25 July 2013

European Commission publishes proposals to review the legislative framework for payments

Updated 26 July 2013 - The European retail payments market is one of the largest in the world. The European Central Bank calculated that in 2009 almost 58 billion retail payment transactions were conducted in the Euro area alone. The European Commission recognises the economic importance of integrating this market, however the current degree of payment integration at European level varies substantially between the various payments instruments (such as credit transfers, direct debits and payment cards) and channels (e- or m-payments).

To achieve a more integrated market and to promote more competition, efficiency and innovation in the field of e-payments, the European Commission – following intense consultation with the stakeholders – decided to modernise the current regulatory framework. To that extent, the revision of the already existing Payment Services Directive (PSD) and the introduction of a legislative proposal on multilateral interchange fees (MIFs) for card payments were seen as a priority.


On 24 July, the European Commission presented  the proposal for the revision of PSD as well as the proposal for a MIF regulation. Both proposals  may have a major impact on the payments services industry.


The revision of payments legislation

The revision of payments legislation comprises a reform of the PSD as well as a legislative proposal on MIFs for card payments and a communication on the review of the SEPA (Single Euro Payments Area) governance arrangements. Many of the policy measures that have been discussed during last year’s consultation rounds will be addressed through the PSD revision. Some measures will be addressed through non-legislative means, e.g. the involvement of European Standardisation Organisations.

The aim this legislative package will be:

  • Governance: To reinforce the SEPA project and empower all stakeholders – including consumers – to take a more active role in the governance of the retail payments policy;
  • Standardisation: To facilitate standardisation via an adequate governance framework and via better involvement of the European Standardisation Organisations;
  • MIFs: to ensure legal certainty in the field of interchange fees for card-based payments and provide clarity on an acceptable business model for current and future payment initiatives based on cards;
  • MIFs flanking measures: To abolish restrictive business rules for card payments which lead to market distortion
  • Surcharging: harmonise surcharging policies across the EU;
  • Scope: define conditions of access to the information on the availability of funds for third party providers, including payment initiation services;
  • Implementation: improve the national implementation;
  • Consumer rights: better protect consumer rights.

With respect to the Commission’s proposal regarding MIFs, the main elements are:

  • Maximum levels of interchange fees will be imposed for cross-border transactions or cross-border acquired transactions for two years following the adoption of the Regulation by EU decision-makers;
  • A maximum  interchange fee of 0,20% will be set for all debit card transactions (cross border and domestic transactions) two years after the Regulation is adopted by EU decision-makers;
  • A maximum interchange fee of 0,30% will be set for all credit card transactions (cross border and domestic transactions) two years after the Regulation is adopted by EU decision-makers;
  • The application of the ‘Honour All Cards Rule’ will be limited to ensure that that no discrimination is allowed on the basis of the issuing bank or the provenance of the card holder and between the cards carrying the same multilateral interchange fee level;
  • Rules preventing or limiting merchants from steering customers to more efficient payments instruments are prohibited
  • Acquiring payment service providers (i.e. merchant banks) will be obliged to provide monthly statements of fees to merchants. These reports will specify the fees paid by the merchant over the relevant month concerning each category of cards and each individual brand for when the acquirer provides acquiring services;
  • Rules which prevent merchants from disclosing information regarding customer fees paid to payment service acquirers are prohibited;
  • The provisions relating to interchange fees will not apply to transactions with cards issued by three party payment schemes as they do not have explicit interchange fees. The European Commission has however stated that there are “implicit” charges so any such scheme using payment service providers to issue cards or handle retail business will be covered by the same cap.
  • The organisational separation between payment schemes and entities which are processing the transactions.

According to the Commission’s own impact assessment, the introduction of these new MIFs provisions will cut total EU debit card fees from around €4.8bn to €2.5bn, and credit card fees from €5.7bn to €3.5bn.


Going forward

The underlining policy aim of this legislative package is to further develop the EU market for payments, including card payments, internet payments (e-payments), and mobile payments (m-payments).

The Commission justifies the need for its proposals by suggesting that restrictive business practices and rules currently employed by some stakeholders hinders the effective functioning of the internal market in the area of payments (especially for card payment transactions) and restricts market entry. Recent decisions in the areas adopted under competition rules, the Commission argues, further support this conclusion.

The Commission reiterated the negative effects of interchange fees on consumers. Although it has no data to support it, the Commission believes that a cap on interchange will ultimately benefit consumers.  By emphasising this, the Commission has strongly played the consumer card, but consumer organisations however disagree whether a cap on fees will be beneficial for consumers.

​Announcing the Commission’s legislative proposals, Commissioner Almunia noted that these would not impact future and on-going antitrust probes that the Commission is pursuing against key players in the payments sector but  that legislation would  complement the antitrust investigations.

The Commission’s proposals  will now be shared with the European Parliament and the EU Member State governments (Council of the EU) for further scrutiny under the co-decision procedure. Negotiations will start immediately after the summer recess and the European Commission has expressed its ambitious hope to find an agreement before May 2014 when the European Parliament elections will take place. 

At this early stage of the legislative adoption procedure, ample opportunity remains for influencing this dossier. Proactive engagement with the relevant decision makers in the European Commission, European Parliament, national authorities and EU/national regulators will be of strategic importance.

Hill+Knowlton Strategies can assist your organisation by offering a tailor-made action plan, providing a clear strategy of engagement while identifying the key players that should be approached as well as the key data of the legislative timeline.

Related contacts :

Joost Koomen
Director Public Affairs

email: joost.koomen@hkstrategies.com