The day before the Knesset is scheduled to discuss the cross-clearing bill on credit cards (Amendment 17 to the Banking Law - Clearance of Transactions by Debit Cards), Visa Europe has expressed its strong objections to the bill, which will cut fees. The company asserts that the reductions will harm the security of credit cards and will therefore harm customers.
"Cutting the fees will harm the security of credit cards," Visa Europe's Israeli representative Oded Salomy told "Globes". "The clearance fee has to include a high enough profit to credit card companies so that they can invest in credit card security. There are concealed costs that the customer does not see, which are aimed at securing the use of credit cards. These costs are huge, and someone has to pay them."
The Knesset has already passed the bill in its first reading, and the Knesset Economic Affairs Committee is scheduled to discuss it. However, the Knesset House Committee might send the bill to the Knesset Finance Committee instead, as it involves amending the Banking Law.
The bill stipulates that the issuer of a credit card that has a market share of 10% or more of the credit card market will be considered a "large issuer", and the Supervisor of Banks will have the authority to enforce cross-clearing on that issuer. In other words, the issuer will be required to allow other firms to clear transactions made by its credit cards. The only Israeli credit card company that meets this criterion is Isracard Ltd., which has a 17% share of the market. However, legal interpretations suggest that smaller brands might also meet the criterion, such as American Express (5.5% of the market), and Diners Club (3.5% of the market).
The possibility of full cross clearance will reportedly increase competition for businesses and lower the clearing commissions that they pay. With a NIS 180 billion market, each 0.1% drop in fees means a drop of NIS 180 million in credit card company revenue.
The credit card companies operating in Israel are Isracard, owned by Bank Hapoalim (TASE: POLI); Leumi Card Ltd., owned by Bank Leumi (TASE: LUMI) and Azrieli Group Ltd. (TASE: AZRG); and Israel Credit Cards-Cal Ltd. (ICC-Cal) (Visa), owned by Israel Discount Bank (TASE: DSCT) and First International Bank of Israel (TASE: FTIN). Visa Inc. (NYSE: V) has about half of the Israeli market, Mastercard Inc. (NYSE: MA) has about a quarter of the market, and the rest is divided between the local brand Isracard, American Express Company (NYSE: AXP), and Diners Club International Ltd..
Published by Globes [online], Israel business news - www.globes-online.com - on February 21, 2011
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