3.4 Promotion of card use by merchants

Due to card acceptance costs falling as a result of the reduction of interchange fees, for merchants generating higher volumes of transactions card acceptance may become cheaper than processing

cash payments. As a result of the 2014 reduction of the interchange fees applied in payment card purchases, the cost of card acceptance has become significantly lower for domestic merchants as the interchange fee is incorporated into the fee paid by merchants for card acceptance. For retailers with the highest turnover, this significantly reduced the difference between the costs of cash and card transactions, the latter potentially becoming even lower in certain cases. It is important that a comparison of the costs of the two payment methods should take into account all costs associated with each payment method and not only the costs arising directly. With card payments, a majority of the costs are incurred directly in connection with the processing of payment transactions, whereas the cost of processing cash payments is only partly incorporated in the payment fees of cash services, while some of those costs are incurred as costs of other services and in the form of higher labour costs. Therefore, an accurate assessment of the effects of the cost reduction requires a comprehensive cost analysis of executing payment transactions, which should take into account the resources required for all activities associated with payment transactions. If the share of card payments increases within the total turnover for retailers with the highest turnover, as a result of the reduction in interchange fees – due to the different cost structures of the cash and card payment methods – in the future the cost of processing card payments may become lower relative to cash payments on an increasingly large scale.

promotion of card use via merchants at the time of purchase may effectively support an increase in

the volume of card payments. Since in the stores of merchants with the highest turnover card payment is already available, and a vast majority of consumers hold a payment card and receive their regular income to payment accounts, the conditions for much more intensive card use are in place even today. To ensure that a greater number of card payments are actually made, consumers’ interest must be raised in the use of payment cards, i.e. consumers must be encouraged to use their cards on the one hand, while on the other hand they need to be given adequate information on the process and benefits of card use. With previous promotions for card use, provided typically by card issuers, the provision of information, purchases and the application of benefits occurred at three different points in time, which may have reduced the effectiveness of incentive programmes. By contrast, in the case of incentives provided with the active participation of merchants, information and benefits may both be provided at the time of the purchase.

The MNB definitely expects that a part of the savings on operating costs resulting from reduced interchange fees be used by retailers with the highest

turnover on incentives to promote card use. Owing to acceptance costs falling as a result of reduced interchange fees, retailers with the highest turnover may have generated significant annual savings up to several hundred million HUF. Over the past six months, the MNB has contacted thirty high-turnover retailers and service providers in order to create programmes providing incentives for card use to a wide range of consumers based on the cooperation of market participants. Incentives for card use are provided with the coordination of the MNB and contributions from the international card companies operating in Hungary and payment service providers. However, the successful implementation of the programme primarily requires active merchant participation. As part of that, the MNB expects that participants develop a system to provide incentives for and information on card use across their own networks that ensures that consumers who already hold cards at the time of their purchase are given adequate information on the process of card payments and also have an interest in paying with their cards.

In order to improve the effectiveness of the incentive programme, solutions tailored to needs of each merchant must be developed on the basis of a framework defined jointly by the MNB and market participants. In order to simplify execution, reduce costs and accelerate implementation, it is expedient not to create an incentive programme that is highly standardised. While standardising the basic framework of incentives for card use, market participants must

be given sufficient room to tailor the programme to their operational specificities and needs. Based on the key element of the incentive programme, merchants should offer consumers the option of card payment at the time of or immediately preceding the payment, and provide them with information on the process of card payments, while using some means to raise cardholders’ interest in paying with their cards. This may be done by granting benefits, or through the frequent buyer programs already operated by most major retail chains, or in any other way that puts consumers paying with their cards at an advantage over cash payments. As part of incentive programmes, participating merchants may also create an interest for their own employees in increasing the rate of card use. As a key element of the incentive programme, through their own information channels merchants publicly disclose information about the incentive programme which they operate, making such information available to a wider audience. Additionally, in cases where a merchant has units in which card payment is not yet available, arrangements should be made to provide it.