AirPlus International lost 127,000 corporate
cardholders in 2016 as a direct consequence of the European Union Interchange
Fee Regulation, according to the Lufthansa Group payments subsidiary.
Profitability was dented by €12 million and, said managing director Patrick
Diemer, "the loss of interchange fee and the loss of corporate cards will
have a long-term negative effect on AirPlus of €2 to €3 million per year. This
is something we have to live with."
The regulation took effect in December 2015, capping
interchange fees within the European Economic Area—the EU, Iceland,
Liechtenstein and Norway—at 0.3 percent for credit cards and 0.2 percent for
debit cards. An interchange fee is the fee per transaction that the bank used
by a merchant for accepting card payments pays the issuing bank of the cardholder.
After much to-ing and fro-ing between legislators, the final regulation
exempted commercial cards, which typically charge interchange fees well above 1
percent, from the cap. The regulators, however, defined individual pay cards as
consumer cards and therefore subject to the cap.
Additionally, Germany's payments regulator reinterpreted
the regulation to mean that, in effect, individual liability cards rather than
individual pay cards would be subject to the cap. In Germany, AirPlus' home
market, 83 percent of the plastic cards it had issued were individual liability.
"We gave our customers two choices," said Diemer. "One choice
was: 'You can keep the card you have, but you have to live with a fee, i.e., a
price increase.' Option No. 2 was: 'You can keep the card you have, but you
have to change to corporate liability.' Seventeen percent of our customers said:
'Thanks but no thanks. We will not use a corporate card anymore.' It is our
understanding that most of our customers did not move to our competition. They
kept their Company Account [centrally billed lodge card] with us but stopped
using plastic cards for their employees."
Consequently, the AirPlus card numbers circulating in
Germany dropped from 543,000 to 416,000 in 2016. Diemer does not expect to lose
any more, but "I don't think those 17 percent will come back," he
said. "It's mostly SMEs. The large corporate clients have kept their
cards." AirPlus marginally offset the loss of cards in Germany with growth
from 33,000 to 35,000 corporate cards in the U.K., the only other market where
AirPlus self-issues and where cap-exempt corporate pay has always been more
popular.
For 2016, the loss of German cardholders hit AirPlus profits
by €3 million. Compliance with the new regulation cost the company another €9
million, a one-time administrative payout for such actions as issuing new cards
to existing customers. Overall, however, profit before interest and taxation rose
from €52 million to €76 million, thanks to an exceptional gain of €36 million
from AirPlus' sale of its share in Visa Europe after it was acquired by Visa
International.
Revenue at AirPlus was flat at €335 million in 2016,
and issuing volume rose 1.7 percent from €13.8 billion to €14 billion. "1.7
percent is not what we have seen in the past. Our growth has always been better
than this," said Diemer. He attributed the lower growth not only to the
reduction in corporate cards but also to a 6 percent fall in the average price
for air tickets paid via AirPlus Company Accounts from €527 to €494. Diemer believes
fares dropped because of lower fuel costs.
In other respects, AirPlus had a good 2016, with
customer numbers climbing 5 percent to 49,000 and total transactions up 8 percent
to 167 million. While corporate card issuing volume fell 8 percent, Company
Account volume rose 1 percent and the runaway success was virtual card offering
A.I.D.A., for which volume rose 34 percent. Although AirPlus expects the
product's application to spread, A.I.D.A. is used overwhelmingly for hotel
payments, and has, for example, led lodging's share of travel spend through the
company's U.K. business to double to 29 percent over the past couple of years.
Transaction figures for Jan. 1 through March 15,
2017, showed issuing volume rise 4 percent over the same period in 2016; a 7
percent rise in Company Account and a 28 percent increase in A.I.D.A. countered
a 16 percent decrease in corporate card.
In spite of the difficulties posed by the
Interchange Fee Regulation, AirPlus announced in December it would purchase
Belgian issuer BCC Corporate, which issues 100,000 corporate cards in Benelux. "As
a specialist in our industry, we think we can still make money on corporate
cards," said Diemer. "We are 100 percent convinced this product will
not go away. Whether plastic eventually migrates to smartphones is a different
subject, but [the acquisition of BCC] nicely complements our growth strategy."
The acquisition is scheduled to close May 1.