This document summarizes a presentation on how evolving regulation may impact payment cards. It discusses the key elements of the proposed European Interchange Regulation, including capping interchange fees for credit and debit card transactions at 0.3% and 0.2% respectively. It notes issues still under amendment like transitional periods and the regulation's scope. The presentation also overviewed related business rules around co-badging, steering, unblending, and separating scheme and processing functions. In concluding, it was noted that the regulation's implications are far-reaching as it aims to address a perceived mischief in the payments industry.

1. osborneclarke.com
0
International Payments Summit 2014
Interchange: How evolving regulation may impact Payment Cards
Kate Johnson, Senior Associate
3 April 2014

2. osborneclarke.com
1
Agenda
European Interchange Regulation: State of Play
• Overview of MIF Regulation (as proposed):
‒ Interchange fees
‒ Business rules
• Points under amendment

3. osborneclarke.com
2
MIF Regulation
Overview
• Regulation, not a Directive
• Immediate entry into force (once published)
• Two key elements:
‒ sets caps on interchange fees
‒ details a series of business rules applicable to payment card
schemes and related contractual (typically licensing)
arrangements
• Scope and definitions are key

4. osborneclarke.com
3
MIF Regulation
Interchange fees - Overview
• Sets immediate caps on interchange fees:
‒ cross-border debit card transactions: 0.2% per transaction
‒ cross-border credit card transactions: 0.3% per transaction
• Extends cap after 2 years to ALL debit/credit card transactions (i.e. including
domestic transactions)
• Caps apply only to payment card transactions carried out within the EU
where both payer's and payee's PSP are established in the EU
• Interchange fee caps do not apply to:
‒ limited networks
‒ commercial cards
‒ ATM cash withdrawals
‒ 3-party payment card schemes

5. osborneclarke.com
4
MIF Regulation
Interchange fees – Points to note
• Provisions apply to PSPs, not card schemes directly
• Definition of interchange fee is broad:
‒ "interchange fee or other agreed remuneration with an equivalent
object or effect"
‒ any net compensation received by an issuing bank is treated as
part of the interchange fee
• Similarly, definition of card based payment transaction is broad
• Debit card transactions include prepaid card transactions
• Charge cards?
• 3-party schemes caught where third party PSP is licensed

6. osborneclarke.com
5
MIF Regulation
Interchange fees – Points under amendment
• Transitional period – now (cross-border) and 2 years
(domestic); or just 1 year (both cross-border and domestic)
• Scope – application to (business and) commercial cards; 3-
party schemes below a threshold; newly established schemes;
etc
• Cap – debit: the lower of 7 euro cents or 0.2%; Member States
may set lower caps; definition of "net compensation" adjusted
• MIFs – no higher for cross-border than domestic; applicable fee
is the Member State where acquirer is situated

7. osborneclarke.com
6
MIF Regulation
Business rules - Overview
Co-badging
Steering
rules
Unblending
Honour All
Cards rules
Separation
of scheme
and
processing
Licensing
MIF
Regulation

8. osborneclarke.com
7
MIF Regulation
Concluding remarks
• Much of PSD is outcome-focussed, whereas MIF is directed at
a perceived mischief – no certainty as to desired outcomes
• Business rules reflect various regulatory objectives – their
implications are far-reaching
• MIF Regulation is part of a broader evolution of cards and
payments legislation – expanding space

9. osborneclarke.com Private & Confidential
8
Further reading
• Payment Services Directive
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32007L0064:EN:NOT
• Electronic Money Directive
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32000L0046:EN:NOT
• European Commission’s Green Paper: Towards an integrated European market for card, internet and mobile
payments
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011DC0941:EN:NOT
• European Commission's draft proposal for a Network and Information Security Directive
http://ec.europa.eu/information_society/newsroom/cf/dae/document.cfm?doc_id=1666
• ECB's Recommendations for the Security of Internet Payments
http://www.ecb.int/pub/pdf/other/recommendationsforthesecurityofinternetpaymentsen.pdf
• Single Market Act II
http://ec.europa.eu/internal_market/smact/docs/single-market-act2_en.pdf
• European Commission's proposal for a Payment Account Directive
http://ec.europa.eu/internal_market/finservices-retail/inclusion/index_en.htm
• European Commission's July 2013 package of draft legislative proposals for a revised PSD and a new Interchange
Fees Regulation
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0550:FIN:EN:PDF
• ECB's Recommendation for the Security of Mobile Payments
https://www.ecb.europa.eu/paym/cons/pdf/131120/recommendationsforthesecurityofmobilepaymentsdraftpc201311en.pdf
• ECB's Recommendation for the Security of Internet Payments
https://www.ecb.europa.eu/pub/pdf/other/recommendationssecurityinternetpaymentsoutcomeofpcfinalversionafterpc201301en.pdf

10. osborneclarke.com
9
osborneclarke.com
9
Contact details – Kate Johnson
Kate is a Senior Associate who specialises in payment services. She advises on the
regulatory environment affecting payments, as well as structuring and contractually
documenting significant and transformational payments projects. She is also a consumer
credit specialist.
Kate has experience of working with clients at all levels of the payments industry: payment
service providers, technology providers, mobile networks operators, physical and virtual
retailers, schemes, industry bodies. She has particular expertise in “new generation” payment
services, such as mobile payments (including NFC), online payments, prepaid, virtual
currencies and micro-payments, but also regularly advises on more traditional payments
infrastructure and technology, merchant acquisition and aggregation, and money remittance.
Kate’s recent work includes advising on a collaboration between Wirecard and an
international mobile network operator for a pan-European NFC mobile payment product,
assisting Wirecard with its acquisition of the prepaid cards portfolio of Newcastle Building
Society and subsequently helping Wirecard Card Solutions obtain its licence from the
Financial Conduct Authority as an Electronic Money Institution and co-ordinating widescale,
multi-jurisdictional surveys for new payments initiatives for various high profile digital
businesses.
Kate trained at Osborne Clarke and joined the Financial Institutions Group upon her
qualification in March 2006. Since qualification Kate has undertaken two client secondments:
the first to PayPal in 2006, and the second to Wirecard in Munich, Germany in 2013.
Kate Johnson
Senior Associate
T+44 (0) 20 7105 7230
kate.johnson@osborneclarke.com
TMT Team of the Year
2012
The Lawyer Awards
IT Firm of the Year 2012
JUVE Awards