Introduction and background
The recast Directive on Payment Services (or PSD2) is one of a series of legislative measures adopted by the European Union in response to rapid technological innovation and the desire to increase competition and integrate payment services across national borders. It must be implemented in the UK no later than 13 January 2018.
The current Payment Services Directive was adopted in 2007 and implemented in the UK through the Payment Services Regulations 2009. The Directive created a regulatory framework for payment services in the EU which aimed to create a well functioning, integrated and competitive single market, as well as providing the legal basis for the Single Euro Payments Area (SEPA).
The current regulations are no longer considered adequate; they have been applied inconsistently and EU policy makers believe they have not stimulated sufficient innovation and competition. At the same time, concerns have grown about the effectiveness of security measures associated with digital payments.
PSD2 seeks not only to reflect technological change, but to promote digital innovation (for example, by facilitating the market entry of new types of payment service providers). It also looks to provide greater transparency over charges, improve consumer protection and the security of payments.
We have set out below a summary of the key issued raised by PSD2. Over the next few months we will be issuing more detailed briefings on each of the key issues identified and exploring what these will mean in practice for firms.
Click here to view table.
Things to think about
Firms should start to assess how the proposed changes will affect them, for example:
- Consider the scope of your payment activities and the need to apply additional transparency and information requirements.
Changes to framework agreements for payment accounts are likely to be required.
- Consider how to implement the increased security requirements. This will require a review of the security measures for accessing accounts and initiating payments. We recommend firms pay particular attention to the draft regulatory technical standards issued by the EBA and participate in the consultations to drive these changes forward in a direction that both meets the objectives of PSD2 and delivers good customer outcomes.
- Frameworks to control and manage operational risks, including security risks will need to be developed, where they do not exist already.
- Consider allocation of liability provisions within framework agreements and what changes need to be made.
- Review complaints processes and approaches to redress. This may also require firms to update customer facing literature.
- With the widened scope and narrowed exemptions firms will need to examine their business models. This may also impact third party supplier arrangements that can now be bought into scope.
Over the next few months we will issue more detailed briefings on each of the key issues identified above. We will also look at the interplay between PSD2 and other legislative and regulatory developments. For example:
Interchange Fee Regulation
PSD2 is closely linked to the Interchange Fee Regulation for card based payment instruments. This is intended to introduce greater competition through new conduct of business rules and a cap on multilateral interchange fees or "MIFs." The key provision which came into force on 9 December 2015 caps the level of the interchange fee between acquirers and merchants that can be applied to a card transaction. New conduct of business rules include the prohibition on the "honour all cards rule," whereby card schemes or payment service providers require merchants to accept all cards of a certain brand. This and other measures, including separation of payment card schemes and processing, co-badging and unblending, will apply from 9 June 2016.
Payment Accounts Directive
The Payment Accounts Directive has been implemented in the UK by the Payment Account Regulations 2015. It seeks to improve the comparability of fees related to payment accounts, facilitate account switching and improve access to payment accounts with basic features. Payment service providers will have to provide consumers with a fee information document listing the most common payment services provided and the fees charged for each of them. Payment service providers must offer a switching service for Payment Accounts that are denominated in the same currency and provide assistance to any consumer who wants to open an account in another EU Member State. There must be non-discriminatory access to payment accounts in the UK so that consumers legally resident in the EU have the right to open and use such a payment account, irrespective of their place of residence. Moreover, nine payment service providers have currently been required to offer a payment account with basic features to consumers. A basic bank account must be provided either free of charge or for a reasonable fee.