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New rules on Payment Services for the benefit of consumers and retailers
In order to adapt EU payments market to the opportunities of the single market and to support the growth of the EU economy, the European Commission recently adopted a new package including:
A new payment Services Directive ("PSD2")
A proposal for regulation on interchange fees for card-based payment transactions
Internal Market and Services Commissioner Michel Barnier said: "Today, the payment market in the EU is fragmented and expensive with a cost of more than 1% of EU GDP or €130 billion a year. These are costs our economy cannot afford. Our proposal will promote the digital single market by making internet payments cheaper and safer, both for retailers and consumers. And the proposed changes to interchange fees will remove an important barrier between national payment markets and finally put an end to the unjustified high level of these fees."
Vice President Joaquín Almunia added: "The interchange fees paid by retailers end up on consumers' bills. Not only are consumers generally unaware of this, they are even encouraged through reward systems to use the cards that provide their banks with the highest revenues. Complementing the enforcement of antitrust rules, the regulation capping interchange fees will prevent excessive levels of these fees across the board. A level playing field will be created for payment services providers, new players will be able to enter the market and offer innovative services, retailers will make big savings by paying lower fees to their banks, and consumers will benefit through lower retail prices."
The revised Payment Services Directive brings a number of new important elements and improvements to the EU payment market:
It facilitates and renders more secure the use of low cost internet payment services by including within its scope new so-called payment initiation services. These are services that operate between the merchant and the purchaser’s bank, allowing for cheap and efficient electronic payments without the use of a credit card. These service providers will now be subject to the same high standards of regulation and supervision as all other payment institutions. At the same time, banks and all other payment service providers will need to step up the security of online transactions by including strong customer authentication for payments.
Consumers will be better protected against fraud, possible abuses and payment incidents (e.g. in case of disputed and incorrectly executed payment transactions). Consumers may be required to face only very limited losses – up to a maximum of 50 EUR (vs 150 EUR currently)- in cases of unauthorised card payments.
The proposal increases consumer rights when sending transfers and money remittances outside Europe or paying in non-EU currencies.
It will promote the emergence of new players and the development of innovative mobile and internet payments in Europe for sake of EU competitiveness worldwide.
The Regulation on interchange fees, combined with the revised PSD, will introduce maximum levels of interchange fees for transactions based on consumer debit and credit cards and ban surcharges on these types of cards. Surcharges are the extra charge imposed by some merchants for the payment by card and are common notably for purchases of airline tickets. When interchange fees are capped for consumer cards, retailers’ costs for card transactions will be substantially reduced and surcharging will no longer be justified.
During a transition period of 22 months, caps on interchange fees for debit and credit cards will apply to cross-border transactions, i.e. when a consumer uses his card in another country, or when a retailer uses a bank in another country. Thereafter these caps will also apply to domestic transactions. The caps are set at 0.2% of the value of the transaction for debit cards and 0.3% for credit cards. These levels have already been accepted by competition authorities for a number of transactions with cards branded MasterCard, Visa and Cartes Bancaires. For the cards that are not subject to the caps (mainly commercial cards issued to businesses and three party schemes such as American Express or Diners), retailers will be able to surcharge for them or to refuse to accept them. In this way, the costs imposed by these expensive cards can be passed directly on to those who benefit from them rather than being borne by all consumers.
Interchange fees are included in the retailers' costs of receiving card payments and are ultimately paid by consumers through higher retail prices. They are unseen by consumers but cost retailers and ultimately consumers tens of billions of euros every year. The level of the interchange fees varies widely between the Member States, which suggests that they do not have a clear justification and create an important barrier between the national payment markets. Capping the interchange fees will reduce costs for retailers and consumers and help to create an EU-wide payments market. This should also encourage innovation and give more scope for payment providers to offer new services.
The review of the EU payments framework, especially the Payment Services Directive (PSD), and the responses to the Commission's Green Paper ‘Towards an integrated European market for card, internet and mobile payments’ in 2012 (see IP/12/11), led to the conclusion that further measures and regulatory updates, including adjustments to the PSD, are required. This would help the payments framework to better serve the needs of an effective European payments market, fully contributing to a payments environment which nurtures competition, innovation and security. Modernisation of the legislative framework for retail payments was also defined as one of the key actions of the Commission Single Market Act II.
This package responds to major changes in the way Europeans shop and pay. Almost every account holder in the EU possesses a debit payment card and 40% also own a credit card. 34% of EU citizens already shop on the internet and more than 50% possess a smartphone1,which allows them to access the world of mobile payments. Some economy sectors – like the travel industry – even make most of their sales on the internet2.
At the same time, the EU market for cards, internet and mobile payments remains fragmented and faces important challenges that hinder its further development and slow down the EU growth potential (such as divergent cost of payments for consumers and merchants, differences in technical infrastructures or the inability of payment providers to agree on the implementation of common technical standards).
Furthermore, while card payments are becoming more and more widespread, the still prevailing “interchange fees” (fees paid by banks to each other for each card payment) business model promotes high inter-bank fees and impacts costs for retailers and ultimately prices for consumers. It also prevents the emergence of new players.
For more information
See also MEMO/13/719
Antoine Colombani (+32 2 297 45 13)
Chantal Hughes (+32 2 296 44 50)
Marisa Gonzalez Iglesias (+32 2 295 19 25)