EUROPEAN COMMISSION Directorate General Internal Market and Services FINANCIAL INSTITUTIONS 14.10.2013 PSMEG/002/13 INFORMATION PAPER PROPOSALS FOR A NEW PAYMENT SERVICES DIRECTIVE ('PSD2') AND A REGULATION FOR INTERCHANE FEES FOR CARD-BASED TRANSACTIONS ('IF REGULATION') 1. BACKGROUND On 24 July 2013, the Commission published a package of payments related initiatives, consisting notably of a proposal for a new Payment Services Directive ('PSD2') and a Regulation on interchange fees for card-based transactions ('IF Regulation'). Next to it, an impact assessment on the two proposals and a Commission Report on the review of the current Directive 2007/64/EC on payment services ('PSD') and of Regulation (EC) No 924/2009 on cross-border payments in the Community ('Regulation 924'), accompanying the proposed legal acts, were published 1. Both proposals are the outcome of extensive consultations on the review of the European framework for payments carried out in the recent years. Consultations were in part based on the Commission s 2012 Green Paper 'Towards an integrated European market for card, internet and mobile payments'. In parallel, the Commission conducted a review of the PSD through two dedicated external studies (on the conformity of the national implementing measures and on the economic impact of the Directive) 2, providing the Commission with a comprehensive picture of the economic and legal consequences arising from the PSD. In addition, input on the Green Paper and on the PSD review was gathered through the Commission's advisory committees for the retail payments policy, and received from a wide range of stakeholders as well as Member States and the ECB. The comprehensive feedback provided the Commission with relevant information on new developments in the payments market and on possible needs for changes to the existing payments framework to adapt the EU payments market to the opportunities of the single market and to support the growth of the EU economy. 1 All documents can be found under: http://ec.europa.eu/internal_market/payments/framework/index_en.htm. 2 For the studies cf.: http://ec.europa.eu/internal_market/payments/framework/psd_study_en.htm.
Regarding interchange fees, the EU General Court in May 2012 in its judgment on MasterCard has fully upheld the Commission position that MIFs applied by MasterCard are anti-competitive and not necessary for the proper functioning of the card system. MasterCard has appealed the judgment. IFs have also been identified as a hurdle for the single market, in particular in the context of cross-border trade. Thus, the Court judgment, the results of the consultations and the Commission analyses agreed on the need to provide clarity on the legal rules concerning MIFs for card payments. Furthermore, the need to provide clarity for MIFs was emphasised at different occasions by the ECB and the Eurosystem. On this basis, the Commission in its October 2012 Communication 'Single Market Act II Together for new growth' identified the modernisation of the legislative framework for retail payments as a key priority. The revision of the PSD and the preparation of a legislative instrument on interchange fees for card payments were defined as one of the key actions of the Commission for 2013 to further promote a payments environment which nurtures competition, innovation and security. 2. KEY ASPECTS OF THE PROPOSALS 2.1 PROPOSAL FOR A NEW PAYMENT SERVICES DIRECTIVE (PSD2) The review of the PSD and the Green Paper contributions revealed that the Directive overall remains 'fit for purpose' but that it is not providing, in some specific areas, the level playing field it should, notably in view of the many options set out. It therefore required regulatory adjustments or clarifications on specific issues which were essentially of a fine-tuning nature. Furthermore, new developments on the market, not yet covered by the current PSD, needed to be addressed. The following key elements of the proposal should be highlighted: Clarification and redefinition of the scope and subject matter The major innovation of PSD2 is bringing third party providers (the 'TPPs') in the scope of PSD2, assimilating 'TPPs' to payment institutions. TPPs are new actors on the market of internet payments, in which they brought innovation and competition. TPPs notably provide payment initiation services, enabling a consumer to easily pay goods or services bought with a web-merchant, outside the framework of credit cards. The current PSD does not cover TPPs insofar as they normally do not hold the payer's or payee's funds at any time. Title III on transparency and information will be extended to also apply to payment transactions to or from third countries, within certain limits, as well as to all currencies (for details cf. below 'transparency and information requirements'). PSD2 updates the list of exceptions, which exempts a number of payments (related) activities from its scope. The proposal notably redefines the exemption on 'commercial agents', on transactions done in a 'limited network', and on 'telecom operators' and lifts the exemption of 'independent ATM deployers', providing for more legal clarity and an enhanced level playing field. 2
Enhancing consistency of licensing and supervisory rules and practices PSD2 enhances cooperation between competent authorities of different Member States in the case of 'passporting', both with respect to information exchanged in the notification procedure as well as regarding a coherent interpretation, application, and enforcement of the Directive more generally, by mandating the European Banking Authority (EBA) to issue guidelines and draft technical regulatory standards on specific issues. In the same vein, the Directive calls for a unique electronic access point to enhance transparency on authorised and registered payment institutions which should be beneficial for competent authorities and market players alike. The threshold to qualify as 'waived entity' benefiting of a lighter regime has been reduced (from 3 to 1 million EUR) following negative experience with some waived entities. Extension of the transparency and information requirements As stated above, the PSD2 s provisions on transparency and information have been extended to apply to all currencies and not, as currently, only to EU currencies. PSD2 will also apply in relation to payment transactions to and from third countries outside the EEA ('one leg transactions'), as regards those parts of the payment transaction that are carried out in the EU. This new approach should contribute to better information of money remitters, also making money transfers to third countries fairer and possibly cheaper. Amendments to the rights and obligations regarding the provision and use of payment services to ensure more up-to-date and coherent protection Surcharging practices have been harmonised further in view of the extreme heterogeneity in the market under the current PSD. PSD2 should contribute to the reduction of charges paid by consumers for card payments. In all cases where the card charges imposed on merchants will be capped, in accordance with the complementary IF Regulation, merchants will no longer be allowed to surcharge consumers for using their payment card. TPP and non-account-holding issuers of a payment instrument will have a right to obtain information from the account holding PSPs on the availability of sufficient funds to make a payment. Consumers will be better protected against fraud and other abuses and payment incidents (e.g. in case of disputed and incorrectly executed payment transactions), including via improved security measures to be put in place. The refund right for direct debit transactions has been strengthened in the interest of better consumer protection, bringing it in line with the SEPA Core Direct Debit Rulebook, provided that the good or service paid for has not yet been consumed. All payment services providers will need to step up the security of online transactions, including through strong customer authentication for payments and comprehensive reporting of fraud and attempted fraud. 3
Updated complaint and redress procedures shall enhance effective compliance with the Directive, including complaint procedures for consumers to be set up by PSPs. Member States will be obliged to ensure that appropriate administrative measures and sanctions are available and duly applied for breaches of the Directive. 2.2. PROPOSAL FOR INTERCHANGE FEES FOR CARD BASED PAYMENTS The aim of the proposal is to remove some important barriers that are hindering the development of a well-functioning EU-wide market for payments, enabling consumers, retailers and other undertakings to enjoy the full benefits of the EU internal market including e-commerce, in line with Europe 2020 and the Digital Agenda. To achieve this, and to promote EU-wide services, efficiency and innovation in the field of card payment instruments, and card based payment transactions in an offline, online and mobile environment, there should be legal clarity and a level playing field. In addition, business rules and other conditions should be prohibited if they prevent consumers and retailers from having accurate information on fees paid in relation to payment transactions and thereby hinder the creation of a fully effective internal market. Rules on interchange fees The first part of the Regulation introduces rules on interchange fees, imposing a cap on IFs for consumer debit and credit cards in a two-phase approach. The proposed Regulation delineates a 'regulated' area and a 'non-regulated' area for cardbased payment transactions. The regulated area consists of all card transactions that are widely used by consumers i.e. consumer debit and credit card, and e-payments and m- payments (internet and mobile payments) based on such cards. The proposal only applies to card transactions within so-called four party payment card schemes. However, where three party card schemes issue or acquire card transactions through licensee s, e.g. banks (as it is for example the case for AMEX in the UK and some other Member States), they are considered four party schemes. Although the rules imposing caps for interchange fees only apply to transactions with consumer cards within four party payment card schemes (and three party schemes considered as such), the provisions concerning business rules measures introduced in the second part of the text apply to all payment card transactions The key provisions introduce caps for maximum interchange fee rates. Twenty days after publication of the legislation, maximum levels of interchange fees are imposed for cross-border transactions (where the card holders use their cards in another Member States or the card holder s PSP and the merchant s PSP are established in different Member States) only. 4
After a transition period of 2 years, the caps for debit and credit card interchange fees will also apply to all national consumer card transactions. The capped interchange would amount to a maximum of 0.20% of the transaction value for debit cards and 0.30% for credit cards. This is in line with MasterCard's voluntary undertakings and Visa's commitments as well as decisions by some national authorities (e.g. France cap of 0.30% for credit cards, 8 Member States with MIF for debit cards below 0.2%). Rules on business conduct The second part of the Regulation focuses on business conduct rules that will be applicable to all categories of card transactions and internet and mobile payment transactions based on those cards as of the entry into force of the regulation: The 'Honour All Cards Rule' will be limited. Merchants would be able to decide to accept only cards belonging to one category of the same brand, for instance consumer debit cards only, or consumer debit and credit cards only. The Honour All Cards Rule will nonetheless continue to be allowed in the sense that payment card schemes and payment service providers may provide that certain cards may not be refused on the basis of the identity of the issuing bank or the card holder; or, within the same scheme, when they are subject to the same regulated IF level. Any rule preventing or limiting merchants from steering customers to cheaper or more efficient payments instruments will be prohibited. However, PSD2 will prohibit surcharges on cards whose IFs are regulated. In practice, this means that merchants will only be able to surcharge transactions paid with commercial/company cards or three party schemes like Amex or Diners (but Member States will no longer be able to prohibit surcharging on these transactions to cover merchants' additional costs if they want to do it). Any rule preventing merchants from disclosing to their customers or others the fees they pay to payment services acquirers will be prohibited. Transparency measures: Acquiring PSPs will provide at least monthly statements of fees to merchants, in which the fees paid by the merchant over the relevant month concerning each category of cards and each individual brand. Increased competition: Payment card schemes must be separated from the processing of card payments. Processing entities should be independent in terms of legal form, organisation and decision making. Licences for card issuing and acquiring should cover all EU area and not be restricted to one or several Member States. 3. THE PROCESS The proposals have been transmitted to the European Parliament and the Council in July 2013. Both institutions are in the process of scheduling work on the legislative package. Rapporteurs were nominated Contact: Pierre-Yves Esclapez, tel. (32-2) 2950510, pierre-yves.esclapez@ec.europa.eu 5