Edgar, Dunn & Company A Closer Look at the Payment Regulations. Webinar 25 th June 2015

Transcription

1 Edgar, Dunn & Company A Closer Look at the Payment Regulations Webinar 25 th June 2015 Edgar, Dunn & Company, 2015

2 Introduction This webinar will focus on two key regulatory topics: Multilateral Interchange Fees (MIF) Regulation Designed to help develop an EU- wide market for payments to enable consumers, retailers and other organizations to enjoy the full benefits of the EU internal market including e- commerce; to foster innovation and efficiency by providing legal clarity and a level playing field Payment Service Directive (PSDII) The PSDII will replace the current Payment Services Directive; the PSDII will have a wider scope to cover new payment services created by a period of innovation and to provide further clarity and update topics in the previous version of the directive Confidential 2

3 What is the difference between an EU regulation and an EU directive? REGULATION DIRECTIVE A regulation is a binding legislative act. It must be applied in its entirety across the EU. An EU regulation is applicable to all members and must be applied in full There is no need for transposition into national regulations A directive is a legislative act that sets out a goal that all EU countries must achieve. However, it is up to the individual countries to decide how. A directive is more of a guideline and requires transposition into national law to conform to the guidelines set within the directive Confidential Europa.eu 3

4 Timings of the MIF regulation and the PSDII directive MIF Proposal for a regulation on interchange fees for card- based payment transactions (MIF Regulation) Publication of preliminary results of the survey on Merchants Costs of Processing Cash and Card Payments Debate in parliament with decision to adopt amendments Working party discussions further amendments proposed Vote in committee Decision by parliament and approval by European Commission Regulation adopted by Council MIF Regulation enters into force Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Proposal for a directive on payment services in the internal market (PSDII) On the 26th of November a revised version of the PSDII was published for the first reading in the EU Parliament containing all changes, additions, and deletions to the prior version Debate in parliament with decision to adopt amendments Working party discussions further amendments proposed Debate in council Trilogue process Confirmation of final text as a result of trilogue expected publication of final version expected end of June 2015 PSDII Confidential 4

5 Timings of the MIF regulation and the PSDII directive going forward MIF PSDII MIF Regulation enters into force December 2015 interchange fee caps come into force June 2016 card schemes and processing must be independent; honour all products rule abolished Confirmation of final text as a result of trilogue expected publication of final version expected end of June 2015 after vote in committee Directive adoption and publication into Official Journal Directive comes into force 20 days after publication transposition into national legislation two years after Directive comes into force December 2018 three party schemes no longer exempted December 2018 review of the MIF regulations 2018 Confidential 5

6 MIF Regulation what is in- scope and out of scope of the regulation Key elements within the scope of MIF Regulation: Fee caps: 0.2% for consumer debit cards; 0.3% for consumer credit cards Caps apply to both cross- border and domestic card- based payments Applicable to card transactions at POS, on the Internet and on mobile Four- party payment schemes are within the scope of this MIF regulation Three party schemes working with external issuer/acquirer will be considered four- party and subject to caps Separation of scheme and infrastructure (processing) Removal of Honor all Products element from Honor all Cards rule Key elements out of scope of MIF Regulation: ATM withdrawal transactions Commercial cards are not subject to caps Three party payment schemes (e.g. Diners, American Express) Limited network specific instruments used in a limited way Confidential 6

7 MIF Regulation impact of the regulation across the four parties WILL SUFFER MOST Issuers: Will restructure fee models to offset loss in income and to cover costs Will withdraw or modify current products in the market (e.g. reduce rewards, reduce interest free period, introduce/increase annual card fees) Some will re- classify/re- evaluate commercial card products Acquirers: In the short term there is room for windfall profits as acquirers might not pass full reductions to merchants immediately (particularly smaller merchants) In the long term margins will be squeezed due to lower MSCs and higher pricing transparency Scale will become even more critical Consumers: Card acceptance (credit/debit) will increase Potential increase in fees to cover banking services Potential reduction in benefits and services (e.g. loyalty schemes) May face confusion when cards are rejected due to abolishment of honour all cards (products) rule Merchants: Large merchants will see a considerable decrease in payment acceptance costs Smaller merchants may not benefit from seeing a full pass through of reduced interchange until end of contract Merchants that chose to not accept all products (honour all cards) may need to update POS terminals and systems WILL BENEFIT MOST Confidential 7

8 PSD II significant differences between PSD and PSDII Widening of scope - will now be applicable to: Payment transactions where just one payment services provider is located in the EU (one- leg in transactions from two- leg in transactions under the current PSD) Payment Initiation Services (PIS) Provider of this service can develop a software bridge between a payee (e.g. a merchant) and payer (i.e. consumer) to verify to a payee that the funds needed for a transaction are available in the account and to initiate a credit transfer from the payer s account to the payee Account Information Services (AIS) Provider of this service can aggregate online information on one or more payment accounts for a user, accessed via online interfaces of the account servicing payment service providers (i.e. banks) Confidential 8

9 PSD II significant differences between PSD and PSDII (cont.) European Banking Authority EBA to take charge to set guidelines and prepare regulatory technical standards on security for payments with regard to strong customer authentication (two- factor authentication) Direct debit refund right Payer will be have unconditional right to refund for any disputed transaction, or unauthorized or incorrectly executed payment transaction (as in line with SEPA) Surcharging Will not be allowed on credit and debit cards subject to the MIF regulations Surcharging can not exceed the direct costs borne by the payee for use of a payment instrument Strong Authentication Expected to require strong (two- factor) authentication for all online based payment transactions (if not all electronic payment transactions) Confidential 9

10 PSDII Payment Initiation Service Payment Initiation Service (PIS) These services play a part in e- commerce payments by establishing a software bridge between the website of the merchant and the online banking platform of the payer s bank in order to initiate internet payments on the basis of a credit transfer Cannot use, access and store any data for purposes other than for the provision of the payment initiation services Do not hold payer s funds User can always address claim for refund to account servicing payment services provider, even when PISP involved Customer selects payment initiation service Merchant Bank Customer selects bank and enters online banking credentials Customer and recipient receive conformation of successful transaction PISP access the banking network and initiate payment instruction Customer bank processes payment PISP AS PSP Confidential 10

11 PSDII Account Information Service Account Information Service (AIS) These services provide the payment service user with aggregated online information on one or more payment accounts held with one or more other payment service providers and accessed via online interfaces of the account servicing payment service provider, thus enabling the payment service user to have an overall view of his financial situation immediately at a given moment Do not hold payer s funds Not request sensitive payment data linked to the payment accounts Not to use, access and store any data for purposes other than for performing the account information service explicitly requested by the payment service user Customer requests account information Data analysis / data consolidation provided to customer Data analysis / data consolidation by TPP AISP Customer selects bank and enters online banking credentials Credentials allow TPP to access the customer s bank(s) AISP retrieves data for analysis AS PSPs Confidential 11

12 Future regulation and commercial impact of PIS and AIS What s next for the PSDII directive: EBA to develop guidelines for secure access to accounts and strong consumer authentication Payment providers and banks are lobbying for open APIs to enable access to accounts as they are perceived to be more secure Banks fear risk to reputation, particularly as no contract is required between a PISP/ AISP and the banks Banks are liable to restore funds to the payer in the event of an unauthorized payment Apart from the regulatory aspects, there are many commercial aspects that also need to be considered: Who are the future TPPs? What services will they provide? Which will be the successful business model(s)? Who will benefit from the new regulation? Confidential 12

13 Existing players will have to adjust their business models to fit the new regulation... Payment initiation in cooperation with banks Payment initiation as a stand- alone service Account information in cooperation with banks Account information as a stand- alone service Confidential 13

14 ... Whilst new players will actively leverage their USPs to enter this space Confidential 14

15 Conclusions The impact of the MIF regulations and the PSDII regulations will soon unfold; in fact, it is being felt already Larger merchants are pushing acquirers for a reduction in MSC Credit card issuers have started to Reposition their corporate card programs Pull reward- based credit cards from the market, others have made rewards less lucrative to consumers The PSDII will bring its own set of challenges to the market Increased competition from new entrants such as PISPs and AISPs EBA guidelines on strong customer authentication and open access to accounts (including developing APIs) Increased cost of compliance including updating IT systems, online banking platforms, etc. Confidential 15

16 Any questions? Don t forget to use the chat pane on the right hand side to send in any questions and select send to All Panelists Confidential 16

17 We would be pleased to discuss further with you More about us Edgar, Dunn & Company (EDC) is an independent global financial services and payments consultancy Founded in 1978, the firm is widely regarded as a trusted advisor to its clients From offices in Frankfurt, London, Paris, San Francisco and Sydney, EDC delivers actionable strategies, measurable results and a unique global perspective for clients in more than 35 countries on six continents Confidential 17

18 Don t miss our upcoming Webinars! JULY 30 Thursday AUGUST 27 Thursday Multi- retailer Prepaid Cards Wearables To sign up: Go to: or Send an e- mail to: shanta.paratian@edgardunn.com First Floor, Candlewick House 120 Cannon Street London, EC4N 6AS United Kingdom Shanta Paratian Consultant Tel +44 (0) Mobile +44 (0) Fax +44 (0) shanta.paratian@edgardunn.com Confidential 18

19 Presenters contact details Ulf Geismar Director Mark Beresford Director Edgar, Dunn & Company Eysseneckstr Frankfurt Germany Tel +49 (69) Mobile +49 (172) Fax +49 (69) ulf.geismar@edgardunn.com First Floor, Candlewick House 120 Cannon Street London, EC4N 6AS United Kingdom Tel +44 (0) Mobile +44 (0) Fax +44 (0) mark.beresford@edgardunn.com Confidential 19