Payment Matters 12: Europe and beyond

• United Kingdom

• Financial services - Payment services

06-10-2014

In this month's edition:

• PAD published in the OJ of the EU
• SEPA Credit Transfer and SEPA Direct Debit – new ERPB chaired by ECB
• EU Council presidency compromise on MIF Regulation
• ECJ dismisses MasterCard appeal
• EU Council presidency compromise on PSD2
• CMA statement on MasterCard and Visa interchange fee investigations
• ECB identified four key payment systems
• World Bank acknowledged importance of digital payments
• EC President-elect sets out goals for Commissioner for Financial Stability, Financial Services and Capital Markets Union
• ECB own-initiative opinion on proposed Cyber-Security Directive
• Is Europe ready for e-Identity?

PAD published in the OJ of the EU

On 28 August 2014, the text of the Directive on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features (PAD) was published in the Official Journal of the EU (OJ). The Directive was adopted by the European Parliament on 15 April 2014 and by the Council of the European Union on 23 July 2014. The Directive will enter into force on 17 September 2014. Member states must transpose the Directive into national law by 18 September 2016. 

What this means for you

Once the Directive is transposed into national law, payment service providers and credit institutions will be subject to the rules concerning transparency and comparability of fees charged to consumers on their payment accounts, rules concerning the switching of payment accounts and rules to facilitate cross-border payment account-opening for consumers.

SEPA Credit Transfer and SEPA Direct Debit – new ERPB chaired by ECB

The European Payments Council (EPC) published a blog entry on 28 August 2014, offering a brief recap of the roles of various EU institutions with regard to the Single Euro Payment Area (SEPA) payment schemes. It also illustrates certain work items initiated by the newly established Euro Retail Payments Board (ERPB), chaired by the ECB, related to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD).

What this means for you

Those subject to the SEPA payment schemes may find this blog entry a useful read to remind themselves of the roles and responsibilities of several regulatory bodies in relation to SCT, SDD and general retail payments, in particular, the ERPB, which replaces the SEPA Council.

EU Council presidency compromise on MIF Regulation

The EU Council published its presidency compromise text on 5 September on the proposal for a Regulation on interchange fees for card-based payment transactions (MIF Regulation), so as to eliminate the obstacles to the formation of an integrated market for electronic payments. The MIF Regulation aims at regulating interchange fees, being a large part of the fees charged to the merchants by acquiring payment service providers for every national or cross-border card transaction.

What this means for you

The compromise text, which sets out the Council’s proposed amendments to the European Commission’s (EC’s) draft of the MIF Regulation, was discussed at the 9 September Working Party meeting.

ECJ dismisses MasterCard appeal

On 11 September 2014, the European Court of Justice (ECJ) dismissed the appeal by MasterCard and cross-appeals by Royal Bank of Scotland and Lloyds Banking Group, challenging the General Court judgment that upheld the EC's 2007 decision finding that MasterCard's European Economic Area (EEA) fall-back multilateral interchange fees (MIF) breached Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). The ECJ first held that the General Court had been correct to find that, despite a structural change, MasterCard's decisions setting the MIF were decisions of an association of undertakings due to the commonality of interests between MasterCard (and its shareholders) and the member banks.

The ECJ also found that the General Court had applied the correct legal test in examining whether the MIF was ancillary to the MasterCard system. The MIF was not objectively necessary as the MasterCard system was still capable of functioning without it. The ECJ, therefore, upheld the General Court's analysis of the restrictive effects of the MIF, as well as its consideration of the application of Article 101(3).

What this means for you

Our Competition team has published a legal briefing regarding the ECJ’s decision.

The assessment upheld by the ECJ forms the basis of the EC's on-going investigations into MasterCard's MIFs applicable to inter-regional transactions and MIFs applicable to cross-border acquiring. The judgment is also likely to have a bearing on other competition proceedings in the EU against MasterCard (and also against Visa MIFs). Several court appeals in France, Italy and Hungary have been stayed awaiting this judgment. In the UK an investigation by the Competition and Markets Authority has been on hold pending the ECJ's judgment. In Germany, Cyprus, and Hungary there are on-going investigations by the national authorities. The judgment will indirectly also have a bearing on actions for damages launched against MasterCard in the UK.

In addition, MasterCard will now have to look at whether it will adopt a voluntary reduction in interchange rates, potentially creating further difficulties to an industry that is already looking to deal with the Visa commitments.

EU Council presidency compromise on PSD2

The EU Council published a presidency compromise text on the proposal for the revised Directive on payment services in the internal market (PSD2) after the working party meeting on 25 July 2014. Amendments have been made to the proposal and the last compromise text in different aspects.

What this means for you

The PSD2 is still being negotiated and we will keep track of the latest updates.

CMA statement on MasterCard and Visa interchange fee investigations

On 11 September 2014, the Competition and Markets Authority (CMA) published a statement on its website about the future progress of its ongoing investigations into the interchange fee arrangements for UK domestic point-of-sale transactions made using MasterCard/Maestro and Visa consumer payment cards.

What this means for you

The CMA is now considering the developments including the EC's proposed interchange fee regulation, for its investigations of MasterCard's and Visa's interchange fee arrangements for UK domestic transactions. The CMA expects to make a decision regarding how to proceed with its investigations by the end of October 2014.

ECB identified four key payment systems

On 21 August 2014, the European Central Bank (ECB) published a press release stating that it had identified four key payment systems that are now under the ECB Regulation on oversight requirements for systemically important payment systems (SIPS). The four systems identified are:

• Target2, operated by Eurosystem
• EURO1, operated by EBA Clearing
• STEP2-T, operated by EBA Clearing
• CORE(FR), operated by STET (a joint initiative of six major French banks).

What this means for you

This is the first time ECB has made use of its regulatory powers in the field of payments oversight. However, competent authorities such as Eurosystem central banks with primary oversight responsibilities for payment systems are expected to assess compliance of these systems with Regulation 795/2014.

World Bank acknowledged importance of digital payments

In advance of the November 2014 G20 Summit in Brisbane, the World Bank, jointly with the Better Than Cash Alliance and the Bill and Melinda Gates Foundation, released a report which reviews the benefits of digital payments, the challenges faced by countries looking at increasing the use of digital remittances, and suggests what government and private sector could do. The Report includes a call on governments to make progress in certain areas in relation to digitization of payments by the end of 2015.

What this means for you

The World Savings Banks Institute stresses that while governments play a significant role in removing barriers to digitalization, financial institutions should also exploit every opportunity to position and prepare actively for a more digitalized payment environment. This can be done not only by improving their technical infrastructure, but also by educating their consumers and small businesses about their potential options.

EC President-elect sets out goals for Commissioner for Financial Stability, Financial Services and Capital Markets Union

On 10 September 2014, the EC published a mission letter from Jean-Claude Juncker, Commission President-elect, to Jonathan Hill, Commissioner-designate for Financial Stability, Financial Services and Capital Markets Union. In the letter, Mr Juncker sets out what he expects from Mr Hill as a member of the Commission, as well as specific goals that Mr Hill will be responsible for reaching during his mandate, which include contributing to ensure the safety and modernisation of the EU regulatory framework on digital and electronic payments, to facilitate online purchases. The safety and appropriateness of certain virtual currencies should also be addressed and, where appropriate, relevant policy measures should be proposed.

What this means for you

While online purchases are increasingly popular in the EU, the EC aims at imposing a much stricter control of financial institutions in this respect. Focus will be placed on the regulatory framework on digital and electronic payments and firms may be subject to bigger challenges when it comes to the provision of such services.

ECB own-initiative opinion on proposed Cyber-Security Directive

On 12 September 2014, the ECB published an opinion (dated 25 July 2014) on the EC's proposed Directive concerning measures to ensure a high common level of network and information security (NIS) across the EU (known as the Cyber-Security Directive, the Network and Information Security Directive or the NIS Directive). The ECB generally supports the aim of the proposed Directive.

What this means for you

As NIS plays an essential role in facilitating cross-border movements, the resilience and stability of NIS is critical to the smooth functioning of the internal market. Firms interested in NIS may find ECB’s observations and proposed amendments to the Directive in the opinion conducive to their business planning.

Is Europe ready for e-Identity?

On 18 September 2014, the EPC published a blog entry on the Next Steps in the Area of Online Payments: Is Europe Ready for e-Identity? It has discussed the relationship between digital identity and the regulatory initiatives put forward by the authorities, such as the PSD2 and the SecuRe Pay recommendations and the challenges that remain for the e-identity industry to take-off.

What this means for you

The idea of e-identity in Europe is pressing but the translation of such an idea into a working reality is still a work in progress. It is hoped that the PSD2 will shed much needed light on this area for Europe’s future economic prosperity.