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Payment Matters 22: Europe & beyond

Payment Matters 22: Europe & beyond
  • United Kingdom
  • Financial services - Payment services


In this issue:

Launch of SEPA Credit Transfer and SEPA Direct Debit rulebook consultations

The European Payments Council (EPC) has launched the Single Euro Payments Area (SEPA) Credit Transfer and Direct Debit rulebook consultations.

All stakeholders are invited to have their say in the evolution of the three existing SEPA scheme rulebooks (the SEPA Credit Transfer scheme, the SEPA Direct Debit Core scheme and the SDD Business-to-Business scheme) published by the EPC. The consultation will be open until 4 July 2016.

This public consultation is designed to ensure that the SEPA schemes reflect the evolution of Payment Service Providers’ (PSPs) needs and those of their customers, as well as technological changes. All payment stakeholders, PSPs, end users and technical players can participate in the public consultation.

What this means for you

Once the consultation is closed, the EPC will review the comments received. The finalised scheme rulebooks will be published in November 2016 and will be implemented one year later.

PSD2 - EBA Consultation

Now that PSD2 has been finalised and, in most cases, needs to be implemented into the law of member states by January 2018, the EBA has commenced its consultation process.  This includes consultations on (i) strong customer authentication (SCA) and secure communication and (ii) passporting under PSD2. 

What this means for you

PSD2 has conferred 11 mandates on the EBA, of which five are guidelines and six are technical standards.  This includes technical standards on SCA and secure communication and passporting (as mentioned above). Such standards will be published in both cases in summer 2016. In order to shape the technical standards the EBA produces, it is extremely important that you respond to the EBA’s consultations and engage with the guidelines/technical standards when they are issued.

Payments innovation - market news

The last few months have seen numerous innovations in the payments industry, including:

  • MasterCard plans to launch the facial recognition payment service (also known as "selfie pay") in the UK. This is designed to improve identity verification for mobile phone payments. Trialled with pilot schemes in the US and Netherlands, MasterCard said the system will become available in 14 other countries in the near future.
  • Apple is set to launch one-touch shopping to the mobile web later this year, enabling consumers with Safari browsers running on phones and tablets to use Apple Pay and TouchID to make a purchase. Apple has already introduced the one-touch feature in relation to in-app purchases for iOS mobile apps, but integration with Safari would extend the experience to online shopping sites.
  • Android Pay is set to launch sometime in the next few months. Android Pay will support MasterCard and Visa credit and debit cards for tap and pay payments at 460,000 contactless terminals across the UK and can also be used to buy goods in third-party apps, saving users from re-keying payments details in multiple apps.
  • Five of Switzerland’s biggest banks are reported to be discussing a joint mobile payments platform for the country with top retailers. The aim is to create a standardised pan-Swiss digital payment system for consumers. A joint statement said the talks by banks UBS, Credit Suisse, PostFinance, Raiffeisen and ZKB should produce initial results by early May. Any platform would be open to other partners.
  • Google is currently testing a new app enabling customers to make payments with only voice commands.  Hands Free uses face biometrics and the phone’s location to verify the payment and is currently available on Android and iOS devices at selected stores in San Francisco.

Spotlight on... Interchange Fee Regulation

On 19 May 2015, the Regulation on Interchange Fees for Card-Based Payment Transactions (the IFR) was published in the Official Journal of the European Union (Regulation (EU) 2015/751). The IFR applies caps on the interchange fees charged by cardholders’ banks to merchants’ banks every time a consumer makes a card-based purchase. The IFR entered into force on 8 June 2015.

The IFR requires each Member State to appoint a competent authority to supervise and enforce the IFR. In the UK, the lead competent authority is the Payment Systems Regulator (the PSR). The Financial Conduct Authority (the FCA) shares joint responsibility with the PSR for enforcement of some of the provisions of the IFR. There is also a small role for certain other bodies1.

Full text of the published IFR.

Timeline of key dates relating to the IFR 

8 June 2015

  • Ban on “steering rules” came into force (Article 11).

27 July 2015

  • HM Treasury published its consultation The Interchange Fee Regulation: A Consultation setting out its proposed approach to implementing the IFR.

8 October 2015

  • The European Parliament adopted the revised Directive on Payment Services (PSD2). Article 62(4) PSD2 bans merchants from surcharging consumers for card-based payments that are covered by the interchange fee caps.
  • HM Treasury published its consultation response on the Interchange Fee Regulation. HM Treasury confirmed that it would allow card schemes the flexibility to implement a weighted average approach for domestic debit card transactions until 9 December 2020.

17 November 2015

19 November 2015

  • PSR issued an information request concerning the value of UK domestic debit and credit card transactions to help it calculate the market share of three-party card schemes that potentially qualified for temporary exemption from the IFR interchange fee caps on UK domestic card-based transactions.

2 December 2015

  • The PSR published a Consultation Paper The application of the Interchange Fee Regulation in the UK: Phase 1 (CP15/3) and the draft guidance on how it proposes to monitor compliance with caps on interchange fees and business rules that will come into force on 9 December 2015. The PSR is consulting in two phases. This consultation was Phase 1 and covered:
    • Classification of schemes for IFR purposes
    • Interchange fee caps and possible exemption from those caps for some three-party schemes
    • The business rule provisions in force by 9 December 2015 (see below)
    • The PSR’s approach to monitoring compliance with the IFR
    • The PSR’s powers and procedures under the IFR
    • Penalties under the IFR.
  • The outcome of this consultation and confirmation of the PSR’s guidance is awaited.

8 December 2015

  • The PSR provisionally concluded that the market share for American Express between 9 September 2014 and 8 September 2015 was above the 3% threshold and as such it would not be exempt from the interchange fee caps on domestic transactions.

9 December 2015

  • The new interchange fee caps came into force (Articles 3 and 4)
    • Debit card transactions:
      • Domestic: 0.2% of the value of the transaction or a per transaction fee of no more than €0.05 with a 0.2% cap but Member States can decide to implement lower caps and fixed maximum fee amounts. Alternatively they can apply a weighted average interchange fee of no more than 0.2% of the annual average transaction value of all domestic debit card transactions within each payment card scheme. Member States have this discretion for up to 5 years. HM Treasury has applied a weighted average until 9 December 20202
      • International: 0.2% of the value of the transaction
    • Credit card transactions:
      • Domestic: 0.3% of the value of the transaction but Member States may define a lower cap – HM Treasury has confirmed the cap as 0.3%
      • International: 0.3% of the value of the transaction
    • “Universal”3 card transactions:
      •  0.2% of the value of the transaction or a per transaction fee of no more than €0.05 with a 0.2% cap and 0.3% of the value of the transaction for those transactions treated as credit card transactions.
  • Territorial restrictions within the EU are prohibited (Article 6).
  • Merchant’s payment service provider (PSP) must provide the merchant with a breakdown of the charges for a card transaction including the interchange fee and the merchant services charge (MSC) (Article 12).

12 January 2016

  • PSD2 entered into force – Member States are required to transpose PSD2 into national law by 13 January 2018.

29 January 2016

  • Deadline for comments on the PSR’s Phase 1 Consultation (CP15/3).

March – June 2016

  • PSR published its final guidance on 24 March 2016 following conclusion of its Phase 1 Consultation (CP15/3) and confirm whether any schemes are exempt from domestic interchange fee caps for the period to 31 March 2016.
  • PSR to publish its Phase 2 Consultation prior to entry into effect of the remaining IFR provisions on 9 June 2016 (see below) - finalised guidance likely to be published in quarter 3, 2016.

9 June 2016

  • Payment card schemes and processors must be independent, and cannot present bundled prices for both services (Article 7).
  • Any rules hindering the co-badging of two or more payment brands or applications are prohibited (Article 8).
  • The acquiring PSPs must offer and charge MSCs to the merchants on an “unblended” basis (Article 9).
  • “Honour all cards” rule is abolished (Article 10).

9 December 2016

  • Member States may no longer define a share of no more than 30% of the domestic payment transactions for “universal” cards to be treated as credit card transactions (Article 16).

13 January 2018

  • Deadline for Member States to have transposed PSD2 into national law.

9 December 2018

  • Three party payment card schemes4 are no longer exempt from the IFR (Article 1).

9 June 2019

  • The European Commission must publish a report setting out its findings following a review of the impact of the IFR on the European market. The review will cover competition, the effect of the IFR on merchants and customers and take account of new technology and business models. The UK government, PSR and FCA will feed into this review.

9 December 2020

  • Member States are no longer allowed to permit PSPs to apply a weighted average interchange fee for domestic debit card transactions (Article 3). The general interchange fee caps will apply.5


1 The PSR and FCA are jointly responsible for monitoring compliance with articles 8(2), (5), (6) and (9) (provisions relating to co-badging); 10(1) and (5) (provisions relating to the ‘Honour All Cards’ rule); 11 (the prohibition on steering rules); and 12 (the rules on information to be provided to merchants on individual card-based payment transactions). The Competition and Markets Authority, local weights and measures authorities in Great Britain and the Department for Enterprise, Trade and Investment in Northern Ireland may enforce a contravention of Article 10(4) IFR that harms the collective interests of consumers - Article 10(4) IFR requires merchants to inform consumers if they do not accept all cards issued under a payment card scheme.

2 See The Payment Card Interchange Fee Regulations 2015 (2015 No. 1911), regulation 23

3 These are domestic payment transactions which are not distinguishable as debit or credit transactions. Member States may define up to 30% of these transactions as credit card transactions.

4 Before this deadline comes into force, transactions using such three-party card schemes must not exceed 3% of the value of all card-based transactions made in the Member State otherwise they are not exempted from the IFR.

5 Domestic: 0.2% of the value of the transaction or a per transaction fee of no more than €0.05 with a 0.2% cap but Member States can decide to implement lower caps and fixed maximum fee amounts.