2018 is set to be a game changer when it comes to retail banking. As the new Payment Services Directive (PSD2) is implemented, the way in which customer account information is handled and payment services themselves are about to change forever as consumers and businesses alike will have the ability to manage their finances via third-party providers.
The UK Government recently announced its final approach to implementing the new Payment Services Directive (PSD2), along with the final version of the Payment Services Regulations 2017. The FCA is expected to finalise its guidance on its approach to supervising PSD2 – along with application forms for new firms – by September, and to accept applications for authorisation/registration from October 2017 to meet the implementation deadline of 13 January 2018.
Responses to February’s consultation have only persuaded the Government to change a few aspects of its approach to implementation. But it seems that many responses did not account for the fact that the Government's hands have been tied since 2015, when the UK agreed the final version of PSD2 at EU level. As this is a maximum harmonisation directive, member states can only depart from PSD2 where it specifically allows them to. For the most part, implementation is now a question of how the FCA interprets the language in its application to the real world, which it consulted on in April. This does not suggest any lack of UK 'sovereignty'. Each member state exercises its sovereignty by attempting to influence EU negotiations, and it’s up to affected firms and citizens to take the opportunity to engage with the process at the appropriate time.
Ban on surcharging
One area of departure from the Government's initial plan is to prohibit retailers from “surcharging” (that is, charging customers an additional amount for using any type of payment method or payment instrument – typically credit and debit cards).
The original idea was only to ban surcharging for the use of cards that are covered by the Interchange Fee Regulation (which is required under PSD2), as well as cross-border bank transfers and direct debits in euros (under the Single Euro Payments Area regulations); and to limit the surcharges for other payment methods to the direct cost borne by the retailer for making them available.
But the Government has opted instead for a blanket ban on businesses surcharging consumers for using any type of payment method, on the basis that this:
"will create a level playing field between payment instruments and create a much clearer picture for consumers in which they know the full price of the product/service they are purchasing upfront and [can be] confident that there will be no additional charges when they come to pay [with] any payment instrument they choose to use. A blanket ban will also be much easier to enforce than the current position in which merchants are able to pass on costs (but the consumer has no easy way of assessing what these are).”
Meanwhile, the Government says it will "assess the scale" of claims that interchange fees for card payments have been rising again.
Scope of account information services
PSD2 introduces a new “account information service” which basically involves providing information from one or more payment accounts held by the user with one or more other payment service providers.
Initially, the list of services the Government said it believed might constitute account information services included some services of a much broader nature:
“• price comparison and product identification services; • income and expenditure analysis, including affordability and credit rating or credit worthiness assessments ... [and] might include accountancy or legal services, for example”
This provoked concern that the Government's interpretation was too broad and overlooked the requirement that an account information service would need to be conducted by way of business in its own right, rather than merely as an ancillary part of a wider service. Examples of services that the Government says that respondents were concerned about include:
“banks’ corporate functions; price comparison websites; accountants; financial advisors; legal firms; and Credit Reference Agencies (CRAs). Many of these services are currently provided via a contractual relationship between service providers, users, and ASPSPs, often referred to as Third Party Mandates (TPMs).”
The Government now confirms, however, that:
“many uses of these mandates are likely to be outside of the scope of the PSDII. Examples could include power of attorney, where the services are unlikely to be undertaken ‘in the course of business’.”
In addition, the FCA has already suggested this narrower view, based on the “business test” in its own consultation on how it proposes to supervise PSD2.
How will small and independent businesses be affected?
For small business owners, as well as consumers, the new directive will create new possibilities for innovative financial management solutions, granting them greater control over their financial affairs. Many alternative providers have already attracted SMEs’ business for services such as foreign currency transactions; and the banks will need to be much more nimble and aligned with their customers’ needs if they are to remain front and centre of the SME’s mind when it comes to managing their accounts and finances. The right tools and more valuable insight will be key.
Will fewer businesses be willing to take card payments if charges cannot be added?
Consulting firm Ovum recently reported in a study that single card payments are to decline from 40% to 11% market share by 2027, following the implementation of PSD2. Meanwhile, Instant Payments will become one of the main online payment tools in Europe, accounting for around €338bn of direct online expenditure.
The FCA is expected to finalise its guidance on its approach to supervising PSD2 – along with application forms and so on for the various types of authorisation/registration – by September, and to accept applications for authorisation/registration under the new regulations from October 2017.