Sunday, July 15, 2007

Answers to MP-questions on liability shift

While in considerable parts of the world chip and pin (and liability shift) is underway, the Dutch developments are a bit slower. Our move to EMV is however well discussed within the National Platform on Payments, in which in 2004 parties concluded that you cannot reasonably do a liability shift if there is no EMV-compliant terminal/infrastructure available.

With some new EMV terminals coming on the market, EMS decided to start moving towards including a liability shift in the retailer contracts (for credit-card payments). And Dutch retailers, that are keen on making every penny possible in negotiations, thought it would be a good idea to whisper some questions into the ears of an MP about how incorrect this liability shift thing is. And that the actual agreement in the National Platform would have been that rather than having a range of EMV-terminals in the market, it would be necessary for more than one terminal-provider to be active in the market. And only then would there be a liability shift.

So this week Minister of Finance answered to these questions by explaining that he had indeed been made aware of the contents of the letters of EMS to the retailers. Yet he did not wish to confirm the retailer interpretation on 'agreements in the national platform on payments'.

The answer of the Minister of Finance is a delicate 'no, you're wrong' to MP Vos. Delicate because Minister Bos is the leader of the Labour Party, while MP Vos is one of the newcomers for that party in Parliament. And 'you're wrong' because there is a free market for EMV-compliant terminals right now (which will be further expanding quickly in the future) and because in today's society retailers and acquirers are free to conclude all kinds of contracts they like.

What he forgot to mention is that also in a formal sense a commitment not to introduce a price structure is impossible, because such an agreement would have constituted a price/cartel agreement. And the National Platform, by its statute, is only there to discuss payment developments and not to do price-bargaining or arrange for price-agreements for any of its members.

The answer of the Minister is that given this freedom of contract and all other variables in the credit-card game (retailer segment, segment specific controls etc), it is not by definition the case that retailers will charge the cost of the liability shift to consumers (and I would add that it is similarly unlikely that they will pass on revenues from the liability shift and translate it in a lower price level, due to lower fraud costs...).

So, the one question that remains is: is the retailer strategy to continuously do public price bargaining by asking questions via MP's in parliament an effective one, or does it in the end just demonstrate penny-wisdom?