13 Financial services: payment services
| Committee's assessment
| Politically important |
| Committee's decision | Cleared from scrutiny
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| Document details | (a) Draft Directive on payment services
(b) Draft Regulation on interchange fees
(c) European Central Bank Opinion on the draft Regulation (d) European Central Bank Opinion on the draft Directive
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| Legal base | (a)-(b) Article 114 TFEU; co-decision; QMV
(c)-(d) —
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| Department
Document numbers
| HM Treasury
(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, —
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Summary and Committee's conclusions
13.1 This draft Directive would repeal the Payment
Services Directive and replace it with Payment Services Directive
II. The new Directive would contain the bulk of the present Directive's
substance with modifications to ensure consumer protection keeps
up with innovations in the market and to streamline previous sections
that the industry found cumbersome, unnecessary or unclear.
13.2 We have been holding this proposal under scrutiny
pending information about resolution in Council working group
discussion of four points the Government had drawn to our attention.
The Government tells us now that it is confident of securing satisfaction
on these matters in a General Approach it expects to be reached
soon.
13.3 This draft Regulation 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. We have considered this matter
several times, including in the light of representations both
for and against the proposals from interested parties. In October,
given useful improvements to the text of the draft Regulation,
which the Government had negotiated, and on the assumption that
it would be able to secure those improvements in a General Approach,
we granted it a waiver, in terms of the Scrutiny Reserve Resolution,
to support such a Council agreement. Nevertheless the document
remained under scrutiny pending an account of the outcome on a
General Approach. We are told now that on 10 November the Council
unanimously agreed a General Approach, which was in line with
the terms of our waiver.
13.4 The two European Central Bank Opinions comment
on the two legislative proposals. We have been holding them under
scrutiny in parallel with those proposal.
13.5 In the light of this latest information from
the Government we now clear all these documents from scrutiny.
Full details of the documents:
(a) 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: (35250), 12990/13 + ADDs 1,
3-4, COM(13) 547 (b) Draft Regulation on interchange fees for
card-based payment transactions: (35251), 12991/1/13 + ADDs 1-3,
COM(13) 550; (c) European Central Bank Opinion on the draft Regulation
on interchange fees for card-based payment transactions: (35968),
8587/14, —; (d) 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: (35969), 8759/14, —.
Background
13.6 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.
13.7 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.
13.8 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 arranged.
13.9 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.[66]
13.10 In July 2013 the Commission published a 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 would deal with the following
matters: increased scope, small payment institutions, surcharges,
security measures and the European Banking Authority. A 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.
13.11 The European Central Bank Opinions, documents
(c) and (d), commented on the legislative proposals. In the first
Opinion, on the draft Regulation, the Bank fully supported 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 noted 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. In its second
Opinion, on the PSD II, the Bank strongly supported 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.).
13.12 When we last considered the PSD II proposal,
in April, we heard that the Government was 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.
13.13 We asked, as negotiations develop, to hear
about the responses to the points that the Government wished to
see addressed. However, we were told in October that progress
on the draft Directive was relatively slow and so that document
remained under scrutiny.
13.14 When we last considered the draft Regulation,
in October, we learnt about useful progress in Council working
groups. So given the improvements the Government had negotiated,
and on the assumption that it would be able to secure those improvements
in a General Approach, we granted it a waiver, in terms of the
Scrutiny Reserve Resolution, to support such a Council agreement.
Nevertheless the document remained under scrutiny pending an account
of the outcome on a General Approach.
13.15 As for the European Central Bank Opinions,
having heard that the Government was largely supportive of the
comments, we have kept them under scrutiny together with the legislative
proposals to which they relate.
The Minister's letter of 26 November 2014
13.16 The Economic Secretary to the Treasury (Andrea
Leadsom) now tells us that since October progress on the draft
PSD II has been rapid. She says that:
· expectations had been that negotiations
would continue into the Latvian Presidency;
· however, at the latest working group on
24 November the Italian Presidency put forward a draft text that
meets the UK's objectives and also has the support of the rest
of Council; and
· the Presidency is not planning to hold
any further meetings and has expressed an intention to reach a
General Approach on the proposal within the next few weeks.
13.17 Reminding us that we had asked for an update
on the four precise issues that the Government wished to see addressed
during negotiations, the Minister says that the current compromise
text addresses these key issues. She explains first, on charitable
donations, that:
· following conversations with charities
and payments industry participants, the Government was concerned
that charitable donations made via text message would be negatively
impacted as a result of the deletion of the exemption that applied
to these services under the present PSD;
· it has been successful in having this
specific exemption reinserted into PSDII for donations below €50;
· it was judged that donations above this
threshold would benefit from the higher protection that PSD II
offers, but that to regulate donations made below this threshold
would put too high a burden on the payment institutions that offer
the text donation service to charities, thereby increasing the
price they would charge to charities for it; and
· this position is supported by other Member
States, charities and charity donation service providers.
13.18 On an ATM exemption, the Minister continues
that:
· the Commission originally proposed to
remove the exemption for ATM providers which is provided for under
the PSD;
· the Government's view was that including
independent ATMs in the scope of PSD II would not provide any
benefit for consumers and in fact could have a negative impact
on the UK;
· for example, independent ATMs are more
likely to be found in areas with a low number of transactions
such as rural and deprived areas;
· the additional costs which would be incurred
with having to comply with PSD II could make it impossible for
these providers to continue to operate and therefore limit rural
and deprived communities' access to cash; and
· the majority of Member States have agreed
with the Government's position and it is confident that the exemption
for independent ATMs will be agreed.
13.19 Turning to the matter of fair and proportionate
access to payment accounts the Minister tells us that:
· the current compromise text ensures that
payment service providers are given fair and proportionate access
to a payment account, in line with the Government's objective;
and
· it states that Member States shall ensure
that where a credit institution is requested access to payment
accounts by authorised or registered payment service providers,
it will decide upon the request in a non-discriminatory manner.
13.20 Finally, on consumer protection and third party
payment service providers, the Minister says that:
· the current compromise text has brought
third party payment service providers (TPPs) into the scope of
PSD II, so that consumers will be protected when using these services;
· in future, the European Banking Authority
will work with the payments industry to create a technical solution
which allows customers to easily use the TPP service, without
the need to share their private banking credentials; and
· in order to ensure that the Authority
proposes a solution that achieves the right balance between security
and allowing new technologies to flourish, the Government has
secured text in PSD II which gives the EBA a formal objective
to consider customer ease of use.
13.21 The Minister concludes that as a consequence
of these points the Government expectation is that the General
Approach will fully address its key concerns, and would therefore
be one it would look to support. She asks that the information
she provides now enables us to clear, or waive from, scrutiny
the draft Directive.
13.22 The Minister also tells us that on 10 November,
following our decision to grant a scrutiny waiver, the Council
unanimously agreed a General Approach on the draft Regulation.
She says that this agreed position was entirely in line with her
previous update and represents a positive outcome for the UK.
Previous Committee Reports
Seventeenth Report HC 83-xvi (2013-14), chapter 10
(9 October 2013); Thirty-third Report HC 83-xxx (2013-14), chapter
8 (29 January 2014), Fiftieth Report HC 83-xlv (2013-14) chapter
5 (14 May 2014) and Sixteenth Report HC 219-xvi (2014-15), chapter
6 (29 October 2014).
66 See (33628), 5491/12: Fifty-fifth Report HC 428-l
(2010-12), chapter 5 (8 February 2012) and Second Report HC 86-ii
(2012-13), chapter 24 (16 May 2012). Back
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