Last week the UK’s Payment Systems Regulator (PSR) proposed a price cap on cross-border interchange fees and is seeking comment on the level at which the cap should be set. Given our perspective that legacy card schemes hold a dominant position akin to a duopoly, resulting in high total costs of payments for merchants and consumers, it might seem natural to assume we align with this proposal. However, in our view, price regulation does not result in price competition. Card fees are high, because of the complexity and opacity of the card systems, and the fact that they are deeply embedded middlemen in the world's commerce. By imposing downward pressure on one aspect of card costs (interchange fee for instance), these systems will simply react by increasing fees on another cog in the machine to maintain high margins. To truly reduce costs for merchants, you need to introduce competition that disintermediates card systems altogether. Pay by Bank is a much simpler, much cheaper alternative to card payments. The broad adoption of Pay by Bank will not only introduce price competition, but will also introduce simplicity and choice for merchants and consumers, which will weaken the hold that card schemes have on global commerce. What’s needed is not narrow, targeted regulation - but instead, market-driven, systemic change. We are pleased to see that the UK government has already recognised this, going as far as recommending that Pay by Bank becomes a “ubiquitous choice for consumers” in the recent National Payments Vision. https://lnkd.in/dB65Kf3b
Mark Doherty
1w
It’s disappointing to see yet more lack of consumer awareness here. Visa and MC are perceived to do a good job and are valuable to people on the street where Open Banking is niche because the OB Scheme doesn’t do marketing or Product. What’s needed is a better overall experience and messaging from banks and Wallets that PayByBank is, for example, more secure and for that to be true. Cards are built to produce fraud and are not good enough for wallets, cof or presentment at pos. What’s needed is a digital card (in a wallet that works at pos) and PayByBank rails. This must provide better security, fraud protection, points and convenience than cards and PayByBank offers. The parts just need assembled.
Well said Francesco. Here in the US we're seeing some attempts to push on Pay-by-Bank, starting from Uber drivers where the fee pressure is very high as they struggle to shave every penny from their long hours behind the wheel. In the last research we made, getting funds faster is the strongest motivator, even beyond fees.
Kushal Dutta
1w
Let's assume that a few years down the line, A2A becomes big enough to persuade card schemes to lower fees. If they then can lower their fee, why not now? why to give them that few years?
Bob Lyddon
1w
This is a distraction. It's the domestic fees that are too high, especially when measured against the Interchange Fee Regulation, which may as well not exist.
Francesco Simoneschi Without a wallet PayByBank payments will remain a niche.
OB Payments
1wThat's why there is an ongoing investigation into scheme and processing fees as well. I agree that we need to create a competitor to the schemes, but as you know that's a long term process. This shouldn't preclude us from saving merchants millions of pounds by reducing the rents extracted by V/MC. The problem is Open Banking providers benefit from high card fees to make their alternative more attractive, so they would rather not see any regulatory action taken against obvious anti-competitive behaviour. This is, however, short-sighted. Direct and Indirect interchange fees are precisely what is holding back banks from supporting OB payments in a meaningful way. And merchants won't support OB unless it delivers meaningful cost savings. Therefore, in order to support OB payments in the long term, we must first reduce the excessive wholesale costs of cards, and make banks more amenable to consider alternatives based on their merit, rather than whether they can provide more free revenue.