BC rejects higher tariff for long installments, says director – 08/31/2023 – Market

Director of Organization of the Financial System and Resolution, Renato Gomes said this Thursday (31) that the Central Bank sees the idea of ​​raising the interchange fee charged in transactions with cards for longer installments as “very bad”.

He also said that the monetary authority is studying a measure to regulate the charging of fees defined by card brands and that it supports the portability of debt in the credit card revolving as soon as possible.

“There is absolutely no support for increased exchange [para parcelamento mais longo]”, said the director at the event “Competition in the Financial Market: Challenges of the New Digital Economy”, promoted by Abipag (Brazilian Association of Payment Institutions).

According to him, issuers argue that raising the interchange fee would serve to remunerate the additional risk for long installments made by consumers.

“Exchange is not made to remunerate risk, exchange is made to balance the remuneration between two sides of the industry, between issuers and acquirers, and to guarantee that, at the end, the consumer has the correct incentives when choosing the means of payment”, added.

The interchange fee is the percentage paid for each transaction to the card issuer (banks and fintechs, in general) by the acquirer of the merchant, that is, by the person who rents the machines to the merchant. The acquirer transfers the cost of the fee to the commercial establishment which, in turn, transfers the expense to the consumer.

Today, the ceiling for the interchange fee in the case of prepaid cards (issued by fintechs) is 0.7%, while the limit for operations carried out with debit cards (issued by banks) is 0.5%. However, there is no limit on credit card transactions.

“Exchange is opaque, only those who see it are accrediting. Exchange has a terrible impact, because everyone pays an increase in the interchange fee. The shopkeeper has a lot of difficulty in discriminating according to the use of the means of payment. There is no sign of price for the consumer. This causes that cost to be mutualized. Everyone pays for that”, said Gomes.

The theme entered the radar amidst the discussion on the limitation of interest charged on credit card revolving credit cards and a possible redesign of interest-free purchases in installments.

The BC limited, in 2018, the interchange fee in debit card operations, and this year, it extended the limitation to prepaid instruments.

“The idea was to provide efficiency in the use of means of payment and generate greater acceptance of cards, which would greatly contribute to the digitization of payments. This exchange regulation made this instrument cheaper and more attractive for commerce”, said Gomes.

According to the BC director, the perception that there is “great opacity” in charging interchange fees is “unanimous” among market participants.

“The BC is concerned about this obfuscation, we are carefully mapping the incidence of these flag tariffs. We are trying to understand the tariff events, we are talking to market participants”, he said.

“I cannot anticipate a measure, we are still in the study phase, but we are going to regulate the collection of these fees. I cannot be more specific, this is on our radar”, he continued.

The head of the Financial System Organization and Resolution area also said that “competition between flags tends to increase [a tarifa de] interchange instead of diminishing” and that the Central Bank’s interventions in this market are aimed at ensuring more efficient practices.

“When competition does not reach the desired objectives, the Central Bank, cautiously, decides to act as a regulator and make regulatory interventions, always understanding that sometimes the regulation that corrects a distortion creates others.”

As part of the solution to reduce interest charged on revolving credit cards, Gomes said that the BC supports and is working on the implementation of portability [da dívida do rotativo].

“Portability as soon as possible is a solution. To give rise to unknown prices, policies of transparency and financial education are needed, regulating how information is provided to the consumer in the tariff”, he said.

Credit portability allows the customer to transfer a debt from one financial institution to another that offers better payment terms. In Brazil, it is not applicable to the rotary, only to other modalities.

This option is seen by card market participants as a way to stimulate competition in the system, helping to reduce interest rates on the most expensive line on the market.

The average interest rate charged by banks to individuals on revolving credit cards rose to 445.7% per year in July, according to BC data released last Monday (28).