Response to consultation on separation of payment card schemes and processing entities under the IFR
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i) Accounting
ii) Organisation
iii) Decision-making
EPIF supports the EBA’s position that the definition of processing services should following the IFR and relate to core switching activities – authorisation, clearing and settlement only. Maintaining a schedule of “processing products” would be challenging and given the dynamic nature of the industry could negatively impact innovation.
EPIF would also like to note that although the IFR makes reference to scheme and processing services, only four types of services are likely to arise:
o Traditional franchise access – non-EU for international schemes
o Franchise access – within the EU
o Core processing - authorisation; clearing and settlement
o Non-core value added services – e.g. advanced authorisation; fraud; tokenisation etc.
The implementation of the RTS for accounting, organisation and decision-making will need to find a balance that achieves the required separation but also maintains (or improves) access to payments services for all parties across the value chain, e.g. ensuring that Payment Institutions (as defined in PSD II) have access to settlement in all currencies under fair terms to ensure services can be provided in all markets and currencies.
Finally the implementation of the RTS will need to ensure that the three areas of independence do not adversely affect the functionality of the payment flow – e.g. where a scheme decision might be dependent on the processing entity for implementation which could cause additional complexity for the users of those services.
EPIF would like the EBA to ensure that the aggregate (but transparent) fees from the individual constituents do not in reality exceed the current aggregated (but opaque) fees charged to all users.
There remains a concern around the future competitive landscape, since the existing scheme position is driven by the issuance and usage of branded cards. The split has the potential to provide existing players an unassailable position in processing due to:
o Existing connectivity;
o Scale and resources available, and
o Ability to manage processing; franchise and other service fees across EU and non-EU arms of the same entities.
Any new processing competitor would need to replicate:
o All of the commercial agreements with issuers and acquirers across Europe which existing 4-party schemes have been building and managing for many years.
o All of the technical connections to the same issuers and acquirers
o All of the additional services and functions that the current schemes can offer from non-EU entities.
EPIF welcomes the publication of the EBA’s Consultation Paper on Draft Regulatory Standards on separation of payment card schemes and processing entities: a common feature of our membership is a dependence upon fair access to domestic and international payment schemes/networks; domestic interbank settlement systems and bank accounts. Therefore we have a special interest in the proposed split of schemes’ branding and processing activities.
We believe that the splitting of schemes represents a significant change in the competitive structure of the payments market, and is not simply a change in accounting / reporting / operations for the schemes themselves: e.g. for merchant acquirers there is potential for significant additional implementation and running costs in addition to the added complexity around the routing and reporting required after such a split occurs; for pure technology processing companies there is potential for this split to reinforce rather than reduce the existing schemes’ dominance of processing.
We therefore urge the EBA to consider the impact of this change across the entire payments process: not only commercially but also technologically, for the end consumer, the merchant, the acquirer, the acquiring processor, the issuing processor and the issuer alongside the schemes in question.
1. Do you agree with the proposals outlined in Section 1 of the draft RTS regarding general provisions?
The proposals outlined in Section 1 of the draft RTS sets out three areas of independence of schemes branding and processing constituents:i) Accounting
ii) Organisation
iii) Decision-making
EPIF supports the EBA’s position that the definition of processing services should following the IFR and relate to core switching activities – authorisation, clearing and settlement only. Maintaining a schedule of “processing products” would be challenging and given the dynamic nature of the industry could negatively impact innovation.
EPIF would also like to note that although the IFR makes reference to scheme and processing services, only four types of services are likely to arise:
o Traditional franchise access – non-EU for international schemes
o Franchise access – within the EU
o Core processing - authorisation; clearing and settlement
o Non-core value added services – e.g. advanced authorisation; fraud; tokenisation etc.
The implementation of the RTS for accounting, organisation and decision-making will need to find a balance that achieves the required separation but also maintains (or improves) access to payments services for all parties across the value chain, e.g. ensuring that Payment Institutions (as defined in PSD II) have access to settlement in all currencies under fair terms to ensure services can be provided in all markets and currencies.
Finally the implementation of the RTS will need to ensure that the three areas of independence do not adversely affect the functionality of the payment flow – e.g. where a scheme decision might be dependent on the processing entity for implementation which could cause additional complexity for the users of those services.
2. Do you agree with the proposals outlined in Section 2 of the draft RTS regarding accounting?
From an accounting perspective, in line with the commentary in our introduction EPIF believes that the EBA should consider mapping all of the scheme and processing fees at a high level to clarify first who the end buyer is, secondly how the end buyer of processing services would operate practically in developing the RTS and finally how the appropriate fees for the appropriate services should be accounted for by each independent constituent.EPIF would like the EBA to ensure that the aggregate (but transparent) fees from the individual constituents do not in reality exceed the current aggregated (but opaque) fees charged to all users.
3. Do you agree with the proposals outlined in Section 3 of the draft RTS regarding organisation?
EPIF broadly agrees with the proposals of Section 3, on the assumption that the roles, responsibilities and remits of the two separated organisations is clear: our members would need to be clear who to approach for what service.There remains a concern around the future competitive landscape, since the existing scheme position is driven by the issuance and usage of branded cards. The split has the potential to provide existing players an unassailable position in processing due to:
o Existing connectivity;
o Scale and resources available, and
o Ability to manage processing; franchise and other service fees across EU and non-EU arms of the same entities.
Any new processing competitor would need to replicate:
o All of the commercial agreements with issuers and acquirers across Europe which existing 4-party schemes have been building and managing for many years.
o All of the technical connections to the same issuers and acquirers
o All of the additional services and functions that the current schemes can offer from non-EU entities.
4. Do you agree with the proposals outlined in Section 4 of the draft RTS regarding independence of decision making process?
EPIF broadly agrees with the proposals of Section 4, on the assumption that the separation of accounting and organisation is clearly implemented. We would however urge careful consideration of how Article 16.3 (which implies a potential for the ‘same management body’ to be in existence for the two separated entities) can be enacted and clearly consistent with Article 9 (which calls for the complete independence of the senior management teams of the two entities).5. Do you have any other comments?
To re-iterate our Introduction:EPIF welcomes the publication of the EBA’s Consultation Paper on Draft Regulatory Standards on separation of payment card schemes and processing entities: a common feature of our membership is a dependence upon fair access to domestic and international payment schemes/networks; domestic interbank settlement systems and bank accounts. Therefore we have a special interest in the proposed split of schemes’ branding and processing activities.
We believe that the splitting of schemes represents a significant change in the competitive structure of the payments market, and is not simply a change in accounting / reporting / operations for the schemes themselves: e.g. for merchant acquirers there is potential for significant additional implementation and running costs in addition to the added complexity around the routing and reporting required after such a split occurs; for pure technology processing companies there is potential for this split to reinforce rather than reduce the existing schemes’ dominance of processing.
We therefore urge the EBA to consider the impact of this change across the entire payments process: not only commercially but also technologically, for the end consumer, the merchant, the acquirer, the acquiring processor, the issuing processor and the issuer alongside the schemes in question.