ABTA Submission on implementation of the Interchange Fees Regulation
Introduction
This response is submitted on behalf of ABTA – The Travel Association. Founded in 1950, ABTA is the
largest travel trade association in the UK, with around 1,200 members and over 4,500 retail outlets
and offices. Our Members range from small, specialist tour operators and independent travel
agencies specialising in business and leisure travel, through to publicly listed companies and
household names, from call centres to internet booking services to high street shops.
ABTA Members are very keen to see that the effect of the Interchange Fees Regulation (IFR) is as
intended: to lower the costs that are passed on to retailers by merchant acquirers, and not to raise
them. Many ABTA Members are small businesses, yet are selling high value transactions. Any
unfettered increases in fees for high value transactions would affect them badly.
Fees for debit card transactions have already seen a change from a per pence basis to a percentage,
and ABTA Members have expressed concerns about their costs going up. Particularly because in
large part they can’t pass on debit card charges to their customers, due to consumer protection
legislation. This is discussed further at question 3 below.
It is important to note that interchange fees make up only part of the total merchant acquirer fees
that are charged to ABTA’s Member businesses. ABTA believes that it is important that HM Treasury
considers the wider impacts of the proposed interchange fee changes on merchant acquirer fees.
ABTA’s response examines the four proposals provided by the Government in HM Treasury’s
consultation document, and also explores some connected issues around these proposals that have
been raised by the ABTA Membership.
Question 1
Do you agree with the government’s approach with respect to the design of the regulatory regime
for the supervision of IFR?
ABTA supports the government’s approach, including the proposal to appoint the Payment Systems
Regulator (PSR) and to assign a role to other bodies including Trading Standards.
ABTA believes that it is important that the PSR, or the applicable regulator, is mandated to conduct a
detailed market study within the first twelve months of the new regulations becoming effective. This
market study should assess:
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The optimal level of a cap on debit card transactions within the UK cards market.
The risk of cost recovery in relation to credit card changes, particularly the impact of the IFR
changes on the overall mix of merchant acquirer fees being passed on to UK businesses.
Monitoring the market share of all card systems to ensure the cap applies to all card systems
exceeding the 3% level.
Question 2
Do you agree with the government’s suggested approach with regards to the interchange fee caps
for credit card transactions?
ABTA supports the government’s proposal not to vary the 0.3% cap on credit card interchange fees.
The current comparable rates of interchange fees within the UK is 0.77-0.8% for credit card
payments, depending on the provider, and ABTA believes that the lowering of this cap will have
significant benefits for UK businesses. However, we would caution the Government and the
applicable regulator to be conscious of the risk of cost recovery by payment services providers. ABTA
believes that the PSR should be mandated with the remit of monitoring overall merchant acquirer
fees, to ensure that the current mix of costs within these fees is not unduly altered by these
changes. Such an alteration would be a clear indication of cost recovery taking place.
Question 3
Do you agree with the government’s suggested approach with regards to interchange fee caps for
debit card transactions?
The change in debit card fees has the potential to seriously adversely affect retailers of high value
transactions, such as holidays and travel, and ABTA strongly supports an approach that will mitigate
this. To illustrate the potential impact on businesses with high value transactions, for a transaction
value of £1500 a 0.2% debit card interchange fee would amount to £3. With current comparable
interchange fees of 8-50p per transaction, depending on the payment service provider, this
represents a significant increase for these businesses.
The Government is proposing to allow payment service providers to apply a weighted average of all
payments taken within card schemes, rather than applying the 0.2% cap. ABTA understands that the
intention of this proposal is to ensure that fees applied for higher value transactions are not
increased dramatically, whilst also aligning closely with the recent changes introduced by Visa, which
has seen the introduction of caps of 50p for secure and £1 for non-secure transactions taken by
debit card.
ABTA notes that the average transaction value for debit cards in the UK is £26. Further, 82% of all
debit card transactions in the UK are below £50. Therefore, if the weighted averages were applied,
for the vast majority of card schemes this should ensure that fees do not increase above today’s
levels for the majority of businesses. Based on these assessments, ABTA strongly supports the
intention of the Government’s proposal. However, we are concerned that the proposal suggests only
“allowing payment service providers” to apply the weighted average, rather than enforcing this
approach through regulation.
ABTA is also concerned that, where fees to businesses increase, businesses will be forced to absorb
all of these higher costs. In large part businesses cannot pass on debit card charges to their
customers. A combination of the Air Services Regulation and the Consumer Protection from Unfair
Trading Regulations means that prices must include all non-optional extras. For online bookings,
where payment must be made by card, a charge for payment by debit or credit card is non-optional.
So there must be a free method of payment and this at the moment is debit cards. The regulator in
the travel industry, the Civil Aviation Authority, has been active in enforcing these regulations and
ensuring that debit card charges are included in prices, and not added on as extra charges.
While it is possible and increasingly common for online retailers to offer alternative payment
methods, such as bank transfer, there are also important consumer protection concerns related to
these, including fraud prevention and comparatively lower levels of consumer financial protection.
While these concerns do not apply to the majority of businesses within the UK travel sector that are
fully compliant with consumer financial protection regulations, such as the Air Travel Organisers’
Licensing Scheme or Package Travel Regulations, nor to ABTA Members that protect their
arrangements through the association’s own financial protection arrangements, ABTA nevertheless
believes the government should be cautious of taking decisions that could incentivise consumers
towards use of payment methods with lower consumer protection offerings. Further, given the
importance of e-commerce and the government’s stated aims of promoting growth in this area, it
would seem perverse for a regulatory change to enforce higher costs on businesses in this sector.
In summary, ABTA believes the previous scheme for debit card interchange fees within the UK,
which used pence per transaction, commonly between 6-11p, worked well. While ABTA recognises
that these regulatory changes were initiated by the EU, and supports the Government’s proposed
approach as an interim measure, it favours a long-term solution that re-introduces a reasonable per
pence cap on domestic debit card interchange fees.
As explained, in the meantime, taking account of the average transaction values for debit card
payments within the UK and the potential impact of a 0.2% fee high value transactions, ABTA
strongly supports the proposal to use weighted averages as an alternative to 0.2% cap. Importantly,
however, ABTA believes that the weighted average approach should be mandated by the UK
Government throughout this interim period, rather than left to the discretion of the payment service
providers, to ensure that businesses with high average transactions values are not unfairly impacted
by these changes.
In addition, ABTA believes it is vitally important that the Payment Systems Regulator (PSR), or the
applicable regulator in the absence of the PSR being appointed, conducts a detailed investigation of
the UK payments market within twelve months to determine the appropriate level for a future cap
on interchange fees for domestic debit card transactions. See our response to question 1. Once
determined, this cap should be introduced without delay.
Question 4
Do you agree with the government’s position with respect to exercising the time-limited
exemption for three-party schemes which use issuers and acquirers?
ABTA Members report a significant burden on their operational costs caused by the different fees
that are applicable for different types of payment cards, which are not always clear at the time
payment is taken. While we recognise HM Treasury’s position in relation to the need for a
transitional period, and the potential competition benefits that might be brought about by the timelimited exclusion of these card providers, ABTA is not convinced that these considerations outweigh
the business costs of varying interchange fee costs. However, should the time-limited exemption
proceed, ABTA believes it is crucial that the PSR, or the applicable regulator, closely monitors the
market share of all payment providers to ensure that all of those with a market share greater than
3% are brought within the limits of the regulation.
Further information:
For more information on ABTA’s response, please contact Stephen D’Alfonso, Head of Public Affairs
on [email protected] or call 020 3117 0561