I am conducting a research regarding the regulatory change in EU payment services. In my MA dissertation (which will be due in September 2015) at King's College London, I will try to define third party payment providers as new entrants to the payment services level playing field and their field of activity. Furthermore I try to analyse what the above mentioned new regulatory provisions include, what challenges they entail for banks and how banks can reduce the impact and make the most of this new situation. I will also discuss why the EBA guidelines are important in the PSD review and what the rationale is behind its early implementation, why it is not delayed until the transposition of PSD 2. Lastly I will try to find some connection between this new regulatory change and the free movement of capital principle.
OUTLINE OF MY PROJECT PLAN
In the 1990s some products were still unavailable in shops especially in isolated areas. Today products can be ordered quickly and simply online from anywhere and deliveries are made across borders. It is now hard to imagine life without internet shopping. As a result there is a demand for simple and secure online payment processes. Merchants want to receive payments immediately, while customers want their goods without delay. A wide variety of payment services are offered to meet these needs. However these methods currently expose customers, merchants and their banks to various risks. The extent to which they are regulated also differs.
To address developments on the e-payment market and make better use of the opportunities offered by the internal market, the regulations governing payment services throughout the whole European Union have evolved constantly in recent years. In order to establish a harmonised legal framework for payment services with the aim of improving its functioning and encouraging innovation, the first Payment Services Directive (PSD) was adopted in 2007 to lay down the foundations for a more secure, efficient and open market.
Since then technological innovations and new payment practices have emerged together with new service providers outside the scope of the PSD. Nowadays if someone forgets his wallet it does not matter, he can still pay in stores via PayQwiq, a new UK service that lets customers pay and earn Tesco Clubcard points using just the customer’s phone. New technologies, new business models, new players: developments are accelerating and interacting. They are changing the world of financial services especially that of payments. By creating new types of status, the regulations have favoured the emergence of non-banking players on the payment market. Combined with changing consumer needs and technologies, they have therefore called into question existing balances.
In July 2013 the European Commission submitted a much debated legislative proposal for the EU payment services industry when issuing its review of the PSD. The points raised included that third party payment service providers offered cheaper payment solutions while falling outside the scope of regulatory supervision, as they were at no time in possession of the funds of the payer or the beneficiary. Although the provision of cheaper solutions was welcomed, the lack of supervision of these parties raised security, data protection and accountability issues.
On 3 April 2014, the European Parliament adopted a report from its Committee on Economic and Monetary Affairs producing various amendments to the PSD until a new text was adopted in July 2014 by the Presidency of the Council of the European Union (“Presidency Compromise”). This version still has to be approved by the Council and the Parliament. To enter into force, the new PSD will then have to be transposed into the national laws of the Member States in 2017/18.
With the PSD the provision of payment services no longer falls under the scope of banking monopoly. Such services can be offered by service providers having a payment institution status. These players together with credit institutions form the category of Payment Service Providers (PSPs) who offer payment services, including credit transfers, direct debits, card payments and money transfers. With the second Payment Services Directive (PSD 2) payment initiation services will be added to these services. Third Party Payment Service Providers (TPPs) offering such services will have to be authorised as payment institutions and banks will then be obliged to allow them access to bank accounts to initiate payments. In the future two different PSPs will exist; account servicing payment service providers and third party payment service providers which will be able to initiate payments from accounts that they do not manage.
The PSD 2 introduces the following major changes:
- new services enter within the scope of the regulatory framework with the payment initiation services,
- the providers of this services (third party payment providers) must adopt a payment institution status,
- banks and other account servicing payment service providers are required to allow access to accounts to these third party service providers to initiate payments.
Although banks welcome the fact that new entrants providing payment initiation services will fall within the scope of PSD 2, they are focusing on the need to maintain customer confidence. Further, there is the question of security (confidentiality of logins, protection of personal data) and that of remuneration for the service provided.
Parallel with the PSD reform, the European Banking Authority (EBA) published its final guidelines on the security of internet payments on 19th December 2014. These guidelines are based on the recommendations of the European Forum on the Security of Retail Payments (SecuRe Pay) a voluntary cooperative initiative set up by the ECB and comprising relevant authorities from the European Economic Area. These guidelines warrant some adjustments in the context of the ongoing negotiations of the revised PSD. Competent authorities and financial institutions must make every effort to comply with these guidelines as of 1 August 2015.
Ruth Wandhöfer, Transaction Banking and the Impact of Regulatory Change: Basel III and Other Challenges for the Global Economy, Palgrave Macmillan, 2014 October
Lucia Quaglia, Governing Financial Services in the European Union: Banking, Securities and Post-Trading, Routledge 2010
Malaguti, Maria Chiara, The Payment Services Directive, Pitfalls between the Acquis Communautaire and National Implementation, ECRI Research Reports No. 9, 2 March 2009
Mavromati, Despina, The Law of Payment Services in the EU: The EC Directive on Payment Services in the Internal Market, Kluwer Law International, The Netherlands 2008
Boudewijn, Gijs (2014) “PSD2: EPC Key Considerations Address Aspects Related to Third Party Payment Service Providers and Article 67” (Refund Right for Direct Debits) EPC Newsletter Issue 21 – January 2014
Seibel, Helmut (2014) “PSD2: Analysis of the Selected Aspects of Recent European parliament Report Raises More Questions for Clarification” EPC Newsletter 29.04.2014
ING BANK N.V. v. AFAS SOFTWARE B.V  Rechtbank Midden-Nederland C/16/372291 / KG ZA 14-481
Patco Construction Company Inc., v. People’s United bank d/b/a Ocean Bank  United States Court of Appeals For the First Circuit, Case 11-2031
 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 924/2009 on cross-border payments in the Community
 Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on payment services in the internal market and amending Directives 2002/65/EC, 2013/36/EU and 2009/110/EC and repealing Directive 2007/64/EC