10 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)
(35276)
13245/13
COM(13) 549
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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 car-based payment transactions
Commission Report on the application of Directive 2007/64/EC on payment services in the internal market and on Regulation (EC) No. 924/2009 on cross-border payments in the Community
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| Legal base | (a)-(b) Article 114 TFEU; co-decision; QMV
(c) —
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| Documents originated | 24 July 2013
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| Deposited in Parliament | (a)-(b) 12 August 2013
(c) 29 August 2013
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| Department | HM Treasury
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| Basis of consideration | EM of 2 September 2013
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| Previous Committee Report | 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
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Background
10.1 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.
10.2 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.
The PSD has two main sections. The first section established the
licensing regime for payment institutions and applies to firms
offering payments services, but which are not licensed as credit
institutions or e-money issuers. It includes rules on administrative
procedures and business plans and a right of access to payment
schemes. The second section introduced conduct of business rules
for all payment service providers. These apply to new payment
institutions, credit institutions and e-money issuers and include
requirements on transparency, authorisation of payments, execution
of payments and liability.
10.3 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 Green Paper had two annexes,
the first of which showed the use of different payment instruments
in the EU and in individual Member States. The second gave additional
background on multilateral interchange fees paid by payment service
providers. The Commission invited responses to 32 questions in
the Green Paper, said that it would announce its next steps by
the second quarter of 2012, with a view to making any proposals
by the end of 2012 or the first quarter of 2013.[30]
The documents
Payment Services Directive II
10.4 With this draft Directive, document (a),
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.
10.5 With the draft Directive the Commission
proposes 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
10.6 The Commission proposes extension of the
scope of the PSD to cover payments being made where one provider
is outside the EU and to cover any payments in the EU which are
denominated in a currency outside the European Economic Area.
The proposal would also bring new payment types into scope of
the PSD, most notably digital payments such as mobile payments.
The Commission's aim is further development of an EU-wide market
for electronic payments, which would enable consumers, retailers
and other market players to realise the full benefits of the single
market.
10.7 The Commission also proposes that third
party payment service providers, who make payments on a customer's
behalf following provision of their banking details, usually online,
be brought within the scope of the PSD. That these payment providers
can access consumers' bank details but remain outside the existing
legal framework has raised a number of concerns around privacy
and security, which the Commission's proposal aims to address.
Small Payment Institutions
10.8 It is proposed that the threshold for businesses
that qualify as small payment institutions, and are therefore
largely exempt from the requirements of the PSD, be reduced from
businesses transacting payments worth less than €3 million
(£2.62 million) a month to those businesses transacting payments
worth less than €1 million (£0.874 million) a month.
Surcharges
10.9 The Commission's proposals would ban surcharges,
that is, additional fees applied by merchants to payment transactions
on top of the cost of the item being purchased, which exceed the
cost borne by the payment service provider for use of a specific
instrument.
Security measures
10.10 The proposal would introduce a new chapter
setting out security measures required by payment service providers
when initiating a payment. These include procedures for identifying
and authenticating customers, approving transactions and carrying
out audit trails.
European Banking Authority
10.11 The draft Directive would have the European
Banking Authority issue guidelines and draft regulatory technical
standards in various fields, for example in order to clarify the
rules on 'passporting' for payment institutions operating in several
Member States.
REGULATION OF INTERCHANGE FEES FOR CARD-BASED PAYMENT
TRANSACTIONS
10.12 Interchange fees are fees 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 rare phnomenon, 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.
10.13 The draft Regulation, document (b) 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.
Cap on interchange fees
10.14 The Commission proposes a cap on interchange
fees of 0.20% of the transaction value on debit cards and 0.30%
of the transaction value on credit cards. The caps on interchange
fees would apply to cross-border card transactions within two
months of the draft Regulation's entry into force and within two
years for domestic card transactions.
Separation between scheme and processing
10.15 The draft Regulation provides that there
would be an organisational separation between the card scheme
brand and the entities processing the transactions. This means
the two would be totally independent in terms of legal form, organisation
and decision making.
Co-badging
10.16 The draft Regulation would ban card schemes
from preventing card issuers from co-badging two or more different
brands on a payment device.
Honour all cards rule
10.17 The draft Regulation would prevent a payment
scheme or payment service provider from applying rules obliging
a merchant accepting one of its payment instruments to also accept
other payment instruments of the same brand or category, except
if the brand or category was subject to the same regulated interchange
fee as the former. For example, merchants accepting consumer debit
cards could not be forced to accept consumer credit cards but
could be required to accept other consumer debit cards.
Steering
10.18 The draft Regulation provides that payment
schemes and payment service providers would not be able to prevent
merchants from steering consumers towards the use of specific
payment instruments preferred by the retailer.
10.19 The Commission has also published a Report,
document (c), on how the PSD has been applied by different Member
States and which identifies the main issues that have arisen.
The Report also touches on interchange fees. The Commission suggests
that a number of changes could be envisaged to the PSD to enhance
its effect and to clarify a number of its aspects. It also highlights
the need to accommodate technological business development within
the payments industry. Although the presentation of the draft
Directive and the draft Regulation together with Commission's
impact assessment for the proposed legislation do not refer directly
to the Report they do cite the two external reviews on which the
Report is based.
The Government's view
10.20 In relation to PSD II, document (a), the
Economic Secretary to the Treasury (Sajid Javid) says that:
- the Government supports the
Commission's aim of modifying the PSD in order to address gaps
in consumer protection, promote growth through the development
of the next generation of payment services and simplify the regulatory
structure; and
- it plans to seek improvements to the Commission's
proposal during negotiations to ensure that the Directive avoids
imposing any unnecessary burdens on the UK financial services
industry.
10.21 As for regulation of interchange fees the
Minister says that:
- the Government supports the
aims to improve transparency and competition in the card market;
- it is, however, still considering the detail
of the proposal, for example, whether the proposed caps will achieve
the aims of the Commission;
- it is also considering the implications of the
organisational separation between the card scheme brand and the
entities processing the transactions and whether the competition
concerns of the Commission can be addressed in another way;
- during negotiations, the Government will look
to ensure that the Regulation reflects the different sized card
markets in the different Member States;
- the UK has one of the largest card markets in
the European Economic Area, whereas the use of card payments is
less developed in other Member States; and
- these differences need to be considered during
negotiations.
10.22 The Minister says, in relation to both
proposals, that the Government will work with UK industry (including
small businesses), regulators and consumer groups to further understand
the impact on the UK.
10.23 The Minister does not comment on the Commission
Report, document (c).
Conclusion
10.24 We note that at this stage the Minister
has little to say about what precise improvements the Government
will need to seek to both the draft Directive and the draft Regulation
in order to make them wholly acceptable. So before we consider
these matters again we should like to have, before Council working
group negotiation has progressed very far, more information about
the points at issue.
10.25 As for the Commission Report we should
like to hear from the Minister as to what issues it raises that
are not being, but should in the view of the Government be, addressed
in the proposed legislation.
10.26 Meanwhile all three documents remain
under scrutiny.
30 (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
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