Inequalities regarding cross-border payment fees between members and non-members of the euro area
Current Regulation - Regulation 927/900
In September 2009, the European Parliament issued a regulation on cross-border payments: the Regulation (EC) 924/2009, which entered into force in November 2009. This regulation aimed at facilitating cross-border trade within the Union by ensuring that cross-border payment charges across Member States are the same regardless of the participation in the euro area. This equality principle for cross-border payment charges was already applied at times for some cross-border payments carried out in euros following the entry into force of the Regulation (EC) 2560/2001.
Although the scope between the 2001 and 2009 Regulations has widened, the non-euro area Member States did not benefit from the entry into force of the latter. For these Member States, domestic payments in euro remain very costly and consequently rare. The direct consequence is the high level of fees for cross-border payments initiated from their country. This creates a significant barrier to the achievement of a Single Market that would only have one payment service users category without any discrimination on the currency used. The high fees currently charged for cross-border payments within the EU prevent Member States from and outside the euro area to have efficient business relationships and are detrimental to both parties.
From a study carried out by Deloitte Luxembourg from a request of the European Commission, a transfer of €10 initiated in Bulgaria can be charged from €15 to €24 to the payer while a transfer from a euro area Member State to a Member State using a national currency would be charged a much lower (or no) fee(s).
Member States outside the euro area were also given the opportunity to apply the Regulation to their home currency. Nevertheless, at that time, only Sweden decided to align cross-border transaction charges in Swedish krona with domestic transaction fees in the national currency.
Amending a Regulation for the harmonization of cross-border payment fees within the European Union
The proposal of the Revised Cross-Border Payment Regulation (CBPR2) in a nutshell
The European Commission issued in March 2018 a proposal for a Regulation amending the Regulation (EC) 924/2009. This proposal aims at extending the benefit from the 2009 Regulation to the non-euro area Member States and consequently decreasing the charges linked to intra-EU cross-border transactions in euro. The scope of this proposal is limited to cross-border transactions carried out in euro or in national currencies of Member States, which would have notified their decision to extend the application of the Regulation to their national currency. It would have a positive impact on the fees applied to cross-border payment intra-EU as depicted here below.
The proposal of the Revised Cross Border Payments Regulation (CBPR2) received positive feedbacks from the European Parliament and Council in early December 2018 and was granted a green light by the EU Permanent Representative. Therefore, the proposal should be adopted as-it-is and the main measures will be the following:
- The obligation for payment service providers to disclose the full cost of a cross-border transaction. The underlying reasons for this major change is the lack of transparency that consumers are facing with regards to the fees charged in case of currency conversions when making card payments abroad (i.e. withdrawal of cash or payment at a Point of Sale). There are currently two choices for the consumers either they chose the dynamic currency conversion or the on-network conversion. The first one implies paying in the home currency and is provided by specific providers and Merchants’ banks while the second implies paying in the local currency and is provided by the card scheme and the consumers’ banks. Consumers often use the more expensive currency conversion option because of the lack of information and many consumers are currently complaining about the dynamic currency conversion option.
- The alignment of the price of all payment transactions carried out in euro outside the euro area but within the EU with the price of domestic payments in the national currency. The cost of cross-border payments in euro within the EU will be harmonized and aligned.
The EBA will be asked to publish regulatory technical standards (RTS) to further describe the transparency requirement and its implications for the payment service providers.
In order to move forward as quickly as possible with the decrease in cross-border payment fees, the Regulation will set a temporary cap on currency conversions costs until the entry into force of this RTS which may take up to 36 months from the entry into force of the revised Regulation.
When adopted, the Revised Cross-Border Payment Regulation will complete the payment regulations framework set out by the European Commission and will be complementary to the Revised Payment Services Directive (PSD2), the Revised Wire Transfer Regulation (WTR2) and the Payment Account Directive.
Impacts of the Revised Cross-Border Payment Regulation on market participants
The additional requirements regarding the transparency of currency conversion will imply several technical developments for payment service providers. They would have to update their software and change the point of sales terminals to allow consumers to choose the currency conversion methodology they want to apply to their transactions.
Payment service providers impacted will also have to update their consumers’ documentation such as fee information documents.
Deloitte offers tailored services to assist your organization to overcome these implementation challenges, and to align with the regulatory changes imposed by the Revised Cross-Border Payment Regulation (CBPR2).