Regulatory changes in payments market give results; competition could still be boosted by customer activity and technologies
Due to regulatory changes, last year banks reduced their fees on payment card operations applied to merchants and service providers. With the price for this service falling, the number of POS terminals at distribution and service provision locations reached record heights; card payment operations grew substantially in number. The regulatory changes precondition more intense competition also within other spheres of payment services; however, in pursuit of better conditions, greater activity on the part of customers themselves is also necessary.
‘Last year, the market showed the first effects of the Interchange Fees Regulation – a decrease in fees applied by banks to enterprises on payment card operations at POS terminals. It provided an incentive for merchants and service providers to offer customers this payment method in addition to cash payments,’ says Marius Jurgilas, Member of the Board of the Bank of Lithuania.
According to the data available to the Bank of Lithuania, in 2016, an average fee applied to merchants for their customers’ card operations, compared to 2015, contracted by nearly a third – from 1 to 0.63 per cent of the value of a card transaction. At the same time, the number of POS terminals increased by almost a tenth, for the first time to over 50 thousand at the end of 2016. According to the data of Lithuanian payment service providers, the number of their customers’ card payments at trading and service provision locations in the country grew by more than 13 per cent in 2016 – 210 million operations were performed.
The electronic payments market was lately subject to considerable regulatory changes: in 2016, Lithuania joined the Single Euro Payments Area (SEPA); the Interchange Fees Regulation came into force, while at the beginning of 2017 – amendments to the Law on Payments.
One of the changes boosting competition is making fees equal. Banks and other payment service providers are no more able to apply fees for crediting funds from another payment service provider higher than those for crediting funds inside the institution. Standardisation of payments and equal fees for crediting of funds frees up customers, allowing them to make use of the one-stop-shop principle. Enterprises no longer need to hold accounts with different credit institutions for the transfer of funds or collection of utility or other payments in order to save funds; holding an account with one bank is enough.
‘Regulation became more customer-friendly, but we have been noticing that enterprises, for which collection of utility payments is relevant, are quite inert and rarely seek alternatives to their usual payment service providers. This particularly applies to state-owned or municipal enterprises, which generally purchase not the utility payments collection service, but rather announce tenders for the procurement of services from a specific bank,’ says Mr Jurgilas.
He urges enterprises to be more active in exploring the possibilities provided by the new regulation. In fact, a few have already made use of them. The survey of Lithuania’s non-financial enterprises, conducted in early 2017, showed that 17 per cent of enterprises have already been using less banks to perform payment transactions or receive payments than they did before Lithuania joined SEPA; for 34 per cent of enterprises, their expenditure for bank payment services dropped.
There are cases in which the enterprises themselves limit competition or customer mobility, e.g., they limit their employees’ choice of where to receive their wages. Such practices contradict legal acts.
‘We urge employers to create conditions for their employees to freely choose which bank in Lithuania or another EU country their wages should be transferred to. Failure to do so would be a breach of the law,’ says Mr Jurgilas.
A significant change within the payments market resulted from the application since February of this year of the basic payment account service, by which the price of the basic payment services basket was limited to EUR 1.5, while for low-income residents who receive financial social aid, the applicable fee for the basic payment account services basket is EUR 0.75 per month. In reaction to the application of the basic payment account service, banks offered to their customers other payment services baskets in addition, mainly – providing for a larger or even unlimited number of payment transactions per month. The fee for many of these baskets is lower than the price cap.
A payment services basket allows consumers to select the payment service provider that offers the best conditions, use one account and not divide payments into those performed inside a bank and those directed to another bank. Legal acts only limit the price for basic payment services to residents, as they are the weaker party. Legal persons are not subject to such regulation.
In the years ahead, technological innovations will also strengthen competition in the payments market. As soon as this year, some market participants will be ready for the instant payments service, while next autumn euro area central banks (including the Bank of Lithuania) will implement a project that will ensure the reachability of instant payments across the euro area.
‘We aim to encourage innovations. One of them, which will be available already this year, is instant payments. They will enable payments ‘here and now’, 24/7, throughout the year, with all prepared payment service providers. Hence, there will be less locations and cases where the only possible payment method is cash; ideally, the possibility for non-cash payments should be offered everywhere,’ says Mr Jurgilas.