Separation of Card Scheme and Processing Entities: An Inappropriate Way to Promote a SEPA for Cardss

Abstract

In the context of a new regulation of interchange fees for card payments, the European Commission proposes to force the splitting of the card scheme in two legally and organizationally independent entities: one that would develop the ‘brand” and continue selling licences to payment institutions and one that will focus entirely on the processing of transactions. We argue that the ambition of the Commission here goes beyond monitoring and facilitating the “establishment and functioning of a single market for card-payments in the EU”. Instead its goal is to rapidly bring “the market” close to economic efficiency. This ambition is, however, problematic: If one can agree whether a market is functioning or not, the question of efficiency is far more complex. As an illustration, the efficiency argument backing the proposition to split the governance of the scheme from its processing activities is largely inspired by a literature on essential facilities which does not appear relevant to evaluate card scheme businesses. If levels of efficiency are difficult to appreciate, one can however predict with almost certainty that such regulation will profoundly affect the existing and well functioning business models. What will develop in its place is far from clear and the risk that the new model(s) will bring unintended consequences is real and has been largely underestimated by the regulator. Over all, the surest way to go forward is probably through continued cooperation between stakeholders — in particular within the SEPA Card Framework — rather than following the path indicated by article 7 of the proposed regulation.