With the ongoing legislative process on ‘Payments legislative package’ among the 28 EU Member States, the jury is still out regarding a future regulatory framework for EU payments market. As we outlined in our article in the 5th Online Payments Market Guide (to soon be launched), there is still a whole array of unresolved issues to be negotiated between Member States and the European Parliament before reaching a final political agreement.
Unsurprisingly, one of the most contentious issues which has drawn and will continue to draw attention and debate is the issue of supervision of third party payment services providers (TPPs). Many debates have taken place so far around the supervision of third party payment services providers (TPPs). Following its own proposal which for the first time includes TPPs under regulatory scrutiny, the EC has kept itself engaged with the European Central Bank (ECB), Member States and industry stakeholders through various channels on this topic, indicating the Commission’s openness to a future fine-tuned framework.
It may not be easy. Fine balance needs to be found among encouraging competition, ensuring security and properly handling potential liability issues. EC’s overall political objective to increase competition and innovation in the payments market will have to be reconciled with practical concerns from the industry. Some argue that EC proposed rules around TPPs are not stringent enough.
TPPs’ access to payment account information has caused some strong concerns from the banking sector. The banks’ reluctance to expose account information to TPPs, especially when it comes to payment initiation services, is in a large part due to security concerns. These concerns seem to be shared by the European Central Bank (ECB) who, in its recent recommendation on security of payment account access services, calls for proper security measures to be put in place by TPPs as well as strong customer authentication around payment initiation and access to sensitive payment data.
Liability is another key aspect that requires due consideration. With expectedly growing role of TPPs in initiating payment transactions, questions arise as to the responsibilities TPPs are ought to shoulder, especially towards account servicing PSPs, in case of fraud and unauthorised transactions.
Being the most politically controversial issue among all, the Commission’s proposed caps on interchange fees have, from day one, received questions and doubts. Among all the voices, the headline concern is on the legitimacy of the proposed numerical cap of 0.2% and 0.3% of the transaction value, respectively for consumer debit card and credit cards payments.
Relatedly, a number of key aspects in this approach of price regulation will be important to be reflected by EU regulators. For industry stakeholders, the utmost concerns are voiced around the potential impact on the current business model and the unintended consequences on future industry innovation as well as the quality of services. Future implications for the functioning of domestic debit card schemes are called by some national regulators to be carefully considered. Whilst for consumers, it remains to be seen if real benefits/lower costs will be passed on from merchants.
The European Parliament position, which further brings commercial cards under the scope of regulated interchange fees, has once again triggered strong counter-reaction from the industry, due to potentially huge disruptions to business models. Whilst Member States have yet to establish their positions on the IF regulation, we could expect some difficult battles due to varied national interests at stake. Future negotiations between Member States and the EP would also be a bumpy road.
In parallel to proposing caps on interchange fees, the Commission has put forward several business rules in hope to lower costs associated with card payments transactions via enhancing the overall functioning of the payments chain. These measures include opening up cross-border transactions acquiring, separating card schemes from processing infrastructure, limiting the Honour all Cards Rule, prohibiting acquirers from blending fees and allowing merchants to steer consumers towards cheaper payment instruments.
Albeit the good intention, potential disruptions on business structure are foreseen by the industry and rules are called to be reflected. For example, the required legal separation of card schemes and processing entities, with little to no transitional period granted, is viewed by some industry players as problematic and hard to ensure smooth implementation.
With the above dynamics, it is needless to say that challenges are ahead and many are to be done before a final regulatory framework under PSD 2 and IF Regulation can be put in place. Finding political agreement on that will hopefully bring the EU one step closer to a single, secure and competitive payments market.
About the authors
Martin Bresson is a Senior Policy Advisor to FH Brussels. Martin specializes in delivering strategic counsel on policy and regulatory issues impacting the financial sector. In the past, Martin was a Financial Counselor for the Danish Permanent Representation to the EU.
Mandy Shi Lai is a public affairs specialist who supports clients in the financial services sector on issues relating to capital markets and payments sector. Prior to joining the firm, she worked in the US, in the City of Lansing Chamber of Commerce as a Project Assistant. Mandy studied in Hong Kong, Taiwan and US and she holds a BA with honors in Public Policy from the City University of Hong Kong
About the company
FleishmanHillard (FH) is one of the world’s leading public relations and communication firms, and operates throughout the Americas, Europe, Asia, Australia, and South-Africa. In Brussels, FH has a strong focus on public affairs. It provides strategic consulting services to companies across different sectors including financial services, technology, energy, etc. FH Brussels multilingual consultants are drawn from various background ensuring breadth and depth of experience.
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