PSD II- proposals to update payment services requirements are likely to have a significant impact on organisations providing payment services.
The Payment Services Directive (PSD) first came into force in 2009 and is now under scheduled review. The European Commission published a draft PSD II directive in the summer of 2013, which includes a number of significant changes from the current law. These changes can be expected to have significant impact organisations providing payment services when PSDII completes the European legislative procedure. The latest development is the European Central Bank publishing its view on PSD II in February.
Who is currently caught by the PSD?
The PSD regulates firms that provide payment services (payment service providers or PSPs). Under the current rules PSPs include banks, e-money issuers, money remitters, non- bank credit card issuers and non-bank merchant acquirers. But other organisations such as mobile phone network operators and bill payment firms can also fall within the regulations, depending on how they structure their activities and what payment services they provide.
The review of the PSD will bring in its wake changes to the scope of the E-Money Directive (EMD) requirements that apply to the issuers of e-money (i.e. a pre-paid store of value stored electronically for use in making payment transactions and which is accepted as a means of payment by person other than the issuer). This will affect pre-paid payment cards but also other account based e-money schemes and other devices on which e-money is stored (e.g. mobile phones) although pay as you go credit is currently exempted.
What are the key changes for non bank commercial organisations?
Limited network - Currently there is an exemption from both the PSD and EMD if the payment instrument or e-money can only be used within a closed loop or limited network.This exemption can be relied on by a supplier of goods who, for example, offers a pre-paid card, such as a gift card, with stored value which can only be spent with that retailer. The Commission had identified that this exemption was too wide and being over relied on for a wide network of goods and services. The PSD II successor exemption has been amended and it is proposed that businesses planning to rely on the closed loop/limited network will have to get clearance from the local regulator. This will be an issue for attention by businesses looking to future proof any pre-paid/gift card type offering, where it is not only to be used with a single retailer.
Digital exemption- the existing legislation provides an exemption for parties such as mobile phone network operators where the phone is used to give consent to a transaction and the content is used through/delivered to the phone, provided that the phone operator is not acting purely as an intermediary (which is a point particularly unclear, despite EU and FCA guidance). This exemption currently covers downloaded content such as music, online newspaper or video content, electronic books and mobile apps. The Commission proposal for PSD II now emphasises the focus of this exemption on micropayments for digital content which is ancillary to electronic communications services.
It is also intended that financial limits will be introduced with which compliance will be needed for reliance on the exemption.
Commercial agent - The Commission initial report indicated an intention to clarify which firms would be within this exemption. The need has been triggered by the development of new e-commerce platforms. Currently the exemption covers situations where a person is authorised to negotiate or conclude a transaction on behalf of another. The PSD II proposal clarifies that this exemption will in future only apply to firms who act for either the payer or the payee and not for both.
Payment initiation services - PSD II provides for these "overlay" services to be regulated for the first time. Payment initiation services are those where a third party payment service provider has the ability to authorise payments out of a customer's online bank account. There are also plans for account information services.
The ECB view
The ECB view is supportive of the new directive proposal but it makes a number of recommendations including asking for greater clarity about what amounts to the acquiring of payment transactions and issuing payment transactions and in significant detail about the perimeter of and conduct requirements for the newly regulated payment initiation and account information service providers.