Use of cashless solutions


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Learning Outcomes

Objectives and goalsClick to read  

•    Grasp the main trends of currently existing cashless solutions,
•    Learn about the legal issues regarding interchange and other fees,
•    Know about measures used to secure transactions.

Use of cashless solutions - current state, prospects and legal issues

Types of cashless solutionsClick to read  

• Payment cards (credit, debit and pre-paid)

• Bank transfer (traditional, Pay-by-link)

• Contactless Payments (near field communication – NFC; radio-frequency identification – RFID; proximity cards)

• Mobile wallet apps/ E-wallets

• SMS payments

• QR Codes

• BLIK (a polish payment system that allows to make instant payments and cash withdraw using a 6-digit one-time code generated by a mobile banking app)

Business opportunities Click to read  

• Going Cashless and contact – a global trend:

- From February 2020 to the end of February 2021 the number of American, Australian Canadian and British companies that have gone cashless has doubled according to a 2021 analysis based on Square payments data. The acceleration of the shift away from cash was heavily affected by the COVID-19 pandemic;
- According to the European Central Bank, the use of electronic payment instruments in the euro area is increasing year by year;
- Majority of merchants in major European countries would like to be allowed to refuse accepting cash;
- About 2 in 3 European consumers agree that they now prefer to pay contactless more often than before the COVID-19 pandemic;

• Benefits of cashless payments:

Improvement of customer experience;
- Time-saving - cashless payments help businesses save time over cash transactions and cash management costs like employee cost, cash monitoring cost, and guarding cash cost;
- Higher level of security;
- Automation of specific accounting and bookkeeping tasks.

Fees usually paidClick to read  

Interchange fee Scheme fee Margin of the acquirer
means a fee paid for each transaction directly or indirectly (i.e. through a third party) between the issuer and the acquirer involved in a card-based payment transaction. According to the EU law, the net compensation or other agreed remuneration is considered to be part of the interchange fee. means the fees fixed by the card organizations as a percentage and/or amount payable to these organizations on each completed payment transaction. means the fee payable to the acquirer constituting the remuneration for processing the payment transaction.

 

Security measures Click to read  

• Organisational and legal measures:

- Principles and organization of the risk management and assessment process - a documented security policy and regularly conducted risk assessments in relation to online payments and related services. Analyses taking into account, among other things, the technological solutions used, the technical environment in which the client operates or outsourcing issues.

- Specific control and security measures for online payments (SCA, use of systems, that help to identify and block fraudulent transactions.

- Awareness-raising and educating activities towards customers and efficient communication

- Payment Card Industry Data Security Standard.

• Examples of technological measures:

- 3-D Secure - a method of authorizing transactions made without physical use of the card used by payment organizations (Visa, MasterCard, American Express and JCB) to enhance the security of card payments on the Internet. 3-D Secure is a standard for securing transactions through the identification of the cardholder using an additional, usually one-time password generated by a token or received via SMS. This password is not used for transactions requiring physical use of the card, hence it is never identical to the PIN.

- Personal identification numer (PIN) - An alphanumeric code or password used for authentication. A standard PIN consists of four digits, forming a number in the range 0000-9999. According to the ISO 9564 standard, the length of a PIN should be between 4 and 12 characters.

- Authorization limits - limits that specify the maximum value and number of possible transactions 

Legal issues Click to read  

 Maximum interchange fee for consumers:

Payment service providers (PSP) shall not offer or request a per transaction interchange fee of more than 0,2 % of the value of the transaction for any debit card transaction. Member states may define a lower per transaction interchange fee cap for domestic debit card transactions and may impose a fixed maximum fee amount as a limit on the fee amount resulting from the applicable percentage rate, OR allow PSP to apply a per transaction interchange fee of no more than EUR 0,05 (Article 3);

 - PSP shall not offer or request a per transaction interchange fee of more than 0,3 % of the value of the transaction for any credit card transaction. Member states may define a lower per transaction interchange fee cap for domestic credit card transactions (Article 4).

Prohibition of circumvention - any agreed remuneration, including net compensation, with an equivalent object or effect of the interchange fee, received by an issuer from the payment card scheme, acquirer or any other intermediary in relation to payment transactions or related activities is treated as part of the interchange fee (Article 5).

 Licensing (article 6) :

Any territorial restrictions within the EU (in national law and in contracts) for issuing payment cards or acquiring card-based payment transactions are prohibited. Any requirement or obligation to obtain a country specific licence or authorisation to operate on a cross-border basis for issuing payment cards or acquiring card-based payment transactions are prohibited as well. 

 Separation of payment card scheme and processing entities (article 7) :

Payment card schemes and processing entities shall:
     - be independent in terms of accounting, organisation and decision-making processes;
     - not present prices for payment card scheme and processing activities in a bundled manner and shall not crosssubsidise;
     - not discriminate in any way between their subsidiaries or shareholders and users of payment card schemes and other   contractual partners.
- Any territorial discrimination in processing rules operated by payment card schemes is prohibited.

 Co-badging and choice of payment brand or payment application (article 8) 

 Separation of payment card scheme and processing entities (article 9) 

 Honour All Cards’ rule (article 10) 

 Steering rules (article 11) 

 Information to the payee on individual card-based payment transactions (article 12) 



Description:

In recent years, there has been an increasing number of innovations in cashless payments. Work on new solutions in this area and the growing interest in cashless payments has accelerated by the COVID-19 pandemic. This trend is an opportunity for businesses due to a number of advantages related to the implementation of cashless solutions. The course, apart from presenting current trends in the aforementioned area, will also outline the most common fees in payment transactions, the security measures used and legal issues concerning interchange fees.


Keywords

payment services, cashless innovations, interchange


Bibliography

Making Change Chapter 4: One Year of Payments and the Pandemic, Square data, https://squareup.com/us/en/making-change/2021 

What are retail payments?, ECB, https://www.ecb.europa.eu/paym/integration/retail/html/index.pl.html 

The evolution of the european payments market: from cash to digital, what do europeans want?, Payments Europe, November 2021, https://www.paymentseurope.eu/wp-content/uploads/2021/11/The-Evolution-of-the-European-Payments-Market_Payments-Europe_Spread.pdf