8 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)
13425/13
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 card-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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| Department
| HM Treasury
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| Basis of consideration
| Minister's letter of 19 January 2014
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| Previous Committee Report
| HC 83-xvi (2013-14), chapter 10 (9 October 2013)
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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
| (a)-(b) Not cleared; further information requested
(c) Cleared
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Background
8.1 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.
8.2 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.
8.3 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.[37]
8.4 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 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, small payment institutions, surcharges, security
measures and the European Banking Authority.
8.5 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 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.
8.6 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.
8.7 The Commission has published a Report,
document (c), also at the same time, 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.
8.8 When we 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, before we
considered these matters again and before Council working group
negotiation had progressed very far, more information about the
points at issue. As for the Commission Report we asked to hear
as to what issues it raises that are not being, but should in
the view of the Government be, addressed in the proposed legislation.
Meanwhile all three documents remained under scrutiny.[38]
The Minister's letter of 19 January 2014
8.9 The Financial Secretary to the Treasury
(Sajid Javid) now tells us that the Government intends to pursue
two overarching objectives during negotiations on the PSD II.
He says first, that:
· the Government will 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 are adequately protected, while
making sure the liability of each body involved in a payment transaction
is fair and proportionate; and
· the Government has already
received support for this position from a number of countries
which have TPPs active in their market.
8.10 The Minister says secondly that:
· the Government aims to maximise
protection for consumers, whilst ensuring they can benefit fully
from technological advancement in the payments market;
· it welcomes the inclusion
of digital payments within the scope of the Directive, though
efforts are ongoing to determine whether the small payment exemption,
currently proposed, is sufficient to ensure the continued growth
of important types of digital transaction, particularly SMS-based
charitable donations; and
· this includes consideration
of whether the small payment exemption is too low.
8.11 Turning to the regulation of interchange
fees, the Minister says that:
· the Government supports 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 has 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 remains 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 has not yet
provided enough evidence to support its proposed cap levels and
the Government is pushing it to provide a more substantial evidence
base.
8.12 Responding to our question as to
whether there are any issues the Commission's Report raises that
are not being, but should in the view of the Government be, addressed
in the proposed legislation, the Minister says that:
· the Report does not raise
any issues that are not being addressed to the Government's satisfaction
in the proposed legislation;
· the major issue that has
arisen since the first PSD was transposed has been the increased
use of new innovative payment methods, such as mobile phones and
TPPs;
· this has led to improved
choice for consumers while at the same time increasing the risk
to consumers and the need for adequate protection such as a right
to refund for unauthorised payments;
· the Government believes that
the proposed legislation is trying to address this issue by increasing
the scope of the Directive to include more digital payments and
TPPs; and
· this would ensure that the
Directive is more technologically neutral and ensure that consumers
using these more innovative payment methods are protected.
Representations
8.13 Since we last reported on these
documents we have received three representations from interested
parties in relation to the draft Regulation on interchange fees.[39]
MasterCard drew our attention to a Europe Economics report it
had commissioned, which suggested that interchange regulation
in the UK has the potential to impede recovery in bank lending,
pose financing problems for small businesses and the self-employed,
increase uncertainty in monetary policy, result in problems for
implementation of Universal Credit and wider financial inclusion
efforts, result in adverse consequences for research and development
and innovation and have negative consequences for the UK's e-commerce
industry. 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.
8.14 The UK Cards Association asserted
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.
8.15 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 are concerned that the
proposals would in fact have the opposite effect. They drew attention
to evidence that capping of interchange fees in the US, Spain
and Australia had not led retailers to pass on their consequent
savings to consumers, rather consumers had seen increased costs.
They said that the Commission has produced no evidence that retailers
would pass on their savings from fee capping to cardholders and
consumers.
Conclusion
8.16 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.
8.17 We should also like to hear
from the Minister what the Government's view is of the comments
made to us by MasterCard, the UK Card Association and the group
of consumer bodies.
8.18 Meanwhile these two documents
remain under scrutiny.
8.19 However, in view of the Minister's
assurance about action on issues in the Commission Report we now
clear it.
37 See (33628) 5491/12: HC 428-l (2010-12), chapter
5 (8 February 2012) and HC 86-ii (2012-13), chapter 24 (16 May
2012). Back
38
See headnote. Back
39
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
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