Europe’s winding road towards a payment revolution


Payments in 31 European countries are about to get faster, cheaper and easier once the EU's ambitious Payments Services Directive is fully translated into national law. However, member states have begun to opt out of some parts of the rulebook, making a level playing field harder to attain.

In practice, all banking institutions will have to deliver payments as quickly as their competitors, regardless of where they are located or whether they are domestic or cross-border payments. 

Instead of five working days, payments should take place within two working days or less according to the new directive, which has been transposed in all but 11 of the 31 participating countries. 

The PSD will apply across the 27 member bloc in addition to Switzerland and EEA (European Economic Area) countries Iceland, Liechtenstein and Norway. 

In the case of fraud, money can be recalled eight weeks after a payment has been made. And if these conditions are not respected, then the user – whether a retailer or consumer – has the legal grounds to do something about it. 

Though on paper the directive's benefits outweigh its weaknesses, observers agree that it favours banks and card companies over the merchants, retailers and consumers who will be using the scheme. 

Opt-outs and soft laws

The PSD's weaknesses lie in its opt-outs, which allow member states to pick and choose which parts of the new rules they want to adopt and which will be the most profitable, argue critics. 

"Customers may end up footing the bill for lost or stolen cards," Marc Rothemund from Brussels-based think-tank the Centre for European Policy Studies (CEPS) told EURACTIV. 

If your payments card is lost or stolen, member states can decide whether the payer is liable for the costs of the stolen card. 

Consumer group BEUC argues that the PSD's rules on fraud – a payer can request their money back up to eight weeks after a payment – are not good enough. 

"This is a preventative not a curative measure," says Anne Fily from Brussels-based consumer group BEUC. 

The old surcharge chestnut

EuroCommerce, a retailers' lobby in Brussels, has long been tussling with the European Commission to put an end to multilateral interchange fees (MIFs), which merchants pay for accepting payments from certain cards. 

These charges are higher on credit cards than they are on debit cards. 

"Merchants should have the right to compensation as they face charges as high as 10% on any given transaction," argues Cecile Gregoire from EuroCommerce. 

EuroCommerce, which was consulted during the drafting of the PSD, insisted on a "merchant's right to surcharge" to recover the costs of an MIF on a card payment. 

However, this also became an opt-out, with Germany, France and Italy among other countries already choosing to reject the merchant's right to surcharge. 

"Most merchants don't want to be in a position where they have to surcharge, because it makes them unpopular with their customers," Gregoire added. 

Defeating the objective

The PSD's raison d'être is to boost competition but thus far it is doing the opposite, especially in the cards market, according to a chorus of critics from think-tanks, EuroCommerce and even the European Commission. 

The cards market looks like it will be more concentrated and Visa's V-Pay and MasterCard's Maestro are well-positioned to take over, says Gregoire from EuroCommerce. 

Since as early as 2005, banks have seen greater benefit in issuing cards that are more widely used and that have higher MIFs. 

As a result, the UK's old national scheme SWIFT was replaced by Maestro. With the onset of the PSD, the same thing has been happening to the EU's other legacy schemes such as the Dutch PIN and Belgian Bancontact systems. 

Data protection

Card companies argue that the EU's new rules do not address the issue of catching fraudulent transactions. 

The PSD gives member states the option to adopt less stringent rules to maintain on consumer protection and the safe usage of electronic payment instruments. 

In addition, if fraudsters are caught out, they can just shut up shop and go to another bank or payment institution, because there are no obligations for banks to share data and identify fraud, Marc Temmerman from VISA told EURACTIV. 

The issue is currently dealt with at member-state level and card companies argue that the EU should adopt rules to ensure that the details of fraud can be shared. 

Scope for more fragmentation

Markets are a fragile mechanism and the directive may lead to more fragmentation, argues Marc Rothemund from CEPS. 

"The PSD is a very ambitious attempt by the EU to harmonise a diverse and complex marketplace without disrupting the mechanisms already in place," Rothemund told EURACTIV. 

For example, the PSD introduces new so-called 'Payments Institutions' to already existing payment schemes such as credit and e-money institutions, which could create an uneven playing field for payments, says Rothemund. 

Payment Institutions, which in practice could be mobile phone operators or utility companies, are not subject to the same supervision rules and capital requirements – how much money is held by the institution – and may have a competitive advantage over e-money institutions, argues Rothemund. 

What about SEPA?

As soon as member states have put the PSD in place, they can then roll out the Single Euro Payments Area (SEPA), a voluntary initiative by the banking industry to have the same standards on debit and credit transfers. 

But SEPA's take-up has been very slow and so far six countries have asked for more time to implement SEPA schemes at their national banks. 

Estonia, Greece, Latvia, Poland, Sweden and Finland will be ready next year, the director confirmed. 

SEPA is being treated as a low-priority project in Sweden and Finland because their respective ministries of finance have limited resources to roll out the scheme, according to Elemar Tertak from the European Commission. 

The shorter delay in the remaining four countries in Eastern Europe is being caused by "technical problems". 

Latecomers who go beyond the agreed timeframes between the six and the EU will be subject to infringement procedures, according to Tertak. 

After months of fierce debate, the Payment Services Directive (PSD) was adopted by the EU Council of Ministers in March 2007. 

The PSD aims to create a true European market for payments and would ideally lower the cost of carrying out payments for both consumers and payment institutions. From the user's point of view, payments would become more efficient and the institution would be able to carry out a greater volume of payments. 

In practice all institutions that make payments will have to do so as quickly and with the same tools as their competitors regardless of where the bank (or payment institution) is based and regardless of whether it is a domestic or cross-border payment. The PSD will apply across the 27 member bloc in addition to Switzerland and EEA (European Economic Area) countries Iceland, Liechtenstein and Norway. 

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