Have Banks Lost the War on Regulation - PowerPoint PPT Presentation

1 / 22
About This Presentation
Title:

Have Banks Lost the War on Regulation

Description:

Terms and conditions accounts, cards and information ... be perceived as a work around ... Payments Institutions new non-bank, lightly regulated competitor ... – PowerPoint PPT presentation

Number of Views:51
Avg rating:3.0/5.0
Slides: 23
Provided by: psecons
Category:
Tags: banks | lost | regulation | usage | war

less

Transcript and Presenter's Notes

Title: Have Banks Lost the War on Regulation


1
Have Banks Lost the War on Regulation?
  • Essentis Euronet Software Executive Conference
  • 14th May 2008
  • Paddington Hilton
  • Peter Jones, Managing Director, PSE Consulting

2
  • The quickest way to end a war is to lose it
  • George Orwell, Shooting the Elephant, 1950

Evidence banks have lost the war against
regulation
3
Topics for Today
  • The Growth of Regulatory Interventions
  • EU Interchange Outcomes and Impacts
  • EU Payment Services Directive (PSD) Harmonisation
    of Legal Frameworks
  • How Banks may Succeed or Fail

Banks are struggling to adjust to the
transparency needs of customers and citizens
4
Why the Regulators Do Not Like Banks!
  • Public antipathy and unease reflected by
    regulators
  • Banks perceived to operate in clubs/cartels,
    exclude outsiders, operate without consultation,
    impose fees
  • Long history (12 years) of European Commission
    pressure for openness and improved service cross
    border no result
  • Listen to strong anti-bank consumer, merchant,
    corporate lobbies
  • Recognition that banking fees very high in
    several EU markets

Banks to blame, complacency, lack of listening,
slow moving
5
The Regulators Key Targets!
  • Common EU credit and debit card interchange (MIF)
    fees and resulting MSCs
  • Cross border intra-EU transfer fees and service
    levels
  • Bank account and annual card fees pricing and
    transparency of charges (bundled fees), Dynamic
    Currency Conversion (DCC)
  • Membership and access to card schemes and ACHs
  • Penalty fees and fines often combined with free
    banking
  • Terms and conditions accounts, cards and
    information
  • Liability, consent, authorisation, unauthorised
    use
  • Service levels, clearing and settlement periods,
    security

and more to follow!
6
Some Important Worldwide Regulatory Events
  • EU Regulation 2650/2001 (cross border payment
    fees) clear statement harmonisation imposed
    pricing by European Commission
  • Resulting SEPA project has created more change in
    EU
  • EC harmonisation of payments legal framework
    the Payment Services Directive (PSD)
  • MasterCard and Visa MIF both under investigation
    within EU
  • Spanish banks obliged to significantly reduce
    interchange
  • Australian regulatory action significantly
    reduced interchange
  • Interventions in Latin America (Mexico) -
    interchange
  • In US many group merchant legal actions against
    card schemes

7
USA Recent (April) ProposedRegulation of Credit
Cards
  • Prevent interest rate increases on existing
    balances
  • Outlaw fees for account opening
  • Outlaw spend allocation to high rate balances
  • Outlaw interest charges on late/over limit fees
  • 45 days notice of an interest rate change
  • Interchange set by great and good panel

Clear evidence of poor US practice also seen in
EU
8
EU Regulatory Interventions Since 1999
30 interventions excluding mandated voluntary
change of SEPA and card schemes
9
Why Banks are Concerned
  • Worldwide growth of intervention
  • In Europe SEPA and PCI - need to implement
    voluntary mandates
  • Banks, card schemes and interbank processors
    concerned over future shape of cards business
  • Lack of consistency and certainty of regulation
    damaging
  • Declining revenues and increasing costs during a
    period of falling profits and rising risks
  • IT/project resources (up to 70) committed to
    regulatory change stifles innovation

Banks weak at communicating and defending their
position!
10
Does Regulation Work?
  • Many populist regulators leverage bank
    regulation for political reasons many
    mis-statements
  • But
  • Law often fails to understand card frameworks
  • Harmonisation often an end in itself
  • Efficiency and displacement of cash/cheques not
    primary objective
  • Consumers seldom benefit from forced reductions
    in fees
  • Result
  • Few successful attempts to fit complex market
    into competition straightjacket Australian
    regulators semi-withdrawal
  • Many anomalies, inconsistencies and unintended
    consequences
  • SEPA for Cards although voluntary, now
    increasingly perceived as unsuccessful

Some evidence that when challenged regulators
change opinions
11
Regulatory Over Kill in EU
Main Players at European and National Levels
European Level
European Central Bank
Lobbies BEUC Eurocommerce
European Commission
Banking Associations EBA EBF EFMA ESBG
Schemes Visa MasterCard Amex Diners Club
DG Competition
DG Internal Market
Retail Banking Enquiry
Payment Services Directive
National Level
Local Consumer and Retailer/Merchant lobbies
National Central Bank ECBS FSA
NCAs
Local ICS Schemes National Debit Schemes
Issuers
Acquirers
Local Bankers Association
National Processors and TPPs
A growing regulatory governance structure
12
DG Competition on MasterCard/Visa Intra MIF
Likely Impact
  • Intra European MIF outlawed from mid 2008
  • MasterCards confrontational approach EU less
    amenable
  • Concept of 3 to 5 party model may be perceived as
    a work around
  • Visa has potential first mover position agree 5
    year deal with stepped reductions as in 2002
  • Credit to fall to 0.5 and debit to lt0.10 per
    transaction PSE speculation
  • EAPS excluded scheme of scheme bilateral
    arrangements - Monnet unknown

EC appears to have recognised the damaging impact
of implementing common MIF
13
Painful Impact of Reduced MIF
  • Issuer Impact
  • Reduces bank account revenues, increase in
    consumer fees public issue France particularly
  • Damages growth in credit card revolving and usage
  • Damages loyalty reward schemes
  • Damages growth of cards in developing markets
  • Reduces revenues for investment in new product
    features and innovation
  • Pressure to move to higher interchange based
    schemes
  • Acquirer Impact
  • Lower MIFs reduces MIF to acquirer fee ratio
    thus reducing basis of charge
  • Increased acceptance of cards by merchants in
    markets where MSC rates fall
  • Damages on us revenues so on us discounting
    reduced
  • Drives acquirers to unbundle fees and charge
    separately for all service components
  • Very damaging impact on three party scheme MSCs
    (Amex/Diners)

14
The PSD Regulatory Nightmare!
  • PSD - the first attempt to implement a harmonised
    legal payments framework for 29 nations
  • Major change to the way payments transacted -
    impacting 450m people and 25m corporates
  • but many banks have yet to start planning
  • few have examined legislation in detail
  • interbank and bank associations slow to lobby
    for local variations

Are banks once again heading for an
implementation nightmare?
15
PSD Scope
  • EU law December 2008 implement by 1st November
    2009 6-7 year gestation
  • Impacts banks, mutuals, e-money issuers, post
    offices, giros
  • Common EU legal framework for payments - maximum
    harmonisation directive
  • All EU payments, all currencies except cash and
    cheques
  • Focus on customer protection the relationship
    between providers and users of payment services
  • End to end payer and payee relationship -
    Conduct of Business Rules
  • Exclusions for large corporate users but may
    encompass SMEs and micro business

Improved customer protection and transparency,
opens up markets, creates level playing fields,
improves efficiency
16
Why the PSD Will Keep You Awake at Night!
  • Payments Institutions new non-bank, lightly
    regulated competitor
  • Burden of Proof/Liability Shift on proof of
    transaction authorisation and completion moves
    from the consumer to the bank
  • Extended Cancellation Banks must retain data on
    payment and consent for at least 13 months
    increase in liability and have ten days to refund
  • Information requirements impact Terms
    Conditions for all payments to and from current
    accounts, savings accounts, mortgage accounts, as
    well as all debit and credit card products
  • Unbundling The aggregation of charges/fees etc
    into a single fee is prohibited
  • One Day Settlement Timeframe with a maximum of
    three days up to 2012

Additional data, improved service, shorter
timeframes significantly increase bank costs
17
Lowering the PSD Stress LevelsNeed a standard
methodology
  • Strategy Overview
  • Competitors positioning, interbank initiatives
    early or late mover new non bank competitors
  • Model impact on pricing and costs revenue
    losses
  • Build competitive edge, assess increased risks,
    liabilities, regulation
  • Impact Assessment
  • Review PSD clause by clause with departments and
    legal
  • Assess end to end payment instrument set but also
    product
  • Impact on corporates, SMEs/micro businesses
  • Documentation and customer communications
  • Data retrieval, faster access, new redress
    procedures, changes to security
  • Standard Implementation Framework and Resources

Extent, scope and cost of work should not be
under estimated less than SEPA but still
significant
18
How to Minimise the Damage for Banks
  • Understand the long term challenges posed by
    continued regulatory action
  • Accept transparency and redress and build into
    offers
  • Be ahead of the regulator and implement best
    practice now
  • Campaign to displace cash to offset revenue
    losses
  • Consider outsourcing or consolidation to cut
    costs
  • Review merchant relationships and pricing menus

Of most importance is growing volume, displacing
cash to offset revenue reductions
19
Can Bankers Fight Back?
  • Winning Strategy
  • Nations with strong banking associations lobby
    government
  • Dialogue with EC-DG Competition understand each
    other
  • Fully implement the PSD
  • Campaigns to change key opinion formers views
  • Change and simplify governance structures
  • Deliver consistent message via one organisation
  • Losing Strategy
  • Do nothing accept interventions as inevitable
  • Communicate by press release
  • Reluctant implementation of PSD
  • Continue passive reactive approach
  • Continue fragmented multi institutional approach
  • Continue to allow communications free for all

Largest EU banks opportunity to have
significant impact
20
Final Conclusions
  • Future many unknowns and challenges clash of
    visions banks, regulators, public opinion
  • Regulation here to stay and becoming more
    demanding
  • Negative view on MIF - significant reductions but
    not abolished no common
  • MIF outcome a five year deal lead by Visa
  • Issuer, Acquirer, banking revenues damaged -
    costs reduced to maintain profits
  • No silver bullet solutions
  • EU a regulatory test bed big, unanswered
    question is the speed of change largely
    dependent on PSD and SEPA for Cards outcomes

Banks have lost the way issue now to comply
21
  • Distrust all in whom the impulse to punish is
    powerful
  • Nietzsche, 1883

Regulators have talked tough in past and appear
determined to act tough in the future!
22
Peter Jones 44 (0) 20 8891
6244info_at_pseconsulting.com
Write a Comment
User Comments (0)
About PowerShow.com