On 4 March 2019, the EU Council formally endorsed the final version of the EU Regulation amending Regulation No 924/2009 on cross-border payments in the EEA (the Cross-Border Regulation). The text of the revision is now final, and is available here. The text is expected to the published in the Official Journal of the EU (OJEU) within the coming weeks (perhaps towards the end of April?).
The changes amend the existing provisions of the Cross-Border Regulation on charges that payment services providers (PSPs) can charge to payment service users (i.e. payers and payees) in relation to cross-border payments.
In addition, the regulation inserts new provisions in the Cross-Border Regulation dealing with currency conversion (for card-based payments and credit transfers).
We address both substantive issues below in turn, and also provide some information on the legislative history and evolution of the text.
Charges for cross-border Euro payments within the EEA
Until now, the Cross-Border Regulation required PSPs (essentially PSPs based in the Eurozone) to apply non-discriminatory charges to their PSUs (i.e. payers and payees) for domestic Euro payments and cross-border Euro payments of the same value within the EEA. For example, a PSP has to charge the cardholder the same charges for a domestic Euro POS payment or ATM withdrawal as for a cross-border Euro POS payment or ATM withdrawal of the same value in another EEA Member State.
One non-Eurozone country, namely Sweden, had decided to make this requirement also applicable on PSPs located in Sweden, and therefore requires that the same charges be applied to domestic payments in Swedish Krona and cross-border payments of the same value in Swedish Krona within the EEA.
The revision of the Cross-Border Regulation makes the above requirement also applicable to PSPs located in non-Eurozone countries. Therefore a PSP in a non-Eurozone country will have to apply the same charges for a domestic payment in the national currency of that Member State and for cross-border Euro payments of the same value in the EEA. This change will become applicable on 15 December 2019.
Note that Member States are given an option to extend the scope of the above requirement to cross-payments in the EEA in the national currency of that Member State (e.g. a cross-border payment in Polish Zloty). It is unclear at this stage if any Member State will exercise this option.
Currency conversion for card-based payments
When dealing with card-based payments, the currency conversion can either be performed by the card issuer (with, in practice, the assistance of the relevant card scheme) or the transactions can be subject to Dynamic Currency Conversion (DCC) directly at the POS or ATM.
Today, pursuant to Article 52(3) PSD2, the card issuer should provide information to the cardholder in the framework contract on "all charges payable by the payment service user to the payment service provider … where applicable, the … exchange rates to be applied or, if reference … exchange rates are to be used …, the relevant date and index or base for determining such reference … exchange rate".
In relation to DCC, Article 59(2) PSD2 requires that "… the party offering the currency conversion service to the payer shall disclose to the payer all charges as well as the exchange rate to be used for converting the payment transaction. The payer shall agree to the currency conversion service on that basis."
The revised Cross-Border Regulation will introduce the following additional requirements (presented in chronological order of events).
In advance of any transaction taking place:
- Issuers, acquirers and parties providing DCC at POS and ATM "shall express the total currency conversion charges as a percentage mark-up over the latest available euro foreign exchange reference rates issued by the ECB" (the mark-up).
- Issuers and acquirers shall make the mark-up "public in a comprehensible and easily accessible manner on a broadly available and easily accessible electronic platform" (e.g. on a website, in a mobile app, in a PC banking platform, etc).
When the cardholder is at the POS or ATM:
- The party providing DCC shall provide the cardholder with the amount to be paid in the currency of the payee and in the currency of the cardholder's account.
- The party providing DCC shall "clearly display" the mark-up at the POS or ATM.The party providing DCC shall "inform the [cardholder] of the possibility of paying in the currency used by the payee and having the currency conversion subsequently performed by the [card issuer]".
- The mark-up and both amounts (i.e. the amount in the currency of the payee and in the currency of the payer's account) shall also be "made available to the [cardholder] on a durable medium following the initiation of the payment transaction" (e.g. on a paper receipt).
The above new requirements are expected to become applicable at some point in Q2 2020 (they will become applicable 12 months after the entry into force of the Regulation, which itself will happen 20 days after publication of the regulation in the OJEU).
After the transaction has taken place:
- "Without undue delay" after the card issuer receives a payment order denominated in an EEA currency different from the currency of the payer's account (i.e. when the transaction was not been subject to DCC), the issuer should send to the cardholder an electronic message with the information on the mark-up. The issuer and the cardholder should agree on the "broadly available and easily accessible electronic communication channel or channels through which the [card issuer] will send the message …" (e.g. SMS, e-mail, push notification in the mobile banking app).
- The above information should be sent by the card issuer to the cardholder "once every month in which the [card issuer] receives from the [cardholder] a payment order denominated in the same currency". It is not entirely what is meant by "in the same currency"?
- The above information should be provided free of charge, and in a neutral and comprehensible manner.
- The issuer should offer to the cardholder the possibility of opting-out from receiving the above message(s).
- The issuer and the cardholder may agree that the above requirements do not apply when the cardholder is not a consumer, e.g. when the card is a commercial card issued to a corporation or to a self-employed professional.
- The above new requirements are expected to become applicable at some point in Q2 2020.
Currency conversion for credit transfers
When a credit transfer is initiated online, using the website or the mobile banking app of the PSP, the PSP shall inform the payer, prior to the initiation of the payment transaction, and "in a clear, neutral and comprehensible manner, of
- the estimated charges for currency conversion services applicable to the credit transfer [and]
- the estimated total amount of the credit transfer in the currency of the payer's account, including any transaction fee and any currency conversion charges [and] the estimated amount to be transferred to the payee in the currency used by the payee".
The above new requirements are expected to become applicable at some point in Q2 2020.
The legislative history/evolution of the text
On 28 March 2018, the EC had proposed to the Council and the European Parliament a revision of the Cross-Border Regulation. As regards currency conversion, the EC's proposal was to require card issuers to display their currency conversion offer in real-time, on the POS or ATM screen, next to the DCC offer. Such a change would have required significant technical changes and therefore important financial investments for card issuers (and probably card schemes).
During the legislative process, the requirement for issuers to display their competing offer in real-time on the POS/ATM screen was abandoned. However, Article 15(1)(g) of the revised Cross-Border Regulation requires the EC to present a report in 2022 analysing in particular "the technical feasibility of disclosing [the issuer's currency offer] simultaneously, prior to the initiation of each transaction, for all currency conversion options available at an ATM or at the point of sale". So the idea that the EC had proposed may re-surface in 2022…