CPS NEWS No42

NEWSCard Payment Solutions

PURCHASINGCARD

www.cardpaymentsolutions.co.uk

incorporating:

The Information Exchange for Electronic Transactions & Card Payment Solutions

issue 42 2008

Adflex Ltd, 284 Warley Hill, Brentwood, Essex CM13 3AB

Tel: 01277 268 755e-mail: [email protected]

Contact; Andrew BrooksTel: +44 (0) 870 333 6363

E-mail: [email protected] visit: www.servebase.com

Mike Skelcher, Head of Commercial CardsHSBC Bank plc, Level 37, 8 Canada Square, London E14 5HQ

Tel : 0207 992 5281

HSBCCommercial cards are stronglypositioned to be the solution ofchoice for B2B payments overthe next 10 years, for all businesses ranging from thelocal newsagent to the largemulti-national.

As consumers, we have shiftedour spend away from chequesto card payments at a rapidrate. This shift is being simi-larly reflected in the businessworld. Cards provide conven-ience, flexibility, access tocredit, security and control ofwork-force spend.

Cards also represent anextremely efficient mode ofe-payment. As the use ofe-commerce expands, this will undoubtedly accelerate thegrowth of B2B card payments.HSBC are committed to meeting the evolving paymentneeds of businesses in all market sectors and by all channels. This mirrors our philosophy of being a global,but local bank, understandingfully the requirements of our complete range of business clients.

Servebase Global CardSolutions – combining expertisewith a flexible approach todeliver card processing solutions for Purchase Cards.

Servebase, one of the world’sleading card payment technologyproviders, has over 20 yearsexperience in credit card processing and a wealth ofexpertise in implementing arange of Purchase Card programmes.

Servebase’s core PC-EFTprocessing software packagehas a proven and establishedtrack record. The latest softwarerelease, PC-EFT Version 3offers a range of optional functionality and enhancedfeatures in line with the recentcard payment industry initiatives.Businesses no matter what sizecan keep up-to-date with thelatest technology including:-

• Chip and Pin, the latest anti-fraud measure intendedto replace magnetic swipereaders. PC-EFT Version 3 handles all additional messaging requirements forChip and Pin transactionsthrough the merchant’s payment interface to theirchosen card readers.

• Visa Global InvoiceSpecification (VGIS), thenew data format specified byVisa International to replaceLevel 3 Line Item Detail forPurchase Card transactionsand collect auxiliary data.PC-EFT Version 3 supportsVGIS in both Stand AloneData Entry and Integratedsystems.

• Address Verification (AVS)and Cardholder Verification(CV2), increasingly importantsecurity initiatives to helpcombat fraud in customernot present environmentssuch as for mail order/ telephone and internet cardtransactions.

PC-EFT enables card transactionsto be authorised and deliveredfrom a PC server. It can beinterfaced with POS systemsor via the Servebase ELLIPSEsuite of products, which aredesigned to cater for the growing demand in Internetaccessed hosted applications.

Recent Purchase Card programmes include LondonBorough of Barnet andManchester City Council.

Established in 1992, Adflex provide cutting-edge, innovativesoftware and general IT services for a diverse range ofindustries and clients including many blue chip organisations.We specialise in the development of Card Processing softwareand Payment Processing Systems which are approved byall the main acquiring banks.We consider ourselves leaders in this field and offer merchants the ultimate flexibilityin Credit and Purchase Card processing. Our solutions support Level 1 credit/debitcards through to Level 3 Purchase cards (Visa Global Invoice Specification and LineItem Detail) and also support 3D secure in an e-commerce environment.

Adflex ProductsAdflex Virtual Terminal (AVT)Adflex Virtual Terminal is a simple yet powerful windows application that can be runon a standard Windows PC, allowing all card types to be processed quickly and easily.

Adflex Integrated Solution (AIS)Adflex specialise in providing integrated solutions which allows seamless communication between your current computer systems and our payment gatewayremoving the need to re-key transaction information.

Adflex Bureau Service (ABS)For those who do not want to use a software solution to accept purchase cards, takeadvantage of our Bureau Service. Simple send us your invoices in electronic formatand we’ll do the rest for you.

The people we employ are highly trained, plain speaking and experienced in thefield of Payment Card Processing. Whether you are a small owner operated companyor a part of a large multinational, our people will listen carefully to your requirementsand deliver a solution that fits.

Integrating vs.Interfacing your P-CardTechnology Solution: Isthere a Difference?

P-cards are recognised as a best-practice forreducing the cost of processing high-volume,low-value transactions.Because the process is so much better than usingpetty cash or processing the paper invoice, manyorganisations fail to recognise the inefficiencies thatexist with their existing technology solution.

This session will discuss inefficiencies that might existin technology solutions that merely interface with theERP and how a truly integrated solution can not onlyaddress those issues but provide additional value toyour program.

Contact: Kathleen NugentEmail: [email protected]

W www.cardpaymentsolutions.co.ukwww.purchasingcardnews.co.uk cardpaymentsolutionsE [email protected]

[email protected] +44 (0)161 928 0485

Editorial:You can e-mail all your news, views, features & events for publication to: [email protected]

Advertising:For advertising, feature sales and sponsorship contactPeter Gittins on +44 (0) 161 928 0485 or [email protected] orwww.purchasingcardnews.co.uk and click on ‘The Publication’ link

Full contact details:Card Payment Solutions, Castle Hill Farm, Castle Mill Lane,Ashley, Altrincham, Cheshire, WA15 0RB

Tel: +44 (0)161 928 0485Tel: +44 (0)161 928 3502Fax: +44 (0)161 928 1713Mobile: 07793 584166www.purchasingcardnews.co.ukwww.cardpaymentsolutions.co.ukemail: [email protected]

No article may be reproduced in part or in whole without permission of the publisher Purchasing CardNews is published and printed by Caxton House Marketing Ltd. © Copyright: Caxton House MarketingLtd 2007

The publishers are not liable for the statements made and opinions expressed in this publication.

Contents

The Solution of choice for Wales 4

ITS is a leading industry expert in Transaction Solutions for all business sizes sectors and technologies

6

“Why Purchasing Cards?” 7

MasterCard’s UK Public Sector Proposition Regional Presentations 8

‘Search...’ Purchasing Card Capable Suppliers Search Engine & Directory 10

Irish Companies to Benefit from Simplified VAT Recovery Process. 11

New MasterCard Benchmarking Tool helps organisations Optimise their T & E and Purchasing Spend

11

Lloyds TSB Corporate Marketslaunch NetService online card management 11

‘Interchange’ an Austrailian perspective 12

MasterCard Cautions Consumers Not to Expect Lower Prices at Shops as a Result of EC Decision on Interchange Fees

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The Solution of The Solution of

B Born out of the Welsh Assembly Government’s vision forimproving the delivery of public services, Value WalesProcurement was created to help the Welsh public sector

improve the efficiency of procurement and tasked with helping them to achieve cost savings of £120 million per annum by 2008.

To achieve this target, Value Wales Procurement works in four majorprogramme areas; Collaborative Procurement, OperationalProcurement Policy, e-Procurement and Sustainable Procurement.

One of the key initiatives implemented, as part of the e-Procurementactivity is the WPC programme. This purchasing card scheme was

introduced four years ago to help all public sector bodies in Walesstreamline and improve the efficiency of the procurement process forlow risk goods and services with the potential to achieve significantcost savings. An added benefit often provided with card usage is thespeeding up of the acquisition process, especially for those who areresponsible for the delivery of front line services such as maintenanceoperatives who are able to procure the materials they need in farquicker timescales with WPC.

Streamlining Procurement Value Wales Procurement recognised that the time and processes requiredto pay each invoice under the conventional pay-to-purchase system wasgenerating a huge expense for public sector organisations in Wales.

Value Wales Procurement launched the WPC programme to providethe Welsh public sector with an alternative to the purchase-to-payprocess, which was designed to deliver significant cost savings byremoving the need for purchase orders and processing of invoicesfrom procurement, wherever possible.

Central to the success of the WPC has been Value Wales Procurement’suniquely strong dual focus on growing both the user and supplieracceptance sides of the card equation, which has increasingly enhancedits appeal with organisations. For example, whilst the programme wasinitially only used for low-value, high-volume transactions, such aspurchasing consumables or office supplies, as the supplier networkhas grown, the card is now used to procure higher value items over adiverse range of commodities and services, such as tarmac and stonefor highways maintenance and even vehicles.

In addition to working with the acquiring banks to expand the numberof suppliers involved in the WPC initiative, Value Wales Procurementalso continually works closely with users to ensure they are familiarwith the full capabilities of purchasing cards and are utilising the cardefficiently and maximising its benefits. Local supplier recruitmentplays and important part in the drive for greater card acceptance;indeed it is key to the expansion of card programmes for many WPCusers as the relative remoteness of many parts of Wales limits thechoice of suppliers readily to hand.

Value Wales Procurement’s strong focus on driving the WPCprogramme forward and promoting throughout Wales this approach toprocurement has ensured the success of the initiative to date. Forexample 17 out of 22 top tier Local Authorities and 8 out of 12 HigherEducation establishments have chosen the Welsh Purchasing Card.Indeed, there are very few areas of the Welsh public sector that WPC

The Welsh Purchasing Card (WPC) wasintroduced for Wales by Value WalesProcurement four years ago as a means ofallowing all public sector organisations tohave access to procurement cards underGPC terms. WPC has now reached a pointwhere more than 60% of the 100+ organisations originally identified as potential adopters now have a programmein being. Indeed in some sectors such asLocal Authority and Higher Educationuptake is over 75% and growing.Alan Oram, card programme manager atValue Wales Procurement, explains how theWPC programme has developed and looksat the reasons why the Royal Bank ofScotland (RBS) ‘onecard’ purchasing cardsolution and the MasterCard ‘Smart DataOnLine’ system, in particular, is proving sopopular with Welsh local authorities.

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has yet to reach now that most of the Welsh Assembly Government Sponsored Bodies (the equivalent of UK NDPBs) run a card programme.

Popular ChoiceThe purchasing card provided by Value Wales Procurement’s WPC initiative is provided under agreement from the Royal Bank ofScotland, and allows for both purchasing and travel transactions withthe one card. Organisations in Wales looking to adopt the schemehave the option of the VISA or MasterCard product.

Notably, all the new programmes in Wales that have adopted the WPC over the past three years have specifically chosen the RBSMasterCard onecard solution and most of the original programmesthat commenced on the Visa platform have now switched over to the MasterCard one.

Undoubtedly the key reason for the popularity of the MasterCardoption is its Smart Data OnLine service, which provides the users with24/7 on-line access to all transactions for complete security, as well asan efficient and effective means of managing all aspects of card usageoutside of a paper-chase process! This provides detailed transactioninformation that can be delivered through both standard and customisedreporting. The system also has the capability to process independentexpense claims should this be required. A distinct advantage ofSmart Data OnLine is that it is specifically configured to therequirements of each user organisation thus allowing them to createtheir own review/authorisation workflow, account coding capability anddata file exports suitable for loading into local accounting systems.Management of cards, eg, changing limits or MCG blocking, can alsobe easily undertaken through Smart Data OnLine.

In addition, the RBS MasterCard onecard solution is able to report anyadditional electronic information that is provided by suppliers whenprocessing purchasing card transactions, which may by as Summary(Level 2) or Line Item Detail (Level 3) and replaces a paper invoice forVAT purposes. The system is accredited to HM Revenue & Customsfor VAT recording/reporting and contains a suit of standard reports for this purpose.

Importantly, the RBS Mastercard onecard system and the Smart DataOnLine service enables users in Wales to streamline and modernisepurchasing by not only reducing the number of invoices to beprocessed, but by also enabling transactions to be visible, easilymonitored and verified at any time. As a result, organisations haveadded protection from misuse of the card by staff, are safeguardedagainst over-charging by suppliers and are able to ensure that, where

applicable,only contracted goods arepurchased using the system.

In addition to the added value benefits offered by the WPC scheme, interms of tangible cost savings, the National Audit Office support anaverage saving figure for card use of £28 per transaction over the costof conventional purchase-to-pay processes.

Significant Savings Since the WPC system was introduced in 2003, it has generated anestimated overall process cost saving of £8 million (based on NAOfigure) for public sector organisations in Wales and the WelshAssembly Government recognises that the more it is used, the moresavings this efficient procurement method will deliver.

In 2006/2007, purchasing cards were used to make £21 million worthof transactions. In 20072008, Value Wales Procurement predicts thatthis figure is set to rise to over £30 million. This growth not onlydemonstrates the popularity of the system for all public sectors inWales and their suppliers, but, importantly, represents a considerableoverall cost saving for the public sector in Wales.

Value Wales Procurement is committed to facilitating the increased useof the WPC through a dedicated, on-going campaign to grow thesupplier network and increase the benefits of the card purchasingprogramme. Promotion in new target areas, such as District andRural Councils, are underway and initiatives to aid expansion ofexisting programmes are being set up. As a result, Value WalesProcurement is working to achieve a year on year doubling of both the number of programmes and the turnover on card spend for theimmediate future This will not only deliver considerable cost savings,but, ultimately, improve the efficiency of public services across thecountry.

For further information please contact :[email protected]

Choice for WalesChoice for Wales

What’s your view? If you would like to comment on thisarticle please email: [email protected]?

e are pioneers in the fast expandingPurchasing Card market providing arange of bespoke and off the shelftransaction solutions for Mastercard,

Visa and AMEX Purchasing Cards. Ourindependence of scheme, issuer, acquirer andmanufacturer enables us to support all majordebit, credit and purchasing cards, and providemulti-acquirer solutions.

ITS can provide solutions for low volume B2Btransactions through to fully integrated,multi-merchant, multi-currency systems enabled for Levels 1, 2, 3 and VGIS data.

Terminal pollingBoth magnetic stripe and chip & pin capability to process all cards up tolevel 3 purchasing cards. ITS dials in and collects a file containing yourtransactions at a specified time.

Procurer Online (POL)Ideal solution for customers who want to be Level 1,2 & 3 capable and arelooking for the flexibility and freedom to access their own transaction data.Approved by all the major UK acquiring banks and HM Revenue andCustoms, POL is a secure internet based card processing system for credit,debit and purchasing card transactions that can be accessed from any PCwith web connection.

Transactions are processed in real time via a secure web page provided byITS, so customers can cut out the time consuming paperwork or purchaseorder and invoice preparation.

We have created an animated demonstration which you can view atwww.procurer-online.com/demo

Procurer ERPInterfaced solution for processing credit, debit and purchasing cardtransactions (level 2 summary, level 3 LID & VGIS). It enables companiesto integrate existing order processing or mail order systems with a UKAPACS compliant credit/debit and purchasing card processing system. TheProcurer ERP solution is provided in several variants, depending on how aspecific merchant wishes to operate. Transaction details can be processedonline, in batch, or a combination of both.

Invoice matching service (IMS)IMS is a service that can be used to associate and match level 3 invoice datawith level 1 financial information processed through EMV POS terminals. ITSwill simply match the addendum data together with the terminal data, and

submit to the acquiring bank in one single file. This allows you to benefitfrom the security of chip & pin whilst being able to provide full addendumdata to your customers.

ITS customers can benefit by subscribing to our easy to use online e-Statements service;This contains simple yet effective tools for analysing and searching thetransaction database. The service is updated early each morning to showtransactions from the previous day that have been processed andsubmitted to the acquiring bank(s) for settlement.

Management Information (MI) reportingITS is able to provide bespoke reports detailing any type or level ofinformation captured during the transaction handling process. MI reportsare particularly useful for customers that utilise our specialist, Level 4 datahandling service. Additional data outside the usual financial routines can becaptured and reported.

Supplier RecruitmentAs leading industry experts, with thousands of suppliers using oursolutions, we can assist organisations with supplier recruitment throughseminars and meetings, to outline the benefits and growth of the PurchasingCard Industry. We determine ‘best fit’ solutions and provide ongoingproduct support through online demos documentation and training.

ConsultancyITS is able to provide a full consultancy service and can arrange to meet a prospective client and discuss their particular requirements and ServiceLevel Agreements. This can be for any part of a project or a whole end toend solution. Whatever the requirements, major or minor, ITS has a wealthof knowledge and skills in providing solutions for credit/debit cardsystems, Purchasing Card systems and Loyalty systems.

We have strategic relationships with a number of suppliers, banks andscheme providers, so it is possible that we may be able to achievesignificant savings on a client's behalf.

Contact CentreOur contact centre staff specialise in Purchasing Card expertise andmanaging clients’ expectations. We provide full business hours support forall customers as standard and are able to facilitate additional 1st, 2nd and3rd line support depending on customers needs. If required, clients cantalk specifically to the Account Managers who are experts where theirparticular products or customers are concerned.

To find out more details, please contact our Sales team on 01243 434 500, visit our website at www.interactiveTS.comor email [email protected]

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ITS is a leading industry expert inTransaction Solutions for all businesssizes sectors and technologies

Specialists in developing supplying and supporting software & services for any form of transaction handling like B2B addendum EFT Loyalty & Citizen Cards


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What is a Purchasing Card?A credit card that is used to purchase goods or services. When used, the gross, net and vat values are captured whichnegates the need for invoices and provides evidence for vat.

Why Purchasing Card?Purchasing card is the most cost effective process for purchase topayment that currently exists. The supplier needs to understandwhy their customer wants to use it, and the benefits available toboth parties.

We know that traditional procurement methods can be cumbersome,inefficient and expensive to manage. It has been estimated that topurchase an item valued at £5 can cost some organisations over£50 because of the time and people involved to raise an order, getit approved, get it signed off, be purchased and taken through theaccounts process. The item bought with a purchasing card makes ahuge saving in time, process and people involved.

The person making the purchase, the cardholder, has a direct relationship with the supplier. They can discuss the item, size,colour, quantity, delivery date etc. rather than just the impersonalpurchase order which does not allow for variation in size, colour, quantity.

Large organisations could have numerous buyers, several of thembuying stationery from several stationery suppliers. Through management information, they can select a single preferred supplierand put all their orders through just one. Probably earning biggerdiscounts, certainly reducing the administrative and accountingissues. The organisation, public or private, introduces a purchasingcard scheme using either the Mastercard ‘onecard’, Visa orAmerican Express cards.

Cards are issued to the very people who need to buy or pay forthings. The company can introduce strict budget control by card,cardholder, category of goods, by week or by month. It also givesvery valuable management information on how their business is running.

To have a successful purchasing card scheme, it is essential thatthey recruit suppliers who are purchasing card capable.

What does it mean to the supplier?There are now so many local authorities, health authorities, schools,hospitals and private corporates using purchasing card, that anysupplier not capable is risking losing business opportunities to theircompetitors. Often one of the first questions asked on a tender is‘Are you Purchasing Card capable’?

It is true that the supplier will have to invest in a system to become capable. There are benefits, not just to the buyer, but to the supplier as well.

• Every transaction is authorised.

• No more waiting for 30 or more days to get paid for goods or services. Payment is made automatically in 3 to 4 working days.

• No more chasing payment, a real saving in admin and accounts

• HMRC approved providing evidence of VAT

• Direct relationship between end user (buyer) and supplier.

• Potential to attract new business through purchasing card capability.

Supplier’s considerationsBefore embarking on becoming purchasing card capable, the supplier needs to consider 3 key factors.

• Does the potential level of business merit investment in a system

• Which Purchasing card scheme is their customer going to use.

• What level of information does the customer require.

It is critical to find these things out in advance of making any decisions. The answers will shape all future decisions.

There are 3 typical levels of card information.

Level 1 – standard credit debit card. Captures minimal information.

Level 2 – Summary Vat. Captures, gross, net, vat, commodity codes.

Level 3 – Full line item detail.

If the cardholder only requires level 2 purchasing card, then it ispossible to conduct the transaction on a modified credit card terminal.

However, if the cardholder requires level 3, then a PC, Web basedor integrated solution is required. The supplier should note that ifthey can do level 3, they can automatically do level 2 and 1, but not the reverse.

Those suppliers who carry out a high volume of transactions maywant a system that is directly linked to their sales order processing system.

Purchasing cards are almost 95% cardholder not present with the transaction being carried out via telephone, fax or email. Yet in some cases, there will be a cardholder present, at a tradecounter for example, so the supplier needs to consider chip and pin technology.

There are costs in systems and time associated with any choice.The supplier must work with the customer to determine what information is needed, and what it means to the suppliers businessprocess by introducing new methods.

If the supplier already accepts credit/debit cards, then it shouldonly be a case of discussing the new requirement with his bank. If the supplier is new to credit/debit cards, then they need one ofthe main UK acquiring banks to sign them up. The good news isthat most banks are now working closely with major customers to assist with supplier recruitment.

There are excellent forums, workshops, and industry opportunitieswhich can provide unbiased information in helping the supplier determine the right decision for their business.

Steve WilkinsHEAD OF OPERATIONS, ITS

“Why Purchasing Cards? ”

To provide Public Sectororganisations with a greaterunderstanding of the cost savingbenefits of MasterCard’s newproduct portfolio, a series ofregional presentations have beenarranged at convenient venuesthroughout the country.

At each days venue the presentations will be hosted byindustry leaders and professionals with significant publicsector procurement, finance and e-commerce experiencethat have de l ivered major success fu l nat iona lprogrammes reducing administrative process costs andeliminating paper invoices.

Payment cards are an innovative product and there hasbeen a step change in the application of P-Cards thatallows for greater coverage over additional areas of purchase spend.

MasterCard’s development of new products providesgreater transparency, audit ability, security and flexibilitywith a range of products that can be aligned to variouscommodity categories to provide optimal purchase-to-pay solutions.

Smart Data OnLine & ‘onecard’The Solution of Choice MasterCard Smart Data OnLine solution provides on-linemanagement information, including detailed transactiondata through standard and customised reporting, withexpense claim processing capability. Smart Data's abilityto report the additional electronic ‘Level 3’ informationwhere available, captured with each ‘one card’purchasing card transaction.


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MasterCard UK Public SectorProposition Regional PresentationsThe Solution of Choice‘MasterCard’s portfolio of products deliver purchase-to-pay efficiencies’

MasterCard Smart Data OnLine global web-based reportingapplication helps you organise, consolidate, analyse andmanage financial data from Purchasing & Corporate Cards andother MasterCard programs via the Internet.

Smart Data Online with ‘onecard’ is successfully establishedacross the Welsh Public Sector ‘The Solution of Choice’

Pre-Paid CardsThere will be major growth in the area of prepaid cards acrossthe UK public sector. Prepaid cards can be used for emergencyand distress purchases across social care within localgovernment. Housing associations are also benefiting fromprepaid cards to alleviate reactive repairs. Prepaid cards areloaded with funds before they are used for payments. Theirprepaid nature makes them ideal for social care, distresspurchases and emergency requirements. Loading prepaidcards with the amount allowed can strictly control payment to anyone.

Lodge CardsLodge cards can be lodged physically with suppliers oralternatively lodged within an e-procurement solution andassigned to a particular supplier.

inControlMasterCard inControl is s new platform that enforces yourpreferred payment controls based on:

• enhanced authorisation controls

• flexible approval routing

• a secure virtual card number

Workflows, hierarchies and routings can be set specifically foryour public sector organisations requirement through inControl.

inControl reduces maverick purchasing and increasescompliance to preferred suppliers and contracts. This drive togreater contract compliance facilitated by inControl results infurther costs savings and increased business for yourorganisation’s preferred or approved suppliers.

Purchase OptimiserIn any organisation an understanding of the relativeperformance of purchase-to-pay process costs is interesting asit can provide the stimulus for positive action. Comparativebenchmarking and best practice is required in theTransformation of Government Procurement.

The Purchase Optimiser is a web based diagnostic tool thathelps evaluate card programmes and delivers practical,comprehensive and customised recommendations to improveperformance. The customised report, built on Aberdeen Groupbenchmark data, highlights current status versus peers andidentifies where and how existing programmes can beimproved to exceed industry benchmarks.

Purchase Optimiser provides the capability to take yourorganisation towards best in class purchase-to-pay

For further information of how to register for MasterCard’sPublic Sector regional presentations or to find out more aboutMasterCard’s portfolio of products that can deliver purchase-to-pay efficiencies please contact: -

www.cardpaymentsolutions.co.uk/mastercard/[email protected]


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EdinburghRoyal Terrace Hotel18 Royal Terrace, Edinburgh EH7 5AQWednesday 12 March 2008

CardiffWales Millennium CentreBute Place, Cardiff Bay, Cardiff CF10 5ALThursday 20 March 2008

Central LondonHMS BelfastTooley St, between London Bridge &Tower Bridge, London Wednesday 09 April 2008

BasingstokeThe Ark Conference CentreDinwoodie Drive,Basingstoke RG24 9NNThursday 10 April 2008

Gaydon WarwickshireHeritage Motor CentreBanbury Road, Gaydon CV35 0BJ(Junction 12, M40)Tuesday 15 April 2008

LeedsRoyal ArmouriesArmouries Drive, Leeds LS10 1LTTuesday 22 April 2008

IrelandDate and location to be confirmedApril 2008

PRESENTATIONS WILL BE HELD AT:



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‘Search...’ Purchasing Card Capable Suppliers Search Engine & DirectoryMaking connections between Suppliers and Buyers

Log on to: www.purchasingcardnews.co.uk and click on P-Card Capable Suppliers Directory

earch... The Purchasing Card CapableSuppliers Search Engine and Directorypresently contains over 7000 MasterCard and Visa Purchasing

Card Capable Suppliers at Level 1, 2 & 3.

This represents the vast majority of the UK Purchasing Card Capable Suppliers.Multiple supplier outlets are not listed unless otherwise detailed within the suppliers own Profile Pages of the Search Engine.

Further Purchasing Card Capable Suppliers will be added to the Search Engine & Directory with the business categories updated enabling detailed searches by products and services.

Search A password protected online directory and search engine, designedto assist both Private & Public Sector buying, purchasing and contractingpersonnel recruit from the Purchasing Card Capable Suppliers listed.

Search Has been developed to offer a solution to supplier recruitment, byproviding an on-line directory and search engine that profiles yourbusiness activities, products and services to thousands of industry buying,purchasing and contracting personnel on a regular basis.

For further information please contact:-Purchasing Card News, Castle Hill Farm, Castle Mill Lane , Ashley,Altrincham, Cheshire WA15 0RBTel: +44(0) 161 928 0485 Fax: +44(0) 161 928 1713

Email: [email protected] www.purchasingcardnews.co.uk

S

• Business Categories

• Products & Services

• Merchant Category Codes

• Purchasing Card Level 2 & 3 Capable Suppliers

• All Level 3 Capable Suppliers

• Suppliers Name

• Region

Buyers can search quickly and easily at a glance all the information by: -

Search...Purchasing Card Capable Suppliers Search Engine & Directory will bepromoted regularly in:

• Purchasing Card NewsLink twice monthly email broadcast to 22,000 industry contacts from both the Public and PrivateSectors.

• Purchasing Card News publication issues circulated up to 10,000 Purchasing Card industry professionals.

• Site prominence on:• Purchasing Card News web site • Card Payment Solutions web site


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Irish Companies toBenefit from SimplifiedVAT Recovery Process.

Lloyds TSBCorporateMarkets launchNetServiceonline cardmanagement

MasterCard obtains VAT certification forPurchasing Card programme.

MasterCard Worldwide has been certified by the Irish Tax Authorities to offer simplifiedValue Added Tax (VAT) invoice reporting through its Purchasing Card programme. Thisagreement will enable Irish companies of all sizes to streamline their VAT reclamationprocess using MasterCard Smart Data OnLineTM (SDOL) or MasterCardsmartdata.gen2™, the latest advancement in MasterCard’s portfolio of web-basedexpense and information management solutions. When making purchases at amerchant with a MasterCard Purchasing Card, invoice data flows electronically to acompany with the data automatically including VAT information.

To recover VAT from the tax authorities, a company using Smart Data reporting solutioncan view and print-out a detailed and comprehensive report containing all invoicedata, thereby significantly simplifying their VAT reclamation process compared withhaving to manually track and maintain all purchasing records.

The certification by the Irish Tax authorities enables MasterCard issuing banks toseamlessly provide a simplified VAT recovery solution to their customers. Financialinstitutions benefit from an easier workflow in addition to increased efficiencies. Whenusing invoice reporting via Smart Data reporting solutions, financial institutions nolonger have to exchange individual files with customers or print paper forms, resultingin the elimination of inefficient processes and freeing up valuable resources.

“Today, it costs companies on average up to around 10 1 to process and settle a singlesupplier invoice. By enabling simplified VAT recovery for Purchasing Card purchasesmade in Ireland, MasterCard once again demonstrates its commitment to helpoptimise commercial programmes by providing integrated information and reportingsolutions in a manner that drives efficiency and transparency. With our best-in-classSmart Data reporting solutions, companies and public organisations gain the insightsneeded to not only negotiate better deals with suppliers but also save time andmoney”, said Brian Lang, Vice President, Commercial Products, MasterCard Europe.

MasterCard Smart Data reporting solutions are the industry standards for commercialcard reporting across all segments and products, facilitating the informationmanagement strategy of over 140,000 customers worldwide. Flexible and robust,companies use the web-based reporting application to consolidate, analyse, andmanage financial data from MasterCard commercial card programmes. It offers bothlocal and centralised reporting and is compatible with widely used expensemanagement and ERP systems such as Oracle, SAP and Concur. Its unsurpassedreporting capabilities enable simplified VAT recovery to become a reality forcorporations across Europe.To date, MasterCard has received VAT certification of itsPurchasing Card product in nine European countries, besides Ireland also in the UnitedKingdom, The Netherlands, France, Belgium, Denmark, Germany, Sweden and Norway.

Contacts: Doyel Maitra, +44 (0) 207 557 5033, [email protected] Mors, +32 (0) 2 352 50 57, [email protected]

Lloyds TSB Corporate Markets havelaunched NetService – a web-basedonline account management tool forCorporate and Purchasing Cards, whichprovides cardholders and programmeadministrators a convenient way to trackspend and manage their card accounts.NetService is available free of charge toall Lloyds TSB’s Corporate, Purchasingand Government Procurement cardschemes.

Netservice allows cardholders to• Check available spending limits and

current balances

• Check payment status

• View and update cardholderinformation, such as address andcontact details

• Review transactions in real time, assoon as they are posted

• Track unbilled and pendingtransactions

• View, print and download statementdata for the last 12 months

Programme Administrators can also

• View all cardholder accounts online

• Add messages for other Netservice users

• Enrol other cardholders asNetservice users

Netservice is available 24/7and userscan log on using secure industry-standard 128-bit SSL encryption.

New MasterCard BenchmarkingTool helps organisations Optimisetheir T & E and Purchasing SpendMasterCard Worldwide today announced the launch of the MasterCard Optimiser forTravel & Entertainment and Purchasing. This interactive online tool enables companiesof all sizes, including multinational and public sector organisations, to improve theirtravel and entertainment (T&E) and Purchasing programmes and identify savingsopportunities by benchmarking and analysing them against best-in-class industrypractices. The European launch follows the roll-out of the MasterCard Optimiser inNorth America and the Asia-Pacific-Middle-East region, where the tool has helpedcompanies improve their T & E and Purchasing programmes.

Besides salaries and data processing, T& E and Purchasing spend represent asignificant portion of companies’ controllable expenses. According to latest researchby Aberdeen Group1, T& E spend per company is expected to see an increase of 24 %in 2008 compared to the previous year, while spending on Purchasing cards will growby 27 % at the same time. Research also shows that spend reduction and control arethe top priorities for businesses across all segments. By leveraging the MasterCardOptimiser, companies can increase the effectiveness of their T & E and Purchasingcard programmes and improve their performance.

“The MasterCard Optimiser for Travel & Entertainment and Purchasing is an intuitiveand powerful solution for organisations across the Europe region. This launchdemonstrates our commitment to support organisations of all kind in realising savingsand optimising opportunities in their spending programmes. The optimiser tool ideallycomplements our portfolio of payment and reporting solutions providing efficiency andcontrol for businesses and public sector organisations”, said Brian Lang, VicePresident, Commercial Products, MasterCard Europe.

How it works:To access the MasterCard Optimiser, a company representative, whether a CardProgram Administrator, C-Level Executive, Business Manager or Travel andProcurement Manager, logs on to the application website and answers a series ofquantitative and qualitative questions. Users can choose to analyse T&E spend,indirect spend, or both and can complete the interactive survey regardless of whetheror not they currently have a corporate or Purchasing card programme.

The country-specific survey includes benchmarks and currencies from 14 countries inEurope and takes about 20 minutes to complete. The MasterCard Optimiser thenanalyzes the information against best practices from hundreds of companies togenerate a downloadable report which offers a tailored roadmap, industry insights andrecommendations on how an organisation can:

• Improve overall T&E and Purchasing process efficiency• Benchmark against best in class organisations in the region• Identify and quantify potential savings

“With increasing outbound travel and corporate purchases, European businesses needto continuously monitor and streamline both types of expenses,” added Lang. “TheMasterCard Optimiser for Travel & Entertainment and Purchasing can help themcustomise their programmes to be in line with the company’s operational and financialrequirements while providing employees with efficient and transparent guidelines onspending and expense management.”

Companies that wish to use the MasterCard Optimiser for Travel & Entertainment andPurchasing can access it online at no cost from www.mastercard.com/eur/optimiser.Interested program administrators seeking additional information should forward theirinquiries via email to [email protected].

1 - Aberdeen Global Commercial Payments Cards 2007


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‘Interchange’an Austrailian perspectiveThe regulation of payment cards in Australia: Recent changes and their implications

This paper describes why and how theregulator of the Australian payments systems,the Reserve Bank of Australia, has intervenedin the economics of the plastic payment cardand the effect that this has had on Australianparticipants in this value chain and theirimmediate responses. Following a brief reviewof the regulatory environment, the paperexamines, first, the interventions in the creditcard market and then the interventions in boththe domestic EFTPOS debit card market and inthe so-called ‘scheme debit’ cards issued withMasterCard or Visa acceptance marques.Finally, the paper considers why and howmajor Australian retailers have sought tobecome ‘on-us’ acquirers of their customers’card payments. Some conclusions are thenoffered as to what can be learnt from theAustralian experience and why it is beingobserved so closely by others around theworld.

THE REGULATORSAustralia has two key regulators in the banking and payments system area:the Reserve Bank of Australia (RBA), which is the country’s central bank, andthe Australian Consumer and Competition Commission (ACCC). In effect, theACCC retains responsibility for competition and access in the Australianpayment system, unless the RBA designates some aspects of the systemand then imposes an access regime and/or sets standards for it. If the RBAdoes ‘designate’ in this way, its requirements are then paramount. The RBA’sPayments Systems Board, established in 1998, is responsible fordetermining the RBA’s payments systems policy, and it is charged withpromoting both efficiency and competition in the market for paymentservices. Australia is thus among the first countries in the world to makeefficiency and competition in payment systems a statutory objective of thecentral bank. Using these powers, in April 2001 the RBA formally‘designated’ the credit card schemes in Australia as the first step inestablishing standards and access regimes for this payment system, to dealwith public interest issues and to fulfil its obligation ‘to achieve a paymentssystem which is to the greatest advantage of the people of Australia’.

A third regulator which has an impact upon the Australian payments system,

is the Australian Prudential Regulation Authority (APRA). This is the prudentialregulator, which oversees banks, credit unions, building societies, generalinsurance and reinsurance companies. Established in 1998, it is fundedlargely by the institutions that it supervises and, in relation to the paymentssystem, it created standards to encourage the access into the market ofspecialist credit card issuers and acquirers.

CREDIT CARDSThe market for credit cards has grown hugely since the first such cards wereintroduced into the USA in the 1950s.1 There are now over 16 million creditand charge cards on issue in Australia, and these are accepted in an everincreasing number of merchant outlets. As a consequence, Australia is nowthe eighth largest credit and charge card market in the world, with RBA datashowing that transactions to the value of A$191bn, were made using allcredit and charge cards in Australia, over the year to March 2007.

In August 2002, the RBA, in its role as the de facto regulator of the Australianpayments system, announced the results of its investigation into the reformof the four-party credit card schemes in Australia, namely the domestic-onlyBankcard and the international acceptance marques of MasterCard and Visa.The four parties involved here are the cardholders; the financial institutionthat issues the credit card (the card issuer); the financial institution whichacquires the transactions from the merchants and then clears them throughthe settlement system (the merchant acquirer), and the merchant whoaccepts the card as a payment mechanism. Previous literature on the theory

Steve Worthington

Steve Worthington is Professor ofMarketing at Monash University in theFaculty of Business and Economics. Hespecialises in the issues surrounding thedistribution of financial services, particularlyvia plastic cards and in the organisationand control of the payment systemsthrough which these cards are used. Stevehas published widely, both in academicjournals such as Journal of MarketingManagement, Journal of Retailing and Consumer Services and theInternational Journal of Bank Marketing, and in more practitioner-focused publications such as The Financial Times, European CardReview and Cards International. He has also written a number of casestudies concerning both bank and retailer provision of financialservices. A frequent presenter/chairman at industry conferences,Steve has also been used by the media as an independentcommentator on the delivery of financial services by plastic cards.


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of credit card networks can be found in Chakravorti,2 and a discussion of thevarious relationships in the four-party credit card networks in Chakravortiand Shah.3

The reforms that the RBA introduced were essentially threefold. First, fromOctober 2003 the interchange element of the Merchant Service Charge(MSC) paid by the merchant to the card issuer, through the merchantacquirer, was effectively halved and, by July 2004, the reforms had seen theinterchange fee on MasterCard and Visa credit card transactions fall to anaverage of 0.55 per cent. This represented an estimated saving to Australianretailers of over A$700m per annum, based on the then levels of credit cardspending.

With the cooperation of all the credit and charge card schemes, the RBA nowpublishes a quarterly average of the merchant fees charged by eachscheme, and this is reproduced in Table 1. The merchant fees include theinterchange element and the other costs of the ‘acquirer’ organisation.

The publication of these merchant fees by the RBA means that bothAmerican Express and Diners Club are under pressure from the largemerchants to reduce their MSCs, given the large disparity between them andthe four-party schemes. Most smaller retailers, however, are still payinghigher merchant fees to these three-party schemes, of between 3 per cent

and 4 per cent of the value of each transaction. Diners Club has about420,000 charge cards in issue in Australia, compared with about 1.3 millionAmerican Express charge and credit cards.

The RBA is keen to publicise these figures to improve transparency andhence assist merchants in their negotiations with all card issuers. Also aspart of its reform process, the RBA has encouraged American Express toremove the ‘nosteering’ rule, which used to limit those merchants whoaccepted American Express cards in their ability to use persuasion or othernon-price methods to influence consumers’ choice of payment method. As aresult, Australian merchants can now ‘steer’ their customers to lower-costmethods of payment.

Bankcard, as a domestic-only marque, was by 2006 only held by a smallminority of credit card holders in Australia, and it was subsequentlywithdrawn in 2007, and hence all future commentary will refer to onlyMaster-Card and Visa as the four-party schemes. Their MSCs have nowbeen lowered (as of June 2007, see Table 1) to an average of 0.88 per cent,with the interchange rate making up 0.55 per cent of that total. This is indirect contrast to the USA where, according to Morgan Stanley estimates, theaverage US interchange went up from 1.58 per cent in 1998, to 1.75 percent in 2004, and they project a further increase to 1.86 per cent in 2010,driven by both MasterCard and Visa using these revenues to compete formarket share and encourage issuer product development, particularly asregards rewards schemes based on the value of spending on credit cards.

Indeed, Visa USA announced its latest range of credit card interchangereimbursement fees in April 2007, which average out at 1.77 per cent.

The RBA also now publicises an aggregate of the market share of the valueof purchases between the three-party and four-party schemes in Australia(see Table 2).

The three-party schemes made considerable market share gains in the yearfrom December 2003, immediately following the RBA’s intervention into themarket in 2002 and the subsequent reduction in credit card interchange in2003. The situation appears now to have stabilised somewhat, but the three-party schemes are still marginally gaining share, and it should be noted thatthe American Express figures include both their charge and credit cardofferings.

Going forward, the RBA was concerned that even small differences ininterchange rates between the four-party credit card schemes might bedisadvantaging some issuers. Table 3 shows the interchange fees, asreported by the card schemes in August 2005.

The interchange fees in the MasterCard system were two basis points higherthan those in the Visa system. This, it was argued, could be givingMasterCard a competitive advantage in attracting issuers, particularly if thisis not offset by higher costs. The RBA therefore considered whether toestablish a common interchange benchmark that would then apply acrossthe two schemes.

At the meeting of the Payments System Board on 22nd November, 2005, theRBA decided to impose an interchange standard on all the designated creditcard schemes. Consequently, on 25th November, 2005, the RBA gazetted arevised standard, which has applied from 1st November, 2006. Under therevised standard, the weighted average interchange fee of each of the twoschemes (see Table 3) must be no greater than a common benchmark. Thecommon benchmark, which will apply for three years from November 2006,is 0.50 per cent. This is in contrast to the previous standard, where separatebenchmarks apply to each scheme (see Table 3).

Table 1: Average Australian merchant fees by scheme: % of purchase value

Bankcard,MasterCard American

Month and Visa Express Diners ClubDec 2003 1.19 2.49 2.37

Dec 2004 1.04 2.41 2.34

Dec 2005 0.98 2.32 2.33

Dec 2006 0.92 2.19 2.17

Mar 2007 0.91 2.19 2.16

June 2007 0.88 2.17 2.17

Source: RBA.

Table 2: Scheme market shares by value of purchases (A$)

Year ended MasterCard/- Amex/-Visa Diners Club

Dec 2003 85.2 14.8

Dec 2004 83.3 16.7

Dec 2005 83.5 16.5

Dec 2006 83.4 16.6

Mar 2007 83.1 16.9

June 2007 83.0 17.0

Source: RBA.

Table 3: Interchange fees by scheme (August 2005) (A$)

MasterCard VisaStandard 0.62 0.60

Electronic 0.46 0.44

Source: RBA.


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The weighted average of each scheme’s credit card interchange fees mustnot exceed the common benchmark on 1st November, 2006, or on any datein the subsequent three years on which any scheme introduces, varies orremoves a credit card interchange fee. A Goods and Services Tax (GST) isapplied to the common benchmarks, which makes its actual cost to themerchant 0.55 per cent, although the merchants can reclaim the GSTelement of the interchange fee. (See the Appendix for a chronological reviewof the RBA’s interventions.)

THE REPERCUSSIONS FORMASTERCARD AND VISA ISSUERSThe information in Tables 1–3 gives some indication of the impact of theRBA’s intervention in interchange. To add flesh to the bones of the statistics,one needs to consider the reactions of the key players to this fundamentalchange to the economics of the payment card industry in Australia. First,issuers had plenty of warning that this reduction in interchange would occur,and they knew by how much. The legal challenge to the RBA’s decisions in2002 by MasterCard and Visa merely delayed the inevitable. For a moredetailed discussion of this, see Worthington.4

Consequently, some MasterCard and Visa issuers sought to transfer theircardholders (particularly their transactors) to existing or new co-brandedcards with American Express and Diners Club, thus to try to preserve theirMSC income stream via the three-party schemes. The Australia and NewZealand Bank (ANZ) has a co-branded charge card with Diners Club,Westpac has a co-branded charge card with American Express, while theNational Australia Bank (NAB) has a co-branded credit card with AmericanExpress.

Not all ‘targeted’ cardholders succumbed to the incentives to transfer (noannual fees for year one, etc.), and whether they will remain with the three-party card schemes when the incentives run out is a matter of conjecture.Nevertheless, there was some growth in American Express/Diners Club cardnumbers and spending, but this needs to be offset by the continued growthin MasterCard/Visa card numbers and spending. Indeed, there were nearly850,000 applications for new credit cards and credit limit increases in thesecond quarter of 2007, and total spend on credit and charge cards wasA$17,061m in December 2006, a 5.5 per cent increase on December 2005.The total value of credit and charge card spending in the year to December2006 was A$186,234m, an increase of A$16,627 over the previous year toDecember 2005, with A$155,523m being on personal credit cards andA$30,711m on charge and commercial card accounts.

Indeed, in the first quarter of 2006, Visa passed the ‘milestone’ of over$A100bn in annual retail sales with its range of payment card products. Visapayments, measured as a proportion of personal consumption expenditurein Australia, exceeded 18 per cent, the majority of which is credit, and Visa’sAustralian General Manager was quoted as saying that ‘we have weatheredthe impact of regulatory change in Australia as credit purchases haveincreased by 2 per cent; debit by 12 per cent and commercial by 20 per centduring 2005’. Visa debit cards accounted for 30 per cent of total salesvolumes, compared with 70 per cent for Visa credit cards.

Card issuers also responded to the RBA’s interchange intervention by issuingno/low annual fee, no/low interest days and no rewards scheme cards withlow interest rates, aimed at the price-sensitive revolvers. Many of these low-rate card products have been launched since 2005, and their numberscontinue to increase, through marketing strategies such as low or even zerointerest rates on balances transferred from existing credit card accounts.Hence the market, as in the UK, has now polarised between these ‘no-frills’cards which should appeal to the ‘revolvers’ and the annual fee, interest freeday cards, with reward schemes that still appeal to the ‘transactors’.

The reduction in interchange has proved to be another impediment to new

entrants into the Australian market, particularly the so-called ‘monolines’such as MBNA and Capital One, although perceptually there have been ‘new’entrants such as Virgin Money and GE Money. In reality, however, the formeris actually issued by Westpac, while the latter is a MasterCard conversion ofan existing store card programme, now branded as the Coles Source card.Both these cards have achieved a presence in the credit card market, withVirgin Money balances thought to be one-fifth of the total of Westpac’sbalances by September 2005 with three-quarters of a million cards in issue,and the GE Money card reaching a million cards in issue at the samemilestone, one year after entering the market.

The Australian market continues to evolve under this new interchangeregime. From annual fees being the norm, there are now an increasingnumber of fee-free cards (Virgin Money; BankWest — an HBOS subsidiary)as issuers seek to gain switchers from other issuers. The loss of interchangeincome to the issuers means an increased reliance on interest rate income,additional fees (over credit limit/late payment, etc.) and, where applicable,overseas transaction foreign currency fees. Consumers are faced with morechoice of cards, but alleged low levels of financial literacy in Australia andsheer inertia mean that below 5 per cent of credit cardholders ‘switch’provider in any given year.

THE REPERCUSSIONS FORMERCHANTS AND CONSUMERSMerchant acceptors of credit cards have adapted to the new interchangelevels by, broadly speaking, ‘pocketing’ the reduction in MSCs and using thenew transparent MSCs (and the RBA’s publication of them) to force down theMSCs they pay to their card transaction acquirers. The RBA is satisfied,however, that the retailing sector in Australia is so competitive that thereductions in interchange fees have been passed through to consumers, aslower costs to retailers should result in lower prices.

Merchants in Australia have also reacted to the second element of the RBA’sreforms, which from January 2003 has allowed merchants to surcharge forpayments made by credit and charge cards, to offset the MSCs that they payon such transactions. As in the UK, where such surcharging has beenallowed since the Monopolies and Mergers Commission report of 1989 intoCredit Card Services, far from all merchants have introduced surcharges, butthere have been some prominent adopters of this practice. For example, bothQantas and Virgin Blue, the current duopoly in domestic air travel, add asurcharge to all bookings paid for by credit and charge cards (including on-line bookings), while Telstra, the dominant telecommunications provider,surcharges at 0.69 per cent for Master-Card, Visa and American Express,and 1.68 per cent for Diners Club. This is described by Telstra as ‘a paymentprocessing fee applies, reflecting bank fees charged to Telstra for cardpayments’. By June 2007, the RBA estimated that 17 per cent of very largemerchants imposed a surcharge on credit card transactions, compared withonly 7 per cent two years earlier. Surcharging by smaller merchants is lesscommon, but the number of merchants that do surcharge continues to rise.

Thus, by an ironic twist, the two RBA reforms which were meant to help thecredit cardholders have in fact largely disadvantaged them. First, thereduction in interchange/MSCs has not produced any discernible reductionin prices charged to cardholders, while the introduction of surcharging hasactually increased some prices for those who choose to pay by credit and/orcharge cards. Issuers have also sought to increase annual fees,introduce/increase fees for belonging to rewards programmes andsimultaneously ‘water-down’ the value of those reward programmes, soonce again cardholders are the losers, and the cost/benefit ratio of holdingcredit cards has moved against them. Table 4 shows the reduction that hastaken place in the value of reward points since the RBA’s intervention.

To some extent, American Express and Diners Club have benefited fromthese reforms via their co-branded programmes and with their revitalised


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reward schemes, and they have been able to attract, in the first instance,more cardholders and achieve a higher spend on their cards.

Both these three-party schemes, however, need to bear in mind that the RBAhas reserved the right to ‘designate’ them for investigation and is keeping awatchful eye on the trends within the market. The four-party schemes are,of course, always reminding the RBA of what they see as the need for a ‘levelplaying field’ and will continue to seek to contain American Express andDiners Club.

THE REPERCUSSIONS FOR THE ACQUIRERSThe third element of the RBA’s reforms was aimed at opening up theAustralian market, not only to new issuers, but also to new acquirers.Changes were therefore made to the criteria for issuers and acquirers, andwhile there have been relatively few applications to the APRA for a licence toissue credit cards, there have been some new ‘players’ looking to enter theacquiring market. In implementing the RBA’s agenda of lowering therestrictions on access into the credit card payment industry, the APRA hascreated a new class of Authorised Deposit-taking Institution (ADI), known asa Specialist Credit Card Institution (SCCI). These can only perform activitiesassociated with credit card issuing and/or acquiring. APRA has also indicatedthat it has no objections to SCCI’s undertaking debit card acquiring.

Since this new access regime came into force in February 2004, the APRAhas authorised four SCCIs, three of which (including GE Money) alreadyissued credit cards in Australia through an overseas affiliate. The fourth SCCIhas gained membership of the credit card schemes in order to provide creditcard services (ie acquiring) to merchants. This SCCI is Money Switch, whichwas authorised by the APRA in March 2005, the first new member of theAustralian acquiring system since the early 1990s and is now seeking tospecialise in the provision of both credit and debit acquiring services,although its success in the marketplace is so far unproven. At present MoneySwitch, which trades as Tyro Payments, is limiting its acquiring business tovery low-risk merchants, and it began processing payments in 2006.

THE DEBIT/EFTPOS CARDThe RBA has also sought to ‘designate’ the debit card payment system inAustralia, with a view to intervening in the interchange arrangements andfees that apply in these schemes. Historically in Australia, these interchangefees for the domestic-only electronic funds transfer at point of sale (EFTPOS)system, which are a ‘flat-fee’ averaging around A$0.20 (with a range ofA$0.18 to over A$0.30) per EFTPOS transaction, are paid by the issuer to theacquirer, as with automated teller machine (ATM) transaction interchange.This, of course, is in direct contrast to most other countries, where theinterchange fee flow, as with the credit card systems, is from acquirer toissuer. This has produced a substantial income stream to the largeAustralian retailers, particularly those that were able to negotiate good dealswith their acquirers or who began to self-acquire. These acquirer fees wereunder threat if the RBA intervened to eliminate or reduce the EFTPOSinterchange fee paid by the issuing banks to the acquirer banks and then

subsequently passed on (in whole or in part) to the merchant by the acquirer.

The major Australian retailers therefore sought to question the legality of theRBA’s ‘designation’ of the EFTPOS card payment system in Australia. Thisironically mirrors the legal challenge by the card schemes (MasterCard andVisa) to the RBA’s ‘designation’ of the credit card system. Both challengesproved to be unsuccessful, although they did achieve a considerable delayto the regulatory impacts. The Australian retailers claimed that the proposedchanges to the debit card payment system would cost them around A$170min annual income, while the Australian banks claimed that the previous creditcard reforms cost them around A$700m per annum in lost revenue, whichflowed directly to the retailers. The stakes were then high in both challengesto the RBA’s ‘designations’, and more so if these regulatory interventionswere to be replicated elsewhere in the plastic card payments world.

The Australian Federal Court gave its decision on 28th November, 2005, thatthe RBA was allowed to designate the debit card systems in Australia. TheRBA then announced that it would complete its consultation on the draftinterchange standard for debit cards that it had already released in February2005, and that it would also consider access arrangements to the debit cardsystem. At the end of the consultation process, the Payments System Boardreleased on 27th April, 2006, a package of reforms to the EFTPOS and theso-called ‘scheme debit’ cards of MasterCard and Visa. These were asfollows:

• The adoption of both a cap and a floor on interchange fees in the EFTPOSsystem, with the result that these fees, which are paid by the financialinstitutions that issue EFTPOS cards, are likely to fall to around 4–5 centsper transaction, from an average of 20 cents previously. The variation isbecause EFTPOS fees are bilaterally negotiated between issuer andacquirer.

• The adoption of a cap on the weightedaverage interchange fee in the VisaDebit system, with the result that interchange fees in the Visa Debitsystem (and any equivalent MasterCard Debit system), which are paid tofinancial institutions that issue such cards, are likely to fall to an averageof 15 cents per transaction, from around 40 cents previously.Subsequently in September 2006, the RBA reduced this interchange feeeven further to 12 cents. This has been applied from 1st November,2006, and is to apply for three years from this date. See Appendix for achronological review of the RBA’s interventions.

• Requiring the Visa system to remove the restrictions on merchants thatrequire them to accept Visa Debit cards if they accept Visa credit cardsand that prohibit merchants from imposing a surcharge on Visa Debittransactions. This removal of the ‘honour all cards’ and ‘no surcharge’standards would also apply to any MasterCard Debit card products. Theability for retailers to surcharge on such transactions will now be thesame as for charge and credit cards in Australia.

The reforms that the RBA announced in April 2006, and subsequently appliedin November 2006, narrow the difference in interchange fees betweenEFTPOS transactions and scheme debit transactions to around 17 cents.That is, an EFTPOS issuer will now pay around 5 cents to the retailer’sacquirer, while a scheme debit issuer will now receive 12 cents from theretailer’s acquirer. In the RBA’s view, without this fundamental change in theeconomics of the debit card systems, it was highly likely that the schemedebit systems would grow at the expense of the EFTPOS system, simplybecause of the structure of the interchange fees. By significantly narrowingthe difference in these fees, the RBA anticipates that these reforms willpromote competition between the two debit card schemes, based on theirbenefits to cardholders and merchants, rather than, as hitherto, oninterchange fees, that were not subject to normal competitive pressures.

The new lower EFTPOS interchange fees applied from 1st November, 2006,and both MasterCard and Visa were given the opportunity to complyvoluntarily with the new standards, as they apply to their debit card

Table 4: Value of credit card rewards in Australia

Average spending required Benefit to cardholder as afor A$100 voucher (A$) proportion of spending (%)

2003 12,400 0.81

2004 14,400 0.69

2005 15,100 0.66

2006 16,000 0.63

2007 16,300 0.61

Source: RBA.


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products. The same 1st November, 2006, deadline applied to both theMasterCard and Visa Debit card interchange fees. MasterCard and Visa alsohave to have a clear identifier on their scheme debit cards, so that merchantacceptors can differentiate between scheme debit cards and bank-issuedEFTPOS debit cards. This enables merchants to refuse to accept the schemedebit cards if they so wish by identifying them at the point of sale (POS). InJune 2007, in an attempt to circumvent the abolition of the ‘honour all cards’rule, MasterCard published new credit card interchange rules that cut thelowest rate for large merchants, utilities and government agencies to around0.30 per cent, excluding GST. This is only available to those merchants whocommit to accepting all MasterCard products, in other words, to return to the‘honour all cards’ regime.

Also following representations by the merchants, any transaction at the POSthat involves cash back/cash out is excluded from the cap and floor of thenew EFTPOS interchange fees and, instead, reverts to the ‘old’ interchangelevel of around 20 cents per transaction. As such, cash backs/cash outs arebelieved to occur in a third of all transactions at the POS of the majorretailers. This still represents a substantial income stream for the retailers,plus it enables them to get rid of cash and the associated costs that go withnotes and coins, and it can be presented as an additional customer service.

The RBA’s reforms of April 2006 also addressed the issue of the EFTPOSaccess regime by the adoption of a cap on the price that existing participantsin the EFTPOS system can charge new and existing participants forestablishing a connection. It is expected that this will significantly improveaccess to Australia’s EFTPOS system. As well as the cap, the new accesscode provides new and existing participants with the right to establish directconnections with participants in the EFTPOS system and sets a time frameunder which connections must be established. This new access regimecame into force on 31st May, 2006, and it represents a successful exampleof the RBA and the payments industry working together to achieve amutually satisfactory resolution of the access issues which had previouslydivided them.

This example of cooperation between the RBA and the payments industrywill hopefully be replicated when the RBA turns its attention to Governanceand Technology issues, in particular the heavy reliance in Australia onbilateral rather than multilateral contracts and the sometimes lack of strongcentral entities that can develop and promote particular payment methods.These issues are arguably best dealt with on an industry-wide basis, ratherthan by regulation, and the RBA appears content to raise these issues, ratherthan directly intervene.

The RBA’s considerations about access have highlighted the complicationsthat can arise in payments systems built around physical bilateral linkagesand bilateral business arrangements. This is the case in Australia for both theEFTPOS and ATM systems. Two issues in particular concern the RBA.

The first is the potential for existing players to block the entry of a newparticipant by not allowing them to establish direct physical connections orbusiness relationships with existing direct participants. The RBA’s reforms ofApril 2006 directly addressed this concern. The second concern relates tothe additional costs that can arise when new participants wish to establishbilateral connections. On the one hand, new participants need to beencouraged to stimulate competition and innovation but, on the other hand,a proliferation of bilateral linkages would be at a considerable cost to theincumbents. In many other countries, there is a single point of physicalaccess (a hub and spoke system), as opposed to the situation in Australia,which requires new participants to establish multiple physical connections.

The Australian Bankers Association (ABA) announced in August 2007 thatit and the Australian Payments Clearing Association (APCA) are ‘currentlyconsidering options for establishing a centralised commercial governancestructure, responsible for the promotion and development of the EFTPOS

system’. The origins of the current EFTPOS system go back to the early1980s, and the Australian banks then progressively negotiated bilateral links(including interchange fees) to foster the growth of what has subsequentlyevolved into a ubiquitous domestic payments system.

Technical standards for EFTPOS were transferred to APCA in the early 1990s,though APCA never had any kind of marketing or strategic role. Theemergence of MasterCard Debit and Visa Debit in Australia has been seen asa potential threat to the Australian EFTPOS system and its brand, in much thesame way as the emergence of MasterCard and Visa branded credit cardshas led to the demise of the domestic Australian credit card Bankcard,referred to earlier. The RBA is concerned that the lack of investment in theEFTPOS system is in part due to the bilateral structure of the scheme, andthe RBA would prefer a central switch, where there is no need for eachparticipant to negotiate links with every other participant.

RETAILERS AS ‘ON-US’ ACQUIRERSWith the changes to the economics of both the credit card and the schemedebit/EFTPOS systems in Australia, some of the larger merchants areconsidering whether they should establish bilateral linkages andrelationships with their major ‘issuers’, while using a ‘third-party’ gateway todeal with all the minor issuer’s transactions that they accept.

These gateways are the eight ‘direct connector’ institutions that currentlyhave these bilateral linkages and relationships.These are the four majornational banks (ANZ, Commonwealth, NAB and Westpac); two regional banks(Bank of Western Australia and St George); First Data International (apayment processor that caters in Australia to credit unions, buildingsocieties, other regional and foreign bank card issuers) and Coles Myer (theonly ‘merchant principal’ in the payments system).

The now separated Australian retailers Coles and Myer have, since the early1980s, operated their own ‘switch’ into the Australian paymentsreconciliation system. They are now ‘on-us acquirers’ in that they havebilateral links with all four of the major Australian banks, American Express,Diners Club and plus they have an acquirer which collectively handles theirtransactions for the credit unions and other card issuing financialinstitutions. By this means, most payment cards swiped through Colesterminals are ‘acquired’ by Coles and switched directly to the issuers,becoming therefore ‘on-us’ transactions. The exceptions would beinternational cards used to make payments in Australia, which are switchedvia the MasterCard and Visa processing systems.

Under the new economics of the RBA imposed credit and debit interchangefees and with the new access arrangements, it would be no surprise to findother Australian retailers examining the ‘on-us’ option. To make this aworthwhile exercise, they will need the economies of scale that could justifythe investment and the management time in both establishing andmaintaining the ‘on-us’ status. Time alone will tell who will follow the Coleslead here and within what time period. For a further discussion of howretailers around the world have tried to move into financial services, seeWorthington5 and Worthington and Welch.6

CONCLUSIONSThe intervention of the RBA as the payments system regulator in Australiahas had profound implications for the participants in the Australian plasticpayment card value chain. Furthermore, if the RBA’s approach were to bereplicated by other regulators in other countries, participants there wouldalso be dramatically affected. The RBA has both given Australian merchantsa ‘windfall’ via the reduction in credit card interchange rates and also takenfrom them a useful income stream by reducing EFTPOS debit cardinterchange rates. On balance, however, Australian merchants have comeout ahead, and they can now, if they so choose, surcharge for any credit,charge card or debit card payments that they take at their POS.


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The RBA’s intervention in the debit card market, while disadvantagingAustralian retailers to some extent, has, with the removal of the ‘honour allcards’ obligation, allowed them to choose which payment cards they willaccept at the POS from the variety offered by MasterCard and Visa.

Finally, with the opening up by the RBA of the access arrangements foracquiring payment card transactions, there may well be more Australianretailers who seek to become ‘on-us’ acquirers of their payment cardtransactions and thereby seek to gain more from the ‘value chain’ thatrelates to the processing of card payments.

While certain aspects of the Australian payment cards market are peculiar toAustralia, for example the reverse flow of interchange from the issuer to theacquirer in the case of large merchants and their EFTPOS transactions,nevertheless many payment systems participants from around the world areclosely watching the outcomes of the regulators’ intervention in this market.One reason for this is that regulators elsewhere may wish to follow, in partor in whole, the actions of the Australian regulator.

The evidence so far, as reported in this paper, is that, despite theprotestations of the card schemes, their issuers and acquirers, as well as themerchants themselves, the RBA imposed changes to both the economics ofthe credit and debit cards do not appear to have reduced the popularity ofeither type of payment card with cardholders. Australians continue toincrease their spending on payment cards and decrease their use of papercheques and, thus, the large Australian merchant acceptors of cardpayments are increasingly aware of the costs of acceptance and willcontinue to seek to reduce these, either by surcharging or by self-acquiringto recoup some of these costs.

The RBA’s most recent interventions came into force on 1st November, 2006,and, given the possible worldwide ramifications of these regulatorydecisions, this paper has attempted to explore the repercussions so far for anumber of the participants in the payment card value chain. In early 2007,the RBA commenced a review of its interventions in the market, which isexpected to take a full two years to complete. Continued analysis andinterpretation of the results of the regulator’s actions will therefore benecessary.

REFERENCES(1) Durkin, T. A. and Price, N. (2000), ‘Credit Cards: Use and Consumer Attitudes, 1970–2000’,

Federal Reserve Bulletin, September.

(2) Chakravorti, S. (2003), ‘Theory of Credit Card Networks: A Survey of the Literature’, Review ofNetwork Economics, Vol. 2, No. 2, pp. 50–68.

(3) Chakravorti, S. and Shah, A. (2003), ‘Underlying Incentives in Credit Card Networks’, AntitrustBulletin, Spring, pp. 53–75.

(4) Worthington, S. (2005), ‘Down Under’, European Card Review, Vol. 12, No. 1, pp. 16–18.

(5) Worthington, S. (2006), ‘Retailers Miss Banking Goals’, European Card Review, Vol. 13, No. 3,pp. 10–15.

(6) Worthington, S. and Welch, P. (2006), ‘Banking at the Checkout’, ECR Publishing LLP.

For further information please contact:-

Professor Steve WorthingtonDepartment of Marketing, Monash University, Melbourne, [email protected]

Faculty of Business and EconomicsPO Box 197,Caulfield East, Victoria 3145, AustraliaTel: + 613 9903 2754 Fax: + 613 9903 1558

APPENDIX: THE REGULATORS TIMETABLE

August 2002RBA sets interchange standards for credit cards. A benchmark capping theweighted average interchange fee in the Bankcard, MasterCard and Visacredit card systems. RBA requires removal of the ‘no surcharge’ rules fromMasterCard, Visa, American Express and Diners Club.

January 2003Merchants allowed to surcharge on payments made with credit and chargecards.

October 2003Credit card interchange fees first reduced following the RBA’s intervention.

February 2004RBA requires credit card schemes to consider applications for participationby SCCIs, on the same basis as applications from other ADIs. Also requiresremoval of the rules that discriminated against members who focused onacquiring rather than issuing.

October 2004RBA designates the Australian EFTPOS (debit card) system.

August 2005RBA imposes an access regime on the Visa Debit system similar to thatimposed on the Visa credit card system.

November 2005A revised standard is issued for interchange in the designated credit cardschemes, MasterCard and Visa. Now the weighted average interchange foreach of the two schemes must be no greater than a common benchmark. Toapply from November 2006.

April 2006RBA sets interchange standard for the EFTPOS system. A benchmark whichwill place a cap and a floor on interchange fees.

RBA sets a benchmark capping weighted average interchange fees for boththe MasterCard and Visa scheme debit cards.

RBA requires both MasterCard and Visa to remove their requirement thatmerchants wishing to accept their credit cards, must also accept their debitcards. RBA places a cap on the amount that can be charged by existingparticipants in the EFTPOS system for establishing a new direct connection.

September 2006RBA determines a common benchmark for interchange fees in theMasterCard and Visa credit card schemes. This is 0.50 per cent, to apply forthree years from 1st November, 2006.

RBA determines the interchange fee benchmark for the MasterCard and VisaDebit systems. This is 12 cents, to apply for three years from 1st November,2006.

December 2006RBA announces a review of its Payment System Reforms, to be conductedover 2007/08. As a background to the review, the RBA is conducting acomprehensive study of the resource costs involved in the different methodsof payment, including cash. The RBA is also studying how various paymentmethods are used in different circumstances, including the potential forsubstitutability between the various forms of payment.



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MasterCard Europe cautioned consumerstodaynot to expect to see lower prices whenthey shop as a result of the EuropeanCommissiondecision on MasterCard’s intra-EEA cross-border interchange fees. Instead, ifthis decision were adopted across the EU, theywill more likely see the benefits they havecome to expect when they use their credit anddebit cards fade away, as happened toconsumers in Australia when the governmentthere imposed regulations on what had beena successful free market.

The Commission and some merchant groups, who heralded the decision asa Christmas gift for consumers, turned a number of facts on their head inconcluding that consumers would benefit from lower interchange fees.

First, interchange fees do not hurt consumers, as the Commission claimed,or cause consumers to pay twice for using their payment cards. In reality,interchange fees benefit consumers by fairly sharing the cost of anelectronic payment system among the two key beneficiaries of that system– cardholders and merchants. By asking merchants to pay a fair price for thesignificant benefits they receive, interchange keeps costs low forcardholders.

On a typical credit card transaction of 50 Euros, a merchant pays about 50cents. For a debit transaction, the cost is half that rate. In return, merchantsreceive enormous benefits – more sales, guaranteed payment, protectionfrom theft and fraud, and highly satisfied customers. But now, if theCommission gets its way, those costs will be shifted to consumers.

Merchants say that MasterCard prohibits them from disclosing to customershow much they pay for accepting payment cards. They know this is untrue.Merchants are free to disclose merchant discount fees, interchange fees, orany other costs they incur. But they choose not to disclose these costs toconsumers just as they choose not to disclose any other cost of doingbusiness, or how much they “mark up” their merchandise. CommissionerKroes claims that Australia’s regulation of interchange should be viewed asa success for consumers. But only merchants benefited from thoseregulations. There’s indisputable evidence that five years after thoseregulations were imposed, Australian consumers have suffered. Today,Australian cardholders are paying almost AUS$1 billion more as a result ofincreased fees, such as a resurgence of annual fees, and decreased featuresand benefits, like airline mileage programs. There’s no evidence thatmerchants lowered prices to reflect the lower interchange payments – andthere’s little reason European consumers should expect them to do so here.

Interchange and the Payments IndustryEvery business establishes a price for the goods and services it provides,and the electronic payments business is no exception. As one element of thecost of acceptance, interchange is a small fee in relation to the enormousvalue merchants receive for accepting MasterCard payment cards.

For almost 40 years, MasterCard has established default interchange feesthat have proven to be the most efficient way to balance costs in the systemand promote a strong, competitive payments industry that benefitscardholders, merchants and financial institutions. Today, some 25,000financial institutions provide the cards and services that allow hundreds ofmillions of consumers and 25 million merchants around the world to benefitfrom the convenience and security of electronic payments.

Interchange and the Payments IndustryEvery business establishes a price for the goods and services it provides,and the electronic payments business is no exception. As one element of thecost of acceptance, interchange is a small fee in relation to the enormousvalue merchants receive for accepting MasterCard payment cards.

For almost 40 years, MasterCard has established default interchange feesthat have proven to be the most efficient way to balance costs in the systemand promote a strong, competitive payments industry that benefitscardholders, merchants and financial institutions. Today, some 25,000financial institutions provide the cards and services that allow hundreds ofmillions of consumers and 25 million merchants around the world to benefitfrom the convenience and security of electronic payments.

What is Interchange?Interchange is established to incent banks to issue payment cards andmerchants to accept those cards. It is a small fee paid by a merchant’s bank(also known as the acquiring bank) to the cardholder’s bank (the issuingbank) and serves to compensate the issuing bank for a portion of the risksand costs it incurs to maintain cardholder accounts. These costs includefinance costs for the interestfree period between the time a consumermakes a purchase and pays his/her bill, credit losses, fraud protection andprocessing costs.

By shifting some of the cost of the payment system from issuers and theircardholders to acquirers and their merchants, a system operator likeMasterCard can encourage greater utilization of its cards. Often referred toas “balancing the system” this makes the system more efficient andvaluable to cardholders and merchants. When a purchase is made with apayment card, the acquiring bank pays the issuing bank an interchange feeto help offset a portion of these costs. The acquiring bank eventually collectsthis fee from the merchant as a component of the merchant discount fee.

Merchant Discount FeeThe merchant discount fee is generally a small percentage of the price of thegoods or services the merchant pays its bank when a payment card is used.

MasterCard Cautions Consumers Not to Expect Lower Prices at Shops as a Result ofEC Decision on Interchange Fees


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The merchant discount fee is negotiated between the merchant and its bank.MasterCard is not a party to this contract nor does it have a role in thenegotiation between the merchant and its bank.

The FourParty SystemMasterCard operates a “fourparty payment system” that processestransactions and routes information between cardholders’ and merchants’financial institutions in fractions of a second. This system, enabled byinterchange, allows hundreds of more millions of cardholders and 25 millionmerchants around the world to benefit from the convenience and security ofelectronic payments. The MasterCard network links together the four partiesinvolved in each transaction (hence the name “fourparty system”) asdescribed below:

• The cardholder’s issuing bank markets and issues MasterCard paymentcards to consumers and extends credit to cardholders from the time apurchase is made until payment is due. Broad issuance of MasterCardcards benefits merchants through increased sales.

• The cardholder uses a MasterCard payment card to purchase goods andservices at more than 25 million acceptance locations around the world.

• The merchant accepts MasterCard payment cards in exchange for goodsand services and receives guaranteed payment as well as increasedsales.

• The acquiring bank contracts with merchants and provides them withMasterCard acceptance and processing services. Cardholders benefitfrom widespread acceptance, giving them more places to shopconveniently and safely. Threeparty systems, like American Express,charge merchants discount fees which are often higher than the cost ofaccepting MasterCard cards. Because threeparty system operators act asboth issuer and acquirer, they do not have to establish interchange feesbecause they can balance their systems through internal accountingtransfers. They can use funds collected directly from merchants to coversome of the costs on the issuing side of their businesses.

How Interchange Rates Are EstablishedBy balancing the costs, risks and rewards within the fourparty system,interchange promotes a strong, competitive and efficient payments industry.In the absence of interchange, this system could not exist. MasterCardestablishes default interchange rates to provide incentives to merchants toaccept cards and to card issuers to provide innovative card products thatmeet consumer demand. These rates apply in the absence of a bilateral feeagreement between an issuing and an acquiring bank. Importantly, whileMasterCard sets default interchange fees to enable efficient interaction amongthousands of financial institutions, it receives no revenue from those fees.

Setting interchange requires a careful balance. If interchange rates are settoo high, merchants’ desire and demand for accepting MasterCard cards willdrop. If interchange rates are set too low, card issuers’ willingness tocontinue to create innovative products and issue cards will drop, and as aresult so will consumer demand for, and use of, cards.

MasterCard periodically reviews interchange rates to ensure the ratescontinue to maximize the benefits of the MasterCard system for merchants,financial institutions and cardholders. MasterCard has more than 100different interchange rates that recognize differences between cardprograms and that incent new acceptance categories, like fast food ortaxicabs. In addition, MasterCard incents the use of new systemtechnologies, for example, by offering reduced rates for online merchantswho implement Secure Code to protect cardholder data.

Interchange Transparency and Merchant CommunicationMasterCard is leading the industry in bringing transparency to theinterchange system. MasterCard posts all of its U.S. interchange rates andoperating rules that apply to merchants on its merchant Web site,www.mastercardmerchant.com, along with comprehensive information tohelp merchants understand the rates and how they apply. These steps areintended to help foster an ongoing dialogue with merchants, acquirers andothers about interchange rates and disclosure. MasterCard also has establishedthe MasterCard Merchant Advisory Group which meets regularly to givemerchants a forum to share with MasterCard what they need to engage inthe payments system in the most efficient and beneficial manner possible.

Merchants Benefit from InterchangePayment cards help merchants operate more successfully. Electronicpayment transactions are faster at checkout and merchants who complywith issuers’ security guidelines are guaranteed to receive payment forthese transactions. With less cash on hand, merchants are less vulnerable totheft and can provide safer workplaces for their employees. Electronicpayments also save time and money by easing payment reconciliation.

Accepting payment cards provides merchants with incredible benefits at afair price. The benefits to merchants of accepting MasterCard are significantand include increased sales, as more people are attracted to stores thataccept their card of choice? management of lending losses, fraud and thecosts of complying with regulations. Interchange enables merchants toparticipate in a payment system that is far more costeffective for them thanissuing their own proprietary card or some other form of credit.

Consumers Benefit from InterchangeInterchange helps foster choice, innovation and security – all vitallyimportant to today’s consumer. By providing incentives for card issuers,interchange encourages banks to innovate and develop new paymentoptions, broaden the range of card programs available to consumers andinvest in cuttingedge security and fraud prevention measures. Interchangehelps to spur new types of card programs to meet different consumer needsand a wide variety of payment card reward and incentive programs that helppeople get more out of every dollar they spend. Moreover, these programsincent card usage, which ultimately benefits merchants.

Interchange Promotes a Competitive Payments IndustryFor almost 40 years, the default interchange rates MasterCard hasestablished have proven to be the most efficient way to balance costs in thesystem and promote a strong, competitive payments industry.

Moreover, the courts and regulators in the U.S. have found interchange to belegal, efficient and an essential component to the operation of a paymentsystem like MasterCard. Some countries have rejected a freemarketapproach toward interchange and have regulated interchange levels. Inthose countries, including Australia, where the level of interchange has beenreduced as a result of regulatory intervention, cardholders have seen theirfees rise and their card benefits reduced.

In essence, interchange promotes competition and more cards in circulation,thus benefiting every participant in the system – cardholders, merchants andfinancial institutions.

Contact:, [email protected]


The MasterCard Multi CardStreamlines Processes

■ Gaining more control over spending?

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What’s most important to your business finance?

For further information on MasterCard Corporate Multi Card programs pleaseemail Laurent Vreven at MasterCard. [email protected]

CPS NEWS No42

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