The EU Interchange Fee Regulation – what does it mean for your corporate card programme?
If your company provides corporate payment cards to your travellers and other employees, then get ready for potential changes to agreements with your card issuers. Thanks to the European Union’s Regulation on Interchange Fees for Card-based Payment Transactions, which takes effect on 9 December 2015, the service and transaction fees your company pays for using cards may be about to rise. Your contractual relationship with your issuer could also be about to change.
Unfortunately, the picture is completely inconsistent. Variables may include:
- Who your issuer is
- The liability arrangement you have with them
- Whether cards are invoiced to travellers or their companies
- Which country, or countries, you are in
Here is the background and some general guidelines to help you understand the situation better.
What is the Interchange Fee Regulation?
The EU has introduced a regulation, effective 9 December 2015, which caps the fee that card issuers can charge a merchant (via the merchant’s bank). Credit cards will be capped at 0.3 per cent and debit cards at 0.2 per cent.
Does the cap apply to all credit cards?
- Commercial cards are exempt.
- “Three-party” issuers (mainly American Express and Diners Club) are also exempt.
So if commercial cards are exempt, what’s the problem?
The difficulty is that a last-minute change to the wording of the regulation by EU lawmakers has made the definition of a commercial card uncertain. There is no doubt that lodge cards, also known as centrally billed accounts or ghost cards, are exempt, but there is ambiguity around plastic corporate cards.
WHAT IS A “COMMERCIAL CARD”? THE WORDING OF THE EU INTERCHANGE FEE REGULATION
“’Commercial card’ means any card-based payment instrument issued to undertakings or public sector entities or self-employed natural persons which is limited in use for business expenses where the payments made with such cards are charged directly to the account of the undertaking or public sector entity or self-employed natural person.”
Chapter 1, Article 2, Regulation (EU) 2015/751, Official Journal of the European Union, 19 May 2015
AirPlus International, a major issuer of corporate cards in Europe, has interpreted the regulation as meaning that corporate cards with corporate liability ARE defined as commercial cards and are therefore exempt, but corporate cards with individual liability AREN’T defined as commercial cards and therefore are not exempt.
What’s the difference between corporate liability and individual liability?
In simple terms, individual liability is when the cardholding employee is legally responsible if the card bill is not paid. Corporate liability is when the employer is responsible if the bill is not paid.
Some companies have corporate liability arrangements with individual pay. This is when the cardholder pays the monthly card bill to the issuer and then claims reimbursement from their employer, but the employer is legally responsible for non-payment. According to AirPlus, this arrangement still counts as a commercial card because there is corporate liability. A card is only considered a consumer card instead of a commercial card if it is both individual pay and individual liability.
Why does it matter to me whether our travellers’ cards are defined as commercial cards or consumer cards?
If the card is now designated a “consumer card”, your issuer will earn less money from it. Visa and MasterCard issuers generally charge interchange fees of 1.5-1.6 per cent today. With this amount being capped to 0.3 per cent, AirPlus, which issues both Visa and MasterCard cards, says its revenue for individual liability cards will drop from €42 to €13. As a result, it is looking to recover the lost income by charging its corporate customers more.
What steps is AirPlus taking to increase its revenue from corporate customers?
AirPlus hasn’t announced specific details yet, but in general it says cardholders with individual liability will be charged higher annual fees, higher service fees for transactions in foreign countries and higher ATM withdrawal fees. There will be no change in fees to corporate card customers with corporate liability.
How common is individual liability?
It varies. AirPlus says 83 per cent of its customers in Germany, its number one market, are individual liability, but the figure is much lower in some other countries. In Norway and Sweden, individual liability is more common than corporate liability, but in Denmark it is the other way around.
What about customers of other card issuers?
That is the problem. No one knows. Amex is definitely exempt but no other Visa or MasterCard issuers (or MasterCard and Visa themselves) have said whether they agree with the AirPlus interpretation that individual liability cards are not exempted as commercial cards. Nor have they said if they are going to make any changes. There is also some uncertainty over whether liability is the key issue. Instead, the criticial determining factor could be whether the card is individual pay (the card is invoiced to the cardholder) or corporate pay (the card is invoiced to the employer). If this proves to correct, then cards with corporate liability but individual pay would also be treated as consumer cards.
Are there any other uncertainties?
Yes. Just to make things more complicated, each EU member state has to pass legislation that enacts the intentions of the Interchange Fee Regulation. It is possible that different states will define what is and isn’t a commercial card (and therefore exempt) in different ways. If that happens, an already messy situation will become even more messy.
We don’t have any individual liability corporate cards in our company. Does that mean we are unaffected by the Interchange Fee Regulation?
Not necessarily. Your issuer may present you with new terms and conditions that re-define the contractual relationship between itself, the corporate client and the cardholder. The purpose would be to ensure that the product it is selling is unequivocally treated as an exempt “commercial card” under the new rules.
We do have corporate cardholders with individual liability in our company. What should we do next?
Option A - Keep this arrangement and accept any increased fees that might be imposed by your issuer.
There is some good news for companies which choose Option A. If it is correct that individual liability cards are covered by the regulation, then airlines and suppliers will not be able to impose payment surcharges on them from 2017 (suppliers will be allowed to continue surcharging exempted commercial cards). Therefore, it is even possible that you could save money overall.
Option B – Move to corporate liability.
While this avoids potentially higher fees, the downside is changing liability arrangements will almost certainly lead to changes in internal administrative processes, and employee contracts, re-negotiations with workers’ councils and so on. Is the change worth the disruption?
The TravelpoolEurope perspective – Understand what the Interchange Fee Regulation means for you
Every company will be affected slightly differently by the new regulation. At the very least, you need to educate yourself about your card programme and assess whether changes are likely:
- Confirm your liability/invoicing structure for every issuer you use in every EU country.
- Contact your card issuers and tell them to spell out what changes, if any, they intend to make to your relationship.
- Monitor the situation constantly as it evolves over the next year or so. Watch out in particular for the possibility of different interpretations of the regulation in different countries.