South African Retailers Payment Issues Forum

1
South African RetailersPayment Issues Forum

• A Group of Merchants, Retailers
• and Retail Service Organisations
• who seek to address issues of common interest
  with respect to the banking industry
• (constituted in terms of the NPS Act)

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Consumer/Merchantinvolvement in NPS

• SARPIF formed in 1998 to gain representation on
  SANPAY, a SARB-constituted body
• No other voice in the NPS
• Access to NPS
• Retailer infrastructure able to provide ATM
  facilities

3
Credit CardsDebit Cards

• Card Association Rules
• Honour all cards
• Non-discrimination
• Merchant Interchange
• Processing Costs
• Payment Guarantee/Fraud
• Interest-free Period (credit)
• Who should Pay?

4
Credit CardsDebit Cards (2)

• Edgar, Dunne
• Secret Report
• Interchange reduced on completion of report (?)
• Merchants denied participation
• The Value of Plastic to Merchants

5
Credit CardsDebit Cards (3)

• Why ad valorem on Debit Cards?
• Transactions are
• PIN-based
• Online to issuer
• Access funded accounts
• Assume components of debit card interchange
• Recovery of Processing Costs
• Unaffected by transaction value and should be
  fixed fee
• Payment Guarantee/Fraud
• Payment must be guaranteed, cardholder fraud is
  an issuer problem (PIN minimises other fraud
  opportunity)

6
Credit CardsDebit Cards (4)

• Signature
• PIN should replace signature
• Hybrid Cards
• A debit card acting like a credit card
• Cheque cards, some gift cards, Debit Cards

7
Credit CardsDebit Cards (5)

• Multiple Acquiring/Sorting at Source
• Banks insist that merchants appoint a single
  acquirer
• It seems that banks believed that
  multiple acquiring sorting at source
  clearing
• Since only banks are allowed to clear, sorting at
  source is out of bounds for non-banks, which
  means that multiple acquiring is forbidden!
• SARB has declared that clearing is the domain of
  banks, but that sorting at source is not clearing

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Multiple Acquiring/Sorting at Source (2)

• SARB will regulate institutions that are involved
  in such arrangements
• Exposure of a merchant with a single acquirer
  acquirer - downtime means no debit card
  transactions and credit card only up to
  acquirers floor limit (R200)
• SARPIF member Pick n Pay enjoyed multiple
  acquiring from 1989 to 2005.

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Multiple Acquiring/Sorting at Source (3)

• SARPIF have already proposed to SARB and PASA
  that qualifying retail switches (system
  operators) accept merchant transactions with
  Bankserv front-ending the acquisition of all
  retail transactions, notifying the acquirer and
  sending not-on-us transactions to issuers on
  acquirers behalf.
• No need for any bank to acquire not-on-us
  transactions
• Foreign card transactions routed to mrchants
  nominated acquirer for that card brand, say, Visa
• Bankserv substituting for each banks acquiring
  division could lead to massive savings

10
Multiple Acquiring/Sorting at Source (4)

• Multiple acquiring would certainly promote
  competition among the large retailers and could
  also benefit SMEs in that they would have the
  ability to purchase/rent terminals from a switch
  (system operator), negotiate bilaterals with
  issuing banks and route all transactions via the
  switch

11
EMV

• Liability shift date for EMV enabled
  transactions in South Africa was 1 January 2005
  to date no South African bank has issued any
  cards. However, merchants are expected to be EMV
  compliant and certified from that date. The shift
  in liability is from the issuing bank to the
  acquiring bank who will seek to pass the risk on
  to terminal-owning merchants.
• There has been no recognition of the enormous
  investment made by retailers who own their EFT
  terminals.
• The declared benefit of EMV is a massive
  reduction in losses suffered by the banks due to
  fraud. Will this lead to reduced merchant fees?
• If the liability shift is enforced, then
  interchange must be reduced, at least by the
  payment guarantee component.
• New merchant agreements will need to be drawn
  up to include the cost of an EMV transaction, the
  form of the new chargeback rules and the
  management of the liability shift.

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Visa Exemption

• We believe that the exemption granted to Visa by
  the Competition Commission in terms of Section
  10(4) of the Competition Act 1998 allows Visa to
  conduct itself in an uncompetitive manner and
  that, in any case, an exemption to 30 April 2013
  is excessive and unreasonable. SARPIF have
  incurred significant legal costs in appealing
  this decision and believe that the Competition
  Commission itself should review the granting of
  this exemption.

13
Money Transfer

• Mzansi Money Transfer is currently available
  between the big four banks and SAPO and retailers
  have recently been approached to participate
• The depositing customer pays the interchange fee
  as a fixed amount plus an ad valorem fee, both of
  which get paid to the bank that pays out. This
  should mean that the fee goes to the retailer
  where he is paying out the funds and it could be
  passed on, in whole or part, to the customer,
  thus introducing competition amongst paying
  institutions
• Shoprite have created a closed loop system
  (deposits and withdrawals only at Shoprite
  stores) for a fixed fee of R10 whereas the lowest
  at the big four and SAPO starts at R13 (SBSA)
  with a high of R57.50 (ABSA) as the sum deposited
  increases
• There must be an opportunity for a reduction in
  the cost to the depositor perhaps by involving
  the merchants

14
EuroCommerce

• EuroCommerce represents the retail, wholesale and
  international trade sectors in Europe.
  EuroCommerce is championing the cause of free and
  open markets both within the European Union and
  beyond for the benefit of consumers.
• Merchants are being compelled to cooperate with
  competitors in order to be heard. Retailing is a
  fiercely competitive industry, but here is an
  area of common interest where only through
  co-operation are we able to have a voice.
• We have included in our submission a number of
  documents made available to us by our colleagues
  at EuroCommerce. These documents are relevant
  because the subject matter and the object of the
  Banking Enquiry now under way is closely related
  to issues that are under the scrutiny of other
  competition authorities around the globe.

15
FICA

• The FICA requirements are anti-competitive as
  customers will not change banks since this
  process makes a move from one bank to another so
  onerous
• Banks should be required to send customers
  relevant documents to their new banks

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Bank Charges

• Fees charged by banks to both consumers and
  merchants are so different in their pricing
  mechanisms from one bank to another that
  comparison between banks is very difficult, if
  not impossible.
• When customers select from a basket of services
  being offered by a bank, they may find that the
  costs for these services are linked. This
  discourages them from moving from one bank to
  another, or even from splitting their
  requirements between different banks.

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In Conclusion

• SARPIF will willingly co-operate in increasing
  access to the national payments infrastructure
  for the benefit of all consumers
• SARPIF will gladly participate in a much broader
  investigation