Author: By Tim Webb
He sighs. “You were clearly upset having to pay 50p,” the chief executive of Visa Europe sympathises. It wasn’t really that emotional but his concern for a humble Visa Delta cardholder is touching. “I don’t blame you,” he continues. “Why should you have to pay? Surcharging for consumers is ridiculous.”
Visa is the world’s largest card company, operating the infra-structure to process credit and debit card payments. Last year, its Visa Europe subsidiary, which is owned by 4,500 European banks, handled ?1.2 trillion (£800bn) of payments.
Ayliffe makes an unlikely consumer champion. The fees imposed on retailers by the credit card providers to process these payments are the subject of multi-billion-dollar lawsuits in the US and several regulatory inquiries in the UK and continental Europe. Incredibly, if a Visa card issued to a consumer in one European country is used in another, the merchant bank representing the retailer is charged a default rate of around ?0.26 by the issuing bank for each transaction. Separate fees for same-country transactions are not published and vary wildly, but the average charge for each retailer in the UK is likely to be of a similar size. Clearly, this is a huge extra cost for the retailer on smaller payments.
Visa says these controversial “interchange” fees are necessary to share the costs of issuing cards and building the payment network. Neelie Kroes, the European Union Competition Commissioner, is not so sure and has said the level of interchange charges is “not justified”.
Last month, the Office of Fair Trading turned the heat up further on the credit card companies when it announced it would investigate the fees levied on retailers.
Given all the flak being aimed at his company, it is not surprising Ayliffe is a little bit sensitive to shops charging 50p to accept Visa cards. This surcharge dwarfs the actual cost to the retailer of processing the payment, he says.
Visa Europe, he stresses, is a non-profit-making organisation owned by Europe’s banks and should not be blamed for this retail profiteering.
While Visa Europe may not make money from interchange, clearly its members do. A large store like Tesco may be able to negotiate favourable fees with the credit card firms but a local newsagent is unlikely to be able to command a similar discount. And given that the UK card market is in effect sewn up by two players – Visa and Mastercard – there is nowhere else to go.
Ayliffe gamely rejects the idea that a duopoly exists. “You wouldn’t expect me to agree with that and I certainly don’t,” he says, adding that American Express is a third player. And while seeming to accept there is limited scope for competition, he points out that his industry isn’t alone in this: “How many Railtracks do you want? How many infrastructures do you want for people to compete on?”
The European Commission has softened its stance a little on interchange after questioning whether it was needed at all. “There is now acceptance that this is the oil which makes this whole industry tick. You need a commercial level,” says Ayliffe. The question now is, what level?”
He avoids portraying Visa Europe as the victim of a regulatory witch-hunt. Asked if he feels unfairly targeted, he replies diplomatically: “No, we work well with regulators.” But possibly in a sideswipe at the OFT, he adds: “One issue we have is that you have the EC, which tries to establish the rules for operating on a pricing basis. Then every national regulator thinks they should also have a say. It’s frustrating when you have agreed something with the EC, which should make the decision.”
Another factor complicating negotiations with the EC – and one that possibly strengthens Ayliffe’s hand – is the plan for a Single Euro Payments Area (Sepa), due to come into effect on 1 January next year. The EU hopes this will harmonise how debit and credit card payments are processed – and the fees that are charged – across the eurozone. The aim is to cut the cost of moving money around Europe, which currently stands at 2.5 to 3 per cent of total GDP.
Ayliffe says greater harmonisation will also allow Visa to compete more effectively in other countries. “In Germany, for example, if you have a debit card it only works in Germany. It does not transfer out of the country unless you co-badge with one of the other schemes like Maestro, which is less of an international card than Visa. There has been no competition in the market.” Visa Europe is now in the process of launching the V Pay debit card, targeted mainly at Germany but approved for use anywhere in Europe.
The banks need to get behind Sepa for it to happen on time and as planned. But anything that encourages greater use of cards is in their interests. It may seem odd to think of cash as having a cost, but Ayliffe says collecting and counting cash can be much more expensive than processing card payments, though the British Retail Consortium argues that for smaller transactions cash is often cheaper for business.
Returning to the news- agent charging 50p for card payments, Ayliffe says: “That is illogical because it drives everyone to start using cash again, which is more inefficient, expensive and less secure. This idea that cash doesn’t cost any money and there is no additional expense from the retailer in terms of their prices is ridiculous.” Some shops, he believes, will soon start charging customers for using cash.
Meanwhile, the plastic providers press on with the revolution. New types of credit, debit and pre-pay cards are being introduced to take advantage of the scanners now installed in many stores in the UK. In December, Barclays and Visa Europe announced the trial of an Oyster credit card: items can be bought in shops by waving it in front of a scanner or by entering a PIN number.
Some mobile phone firms are also introducing handsets that can be used to make payments and receive banking information such as balance statements. Visa is trialling such a device with Nokia, and Ayliffe does not see the mobile companies’ involvement as a threat. “It’s another growth area. I see us working in partnership with them, not them wanting to cut out Visa or Mastercard. Because you have to build the infrastructure, they realise that’s not their job. They don’t want to have to put it in place.”
By 2012, Ayliffe believes that most consumers will have dispensed with coins and notes altogether. But there is a long way to go before we become a cashless society, with some 80 per cent of payments in Europe still being made using cash or cheque. Ayliffe acknowledges he has to get the retailers onside. “The first people we have to convince of what we are doing are the merchants, as they have to put the infrastructure in place. If we don’t get the prices right, we won’t succeed.”
But if the price is right, cash won’t be king for too much longer.
Born 5 March 1953.
Education BA Hons in economics – Manchester University.
1974-85: National Westminster Bank – economics unit and market research.
1985-2003: Lloyds TSB Group – director of product marketing (TSB); branch network director; managing director, personal banking.
2003-05: Lloyds TSB – main board director with responsibility for UK retail banking.
2006 to now: president and chief executive, Visa Europe.
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