What does PSD2 mean for corporate travel? How does it impact the payment solutions for Benelux companies? Here’s a brief explanation.
Before we get to the core of PSD2, let’s have a look at the regulations that paved the way for PSD2: PSD1 and IFR. PSD1 was created in order to regulate the payment services and payment service providers within the EU and increase the competition. IFR (Interchange Fee Regulation) was created in order to guarantee transparent and comparable fees on consumer debit and credit cards. As a consequence, businesses operating in the travel and payment industry were squeezed, as they were banned from profiting from surcharging on credit card transactions and interchange fees were capped. This IFR keeps resonating, even up to today, as earlier this week the European Commission has fined Mastercard €570 million for obstructing merchant’s access to cross-border card payment services.
Now let’s get to the real work: PSD2. The new regulation, which stands since 13 January 2018, includes further changes to the business rules for card acceptance and processing networks. It introduces for example Strong Customer Authentication (SCA) which means that authentication is based on using two or more elements categorized as something that only the customer knows/has or is. Think: passwords, mobile phones and facial recognition or fingerprints. Next to introducing SCA, the new regulation bans surcharging for credit and debit card payments for most transactions, including for online flight bookings. With the need to develop and apply a new processing framework, margins for businesses operating in the travel and payment industry were squeezed. One way or another, those businesses were – after the introduction of IFR and PSD2 – left in a situation where they were either prepared to feel the consequences of missing revenues on their bottom lines or tried to find ways to create new sources of revenues to minimize the impact on their profit margins.
PSD2 and IFR only provide for a limited number of exemptions, such as business cards used only for business expenses that are being charged directly to the company’s account. That’s why corporate travel and payment representatives have campaigned hard over the past years to secure, as much as possible, those exemptions for payment solutions offered to their corporate clients. Think for example about solutions like Lodge cards and Virtual cards. Because of all of the above, corporate T&E payment programs are confronted with: situations where card issuing banks have introduced card fees and cut back on rebates scheme, “consumer cards” (business cards used for business expenses charged to the employee’s personal account) not being available anymore, introduction of new service fees and other fees depending on who makes the payment and where it’s being made.
The questions we should be asking ourselves are: What is the impact of the new payment landscape on managed travel programs? How do managed travel professionals address the payment-related challenges and opportunities?
It’s clear that the payment industry is heavily disrupted by for example the PSD1 and 2 and IFR regulations, but also by the rise of financial technology which competes with traditional financial methods to deliver financial services. Think about the use of smartphones for mobile banking or cryptocurrency. The power dynamics of the payments industry are definitely shifting further in favor of digital and omnichannel providers, like Apple with its Apple Pay product, which forces firms to diversify, collaborate or consolidate in order to stay in the game and capitalize on a growing revenue opportunity.The questions we should be asking ourselves are: What is the impact of the new payment landscape on managed travel programs? How do managed travel professionals address the payment-related challenges and opportunities?
At BATM we want to advance the travel management in the Belgian market and promote the interests of business travel professionals. We want to help them understand the current and future travel market and learn about new trends and challenges, like PSD2, through educational forums filled with thought-provoking speeches, discussions and workshops. We feel there’s a need to better understand how fees and surcharges are calculated and why those fees are different per country and merchant, depending on who makes the payment and where they are made. It is also important to know how the regulation impacts the payment solutions for Benelux companies. That’s why BATM organized, in collaboration with ACTE, their first event of the year about payment solutions in January.