In the midst of the Covid-19 pandemic, it is difficult to anticipate what cross-border travel and spending trends will look like in 2021 and beyond. However, as travel & spend do eventually recover– one area will certainly change.

From April 19th, 2021, European cardholders will receive a new notification from their payment card provider when they transact in a new EEA currency. The new notification will detail the precise foreign currency charge the cardholder has paid to use their card abroad. The new pricing information will be presented in a uniform way by all card providers so that consumers can easily compare their payment card costs to both other providers of foreign exchange services (e.g. bureau-de-change or merchant dynamic currency conversion services) and other card providers.

The new crossborder cost notification is the final implementation phase of the Cross-Border Payments Regulation 2 (CBPR2 or EU2019/518), and presents a key challenge for European card issuers both in terms of how they establish their pricing strategy and their desired customer experience.

Card Pricing Strategy

The CBPR2 regulation will significantly increase customer visibility of foreign exchange pricing. Cardholders will be able to readily identify (i) which cards offer them value on cross-currency purchases and (ii) whether alternative forms of foreign exchange (e.g. Merchant DCC) offer value vs their card provider. Card issuers around the EU should anticipate that the CBPR2 notifications will likely result in a change of behaviour as cardholders ultimately migrate spend towards payment cards that better meet their perceptions of value.

In addition, the CBPR2 regulation will highlight pricing practices that result in high cardholder charges in certain circumstances. For example, banks that charge a minimum currency conversion charge will be required to disclose currency conversion charges that appear very high on low value purchases (for example, a 0.50 EUR minimum FX fee added to the price of a coffee may well represent a crossborder FX cost in the range of 15-20%.) Therefore, the CBPR2 notification will most certainly have implications for how crossborder transactions are priced as product owners newly assess their pricing strategy both for brand equity and the cardholder’s perception of value.

Desired Customer Experience

Card issuers will also have to determine how they intend for their cardholders to experience this new pricing information and whether this prompts any changes to their key messages or communication style.

The CBPR2 regulation requires, at a minimum, that a notification be sent to the cardholder immediately after the first transaction in a new EEA currency each month. Implementations that focus on this minimum regulatory requirement will ultimately deliver an infrequent message to their cardholders with inconsistent pricing information.

Separately, card issuers that have historically presented a “fee-free” marketing message will now be faced with the obligation to inform their cardholders that they are actually paying a variable FX fee (as charged by Visa and Mastercard) for every cross-currency transactions. Such card issuers may try to communicate to cardholders that such scheme fees are outside their control, but this message will risk confusing customer about their key brand values which rely on transparency and low cost.

Although we don’t yet know how when travel & spend will recover from the challenges of 2020, when that time arrives, the experience of using cards to pay in different currencies will change for European cardholders. Card issuers that prioritise simple, clear and consistent messaging will undoubtedly deliver a better customer experience. But delivering that customer experience may also require a re-thinking of the Bank’s pricing strategy so as to ensure that any gaps to competitor pricing does not create a perception of poor value.

Simplify your Bank’s Path to Compliance with Cambrist’s Nofity

If you are not yet compliant with the regulations and/or are unsatisfied with your existing customer experience for this regulation, Cambrist provides a fully managed service that delivers currency conversion cost comparisons, per the EU regulation 2019/518 and can be extended to comply with the increased regulatory obligations for April 19th, 2021. Our product, Notify, focuses on a flexible approach to project execution, enabling the Issuer to select the components of our product that are suitable to their individual requirements and retaining flexibility in the implementation to prepare for revisions to their pricing strategy and/or desired customer experience. Contact us for more information.

Consumer Implications of the EU Crossborder Payment Regulation 2 (EU 2019/518)