Payment Services Directive

Update - 24th April 2007

On 24th April 2007 the European Parliament voted through the text agreed with the Council of Ministers which has meant a single reading deal for the Payment Services Directive.

Text adopted (provisional).

Background

The proposal for a directive seeks to establish a harmonised legal framework for the creation of an integrated payments market in the Union, the SEPA (Single European Payment Area).

The internal payment services market is currently very variable. There are enormous differences between the Member States, particularly with regard to the costs and execution times of electronic payments.

The Commission proposal therefore aims at strengthening competition in the payments markets by removing the barriers to market entry and guaranteeing fair market access for new payment service providers such as supermarkets and mobile phone operators. It also aims to lay down a set of rules concerning the information requirements and the rights and obligations linked to the provision and use of payment services. The consumers and businesses will get the same provisions across the EU.

The Commission proposal is structured in 4 Titles (scope and definitions (1), payment service providers (2), transparency of conditions and information requirements for payment services (3), rights and obligations (4)), Title II being the most controversial one as it aims at allowing non-bank providers to operate into the payments market by, for example, letting consumers make payments with their mobile phones or pay their electricity bill in supermarkets.

Sharon's involvement

Sharon was appointed the shadow rapporteur for the ALDE Group and has consequently been at the centre of all negotiations both with the other Parties in the European Parliament and also on behalf of the Parliament with the Council of Ministers (known as trialogues). In several of the key issues Sharon has pushed for amendments to substantially improve the text from the original proposal. In particular she has supported an execution time of one day, a derogation for small money remitters, lower captial requirements to ensure a more accessible and thus competitive market and an open ended time limit for cross border credit. As you will see from the final text many of these aims have been achieved. For those that have not Sharon has welcome the inclusion of a review clause in article 79 that gives a further opportunity to come back to some major issues (such as prudential requirements for payment institutions) by 1 November 2012 at the latest.

Key issues

1) Scope of application: contrary to the Commission proposal which gave the Directive global application, the ECON Committee limited the scope of application to payment services in the European Union made in Euro or in any other official currency of the Member States. The Council followed exactly the same line;

2) Ability of natural persons to be payment institutions: the Council shared the ECON line which restricted to registered bodies corporate the Commission provisions permitting natural persons to carry on business of a payment institution. This rule however does not apply if the conditions for the waiver in article 21 are fulfilled. In other words, the registration procedure can be relaxed mainly where the volume of payments is below a certain threshold (3 million per month);

3) Initial and ongoing capital requirements for payments institutions: this is one of the most important and controversial issue of the directive. The compromise text introduced an initial and ongoing capital for payment institutions following ECON proposals, whereas the Commission proposal did not contain any capital requirements. The difference with the ECON proposal is that the level of initial capital requested is lower (the amount varies according to the business carried on by the payment institution) but the level of ongoing capital is globally higher. The Council position reflected in the agreed text proposes 3 different methods (A, B and C) for calculating ongoing capital;

4) Protection for funds held by payments institutions: the principle of "ring fencing" of funds introduced by the ECON Committee in order to protect consumer's money adequately from possible financial failure of the payment institution has also been retained by the Council. However, the Council limited slightly the rule by making a distinction between 2 kinds of payment institutions: on one hand, the pure payment institutions which need not ring-fence funds and on the other hand, companies which carry on payment services alongside other more general activities (supermarkets for example) which need to ring-fence funds. It has to be noted that for this latter category of payment institution ECON voted to require a separate legal entity if it wanted to offer payment services;

5) Definition of the point in time when a payment order is considered to be received, accepted and executed: the Council position retained the legal clarity and certainty introduced by ECON and clarified that this point in time corresponds to the day which the payment order is received by the payer's payment service provider;

6) End to end liability: the Council followed the ECON position which limited the liability of the payer's payment institution only for the delivery of the payment to the payee's payment institution account. The Council introduced a further obligation on the payee's payment institution to credit the payee's account as soon as it receives the funds; 7) credit: this was a key point for the Parliament especially as regards credit duration and revolving credit . ECON restricted the granting of credit by payment institutions to short term (suggestion of 3 months) credit directly linked to payments business. The Council position allowed the granting of credit up to 12 months. The final agreement was to include a reference to the Consumer Credit Directive in Article 10 and to clarify in a recital that credit cannot be revolving. The upper limit for credit to 12 months. 8) derogation ("waiver" in article 21): The waiver is a general derogation applicable to all payments institutions as far as their monthly volume is below 3 million EUR. 9) execution time for payments: the Council reverted to the Commission proposal to have 1 day execution time contrary to ECON which asked for 2 days execution time.The final Council text allows for an extension to 3 days execution time until 2012 and for another extra day in case of paper-initiated payment transactions.

Documents

Provisional adopted text.

Draft report adopted in ECON.

Commission Proposal on payment services COM(2005)603.