Media Briefing Note: PSD II and Interchange Regulation Proposals to Impact Payments Market

LONDON, 24 July 2013 - The European Commission has today published a proposal for a new Directive on Payment Services (PSD2), replacing the 2007 Payment Services Directive (PSD1), and a proposal for a Regulation on Interchange Fees for Card-based payment transactions (Interchange Regulation).  If adopted in their current forms they will together have a significant impact on the payments market.

Emily Reid, partner in Hogan Lovells' financial institutions group, commented:

"One of the objectives of PSD2 is to facilitate innovation and avoid fragmentation, both of which the Commission considers to be impeded by "legal uncertainty, potential security risks in the payment chain and lack of consumer protection".

"The proposal seeks to tackle this by widening scope and including some specific types of intermediary payment service providers, such as aggregators. 

"This may help but the Commission really needs to address basic problems with interpretation that are a major cause of problems for both long established and new entrants to the payments market. The new proposal does not achieve that."

PSD2 will widen the scope of payments and payment service providers subject to regulation, narrow exclusions and impose requirements on payment service providers to enhance the security of payments and take increased liability for unauthorised transactions if they don't.

Specifically, in contrast to PSD1, PSD2 will, among other things:

  • Regulate, to a certain extent, payments in non-EEA currencies and to and from countries outside the EEA
  • Cover new types of payment service provider
  • Narrow the limited network exemption that currently applies to providers of a wide range of card based or digital products used for making payments.

The Interchange Regulation will cap the level of fees payable between card issuers and card acquirers. Where the Interchange Regulation applies to a card payment, PSD2 contains provisions prohibiting retailers from adding a surcharge to payments made with the card. Where the Interchange Regulation does not apply to a card payment, retailers will be able to surcharge but only up to the costs payable by the retailer for accepting the card.  The Interchange Regulation also contains measures for opening up competition and cross-border issuing and card acceptance.

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