I usually try to introduce articles like this with a nice linguistic image. This can also be a bit sensational and at best emotionalising. On this topic, however, I will try to keep my language as sober as possible, as there has been increasingly emotionalised talk about “the” payment card for refugees recently.
The main focus nowadays seems to be on avoiding the use of funds for purposes that are not the actual objective of the grant.
Or to put it more simply, there is a concern that cash will be transferred abroad. To avoid this, access to cash using a payment card is planned to be very significantly restricted.
The Refugee Law Clinic at Kiel University, among others, has summarised in an assessment why this is both legally and morally questionable:
However, the focus here is primarily on the technical, commercial and procedural implications resulting from the stated objectives and the envisaged solution.
The payment card for refugees appears to be a simple solution to a complicated problem. What is ignored in the discourse is the fact that the payment infrastructure necessary for this can only fulfil the requirements to a very limited extent. In addition, there are also unintended implications for merchants as well as contradictions with the European payment strategy.
Core political requirements
- A deposit-operated, rechargeable payment card
- Exclusion of cash withdrawals via the payment card
- Restriction or even exclusion of transfers (especially abroad)
- Derived from this: overall exclusion of the outflow of funds abroad
- Discussed in parts, but not currently included as a fixed requirement: exclusion of certain product groups
- Limitation of supra-regional usability
A deposit-operated, rechargeable payment card
This basic requirement can be realised in various ways. A classic giro account with an associated debit card would be the most common solution, for example with the tried and tested girocard or an international debit product from Visa or Mastercard. However, prepaid products would also be a conceivable solution.
Exclusion of cash withdrawals via the payment card
There are two main ways of accessing cash: withdrawals from ATMs and cashback when shopping in supermarkets with card payments. Both can be deactivated for the payment card via the card issuer.
Restriction or even exclusion of bank transfers (especially abroad)
If it is a pure prepaid card, a classic bank transfer is not directly possible, as it is not based on a classic giro account with an IBAN. If implemented as a debit card with a corresponding account, the range of functions would have to be restricted. This raises the procedural question of what such a restriction would look like and, subsequently, whether it can be brought into line with the IBAN non-discrimination principle. In particular, the accessibility for direct debit collections from other EU countries seems incompatible at first glance.
Exclusion of the outflow of funds abroad
Even if all the aforementioned requirements could be met and withstood, the question arises whether the actual goal is achievable: to prevent the funds from leaving the country. Even if direct cash withdrawals were no longer possible, there are easily obtainable equivalents that are widely accepted internationally. In the vast majority of supermarkets, kiosks and petrol stations, it is possible to obtain voucher cards from a wide variety of brands. These can be used anonymously and almost in real time and would not be excluded from use when using a payment card.
Considering the low monthly amounts available per individual, it would also be possible to purchase smaller amounts per voucher with manageable effort. Vouchers from well-known brands are widely accepted worldwide and can usually be exchanged for cash or resold in the respective country of destination without major losses.
If the introduction of the payment card is really about preventing the outflow of cash the measure without the exclusion of voucher cards or e-money is therefore not to be regarded as effective. Corresponding findings can also be drawn from areas of cybercrime and possible fraud schemes that misuse vouchers as cash equivalents.
(see also: https://www.amazon.de/gp/help/customer/display.html?nodeId=GGKDN3QZSKBFGNBF and https://support.apple.com/de-de/gift-card-scams) )
Exclusion of certain product groups
To avoid such use of the payment card or for the already discussed idea of excluding individual goods or article groups from purchase, it would be necessary to check the products tat the latest during authorisation. There is no generally available check of this kind as part of the payment process. Numerous parameters are exchanged during the payment process. However, the specific composition of the shopping basket is not transmitted.
The closest to this check would be the exclusion of individual points of acceptance, as each POS (point of sale) is assigned to a primary sector. For example, acceptance points from the gambling sector could generally be excluded. However, such a restriction is not sufficient for tobacco products or alcohol, which are also discussed, as these goods are also available in a wide range of shops. It is also not possible to exclude the e-money/vouchers or e-money products at this point.
A check of the individual items would have to be carried out before authorisation in the checkout system of the respective acceptance points, whereby it is neither clear how the system is to recognise that the transaction is relevant for the check, nor how such an immense intervention in the systems of all retailers throughout Germany would be implemented or who would bear the costs for this. Such a check can only be a theoretical thought experiment. The possibility of selective authorisation of individual product groups therefore remains unattainable in the short and medium term.
Note: There are individual industry-specific payment products that are certainly capable of carrying out checks on the composition of the shopping basket. However, these are generally limited to individual companies, proprietary and pursue an entirely different objective (e.g. earmarked vouchers from individual chains, fleet cards in the petrol station environment etc.).
Limitation of supra-regional usability
As standard, payment cards only carry out a comparison between the issuing country of the card. and the country in which the point of acceptance is registered. Use of the card abroad can therefore be safely ruled out. The regional limitation within Germany, which is also desired in some cases, cannot be solved directly with the on-board means of a debit or prepaid card. This requires solutions from specialised service providers who can implement such a limit under certain circumstances.. However, this significantly narrows the field of possible implementation partners and brings with it its own challenges.
In addition, problems arise:
- Increased system charges as a burden on trade
- Exclusion of merchants as possible points of acceptance
- Opposing technology selection to the retail payment strategy and further pro-European efforts in the payment environment
Increased system charges as a burden on trade
The combination of requirements, particularly regarding the restriction of regional applicability, largely limits the field of solution providers to those with debit products of the international card schemes VISA and Mastercard.
In a direct comparison of the fees for transaction processing, these are more expensive for merchants than the market leader girocard, for example. On the one hand, this is since the maximum percentage permitted by law for the interchange fee is usually fully utilised, but above all due to the other fee components, in particular the so-called card scheme fees. As a result, a more expensive payment method is selected for processing at the terminal.
Most of the service providers under consideration already have products for handling tax-free benefits in kind in their portfolio, which have very similar requirements. Only transactions from cooperating retailers can be authorised. As all acceptance points are explicitly known with further data, it is possible to ensure that, for example, only purchases from retailers in a certain postcode area are authorised. For this purpose, a cooperation agreement is concluded between the retailer and the service provider, the retailer is onboarded, and a further service fee is charged to the participating retailer for brokering the additional sales.
Higher transaction costs and fees for participating in the system, especially in sectors with rather low margins such as food retailing, therefore place a heavy financial burden on retailers.
Exclusion of merchants as possible points of acceptance
Although card acceptance is now almost universal in many places, there are still many terminals where only the girocard is accepted. These would be excluded from sales with apayment card based on an international card scheme. This applies even more to solutions with additional scheme participation . In addition, the success of negotiations for transaction costs is highly dependent on the total volume of card sales,meaning that small merchants generally have to pay significantly higher fees. It is to be expected that many small merchants are therefore at a severe disadvantage and will be excluded from the sales of payment cards for refugees.
Opposing technology selection to the retail payment strategy and further pro-European efforts in the payment environment
The ECB’s Retail Payments Strategy, the EU’s current Instant Payments Regulation, EPI (the European Payments Initiative), efforts to create a digital euro – all these European approaches to payment currently under development aim towards building up and strengthening European payment resources and reducing dependence on non-European payment players. However, the current requirements for the payment card for refugees make it almost impossible to find a technological solution based on European resources and therefore counteracts the other efforts in this area of financial policy. The symbolic power of this should not be underestimated.
In conclusion
The goal of pursuing the digitalisation of the payment process for benefits for refugees should be viewed positively in isolation. This would generally enable refugees to make card payments. There is also an opportunity for the federal states to work together to create a uniform infrastructure for such services and thus leverage synergies around process optimisation. Experience could also be gathered from this for other state-initiated payment mechanisms.
Neither is it intended to call into question the quality of the products referenced in this article. These bring a wide range of added value to our everyday lives, and the underlying business models have also proven themselves on the market to date. However, a special duty of care applies to public contracts and although there are products that fully fulfil the requirements of the tender, it should still be questioned whether the right questions were asked during the selection process to do justice to the underlying intention.
Finally, the current discussion is raising attention towards payment issues, which can raise awareness and knowledge of payment processes among the entire population. However, this requires a precise debate. We should refrain from polemicised demands and supposedly simple cash bans as a saviour.
As the above content is a personal assessment from a professional perspective, this article is provided with some disclaimers:
The information provided here does not constitute legal advice and is not intended to address any legal issues or problems that may arise in individual cases. The information is of a general nature and is provided for information purposes only. If you need legal advice for your individual situation, you should seek the advice of a qualified attorney.
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