"Payment cards are the most frequently used electronic payment instrument for retail purchases. However, integration of the [European] Union [(EU)] payment card market is far from complete as many payment solutions cannot develop beyond their national borders or new pan-[EU] providers are prevented from entering the market.".1 The EU Proposal for a Regulation of the European Parliament and of the Council on Interchange Fees for Card-Based Payment Transactions (the "Regulation") is intended to address each of these issues.2
First Things First: Scope and Definitions
The Regulation will apply to card-based payment transactions carried out within the EU, where the payer's and the payee's payment services providers are both in the EU. But it won't apply to commercial card transactions, or cash withdrawals at ATMs.3For these purposes: 4
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Restrictions on Interchange Fees
With effect from 6 months after the Regulation comes into force:7
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For these purposes, any agreed remuneration, including net compensation, which has the equivalent object or effect as an interchange fee, which is received by an issuer from the payment card scheme, the acquirer, or any other intermediary, in relation to payment transactions or related activities shall be treated as part of the interchange fee.
The Regulation will also:
- (From 6 months after it comes into force), 9 prohibit (i) intra-EU territorial restrictions; (ii) requirements or obligations to obtain country specific licences or authorisations to operate on a cross-border basis; and (iii) (in either case) rules with an equivalent effect in licensing agreements or payment card scheme rules;
- (From 12 months after it comes into force),10 require that payment card schemes and processing entities:
- Are separated in accounting and organisational terms;
- Do not:
- Present bundled prices for payment card scheme and processing activities;
- Cross-subsidise these activities;
- Discriminate between (i) their subsidiaries or shareholders, on the one hand; and (ii) users of these schemes, and other contractual partners, on the other; or
- Make the provision of any service they offer conditional on the acceptance of any other service they offer;
- (From 12 months after it comes into force),11 require processing entities within the EU to ensure that their systems are interoperable with the systems of other processing entities by meeting the standards developed by international or European standardisation bodies;
- (From 12 months after it comes into force),12 require acquirers to:
- Offer and charge payees merchant service charges that are individually specified for different categories and different brands of payment cards with different interchange levels; and
- (In relation to the agreements between acquiring payment services providers and payees), include individually specified information on the amount of the merchant services charges, interchange fees and scheme fees applicable to each category and brand of payment card,
Unless, merchants (in the first case) request in writing acquiring payment services providers to charge blended merchant services charges, or payees (in the second) make a different request in writing;
Require the payee's payment service provider to provide the payee with:
- The reference enabling the payee to identify the card-based payment transaction;
- The amount of the transaction in the currency in which the payee's payment account is credited; and
- The amount of any charges for the card-based payment transaction, with the merchant service charge and the amount of the interchange fees appearing separately;
(in each case), at least once a month, in a form that allows the payee to store and reproduce the information unchanged.
As is so often the case with European legislation, the Regulation is ambiguously drafted. It doesn't include any express provisions requiring European delegated legislation or guidance of any kind. But that doesn't necessarily mean that guidance won't be produced at a European or Member State level, which seeks to explain what some of the more ambiguous provisions require. Either way, the Regulation should be read alongside, and interpreted with, the proposed second Payment Services Directive13, second Information Accompanying Transfers of Funds Regulation14, and fourth Anti Money Laundering Directive15 which are all intended by the European institutions to form part of a cohesive legislative whole that will enhance consumer protection, lower prices and fees, and ensure the continued development of the internal market over time. Our Client Alerts on these other legislative proposals will follow in due course.