As the payments landscape undergoes a worldwide shift, tighter regulations and a focus on transparency will mean standing out from the crowd will be more important than ever before. Corporate card schemes could also come into their own as national banks look for strong additional services to help them compete, writes Kyle Ferguson

Transparent payments

The new landscape is brought into sharp focus in Europe, where the creation of the Single European Payments Area, SEPA, is leading to one of the most radical reforms of the banking system in history. From 2014, we will have one market for making and receiving payments electronically in euros. Along with this goes standardisation of bank accounts across the ‘area’ (which includes the 28 EU member states, EFTA and Monaco) with international bank account numbers and identifier codes. Banks’ power to levy charges will be reduced, with domestic tariffs replacing the more expensive cross-border payment tariffs.

In Australia also, a range of banking sector legislation was implemented from 2012 to improve transparency, fairness and reduce charges. These included banning over-limit fees for credit cards and the requirements for banks to publish information about how long a balance would take to pay off using minimum repayments. Measures have also been introduced to make it easier for customers to switch banks.

These measures have been designed to lead to tougher competition between banks. In Europe, this means the polarising of the banking sector as large companies will be more likely to place their business with just one, pan-European ‘mega-bank’ rather than the myriad of banks servicing different needs within different levels of an organisation. Yet while big banks will cream off larger chunks of business, they may not have much of a grasp of the additional services market. Small banks stand to gain ground over the bigger banks by adopting such add-ons.

Interchange fees

The increasing regulation of interchange fees – those fees paid from the retailer’s bank to the credit or debit card company each time a card is used is another development corporate card providers ought to be aware of. In Europe, under the Payment Service Directive 2 (PSD2), there will be stringent limits as to how much can be charged for credit and debit cards. Under the current system card manufacturers receive between 0.5 to 3 per cent from each credit card transaction; from 2015 card manufacturers will only be able to receive 0.3 per cent of every transaction.

According to the European Commission, the proposal ‘will remove an important barrier between national payment markets and finally put an end to the unjustified high level of these fees.’ Corporate cards however have been exempted from this due to the value they provide to businesses – in terms of simple ways to pay, controlling costs through better budget monitoring and policy compliance and increasing purchase savings. The impact on card sector could be far-reaching. One possibility is that it may increase customers’ willingness to use corporate cards over ‘luxury’ credit cards, which are subject to high levels of the ‘unjustified’ fees the European Commission mentions. These credit cards are commonly used to purchase big ticket items such as air travel because banks offer generous benefits such as air miles in return.

Capping the large interchange fees on these cards means that banks’ traditional methods of subsidising these benefits will no longer exist, and so the benefits are likely to be cut.

This was the case in Australia, which was the first to move on interchange fees, having legislated for an interchange fee of 0.5 per cent in 2003. Many annual fees were increased and benefits were reduced. In the US, which currently has a less regulated credit card market, there is now momentum towards regulation: the Dodd Frank Act of 2011, billed as the most comprehensive set of financial reforms since the great depression, capped the amount banks can charge in interchange fees on debit cards for the first time; while there is an ongoing debate about credit card fee capping.

These reforms herald the start of a new era for corporate cards providers across the world. For small banks struggling to compete, a thorough knowledge of the new marketplace will be crucial to help them stay one step ahead.

Kyle Ferguson is CCO of Spendvision