I had the pleasure of being asked to participate as an expert speaker on ‘The Interchange Debate’ panel – a subject close to anyone’s heart who is involved in the payments world, regardless of if it is on the issuing or acquiring side of the equation.
The Summit is now in its 7th year and is one of the key events in the calendar of professionals working in the commercial payments world. With 170+ senior level card and payment professionals gathered at The Roosevelt Hotel on Madison Avenue in New York, it was sure to be a lively event!
For the panel, my brief was pretty straight forward – discuss if the current interchange model for commercial payments is broken and put forward suggestions to improve it. It is a shame that the topic area is not so straight forward!
I explained that from my perspective, I think the interchange model is broken, but the degree to which it is broken depends on whose lens you look through.
Through the issuer lens: The model works but needs refinement. It works because interchange helps issuers continue to displace other payment methods and ultimately grow commercial card acceptance – so creating a virtuous circle. In terms of refinement, it needs to be simpler for merchants to understand, especially how it is calculated.
Through the merchant lens: The model does not work and is broken. The reasons for this, well… interchange is unclear for merchants and they rarely know what it actually covers and how it is reflected in merchant discount rates. It is also inconsistent in the sense that there are different fees for different types of card products, it varies by merchant sector and acceptance method … the list goes on. From our research, a key issue merchants have with interchange is not necessarily the actual number, but its format – as a percent (%). Merchants prefer a flat fee – it’s simpler for them to understand.
My suggestions for improving the interchange model for commercial payments were three-fold:
- The interchange model for commercial payments could move from a percent (%) to a flat fee.
- The entire industry (so issuers, acquirers and the schemes) should collectively review the feasibility of creating an industry-wide set of agreed rates.
- The industry should consider whether it could follow one large issuer’s approach whereby it essentially ‘rents’ access to one of the scheme’s networks on a fixed price basis.
Other hot topics discussed at the summit included Blockchain, payment technology trends and the potential impact on commercial payments and B2B acquiring… amongst an array of other topics!
For further information on the CPI summits, please click here