Payments Package: Technical concerns

Transcription

1 Payments Package: Technical concerns 1. Introduction This paper sets out some concerns and questions raised by payment users on how the payments package will operate in practice, its scope and its detailed application. It is intended as a discussion document and to raise points where further clarification may be needed. 2. The MIF Regulation 1. Scope Article 1(1) uses the term payment card transaction. To clarity the technological neutrality of the Regulation, we recommend that the term card-based payment transaction as defined in Article 2(7) should be used. Such clarification is also required in Article Territoriality By Art 1, the MIF Regulation applies to payment card transactions carried out within the Union where both the payer s payment service provider (PSPs) and the payee s payment service provider are established therein. This raises 2 issues: a) Non-EU PSPs: Such PSPs are becoming increasingly important in the market, but would appear not to be covered. b) Non-European issued cards: It appears that these would be excluded from the Regulation even though the transaction still takes place on the territory of the Union If this is the case, the anomaly arises that not all sales made in Europe will be regulated the same way. c) Central acquirer established outside the Union: Due to the global nature of their businesses, some specific sectors such as airlines and cruise companies can use central acquirers established outside the Union for sales made within the Union, but it appears that such transactions would not be covered. Clarification is needed to correct this. 3. New business models The present regulation does not cater for fees charged to merchants under systems such as PayPal and the emerging cloud-based systems such as Google Wallet etc. Such fees, while

2 including the MIFs, may contain a significant extra element on which the merchant cannot negotiate. If such systems are pushed by major market players by being included in existing very popular technology (e.g. Android and Apple mobile phones), the merchant may not be in a position to refuse to accept such payments. This omission is a major deficiency in the Regulation and should be rectified. 4. Circumvention Article 5 aims to prevent circumvention by stipulating that any net compensation received by an issuing bank be treated as an interchange fee. This would not however prevent card schemes from increasing fees charged to acquirers (licensing, authorisation etc.) which would then be passed on to retailers and therefore consumers. The Regulation should be tightened to prevent such fee increases. 5. Commercial cards and surcharging a) Identification: The Regulation makes the assumption that a merchant will be able to distinguish between a consumer and a commercial card at time of purchase so that they know whether or not they may surcharge and how much (in accordance with the Consumer Rights Directive). To determine whether and how much to surcharge, a merchants need to know if a card is commercial or consumer and the country of issuance (IFs vary with country of issuance). This information is exclusively known by the card payment brands, and currently protected by commercial secrecy. It comes in the form of bank identification number (BIN) tables and product type codes that only members of Visa and MasterCard can access, and which are not generally shared with merchants. Banks may also mix consumer and corporate card issuance on the same BIN. Article 10(25) states that issuers shall ensure that cards are visibly and electronically identifiable. However, we still see problems with this: Information in card chip: It is not currently known how/whether issuers could include such information in a chip and/or whether point of sale (POS) terminals would be able to read it. This is likely to be technically even more difficult for contactless cards, unattended terminals (petrol stations, motorways), and cards/applications in mobile wallets. Online sales: The information generally given in online and telephone sales by the consumer to the merchant is card number, card security code and date of expiry but this does not provide the required information detailed above. The Regulation therefore ought to specify that information such as BIN tables, product codes and country or issuance must be always made available free of charge to merchants. Visual identification: Commercial cards have visible identifications on the card but (i) these marking vary considerably from issuer to issuer and can be hard to spot. Similarly in telephone sales, it would not be practical to ask 2 of 5

3 consumers to identify their card (ii) at point of sale the consumer will insert their card into a terminal which is facing away from the till operator. It is not practical to suggest that the operator must examine each card before allowing the consumer to go ahead and (iii) clearly, for e- and m-commerce, no visual identification is possible. b) Definition The Regulation defines commercial cards as those limited in use for business expenses. However, we understand that some corporate cards may be used for private transactions, or even drawn against an employee s personal account, with only the business expenses being claimed back by the employee from the employer. The question raised is whether the definition of commercial cards is specific enough to cope with actual practice and prevent a circumvention by card issuers to avoid capped interchange for consumer payments. c) Rules on Issuing: All small traders, even one-person small traders have to set up a company account. Many banks will automatically issue commercial cards for these accounts. The Regulation would put these traders in the position of always having to pay surcharges or of having these cards refused. The very small trader should be either exempted or be given the option of operating their business account with a consumer card. The clear solution to these problems would be to include commercial cards within the caps. 6. Deferred Debit The Regulation does not make mention of deferred debit as a separate category of card. By the given definitions, of debit and credit card transactions in Article 1, any transaction where payment is made more than 48 hours after the payment is initiated is a credit transaction. One specific problem with this is that some card transactions can be described as debit during the week, but credit at the weekend, when the clearing houses are closed. The current provision, therefore, lumps such short-term deferred debit into the same credit category together with transactions which are settled at the end of the month and longerterm rolling credit cards. It also gives rise to concern that schemes and issuers will try to push card-holders (with offers to rewards etc) towards deferred debit/credit settled after the 48 hour period has elapsed. This would endanger the current much-used, efficient purely debit card schemes and would be quite contrary to the spirit of the legislation. The Regulation should be amended to make sure this does not happen. We suggest that the merchant must be told the exact product type of the card by using either the brand, the application identifier in the chip, the BIN table or the associated product code. 7. Merchant Indifference test We understand that the cap levels in the Regulation may be reviewed in line with the results of the cost of cash study which is being carried out by the Commission. We are concerned 3 of 5

4 at the possible unintended consequences of the use of the merchant indifference test as a methodology. As has been pointed out many times, the pegging of fees for electronic payments to the cost of cash payments is not appropriate. If cash becomes more expensive as a result of shifts to electronic payments, we would be left with in the anomalous situation where electronic payments also become more expensive. This cannot be the intended aim. 8. Application selection On dual branded cards, the regulation will mean that the consumer has to choose which option to use. This raises three issues: At present, when the national debit application is co-branded with an international debit, by agreement, the card will always default to the national brand usually the cheaper option. The risk from the Regulation is that a step is unnecessarily added at the till where the consumer will have to choose between two applications which are essentially the same. Suggestion: The Regulation should follow the functional requirements for application selection agreed by the Card Standardisation Group (CSG) or the no-default rules should only apply where the applications are different in nature. How would this provision work in practice with contactless cards or at motorways etc where fast throughout is essential. It would not be practicable to make drivers stop and possibly exit their cars to enter details on a PIN-pad. Does the regulation allow for the merchant to configure terminals to default to the cheapest brand? 3. The PSD II 1. Territoriality: The Rules in the PSD II, Article 2(1) are as follows: This Directive shall apply to payment services provided within the Union, where both the payer's payment service provider and the payee's payment service provider are, or the sole payment service provider in the payment transaction is, located therein. Article 78 and Title III shall also apply to payment transactions where only one of the payment service providers is located within the Union, in respect to those parts of the payments transaction which are carried out in the Union. As noted above, the rules on territoriality in the two proposed acts (i) may lead to anomalies and (ii) should be the same. It is suggested that both acts should simply apply to all card payment transactions carried out within the Union. 2. Electronically readable IBAN: 4 of 5

5 To allow merchants the option to process card-based payments through the SEPA direct debit system, the customer account ID number (IBAN) should be electronically readable on all credit and debit cards or accessible by the terminal through the PAN. 3. Charges for access to consumer account information We understand it is the Commission s intention that there should be no charge from banks to third party payment providers (TPPs) for giving info on account funds. However, this should be explicitly stated in the Regulation. 4. Surcharging The Consumer Rights Directive caps surcharging at the cost of accepting the card payment and will apply as well within the PSD II. However, there is a risk that card brands seek to introduce the concept of a level playing field to prohibit merchants from surcharging card brands differently. The whole point of surcharging is to show the market, and the buyer, that different payment instruments have different costs. Any attempt to force merchants to practice a blended surcharge fee would erase the very essence of surcharging. Is there is a risk that at a later stage, member states would seek to ban surcharging for domestic transactions even after it was allowed by the current PSD2 proposal? Such an action would contravene the spirit of the regulation, to harmonize payment regulation across the whole EU. But, opening up a procedure for violating the spirit of EU law is no easy task. 5 of 5