Re: EMA Response to HMT Consultation on the implementation of the EU Payment Accounts Directive

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1 Shannon Cochrane Payment Accounts Directive consultation Banking and Credit Team HM Treasury 1 Horse Guards Road London SW1A 2HQ Electronic Money Association Crescent House 5 The Crescent Surbiton Surrey KT6 4BN United Kingdom Telephone: +44 (0) Facsimile: +44 (0) August, 2015 Dear Shannon, Re: EMA Response to HMT Consultation on the implementation of the EU Payment Accounts Directive The EMA welcomes the opportunity to respond to HM Treasury s consultation on the implementation of the Payment Accounts Directive (PAD) in the UK, and in particular on the proposed scope of the Directive. The EMA represents a wide range of business models for the provision of electronic money products. These range from prepaid cards to online wallets, most of which are not currently used by consumers in the same way as a bank account might be used, and would not normally be considered as substitutes for bank accounts. Please find below our responses to a number of consultation questions. We have limited our comments to those that will have most impact on EMA members (i.e. Questions 1 and 6). 1. Do you agree with the government s overall proposed approach to the implementation of PAD, including the clarification of the directive s scope and application? Whilst we agree with the government s approach in principle, we do not believe the scope is sufficiently clear, and that this lack of clarity is likely to lead to more - rather than less - disruption to the UK electronic money sector, a sector that largely operates out of the UK precisely because of the existing regulatory regime. Further elaboration is below. We agreed with the government s approach during negotiations on PAD: that the measures being discussed, and the intended outcomes of the directive indicated that it would be most appropriately Page 1 of 6

2 applied to current accounts in the UK. There is a considerable difference in consumer usage patterns and purpose between bank current accounts and e-money products: E-money products often have a very specific payment proposition: e-commerce purchases, gift cards, money transfer, corporate expenses etc. Almost invariably all e-money accounts are secondary payment accounts Users often use e-money accounts for a short period of time, and if the service is not agreeable will stop using the product and adopt another. There is no difficulty in switching, and the landscape is very competitive. In contrast to the open-ended nature of bank accounts, e-money products usually feature transaction/turnover/balance limits in line with their intended use. Average transaction values for e-money are in the region of EUR 30, whereas bank payments are higher. Average values in e-money accounts are in the region of EUR 35, whereas banks are used to store significantly larger amounts of money. Bank accounts encourage depositors by offering some interest on funds that are deposited, whereas e-money issuers are prohibited from doing so in order to discourage consumers from using such accounts for storing funds on an ongoing basis. It would therefore be incongruous for them to fall under the scope of this Directive, which is intended to address concerns about access, transparency and competition, none of which are issues for the e-money sector. We also agree - in principle - with the government s proposed approach to the implementation of PAD i.e. not to extend the requirements beyond what is strictly required under PAD, and to minimise any negative impact on the UK market as far as possible. However, we do not believe the proposed draft definition of payment account falling under the scope of the Directive achieves these aims. Instead it creates uncertainty, and appears to leave e- money firms within the scope of the provisions: payment account means an account held in the name of one or more consumers through which consumers are able to place funds, withdraw cash and execute and receive payment transactions to and from third parties, including the execution of credit transfers, but does not include any of the following types of account provided that the account is not used for day-today payment transactions: savings accounts; credit card accounts where funds are usually paid in for the sole purpose of repaying a credit card debt; current account mortgages or e-money accounts; The draft definition has a number of relevant elements: - The copying out of Recital 12 into Article 1(6) is welcome, as it provides added support to the idea that PAD is intended to apply to current accounts in the UK, and not to other types of accounts such as e-money accounts, credit card accounts, savings accounts, or current account mortgages. - However, the reference suggesting that these excluded accounts should still come under the scope if they are used for day to day transactions is too inclusive. We recognise Page 2 of 6

3 that the wording has been copied out from PAD, but believe further clarification would be beneficial in this instance. Does a day-to-day transaction refer to the type of transactions that can be undertaken? In which case it would include almost any transaction; is it the frequency of use? In which case successful products would be captured and less successful excluded. We would be grateful for more specific criteria that recognize the inherent difference between a bank account like product, and a cash like surrogate for notes and coins. In the absence of such criteria, almost all e-money accounts including e-wallets, vouchers, card based accounts, mobile payment accounts and online payment accounts - could arguably fulfill the current conditions for inclusion within the scope of PAD: - you can normally place funds in the account - you can usually withdraw cash from the account when redeeming value - most accounts permit consumers to execute and receive payment transactions to and from third parties However, it would be difficult to argue that e-money accounts are used by most consumers as their main payment account, nor that such accounts possess the kind of restrictions on mobility or change that are associated with bank accounts. In most instances, a user that does not like an e-money account would simply redeem outstanding e-money, discard the product, and take up a competing one. There is no product functionality or service that would hinder such a change. Instead, rather than referring to the use of accounts for day-to-day payment transactions as an indicator that an account should come under the scope of the Directive, we suggest the government use a set of more specific criteria to determine the scope of the application of the Directive. These criteria should include cumulatively: - the existence of an IBAN number - the ability to set up direct debit payments and standing orders from the account - a four-party (as opposed to three-party) product; three party systems require a contract with payer AND payee, creating a closed system, so there is no competitive benefit in moving to another provider. Where e-money products develop to meet such criteria, they can be included within the scope, as they could conceivably compete with bank accounts. However the vast majority of e-money products are simply not intended to provide this functionality. We therefore propose a definition that states instead: payment account means an account held in the name of one or more consumers through which consumers are able to place funds, withdraw cash and execute and receive payment transactions to and from third parties, including the execution of credit transfers, but does not include any of the following types of account provided that the account is not used for day-today payment transactions: savings accounts; credit card accounts where funds are usually paid in for the sole purpose of repaying a credit card debt; current account mortgages or e-money accounts. Where a product meets the following cumulative criteria however, it may meet the Page 3 of 6

4 definition: (i) if it is allocated an IBAN number FM (ii) where it provides a direct debit, credit transfer and standing order facility for outgoing payments, and (iii) where it is part of a four party payment scheme. Whilst ideally we would like to exclude all e-money accounts from PAD on the basis that they are rarely used as a main account, we accept that the principles underlying the PAD indicate that this may not be possible in all cases. 6. What would you expect the costs and benefits to be of the government s proposed approach to the switching requirements in PAD? The potential costs for EMA members depend very heavily on the definition used for defining the scope of PAD under UK rules. If the definition remains as it is, many firms will be open to legal challenge that they fall under the scope of PAD, and would need to implement processes to ensure: - consumers can switch between an e-money account, wallet or prepaid card and their bank account - a pre-contractual standardised fee information document and annual fee statement will be provided for consumers - all consumer and marketing documentation is updated with the standardised terminology agreed by the FCA and the EBA, with only 6 months for implementing any EBA-agreed terminology. E-money accounts are often offered for free as a single-purpose product to consumers. Benefits such as interest on balances are unavailable with these products, which means the benefits of switching are mainly related to the specific product functionality. The e-money sector in fact sees very flexible consumer behaviour already: consumers often hold several products at once and switch easily from one provider to the next, depending on the nature of the e-commerce in which they intend to engage. As a consequence, the issues, the obstacles and the administrative complexities of account switching that the Directive intends to solve simply do not relate to the e-money accounts world. Considering the limited functionality of e-money accounts, it is also unlikely that switching would occur from a bank deposit account to such a specialised account. And due to the online, innovative, and convenient nature of e-money products, the terminology used by them may be different from classic banking terminology. Additional rules on disclosure and comparability of fees or the harmonisation of terminology could trigger more confusion to the consumer than provide benefits. As a consequence, the application of the rules of this Directive to e-money accounts would not provide benefits to consumers, while leading to administrative and business costs for UK e- money providers. Certain business models could cease to be commercially viable, leading to the disappearance of certain products from the market. This would undermine the Government s growth agenda and intention to minimize the implementation burden falling from PAD. Page 4 of 6

5 Some EMA member programmes will still fall within our earlier suggested definition of payment account, and as a result, these members would have to join CASS, and would be advised to also join Payments UK, with costs in the region of 20,000. There may also be additional charges by BACS who run the service. Once passed on to the programme managers, these costs may reduce the commercial attractiveness of these programmes, resulting in either termination of the programmes altogether or in increased fees associated with the e-money account. Many e- money issuers run relatively small profit margins, and joining CASS could constitute a significant cost. I would be grateful for your consideration of these comments. Yours sincerely, Dr Thaer Sabri Chief Executive Electronic Money Association The Electronic Money Association (EMA) is the trade body representing electronic money issuers and payment service providers. A list of EMA members is given overleaf. Page 5 of 6

6 List of EMA members as of August 2015: Advanced Payment Solutions Ltd Airbnb Inc American Express Azimo Limited Blackhawk Network Ltd Boku Inc Citadel Commerce UK Ltd ClickandBuy International Ltd Corner Banca SA Ekuantia EDE, S.L. Euronet Worldwide Inc Facebook Payments International Ltd First Rate Exchange Services Google Payment Ltd icheque Network Limited IDT Financial Services Limited Ixaris Systems Ltd Kalixa Pay Ltd National Australia Group One Money Mail Ltd Optimal Payments Park Card Services Limited Payleven Ltd Payoneer PayPal Europe Ltd PayPoint Plc PayU Paywizard PPRO Financial Ltd Prepaid Services Company Ltd PrePay Technologies Ltd PSI-Pay Ltd R. Raphael & Sons plc Securiclick Limited Skrill Limited Stripe Syspay Ltd Transact Payments Limited Valitor Wave Crest Holdings Ltd Wirecard AG Worldpay UK Limited Yandex.Money Page 6 of 6