Summary
The second Payment Services Directive,
published end of December last year, is an important and welcome next in the
further integration of payment services in Europe. In order to achieve a true
European level playing field ‘on the ground’, a clarifying FAQ for those who prepare its implementation today would be very
welcome.
A FAQ that explains how the PSD2 definitions
will apply in all Member states to the variety of business models and
transaction mechanisms observed, will enhance the purported level playing
field. This harmonised guidance is just as important as the FAQ/guidance provided for the first PSD. Both regulators and the market have further developed since
PSD1 and it is essential to recognise some of the underlying dynamics and
developments of the payments market.
1. Out of scope, limited network or regulated?
At present,
member states use the harmonised PSD-rules to determine whether or not a
certain business model defines as a payment activity or can be categorised as
an exemption. Both in terms of content and process, the approaches vary
considerably between supervisors. The feedback of supervisors varies from an
elaborate argumentation to merely the brief outcome of an internal review
process.
Also in
terms of content, the approaches vary. Business models that are out of scope in
one member state may be exempt or require a license in others. The lack of a
central register of supervisory statements on those matters makes this hard to
identify, but the PSD2 will change this. All business activity exempted under
article 3k and 3l, must be notified and the exemption decision will be
published in a central register.
The
practical consequence is that market participants can more easily determine
which business models are exempted in which countries. This means that the
supervisors must ensure that their qualifications are well-grounded and
harmonised. One of the major challenges in this respect is to take into account
the technological and market developments.
2. Technological developments: open and
device-agnostic
Just one
look at a user’s technical environment demonstrates that the major trend in
payment technology development is the move from closed, bespoke systems and
standards to more open structures. Whereas previously payment providers would
control (sometimes own) all technological instruments to be used in a payment
transaction, this is no longer the case.
The future infrastructure
setting is one in which consumers and merchants will use their own technical
device, and providers need to ensure that it can be used safely. We can now see
card-based payments, where no plastic is used anymore, as the payment is made
via a virtual card application in the mobile phone or PC. At the same time, in
the back-office, the systems are opening up to the outside world via
Application Programming Interface’s (APIs). Rather than having one instrument
that operates as a shopping and a payments tool simultaneously, we can see that
the value chain of search, shop and pay can be arranged via modularized
interfacing of channels and technologies.
Therefore,
when assessing the qualification of the technologies in todays payments, an
open and functional approach is required. The classical approach, in which one
tries to find the main device (such as a card) that services as the payment
instrument and then builds the further classification of a system around that
instrument, will no longer work. There will be all kinds of devices and
technical tools and while some may classify as payment instruments, others may
not.
Fortunately,
the definition of payment instrument in the payment services directive enables
this functional approach. The definition mentions both ‘a personalized device’ and/or
a ‘set of procedures’ to be viewed and defined as the payment instrument:
"payment
instrument" means a personalised device(s) and/or set of procedures agreed
between the payment
service user and the payment service provider and used in order
to initiate a payment
order;
3. Where is the commerce and where is the
payment transaction?
As
technology slices up the commercial value chain, we should note the relevance
of the last element of the definition of payment instrument: ‘to initiate a
payment order’. There is a clear difference between the commercial use of
devices for purchases (apps, shopping carts on the web, nfc-identification
devices) and the later moment in which aggregated purchases are actually being
paid. This can be compared to the difference between the shopping cart/button
on a website and the payment button.
The main question
to ponder is therefore: does the technology service allow the user to make a
payment to any other payee in Europe (under the SEPA-rules) and is the
transaction actually a payment order, or is it merely a shopping transaction,
with payments being arranged later on.
I wouldn’t
be surprised if in the next years, we will witness a shift away from devices as
the actual payment instrument. It may be more suitable to put the (user)
accounts centre stage as the actual payment instrument. When applied by retailer
organisations, such a choice will enable them to build a multi-channel
sales-channel in which the device used is irrelevant. The sales channel
aggregates purchase transactions towards the user account at the retailer. In
cases where the retailer merely aggregates these purchases and initiates a
direct debit for the total sum to be paid, this remains an administrative
account as the actual payment account in the process is that of the bank. Only
in cases where actual payments orders are initiated from such an account, it would
become the payment account as well as the payment instrument for the commercial
transactions.
It is
crucial to distinguish the commercial from the payment process domain when
evaluating apps and identification tools on the market. The actual payments can
be expected to become the afterthought of commerce, rather than a primary
service. These can flow via a payment account in the background, which is
provided by retailer, bank or payment service provider. It is that account that
will then function as the payment instrument in the commercial transaction and
not the purchase device/application used. Supervisors should thus not
immediately label ‘the card’ or any specific technical tool in a commercial
business model as the payment instrument.
4. Areas and definitions of interest for the
application of the PSD2
We’ve seen
that the democratisation of technology allowed non-bank payment service
providers to enter the payment space. Among those will also be retailers that
can leverage the technology to provide a better customer experience. If those
retailers are to use a services and customer contract with a monthly
SEPA-direct debit agreement in the background, the payment services directive
will not be relevant for them.
Similarly
there is the question whether the payments services directive would have to
apply to intermediary web-based platform companies that help users transact
among themselves. Such business models could be in or out of scope based on the
interpretation whether:
- the
payments are seen as a regular occupation or business activity (art 1,2b),
- the
agency model applies,
- the new
definition of acquiring applies,
- the
limited network exemption applies.
I hope that
the collective of regulatory players involved in the transposition and
application of the PSD2 will succeed in addressing those scoping and
definitions issues early-on. In this respect the publication of a FAQ on those
issues, may be a very effective tool to clarify and ensure the level playing
field.
