The Bank of Israel today published a draft circular on credit card fees, three months after Supervisor of Banks David Zaken promised the Knesset Economic Affairs Committee that he would tackle the issue. The amendment to the Fees Rules (Customer Service)(Fees), 5768-2008, aims to reduce the number of fees and amend fees charged both businesses and cardholders.
Until now, there has been barely no supervision of credit card fees collected from businesses; each company set its own fees. Zaken has taken similar action to the bank account fees reform he implemented a few years ago: he has set a list of fees credit card companies may charge; whatever is not on the list will be cancelled.
As for cardholders, Zaken has cancelled the fee for payments made in installments. The Bank of Israel considers this fee superfluous, because the business receives payment in installments and there is no reason to charge an additional fee beyond what the credit card companies collect from the business for the transaction. The fee is around NIS 0.50, and is collected from cardholders for every interest-free payment in installments. The credit card companies' income from this fee is NIS 60 million a year.
Transactions in installments total NIS 60 billion a year, 25% of credit card transactions. The average transaction in installments is NIS 1,000, compared with NIS 240 for a single-payment transaction. The average number of installments is 3.5.
Zaken has also attended to foreign currency transactions by credit cards; the current fee for such transactions is 0.5-2.5%, and the companies sometimes charge different fees for different credit cards (Visa or MasterCard), and charge different fees for different currencies. Zaken has set uniform rates for all cards and all currencies.
There was also a lack of uniformity in calculating a foreign currency transaction in shekels: some companies used the Bank of Israel's representative exchange rate, while other companies used the higher check rate. Zaken has ordered that only the representative exchange rate will be used. The minimum fee of $3-6 for a cash withdrawal oversees, on top of a percentage of the withdrawal, will also be cancelled.
As for fees from businesses, Zaken has made a list of ten fees, in addition to the clearing fee businesses pay the credit card companies. They include the minimum fee, details verification fee, and fees for processing a manual slip fee, and the handling of credit and collateral.
Fees that Zaken excluded from the list, and which will be abolished include registering a business or changing an account to credit.
"The objective of the proposed amendment is to create uniformity in the fee schedules of the companies, to increase the simplicity, transparency and competitiveness for businesses and credit card holders, and to remove impediments to movement. As part of this measure, the companies will be required to publish a uniform fee schedule for businesses, which will make it significantly easier for them to compare," says the Bank of Israel.
Israel's regulators are targeting the credit card companies. The sector is dominated by three bank-owned companies: Isracard Ltd., Leumi Card Ltd., and Israel Credit Cards-Cal Ltd. (ICC-Cal) (Visa). Their aggregate profit was NIS 660 million in 2013.
In addition to Zaken's reform's Antitrust Authority director general David Gilo has plans for the sector. He is working on a reform that includes bringing forward the payment to businesses from twenty days to three days.
The credit card companies say that while this measure will benefit businesses, it is also liable to result in transactions in installments to be cancelled in favor of credit transactions that will cost customers more.
Gilo is also seeking to introduce debit cards into the market. These cards, for which businesses pay a much lower clearing fee than at present, is backed by the Locker Committee for reducing the use of cash and the high cost of living cabinet, chaired by Minister of the Economy Naftali Bennett. In addition, bills are periodically submitted in the Knesset to take the credit card companies away from the banks.
Zaken's measures today are therefore unlikely to be the last word on the changes in the credit card sector.
Published by Globes [online], Israel business news - www.globes-online.com - on April 30, 2014
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