Will Acceptance of All Cards Become Equal in the New World of European Interchange

Apr 1, 2015
Posted by: David

Acceptance of all payment cards are equal, well we might think that is a fair statement but of course ask anyone with an Amex card and we know that is not true. After all even the bank issuers recognise this and often provide a ‘companion’ Visa/MasterCard for when that customer gets the inevitable ‘Sorry we do not take Amex’.

But the situation today for an American, UK person or in act any non European travelling in Europe is still today very confusing with their card just as likely to be declined or not accepted – even where cards are accepted.

So take this simple sign in a Dutch supermarket – in English literally ‘Here Only Pins’ or to you and me cards only. Simple enough one might think:

No problem one queues up and present a MasterCard Credit card, and get told ‘No Credit Cards’. Okay, lets try my Visa Debit card. Once again I am told ‘No Credit Cards’, this is debit I say. Not it is Visa, Visa is credit!

And this is the view of a lot of Europe, Visa and MasterCard are credit brands. They may choose in markets like the UK to issue credit and debit cards under the brand but to much of Europe they can only be a Credit Card. As this shop front sign makes clear, to them the Debit brands are VPay and Maestro:

Simple enough, well not really as the list below shows in the UK for instance you have to bank with one of the generally considered more obscure options:

  • Adam & Co
  • Bank of Ireland
  • The British Bank of the Middle East
  • Clydesdale Bank
  • Coutts & Co.
  • First Direct
  • Isle of Man Bank
  • Northern Bank
  • Yorkshire Bank
  • Ulster Bank
  • Whiteaway Laidlaw Bank

No problem lets just a VPay card then, ah you see in the UK Visa consider Visa Debit to be the debit brand not VPay. And well if you come from a strange far away country like the USA, Africa, Middle East or pretty much anywhere in the world, tough!

Of course for poor consumer it gets even more confusing, go to the train station in the Netherlands and put your Prepaid Visa or MasterCard into the machine and you will be asked, as all cardholders are, to select if the transaction is Credit or Debit, as you guessed the consumer must know that in despite the Visa Prepaid card being a debit product you have to select credit for the card to be accepted.

In Germany it even gets harder as this image form their railway ticket machine shows:

In Germany not even VPay is accepted, only Maestro as that is what Gedkarte is co-branded with to meet SEPA regulations. And this is good compared to some ‘Tourist Café’s and Shops’ I have been into in Germany who simply say ‘No Cards’ – I stress these are not small out of the way places but major tourist locations. One also finds the same at restaurants in the Netherlands, their attitude being the cash machine is only 20m away, go and get cash.

In Italy they have with Decree 179/2012, which came into effect on 30 June 2014 imposed an obligation on all retailers and professionals to accept debit card payments for all transaction amounts in excess of € 30, of course what a Debit card ‘brand’ is, is not defined.

One could argue the same in some respects happens to a European traveling to America, as this image from the late Radio Shack group shows, whilst they are happy to take your Google Wallet, them it is Visa/MasterCard only no Vpay/Maestro.

So what of the future, the announcement in Europe and move to radically reduced interchange fees for Debit and Credit cards, and thus expected reductions in Merchant Service Fees, will this lead to a change. Given the difference between debit and credit will now only be circa 10 basis points on interchange will we suddenly see European merchants start accepting Visa and MasterCard brands.

I fear not, there are undoubtedly many challenges to getting merchants to accept a form of digital payment including chargeback risks, potential increase in sales or not, fraud risk, IT and infrastructure costs etc. The argument also between bodies on the ‘true cost’ of cash as well will continue, however the changes in interchange do address the single aspect of cutting the funds available to the Issuer for the service they offer to meet the challenge of driving wider card acceptance?

The reduction in interchange means that the costs and risks of acquiring will not change, the scheme costs do not inherently change, it would seem only the Issuer looses out. There is in total a huge gap between merchants and issuers in what they want from card solutions; only time will tell whether the Issuers choose to pass on to consumers this loss in the income in the form of increased costs/card fees etc. I believe this rush to look at only one aspect of the overall balance and service that credit cards offer will only create further confusion rather than increase merchant hunger to take cards, or in fact have any impact overall on prices we as consumers end up paying.

What I fear will happen is nothing, so whilst we all think we have cards that we can travel the world with, or at least around Europe the truth is that a bit like PAL and NTSC, it all depends on what region you are from what you have and inter-operability will remain a major issue for the future.