Document ID: chunk:federal_register_of_legislation:F2019N00027:body:0:p12
Version: federal_register_of_legislation:F2019N00027
Segment Type: other
Provision Reference: 
Character Range: 29063–32035

provision of cash-back at the point of sale and other forms of rewards made directly to the customer (either by the merchant or by a loyalty services provider).
In considering pass-through payments, the Bank notes that the net compensation provision of the standards was designed to prevent the caps on interchange fees being circumvented, and that the standards include an anti-avoidance provision. Accordingly, schemes and issuers must consider whether any arrangements they have in place – whether these include pass-through payments or not – have the purpose of circumventing the interchange caps and/or the net compensation provision of the standards.

2.3                 Aggregator Arrangements
Another aspect of the standards where clarification or guidance may be beneficial relates to arrangements where there are two entities involved in issuing a scheme's cards. The typical case is one where an aggregator, also known as a sponsor, has a direct relationship and contract with a scheme and handles particular scheme-related services and obligations on behalf of a number of (typically) smaller financial institutions that actually issue the cards and have the direct contractual issuing relationship with cardholders. In these cases most, if not all, contractual arrangements regarding scheme fees, benefits and incentives are managed by the aggregator or sponsor. Some stakeholders sought guidance on which entity – the aggregator/sponsor or the 'downstream' sponsored issuer – should be treated as the Issuer for the purposes of compliance with the net compensation requirements.
In informal engagement with stakeholders, the Bank sought to gain a broader range of perspectives on this issue. There was significant support for the proposition that for net compensation purposes, the issuer should be considered to be the entity with the direct relationship with the scheme, on the basis that this entity has the greatest visibility over the value flows to and from the scheme.
Downstream sponsored entities currently issue a relatively low volume of cards and account for a small percentage of total card issuance. The Bank's understanding is that in aggregator/sponsor arrangements, benefits from schemes are nearly always provided to the aggregator/sponsor. The downstream issuer has no visibility of benefits provided by the scheme to the aggregator/sponsor, or of how these benefits may be allocated (if at all) to any of the sponsor's other downstream issuers. The scheme similarly does not have visibility over the extent to which an aggregator/sponsor passes on the benefits it receives. In informal discussions, stakeholders noted that while, in theory, it would also be possible for a scheme to provide benefits directly to a downstream issuer, they considered this unlikely to occur in practice given the relatively small size of those entities' card issuing businesses.
The Bank notes that requiring small downstream issuers to comply, and certify