Written by Javier Perez, President of MasterCard Europe
It was that time of the year again. At the end of February, Mobile World Congress opened its doors in Barcelona for a week. This year’s edition saw the presentation of a myriad of innovative solutions in the mobile space. Some of the new devices and solutions on display seemed truly groundbreaking and I was amazed by the positive energy and pioneering spirit that that could be felt during those days.
MasterCard did not stand back. As we continue to work towards a world beyond cash, we always strive to develop new solutions that fit consumers’ needs and (future) habits. And MWC was the perfect platform to present some of the new partnerships and solutions that will get us there.
Whether the aim was to make NFC-mobile payments more secure through Host Card Emulation or to enable consumers to make secure, yet simple and fast, purchases within a mobile app, security of payments was very much top of mind. At the same time, new research by MasterCard and Prime Research which analysed 13 million social media conversations, showed improved sentiment toward mobile payments and a rapid growth in consumer use and merchant acceptance. Against this background, we also teamed up with companies like Syniverse to enable card transactions for users only when they have their mobile device switched on in a specific location abroad and with large European telecom companies to create a new mobile platform and accelerate the development of mobile payments.
I found these and many other new innovations very encouraging as it is only through innovation that payments can become easier, faster, safer and bring real added value to consumers and retailers.
However, as I left Barcelona and returned to Brussels, I worried that such great developments may come to a sudden halt, at least in Europe. As new legislation to regulate payment cards in Europe is currently being developed, I increasingly got the impression that the consequences of the measures on the table were never properly thought through.
Let’s take the issue of interchange fees for electronic payments as an example which Europe wants to cap. The electronic payment system offers incredible benefits to consumers, retailers, businesses and governments. Like any valuable service, with an advanced technology behind it, it comes at a cost. Therefore, the idea behind interchange is to balance the interests of both the consumer or the cardholder and the merchant.
Of course, it is in MasterCard’s interest to get the interchange levels right, but for different reasons than commonly believed. We want to ensure that all those who benefit continue to use electronic payments, and this means each paying their fair share for the service. This is why the interchange level should be neither too high nor too low. Rather it should be based on each market’s specific conditions.
While we share the broad objectives of the European Commission we have consistently expressed our concern that the proposed solution of inflexible interchange caps would drive the cost of cards up for consumers and thereby undermine the business case for innovation. This concern is based on recent practical experience from countries like my native Spain, where legislation to cap interchange fees resulted in cardholder fees increasing by over 50% with no evidence of retailers passing on savings through lower prices.
Last month, the European Parliament even decided to include commercial/business cards under the caps. I found this very surprising as these cards fulfill an entirely different role than consumer cards. They are used by small businesses to replace manual invoices, cheques and bank transfers (which is not the case for consumer cards). The benefits linked to this are faster, more efficient receipt of payments for merchants and an important source of credit for business cardholders. Regulating commercial cards in the same way as consumer cards would be very bad for small businesses and would lead to an 80% increase in cardholder fees for them.
The current proposal effectively means shifting the retailers’ contribution to the electronic payments system onto consumers and small businesses. I do not think it is fair to ask them to cover the costs of retailers who derive huge benefits from the payments system – from security of payments to lower costs compared to cash.
My concern also stems from the absence of any reliable justification for proposing “one-size-fits-all” fees across over 30 countries, where market conditions vary considerably. These doubts are shared by various national legislators. The Commission hasn’t released any reliable data to justify caps on fees that were already proposed more than seven months ago. As a result, so far all the discussions have been based primarily on political preferences, rather than economically proven assumptions.
There is no doubt that the idea of capping fees is politically attractive – but it makes no sense if, in the end, it favours retailers over consumers and focuses only on a few market players. I believe that with a number of new, highly competitive and successful market entrants, any future regulation should ensure that all players are treated equally. It should not single out certain schemes such as MasterCard or VISA, and hand a competitive advantage to other, often more expensive players, such as Amex, who operate under a different model. This would be neither fair to consumers nor would it contribute to the establishment of a truly innovative European market place.
Javier Perez, President MasterCard Europe, MasterCard Worldwide
Javier Perez is president of MasterCard Europe, and a member of the MasterCard Management Council. Mr. Perez is responsible for the Europe Region, encompassing 53 countries and serving 9,000 MasterCard financial institutions.
Before taking up his present role, Mr. Perez was president of the Latin America and Caribbean (LAC) region. Under his leadership, LAC achieved significant growth, and was one of the company’s fastest-growing regions. He joined MasterCard in 1996.
A native of Spain, Mr. Perez has masters’ degrees from the ESADE University, Spain and Thunderbird School of Global Management USA, for whom he is a Fellow of the Board.