Revised Payment Services Directive (PSD2), a step forward?

After several drafts and intense debate within EU institutions, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) approved on June 16 2015 what in all likelihood will be the final text of PSD2. It is expected to be published in the Official Journal of the EU no later than December 2015, after which it will be applicable in all Member States from late 2017.

One cannot deny PSD1 merits, but a reform was indeed required. Whether the PSD2 text finally agreed upon is the response to the European payments’ industry needs is something that only time will tell. In this article I will provide the readership with some clues on where players from the acquiring industry might be headed in the future scenario.

Similarly to what PSD1 achieved when creating Payment Institutions (PIs), PSD2 lays down new services and categories of Payment Services Providers (PSPs), such as Third Party Providers (TPPs). Payment Initiation Services - through which TPPs will initiate the payments following customer’s request from their account at his Account Servicing PSP, and Account Information Services - through which TPPs will provide customers with online consolidated information about their accounts with other PSPs. Differently from the services regulated under PSD1, these do not imply handling of funds by TPPs, who will nevertheless require authorization as PIs. TPPs will also be subject to compliance with a set of requirements, amongst which liability for unauthorised and improperly executed transactions stands out.

The revised instrument also broadens the object scope, extending it to payments where one of the parties is not based in the European Economic Area (EEA) and those made in non-EEA currencies (one-leg approach).

Unfortunately, on account of the goals this piece intends to accomplish (e.g. internal market, competition, enhanced consumer protection) there are also weaknesses one would point to.

To start with, those PIs exercising their passporting rights through the establishment of agents in other EEA States may be required to appoint a central contact point in the host country to interact with the host authorities in local language and format. This will increase dramatically the costs of operating cross-border, implying a step backwards from the internal market and competition goals.

To continue with, PSD2 also re-shapes surcharging, which will only be permitted for transactions unregulated under the Interchange Fee Regulation, although it might also be allowed locally for regulated transactions. On this note, it is not hard to envision how domestic lobbying will catch on in some countries during the 2 years’ transposition period and that, as a consequence, the final picture might create an uneven playing field between Member States.

On another note, the final text entrusts the European Banking Authority (EBA) with quite a few supervisory tasks to make PSD2 effective and, on account of EBA resources, it remains to be seen whether this is a feasible remit.

Last but not least, implementation of the new security requirements, which stem from Secure Pay, is likely to remain uncertain as the standards needed to implement key parts of such Recommendations (e.g. definition of two-factor authentication) will not be released by EBA until late 2016, the soonest (and they won’t apply locally until 18 months after their entry into force).

About Ignacio González-Páramo

Ignacio González-Páramo is Vice President for Global Compliance at Payvision, ensuring the company’s compliance with Schemes’ rules and with domestic and international legislation. As a Compliance Officer, Ignacio acts as the corporate point of interaction with the Schemes and with regulators. He also handles Public Affairs on behalf of Payvision as a licensed Payment Institution; and, in such capacity, he is Payvision’s representative in the European Payment Institutions Federation (EPIF). Prior to joining Payvision in 2012, he worked at ServiRed, the leading Spanish Payments’ Scheme, in various capacities, most recently as Head of Rules and Compliance. Ignacio holds a Bachelor of Laws (LLB) from Universidad Pontificia Comillas (ICADE), Madrid, and a Master’s degree in e-commerce and IT from Universidad Carlos III, Madrid.

About Payvision

As one of the fastest-growing global acquiring networks in the world, Payvision provides international payment solutions based on ONE Secure Full-Service Payment Platform for all ecommerce transactions. Enhanced with innovative technology, Payvision serves over 300 Acquiring Banks, PSPs, ISOs and ~ 5,000 web merchants, processing over 100 million transaction a year.