SEPA Compliance Position Statement of Diners Club International LTD.
As the licensor of the Diners Club international card payments scheme, Diners Club International Ltd. (DCI) generally supports the implementation of the Single Euro Payments Area (SEPA) initiative of the European Central Bank (ECB) and the European Payments Council (EPC).
DCI was established in 1950. DCI operates the Diners Club card payment scheme through a network of bilateral agreements with licensees, and has operated in Europe since 1957. Although DCI is not a member of the EPC, DCI supports the voluntary industry implementation of SEPA as set out in the EPC’s SEPA Cards Framework (SCF). However, DCI has determined that some elements of the SCF are not appropriate to implement in its card scheme.
DCI intends to implement the parts of the SCF set out below in the 27 countries of the European Union and Iceland, Norway, Liechtenstein and Switzerland (referred to in this document as “Europe”).
Implementation of the SCF
DCI has determined that the following aspects of the SCF will be, or actually have been, implemented in the Diners Club card scheme:
- DCI will require that all cards, merchant terminals and ATMs in Europe that operate on the DCI network be completely interoperable.
- DCI network rules will not prevent merchants or ATM owners from accepting a card from any other SEPA compliant card scheme.
- DCI will implement issuance of EMV chip cards by its licensees and will seek their full implementation and acceptance on ATM and merchant point of sale networks.
- Acting within the terms of its bilateral agreements, DCI will not require the use of a particular processor as a condition for participation in the DCI card scheme.
- DCI will attempt to implement and maintain consistent pricing for the same services offered in Europe.
- DCI will continue to assess the requirements of its bilateral agreements with licensees to promote, where possible, the objectives of SEPA.
Application of the SCF to the DCI Payment Scheme
In implementing SEPA, DCI must consider the elements of the SCF, certain provisions of the Payment Services Directive (PSD) and the provisions of its bilateral agreements with its licensees. DCI’s view is that the requirements of the SCF should not be fully and completely implemented in the DCI payment scheme for the reason that the SCF primarily seeks to change the structure and operation of large four party payment schemes. DCI is not a four party card scheme; rather, DCI operates a small three party payment scheme with licensees.
As of 1 June, 2009, the date of this statement, the EPC has determined that the degree of implementation of the SCF in three party card schemes should be determined by the card scheme. The ECB has also stated that card schemes should assess their own ability to implement the SCF according to the ECB’s 4 March, 2009 document entitled “Terms of Reference for the SEPA Compliance of Card Schemes” (the “Terms of Reference”). After an internal self assessment, DCI has determined that many, but not all, of the SCF requirements should be implemented. For example, DCI has determined that Article 28 of the PSD exempts three party payment schemes from opening scheme access to any person desiring to participate. In addition, the ECB, in its sixth annual report on the status of SEPA implementation, has allowed an open access exemption for three party schemes until 2013, when the exemption can be reevaluated.
DCI’s bilateral agreements with its licensees grant exclusive card issuing and merchant acquiring rights in a geographic territory for a term of years and are not subject to unilateral amendment by DCI. Nonetheless, some licensees have voluntarily agreed to waive exclusive rights for merchant acquiring. DCI intends to enter into multiple merchant acquiring agreements in the territory of those licensees to promote greater competition for acquiring and broader acceptance of Diners Club cards. DCI believes that this promotes greater competition and is consistent with the spirit of SEPA compliance.
DCI has also determined that, because of the small size of the DCI global card scheme, implementation of the open access and the separation of issuing and acquiring licenses would effectively dismantle DCI’s existing business model. This could materially harm DCI’s ability to be a viable competitor to other networks because it would probably eliminate any business incentive for DCI’s existing licensees to continue to operate a Diners Club business.
Although DCI is a nonmember of the EPC, DCI desires to participate in the ongoing discussion among the EPC members about a revision and restatement of the SCF. When that process is completed, DCI may amend and update its assessment of SEPA implementation in the DCI card scheme.
In addition to the specific elements of the SCF outlined above, DCI will also act in the following manner for Euro based transactions in its card scheme:
- DCI will not prohibit its licensees from participation in other card schemes.
- DCI will not ban passive acquiring of cardmember transactions by its licensees where it is requested by a cardmember and is operationally feasible.
- Taking into account the terms of its existing bilateral agreements with licensees and the potential adverse effects of a major change to its business model, DCI will discuss a transition to a single issuing or acquiring license for Europe with its licensees.
- DCI will enact a fraud liability shift rule to encourage the implementation of chip cards.
- DCI will participate in the reporting of statistics to the ECB’s designated oversight authority to ensure the operational efficiency and security of the DCI card scheme.
- To the extent that its participation is allowed as a nonmember, DCI will attempt to work with other card schemes and financial industry parties to find ways to facilitate technical and operational standards such as combating fraud, implementing chip cards and facilitating common standards for merchant terminals and ATMs.