Payment Services Directive

The Payment Services Directive[1] (PSD, Directive 2007/64/EC, replaced by PSD 2, Directive (EU) 2015/2366) is an EU Directive, administered by the European Commission (Directorate General Internal Market) to regulate payment services and payment service providers throughout the European Union (EU) and European Economic Area (EEA). The Directive's purpose was to increase pan-European competition and participation in the payments industry also from non-banks, and to provide for a level playing field by harmonizing consumer protection and the rights and obligations for payment providers and users.[2]

Overview

The SEPA (Single Euro Payments Area) is a self-regulatory initiative by the European banking sector represented in the European Payments Council, which defines the harmonization of payment products, infrastructures and technical standards (Rulebooks for credit transfer/direct debit, BIC, IBAN, ISO 20022 XML message format, EMV chip cards/terminals). The PSD provides the legal framework within which all payment service providers must operate.

The PSD's purpose in regard to the payments industry was to increase pan-European competition with participation also from non-banks, and to provide for a level playing field by harmonizing consumer protection and the rights and obligations for payment providers and users.[2] The PSD's purpose in regard to consumers was to increase customer rights, guarantee faster payments (no later than next day from 1 January 2012 on), describe refund rights, and give clearer information on payments.[3] Although the PSD is a maximum harmonisation directive, certain elements allow for different options by individual countries.[4]

The final adopted text of PSD went into force 25 December 2007 and was to be transposed into national legislation by all EU and EEA member states by 1 November 2009 at the latest.[5][6]

Technical overview

The PSD contains two main sections:

  1. The 'market rules' describe which type of organizations can provide payment services. Next to credit institutions (i.e. banks) and certain authorities (e.g. central banks, government bodies), the PSD mentions electronic money institutions, created by the E-Money Directive in 2000, and created the new category of 'payment institutions' with its own prudential regime rules. Organizations that are neither credit institutions or EMIs can apply for an authorization as a payment institution if they meet certain capital and risk management requirements. The application can be made in any EU country where they are established and they can then "passport" their payment services into all other EU member states without additional PI requirements.
  2. The 'business conduct rules' specify what transparency of information payment service institutions need to provide, including any charges, exchange rates, transaction references and maximum execution time. It stipulates the rights and obligations for both payment service providers and users, how to authorize and execute transactions, liability in case of unauthorized use of payment instruments, refunds on payments, revoking payment orders, and value dating of payments.

Each country had to designate a 'competent authority' for prudential supervision of the PIs and to monitor compliance with business conduct rules, as transposed into national legislation.[7]

Updates

The PSD was updated in 2009 (EC Regulation 924/2009) and 2012 (EU Regulation 260/2012). An implementation report from 2013 found the PSD facilitated "provision of uniform payment services across the EU" and reduced legal and production costs for many payment service providers and that "the expected benefits have not yet been fully realised". The same report found the 2009 update "... to be functioning well. For example, charges for 100 EUR transfers followed a further downward trend to 0.50 EUR euro-area average for transfers initiated online and remained low, at 3.10 EUR for transfers initiated at the bank counter ".[8]

Remaining issues

  1. The PSD only applies to payments within the European Economic Area, but not to transactions to or from third countries.
  2. PSD exemptions related to payment activities leave users unprotected.
  3. The PSD option for merchants to charge a fee or give a rebate, combined with the option for countries to limit this, has led to "extreme heterogeneity in the market".
  4. So-called “third party payment service providers” have emerged, which facilitate online shopping by offering low cost payment solutions on the Internet by using the customers' home online banking application with their agreement, and informing merchants that the money is on its way. Other ‘account information services’ offer consolidated information on different accounts of a payments service user. Harmonisation of refund rules regarding direct debits, a reduction of the scope of the “simplified regime” for so-called “small payment institutions” and addressing security, access to information on payment accounts or data privacy with possible licensing and supervision have been proposed.[8]

Revised Directive on Payment Services (PSD2)

On October 8, 2015, the European Parliament adopted the European Commission proposal to create safer and more innovative European payments (PSD2, Directive (EU) 2015/2366). The new rules aim to better protect consumers when they pay online, promote the development and use of innovative online and mobile payments such as through open banking, and make cross-border European payment services safer.[9]

Commissioner Jonathan Hill, responsible for Financial Stability, Financial Services and Capital Markets Union, said, "This legislation is a step towards a digital single market; it will benefit consumers and businesses, and help the economy grow."[9]

On November 16, 2015, the Council of the European Union passed PSD2. Member states will have two years to incorporate the directive into their national laws and regulations.[10]

The EU and many banks are pushing this development with the new Payments Service Directive 2 (PSD2), which has come into force on 13 January 2018. Banks need to adapt to these changes that open many technical challenges, but also many strategic opportunities, such as collaborating with fintech providers, for the future.

Market implementation

PSD2 does not specify the actual machine-to-machine API standards and specification details to be used. The banks and other financial institutions had to agree upon such details to ensure interoperability. The 'Berlin Group', a pan-European payments interoperability standards and harmonisation initiative with the primary objective of defining open and common scheme- and processor-independent standards in the interbanking domain between Creditor Bank (Acquirer) and Debtor Bank (Issuer), has worked on complementing the work carried out by e.g. the European Payments Council. As such, the Berlin Group has been established as a pure technical standardisation body, focusing on detailed technical and organisational requirements to achieve this primary objective.

The Open Bank Project, established in 2010 by TESOBE, provides open standards and open source technology to support PSD2 and Open Banking. It provides public "sandboxes" such as https://psd2-api.openbankproject.com/ where developers can try APIs using simulated data.

Key dates

  • March 2000: Lisbon Agenda to make Europe “the world’s most competitive and dynamic knowledge-driven economy” by 2010
  • December 2001: regulation EC 2560/2001 on cross-border payments in Euro
  • 2002: European Payments Council created by the banking industry, driving the Single Euro Payments Area initiative to harmonize the main non-cash payment instruments across the Euro area (by end 2010)
  • 2001–2004: consultation period and preparation of PSD
  • December 2005: proposal for PSD by DG Internal Market Commissioner McCreevy
  • 25 December 2007: PSD entered into force
  • 1 November 2009: deadline for transposition in national legislation
  • 2009 update: eliminated differences in charges for cross-border and national payments in euro (EC Regulation 924/2009)
  • 2012 update: Regulation on cross-border payments, 'multilateral interchange fees' (EU Regulation 260/2012)
  • July 2013: report on implementation of PSD and its two updates[8]
  • 16 November 2015: The Council of the European Union passes PSD2, giving member states two years to incorporate the directive into their national laws and regulations.[10]
  • 13 January 2018: Directive 2007/64/EC is repealed and replaced by Directive (EU) 2015/2366
  • September 2019: all companies within the EU must comply with the national laws and regulations pertaining to directive (EU) 2015/2366 (PSD2) [11]

See also

References

  1. ↑ "DIRECTIVE 2007/64/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL". Eur-lex.europa.eu. 2007-12-05. Retrieved 2015-02-27.
  2. 1 2 "Payment services (PSD 1) - Directive 2007/64/EC". European Commission. Retrieved 2017-02-13.
  3. ↑ "What it means for Consumers" (PDF). European Commission. Retrieved 20 March 2014.
  4. ↑ "Member States' options - European Commission". Ec.europa.eu. Retrieved 2015-02-27.
  5. ↑ "Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC". Official Journal of the European Union. 5 December 2007. Retrieved 2 August 2014.
  6. ↑ "Payment Services - European Commission". European Commission. Retrieved 2017-02-13.
  7. ↑ "Competent authorities for the authorisation and supervision of payment institutions (Article 20)" (PDF). Ec.europa.eu\accessdate=2015-02-27.
  8. 1 2 3 "REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the application of Directive 2007/64/EC on payment services in the internal market and on Regulation (EC) No 924/2009 on cross-border payments in the Community". Eur-lex.europa.eu. 2013-07-24. Retrieved 2015-02-27.
  9. 1 2 EU Commission. "European Parliament adopts European Commission proposal to create safer and more innovative European payments". EU Commission. Retrieved 2016-05-04.
  10. 1 2 "Electronic payment services: Council adopts updated rules". European Council. Retrieved 2015-11-16.
  11. ↑ https://blog.onegini.com/what-is-psd2-how-does-it-work

Further reading

  • Dimitrios Linardatos: "Das Haftungssystem im bargeldlosen Zahlungsverkehr nach Umsetzung der Zahlungsdiensterichtlinie", Nomos-Verlag, 2013, ISBN 978-3-8487-0709-6. (German)
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