Jun 5, 2007

Debit card competition forces Singapore’s NETS to increase interchange fees – will SEPA have the same effect in Europe?

Europe’s SEPA debit card initiative is intended to create competition between debit schemes and break up the old national debit card monopolies. Something happening in Singapore right now could give an idea of what might soon happen in Europe.

Currently, Singapore’s national debit scheme, NETS, charges merchants between 0.35 and 0.55 per cent of purchases. Starting next month, this will be increased to 1.5 to 1.8 per cent to bring it closer to Visa and MasterCard debit card fees.

In an article today in The Strait’s Times, Chief executive officer Poh Mui Hoon said NETS will be squeezed out of the market if it does not raise its rates, because banks may no longer issue NETS cards, opting instead for the more lucrative debit cards.

The president of the Consumer’s Association of Singapore is angry: “What happens when other debit and credit cards adjust their fees upward? Will Nets do the same?” (see "Nets fee hike: Case of unfair monopoly?")

I briefly mentioned the NETS fee hike in my earlier blog post, “Will SEPA unleash the genie of spiraling interchange fees?

The basic payment service has become a commodity. Merchants want to pay as little as possible for it and consumers don’t want to be surcharged. Merchant and consumer associations will fight unilateral price increases, and the authorities in many countries will probably side with them.

At the same time, higher interchange is irresistible to card issuers, who will clearly choose the payment scheme that provides the highest interchange, whenever they have the choice. The schemes need to innovate and create significant value to justify the fees that merchants pay. In the case of NETS, merchants will be paying three or four times more than in the past, so NETS must provide MUCH more value than before. What a bind!

There is a way to solve the problem: the payments data hidden within each transaction is very valuable to merchants if it can be exploited at low cost and without raising privacy concerns. This has become Welcome’s core competency over the years. All of Welcome’s bank customers use our software to make their cards much more valuable for merchants. Until recently, our customers were the (too few) banks that agreed with our vision. Now, increased competition between payment schemes and increased pressure from merchants is causing a larger number of participants to seriously consider adopting the same outlook.

Consumer Association of Singapore concerned about impending NETS fee hike

Nets fee hike: Case of unfair monopoly?

Case slams NETS fee hike as a ‘great disservice’ (also see the accompanying video clip)

Nets fee hike means more will use cash, credit cards

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