and advisory body to the Management Board of the NBP,
which comprises all major stakeholders of the four-party card scheme (see section 6.5) and
subsequently appropriate decisions will be made by competent bodies of card organisations
operating in Poland.
104
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Document developed by:
Krzysztof Maciejewski, PhD
Research and Analysis Division
Payment Systems Department
in cooperation with
Adam Tochmański
Renata Pawlicka
Robert Klepacz
Agata Gorczycka
