Start of Application of the Law on Multilateral Interchange Fees
The Law on Multilateral Interchange Fees and Special Operating Rules for Card-Based Payment Transactions starts to apply as of today. The Law governs for the first time payment card operations in the Republic of Serbia in a comprehensive way.
Payment cards are the most popular cashless payment instrument in Serbia. In the first nine months of 2018, the share of card transactions in total consumer transactions carried out with selected payment instruments was 60.15%.
In proposing the Law, the NBS was guided by the following objectives:
- protecting the interests of payment card users (consumers and merchants),
- supporting, through adequate regulation of the payment card market, a further increase in cashless payments that produce numerous positive macroeconomic effects, and
- enabling a fair market competition by reducing the costs of accepting payment cards, enhancing transparency and competitiveness in the market.
Aimed at achieving the said objectives, the Law upgrades the legal framework for state-of-the-art means of payment in Serbia, whose solid foundations were set up by the Law on Payment Services in 2014.
Interchange fees, as the main generator of high costs of card transactions, are the focal point of the Law. The acquiring bank, which sets up a POS terminal with a merchant, pays these fees to the bank issuing the card, on each payment transaction carried out with a payment card. The acquiring bank shifts these fees to the merchant and they directly impact the level of the merchant service charge paid by the merchant to use the POS terminal. The merchant factors in these fees in the price of goods and services, which are finally paid by all of us, the consumers – both those using payment cards and those using cash.
Based on the above, positive effects of the implementation of the Law stipulating lower interchange fees are expected to be felt by the society at large, i.e. its positive effects will be transmitted to end-users. With the current average of 1%, the Law limits interchange fees to the EU level, that is, to 0.2% for debit card transactions and 0.3% for credit card transactions with a six-month transition period, from 17 December 2018 until 17 June 2019 when interchange fees will be limited to maximum 0.5% for debit and 0.6% for credit cards. We emphasise that with a view to achieving the goals set when proposing the Law as soon as possible, as the DinaCard operator the NBS stipulated the application of interchange fees of 0.2% and 0.3% for debit card and credit card transactions, respectively, starting as early as 17 December 2018, i.e. without the transition period.
One should take into account that legislative solutions first and foremost protect the interests of small merchants, artisans and small stores with a weaker negotiating position in relations with banks in terms of imposed costs of payment card acceptance, discouraging them from accepting payment cards in their points of sale so that they accept only cash payments. With the limitation of interchange fees merchants can place POS terminals and attract new consumers under more favourable conditions, positioning better on the market.
As of today, the unblending rule is also in force, according to which acquiring banks are obliged to offer individual merchant service charges for different brands and different cards, which diverge significantly in the market, instead of collective charges for all cards. In addition, acquiring banks are obliged to inform merchants on charged merchant service charges upon the completion of a transaction, separately presenting the costs of interchange fees and payment card scheme fees. Based on the above, merchants will have an insight into main components of merchant service charges – costs of interchange fees, payment card scheme fees and bank margin and will be able to learn which cards generate higher costs. Merchants will be able to analyse the available information and use it when negotiating with a bank to lower merchant service charges.
Thanks to new rules that bring higher transparency, merchants may choose which payment cards they wish to accept at the point of sale, depending on the charges on each particular card, which is expected to increase competition and encourage the use of cheaper products. The Law does not allow banks and card scheme to forbid merchants to advise consumers to use any payment instrument (e.g. due to lower merchant service charges), give a priority to a payment instrument of a particular payment card scheme and inform consumers about the fees that the merchant pays to the acquiring bank.
It should be borne in mind that, while the Law limits interchange fees, it does not influence the level of fees of card schemes, which are free to create their fee policies as they like, and, hence, set very different fee levels. Exactly because payment card scheme fees affect the level of merchant service charges, pursuant to the law provisions in effect as of today, merchants are entitled to ask banks to contract different merchant service charges for cards of different brands. One of the measures which the NBS, as the operator of the national DinaCard system, undertook in a bid to lower the overall cost of card payment acceptance, was to set the lowest card fees for the DinaCard system, so that the acquiring banks could offer to merchants lower merchant service charges for accepting the national card and to make its acceptance at points of sale as profitable as possible for merchants in the country.
We wish to remind that the NBS prepared a leaflet for merchants which gives a clear and reader-friendly overview of their rights provided for by the Law on Multilateral Interchange Fees. The leaflet gives practical advice aimed at strengthening the position of primarily small merchants in relations with banks.