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Argentine lawmakers are working on reforming the country's credit card regulations but the chances of the bill becoming law are getting slimmer by the day as the country is heading to an election later this year.
Many Argentine businesses are struggling to stay viable as inflation crosses 110 percent and shows no signs of slowing.
This environment is especially challenging for micro, small and medium-sized enterprises (MSMEs), which represent more than 99 percent of the companies in the country and employ 61 percent of Argentines.
Against this backdrop, the government is proposing a modification to the Credit Card Act No. 25,065, which regulates credit and debit card services in the country.
Under the proposal, the interchange fee would be capped at 1.5 percent on credit cards and 0.5 percent on debit cards.
If the card is accepted by an MSME, the interchange on both debit and credit cards will be limited to 0.3 percent. In addition, acquirers will be required to make the funds available for the merchant within two business days.
With this provision, the bill “seems to be aligned to favouring the development of small to medium companies as a fundamental element of Argentina's economic recovery”, Florencia Bohl, associate at Clifford Chance, told VIXIO.
Although card acceptance was mandated in Argentina in 2018, Bohl said, in practice, small family-owned businesses often accept cash only or offer a 10 to 20 percent discount if the consumer pays in cash.
“These businesses suffered from economic crises and the increased financing costs of the last 20 years,” she added. The bill seems to address this issue, while also having the potential benefit of closing a loophole for tax evasion.
Gas stations get behind the bill
The bill is strongly pushed by the fuel retail sector where SMEs represent 90 percent of the industry.
In May, Vicenti Imperi, president of the industry association CECHA, told lawmakers that the costs of a sale account for 52 percent of the value of the transaction and small gas stations typically operate on a 10 percent margin.
On top of that, banks charge gas stations 1.25 percent plus tax for credit card payments, which currently account for 40 percent of their payments, Imperi said.
These “exorbitant” commission fees put the viability of its sector at a “critical stage”, CECHA argued.
In addition to the high costs of card acceptance, gas stations are struggling to get timely access to the proceeds of sales, which often takes ten business days.
This delay is decided unilaterally and continues to be extended even further, which has a “very negative” impact on businesses in the current high inflationary and interest rate environment, the author of the bill Victoria Tejeda wrote in December.
She added that as the stations’ net margin per litre is very low, it “cannot absorb the financial costs that come with the delay in getting the funds”.
Legislative proposals to address these issues
The bill proposes new interchange fee caps which significantly lower the costs for small businesses and may reduce the costs for businesses in general to some extent.
Under the current Credit Card Act, interchange should not exceed 3 percent for credit cards and 1.5 percent for debit cards. In 2017, however, the central bank decided to step in and reduce interchange further to 1.3 percent for credit card purchases and 0.6 percent for debit card buys.
The bill now proposes a slightly higher 1.5 percent cap on credit cards and a slightly lower 0.5 percent cap on debit cards. The limitations would be more significant for MSMEs, which would only have to pay a 0.3 percent interchange fee on either card.
Interchange fee
Credit Card
Debit Card
Law No. 25.065
3%
1.50%
BCRA regulation
1.30%
0.60%
Bill - general provisions
1.50%
0.50%
Bill - MSMEs
0.30%
Additionally, the bill proposes to make credit card funds available faster for MSMEs, reducing the existing requirements to two business days.
Currently, banks have eight business days to release funds for credit card purchases back to the merchant and three business days for debit cards, although, in 2021, the central bank secured commitments from banks to make debit purchase funds available the following day.
But the way the bill is written “makes it clear that the aim is to address a broader range of issues related to credit card regulation beyond interchange fees”, according to David Schwartz, president and CEO of the Finance and International Business Association (FIBA).
Supporters of the bill have also bemoaned a general lack of transparency and potentially unfair practices that hinder economic growth and harm business owners, Schwartz noted.
The bill therefore also introduces a requirement for payment processors to send merchants a summary of each individual operation settled in the specified period.
Furthermore, the bill “may promote greater fairness and equality in the credit card system by empowering the [central bank] to consider specific sociodemographic and socioeconomic factors when setting fees”, Schwartz added.
Although the bill contains significant provisions for small businesses, Bohl pointed out that Argentina’s retail banking sector has been under stress, with many international banks leaving the local market.
In 2017, Citi sold its retail banking to Santander and Banco Itaú is in advanced negotiations with Banco Macro to sell its operations in the country.
Bohl noted that, in the current economic situation, it is questionable how reducing banks’ profits “would help the long-term quality of retail banking services in Argentina”.
With the country heading towards a general election on October 22 and a new President scheduled to take office in December, Bohl believes that this bill “will likely not become a priority” on the agenda for the current congressional period.
“The future of the banking regulatory framework will largely depend on the political views of the next President,” she added.
