5 Financial services: payment services
~
| (a)
(35250)
12990/13
+ ADDs 1, 3-4
COM(13) 547
(b)
(35251)
12991/1/13
+ ADDs 1-3
COM(13) 550
(c)
(35968)
8587/14
—
(d)
(35969)
8759/14
—
|
Draft Directive on payment services in the internal market and amending Directives 2002/65/EC, 2013/36/EU and 2009/110/EC and repealing Directive 2007/64/EC
Draft Regulation on interchange fees for card-based payment transactions
European Central Bank Opinion on the draft Regulation on interchange fees for card-based payment transactions
European Central Bank Opinion on the draft Directive on payment services in the internal market and amending Directives 2002/65/EC, 2013/36/EU and 2009/110/EC and repealing Directive 2007/64/EC
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| Legal base
| (a)-(b) Article 114 TFEU; co-decision; QMV
(c)-(d) —
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| Deposited in Parliament
| (c)-(d) 23 April 2014
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| Department
| HM Treasury
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| Basis of consideration
| (a)-(b) Minister's letter of 30 April 2014
(c)-(d) EM of 30 April 2014
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| Previous Committee Reports
| (a)-(b) HC 83-xvi (2013-14), chapter 10 (9 October 2013) and HC 83-xxx (2013-14), chapter 8 (29 January 2014)
(c)-(d) None
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| Discussion in Council
| Not known
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| Committee's assessment
| Politically important
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| Committee's decision
| Not cleared; further information requested
|
Background
5.1 Cross-border electronic payments
are becoming increasingly common for individuals and businesses
alike. There have been EU efforts, in connection with the single
market, to facilitate such payments, most notably through development
of the Single Euro Payments Area (SEPA). SEPA is based on the
premise that there should be no distinction between cross-border
and domestic electronic retail payments in euros across the EU.
The project covers key retail payment instruments — credit
transfers, direct debits and payment cards.
5.2 There is also the Payments Services
Directive, Directive 2007/64/EC, (PSD) aimed at enhancing competition
and transparency in the payments industry across the EU and ensuring
that the level of consumer protection is sufficient and harmonised.
5.3 In January 2012 the Commission published
a Green Paper Towards an integrated European market for card,
internet and mobile payments, which looked at the rapidly
changing market for card, internet and mobile payments in the
EU, set out a number of barriers to development and launched a
consultation on how to achieve a fully integrated EU market for
card, internet and mobile payments. The Commission invited responses
to 32 questions in the Green Paper and foreshadowed the possibility
of legislative proposals.[15]
5.4 In July 2013 the Commission published
this draft Directive, document (a), under which the PSD would
be repealed and replaced by Payment Services Directive II or PSD
II, which would contain the bulk of the PSD's substance with modifications.
The Commission proposed modifications to the PSD to ensure consumer
protection keeps up with innovations in the market and to streamline
previous sections that the industry found cumbersome, unnecessary
or unclear. The draft Directive deals with the following matters:
increased scope, small payment institutions, surcharges, security
measures and the European Banking Authority.
5.5 Interchange fees are set by the
card network and paid by the merchant's bank to the customer's
bank for the acceptance of card-based transactions. They are passed
on to the retailer in the form of a service charge and, in turn,
passed onto consumers in the form of higher prices. Multilateral
interchange fees are set by the card schemes (VISA and MasterCard)
— these are fees standardised between card issuers and a
host of card acquirers and are the most frequently used. Bilateral
interchange fees, a rarer phenomenon, are agreed directly between
card issuers and card acquirers — so instead of being a
cross industry standard, the merchant's bank and customer's bank
would have their own deal arrangement.
5.6 The draft Regulation, document (b),
published with the draft Directive, would regulate interchange
fees that are applied to debit and credit card transactions within
the EU and would cap the level of interchange fee that could be
applied to a card transaction. The measure would deal with the
following matters: a cap on interchange fees, separation between
scheme and processing, co-badging, an honour all cards rule and
steering of consumers.
5.7 When we first considered these documents,
in October 2013, we noted that at that stage the Government had
little to say about what precise improvements it would need to
seek to both the draft Directive and the draft Regulation in order
to make them wholly acceptable. So we asked to have more information
about the points at issue.
5.8 In January we heard that:
· the Government would seek
to ensure that the Directive avoids imposing any unnecessary burdens
on the UK financial services industry ¯ for example, ensuring
Third Party Payment Services providers (TPPs) remain within the
scope of PSD II, so that consumers would be adequately protected,
while making sure the liability of each body involved in a payment
transaction was fair and proportionate;
· the Government had already
received support for this position from a number of countries
which had TPPs active in their market;
· the Government aimed also
to maximise protection for consumers, whilst ensuring they could
benefit fully from technological advancement in the payments market;
· it welcomed the inclusion
of digital payments within the scope of the Directive, though
efforts were ongoing to determine whether the small payment exemption,
currently proposed, was sufficient to ensure the continued growth
of important types of digital transaction, particularly SMS-based
charitable donations; and
· this included consideration
of whether the small payment exemption was too low.
5.9 On regulation of interchange fees,
we heard that:
· the Government supported
an EU-wide cap as the best way to address the issue of excessive
interchange fees;
· a cap would mean significant
benefits for businesses by providing the legal clarity needed
for effective business planning and by delivering significant
savings, which could be passed onto consumers;
· an EU-wide cap would also
make it easier for SMEs planning a move into another Member State
as they would have a clear understanding of the rules around interchange
fees;
· the proposal had received
strong support from the British Retail Consortium and the Prime
Minister's EU Business Taskforce, which estimated savings to UK
businesses of £1 billion;
· the Government remained watchful,
however, of unintended impacts of the proposals that could conflict
with that objective and that might have negative impacts on small
businesses and consumers; and
· the Commission had not yet
provided enough evidence to support its proposed cap levels and
the Government was pushing it to provide a more substantial evidence
base.
5.10 In January we also reported that
we had received three representations from interested parties
in relation to the draft Regulation on interchange fees.[16]
MasterCard drew our attention to a Europe Economics report it
had commissioned. In addition to critical comments on the draft
Regulation and the Commission's case for it, the company suggested
to us a number of alternative ways to meet the Commission's objectives.
The UK Cards Association suggested that the adverse impact of
the draft Regulation on consumers would be that consumers would
pay more, they would be driven to high cost credit, they would
save nothing, they would subsidise retailers and there would be
less competition and choice. As for the adverse impact on retailers
the association said that there would be less secure transactions,
increased fees and a boost to big retailers, not SMEs. A joint
statement by Christians against Poverty, the Centre for Responsible
Credit, the Money Advice Trust, The Money Charity, MoneySavingExpert.com
and Toynbee Hall said that, whilst these consumer bodies support
the Commission's wish to protect consumer interests, they were
concerned that the proposals would in fact have the opposite effect.
5.11 We asked, before considering these
matters again, to have more information about the points at issue.
We asked also to know the Government's view of the comments made
to us by MasterCard, the UK Card Association and the group of
consumer bodies. Meanwhile the documents remained under scrutiny.[17]
The new documents
5.12 In the first of its Opinions, document
(c), the European Central Bank (ECB) commenting on the draft Regulation,
document (b), fully supports the proposal to impose EU-wide rules
on interchange fees, noting that at present interchange fees are
largely unregulated and divergent across Member States. It further
notes that reducing this market fragmentation would have a strong
impact on competition, as it would make it easier for existing
players to compete and for new providers to enter the market for
card payments.
5.13 The ECB also makes some more specific
observations:
· it believes definitions should
be aligned as far as possible with the proposed PSD II, document
(a);
· it would like the caps for
domestic transactions and cross-border transactions to come into
force simultaneously to avoid putting small national acquirers
at a disadvantage;
· it welcomes the fact the
choice of brand in cases of more than one brand on a card (co-branding)
should be made at the point of sale, but thinks the choice of
specific brand should be made jointly by the consumer and merchant;
· in relation to the Honour
All Cards Rule (HACR), it welcomes the fact that there would be
a prohibition on rules forcing merchants to accept all cards of
a specific brand, but is concerned by the derogation that that
merchants should be obliged to accept other payment instruments
of the same brand and/or category that are subject to the same
regulated interchange fee — it thinks that the decision
on whether to accept any card should be a commercial decision
for the merchant;
· it notes that card schemes
may need more time than the usual 20 days from the Regulation
coming into force to legally separate their businesses into two,
and suggests that a transitional period could be considered; and
· for efficiency reasons, it
would prefer one single competent authority being responsible
for ensuring compliance with the Regulation, but notes, however,
that this might prove difficult in practice due to diverging national
set ups.
5.14 In its second Opinion, document
(d), on the PSD II, document (a), the ECB strongly supports the
objectives and the content of the proposed amendments to the present
Directive, in particular those which update its coverage to take
into account the rapidly developing retail payment market (the
introduction of new payment solutions via smart phones, e-commerce,
etc.).
5.15 The ECB has a number of more specific
comments. On definitions it says that these could be improved
to give greater clarity to the market. It suggests that Title
IV of the Directive, which covers rights and obligations in relation
to the provision and use of payment services, should apply to
all currencies where only one of the payment services providers
involved in a transaction is located within the EU.
5.16 In relation to TPPs the ECB says
that, in order to combine security requirements and customer protection
with the idea of open access to payment account services, customers
should be appropriately authenticated by relying on a strong customer
authentication system. It also suggests that TPPs should comply
with certain principles — they should:
· protect the personalised
security features of payment service users that they issue themselves;
· authenticate themselves to
the payment service user's bank when making a payment;
· refrain from storing data
obtained when accessing the payment service user's account; and
· not use data for any purposes
other than those explicitly permitted by the payment service user.
5.17 Finally, in relation to
unconditional refund rights, the ECB notes that new provisions
in the Directive on the refund rights for consumers when paying
by direct debit actually weaken consumer protection.
The Minister's letter of 30 April 2014
5.18 The Economic Secretary to the Treasury
(Andrea Leadsom) tells us that Council negotiations on PSD II
and the draft Regulation are still at a relatively early stage.
She then says, on PSD II, that the Government is seeking the following
precise improvements:
· ensuring that charitable
donations are not negatively impacted;
· reinstating an independent
ATM exemption;
· ensuring that payment service
providers are given fair and proportionate access to a payment
account; and
· ensuring that consumers are
adequately protected when using a third party provider to make
an online payment.
5.19 On the draft Regulation, the Minister
says that the Government is seeking the following precise improvements:
· ensuring that interchange
fee caps for both domestic and cross-border transactions come
into force simultaneously to ensure small merchants and small
national acquirers are not disadvantaged;
· preventing card schemes (Visa
and MasterCard) from being forced to legally separate their business
into two parts, the scheme function and the processing function
— the benefit of this separation is unclear and costs of
separation are likely to be passed on to small merchants; and
· bringing the Commission's
review of the Regulation forward to within two years of adoption,
rather than four, to test whether the Regulation is having the
intended impact and whether there are any unintended consequences
that require correction.
5.20 Turning to the points raised in
the representations to us from MasterCard, the UK Cards Association
and consumer groups, the Minister says that:
· the Government has looked
into these points and it remains supportive of an EU-wide cap
on interchange fees;
· there is conflicting evidence
on the results of capping interchange fees — in contrast
to the points made in the representations, some studies point
to tangible benefits for consumers; and
· it is for this reason that
the Government would like to bring the review period forward —
the Commission would be able to thoroughly test the impact of
the Regulation and make any necessary amendments.
The Government's view of the new documents
5.21 In her Explanatory Memorandum the
Minister first discusses the ECB's Opinion on the draft Regulation
saying that:
· the Government notes the
ECB's overall view and agrees that an EU-wide interchange fee
cap would have competition benefits;
· it has been clear in negotiations
that the measures proposed should aim to strengthen competition
in the payments market, whilst remaining watchful of impacts on
small businesses and consumers;
· it supports the ECB position
that caps for both domestic and cross-border transactions should
come into force simultaneously;
· not only would this ensure
that small national acquirers would not be disadvantaged, as the
ECB notes, but it would ensure that small merchants could take
advantage of lower rates at the same time as large merchants (which
have the resources to move to an overseas acquirer);
· the HACR provides consumers
with certainty that their particular card will be accepted by
merchants worldwide, as long as the brand is accepted (for instance,
Visa);
· if interchange fees are capped
at a low rate, the Government does not see why a merchant should
need to refuse a card and it therefore supports the maintenance
of this rule; and
· the Government will continue
to make both these points in Council negotiations.
5.22 Turning to the ECB Opinion on the
PSD II proposal, the Minister says that:
· the Government agrees that
it is right to update the present Directive, so that consumer
protection keeps up with new developments in the payments market;
· in negotiations, however,
the Government will continue to stress that consumer protection
measures should remain proportionate to the risks posed by new
services;
· it is in the wider interest
of consumers both in the UK and across the EU that innovative
new services are allowed to flourish; and
· the Government will continue
to pursue this agenda in Council negotiations.
Representations
5.23 We have received further representations
in relation to the draft Regulation, this time from the British
Retail Consortium (BRS). It has sent us a copy of a BRS letter
to the Financial Times signed by the CEOs of 14 major retailers,
a joint statement by the European Payment Users Alliance and a
copy of the Prime Minister's note on this matter presented at
the October 2013 European Council.[18]
The BRS comments that that "reform is good for businesses
and consumers. Simply, retail is the most competitive sector and
any savings are re-invested in the consumer offer".
Conclusion
5.24 We are grateful to the Minister
for her update on the two legislative proposals, for her comments
on the ECB Opinions and for those we had asked for on the representations
made to us previously. We look forward to hearing from her, as
negotiations develop, about the responses to the points in the
proposals that the Government wishes to see addressed. We should
also like to have her comments on the further representations
we have received. Meanwhile the documents remain under scrutiny.
15 (33628) 5491/12: see HC 428-l (2010-12), chapter
5 (8 February 2012) and HC 86-ii (2012-13), chapter 24 (16 May
2012). Back
16
These can be seen on our website at http://www.parliament.uk/business/committees/committees-a-z/commons-select/european-scrutiny-committee/submissions-to-the-committee1/. Back
17
See headnote. Back
18
These too can be seen on our website at http://www.parliament.uk/business/committees/committees-a-z/commons-select/european-scrutiny-committee/submissions-to-the-committee1/. Back
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