Reg. 924: Not just bad news for card issuers

Reg. 924 | PayTechLaw

The Commission already presented its proposal to amend and thereby extend the Pricing Regulation EC 924/2009 (in short: Reg. 924) in March 2018. The two main topics the proposal addresses are: price transparency regarding currency conversions of payments at the POS or ATM (keyword DCC – Dynamic Currency Conversion) and price equality for cross-border payments (XB) in relation to comparable domestic payments. As 90% of the affected XB payments in the EU are card payments, the Regulation de facto deals with card payments. Both of the Commission’s proposals have already been discussed as part of this blog (see my former blog post Regulation 924). As the new Reg. 924 will already come into effect in just a few weeks’ time (1 January 2019), the legislative process was expedited in Brussels. The Council and the European Parliament (EP) published their positions on the proposal in June and November respectively. To get the regulation through before Christmas, we would need to see some “we all love each other” trilogue talks between the parties. However, this scenario is very unlikely. The views of the Commission, the Council and the EP diverge significantly and that is also a good thing.

The Council did a good job

Up to the spectacular summer of 2018, the world was still in order. The Commission’s proposed extension of price equality for payments in euros initiated by consumers outside the euro zone would lead to a decrease in card revenues by around 2 billion euros. However, this did not mean sleepless nights as this would mainly affect card issuers in Great Britain if they remained in the EU. We all know that this probably will not be the case. With its well thought through proposals published in late June, the European Council smoothed over the sharp edges of the Commission’s proposal and thereby contributed significantly to the feasibility of the proposed amendments. It is also important to give credit where credit is due, every once in a while! In adherence to Article 59 of PSD2, the Council clarified that the required price transparency for currency conversions at the POS and ATM only applies to DCC providers, but not to card issuers. The issuer ultimately also offers currency conversion services when processing foreign currency transactions. Issuers must, of course, inform cardholders about the conditions for currency conversion, but not for each transaction on the POS or ATM terminal screen before the transaction is generated. This was still unclear in the Commission’s proposal.

DCC no longer just applies to acquirers

This is precisely the point on which the opinions are divided. At the beginning of November, the EP came out in favour of both currency conversion service providers (issuers and alternative DCC providers) having to display prices (including the exchange rate applied). Cardholders should be placed in a position where they are able to compare both offers at the terminal through a clear and uniform display of the price in their home currency (i.e. of the country where the card account is held). Even if DCC is not offered as an additional option, the EP wanted European issuers to transfer this information to the terminal for each foreign currency transaction (within the EU). It is all too easy to imagine the technical consequences of this crazy idea. The statement does not even mention a transition period. But hold on – it gets even worse. Issuers have to enable cardholders to turn the basic option of using DCC on and off at the push of a button (e.g. by logging into the card account).

Price equality for all

Regarding the issue of price equality for XB transactions, the EP wants to extend the application to any transaction within the EU in euros and other currencies of Member States. For reasons of political feasibility, the Commission limited its proposal to transactions in euros, but plans to extend the application to all other European currencies in the next step (from 2022/2023 at the latest). This means, for example, that a German card issuer may no longer charge the cardholder a surcharge for a card transaction in Polish zloty (currently about 1.75% in Germany; in other countries significantly higher). This is further bad news for any issuer’s business case, which already suffered from the Interchange Fee Regulation. All issuers, however, have to face the fact that the prescribed price equality between foreign currency transactions and comparable domestic transactions will definitely come at some point. If not now, then in about 5 years.

Reg. 924’s loophole

But we want to finish our article with some good news. Reg. 924 differentiates between charges for XB transactions and for currency conversion. And it is only charges for XB transactions that are affected by the prescribed price equality. Within the euro zone, issuers have been prohibited from charging fees for XB transactions for a long time if comparable domestic transactions are offered free of charge. A priceable XB transaction is therefore always a transaction in which a currency conversion takes place. It is therefore advisable to explicitly rename the charge for an XB transaction as a “currency conversion charge”. Today, these fees are still referred to as a “foreign currency payment fee” or an “abroad usage fee”. Do not wait (as an issuer in the euro zone) until the application of Reg. 924 is extended to all XB transactions (soon or in 5 years). If you get too close in time, this could otherwise be seen as a circumvention of the Regulation. Acquirers and DCC providers may want to consider if it is worth offering DCC only to cardholders outside the EU. They could then continue to offer this business in the same way, without the technical changes required by the Commission. In all likelihood it is the Asian and American tourists who are the main sources of revenue in this business anyway, aren’t they?


Cover picture: Copyright © fotolia / nanunn

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