PSD2: Impact of the New Payment Services Regulations

2018 is a game changer when it comes to retail charges for payments, loyalty schemes, retail banking and payment services generally. As the new Payment Services Directive (PSD2) is implemented under local regulations from 13 January 2018, the way in which customer account information is handled and payment services themselves are about to change forever, as consumers and businesses alike can manage their finances using third-party providers.

Ban on retailers adding a surcharge for how you pay

The UK government has typically gone further than PSD2 by banning anyone from adding a charge for how their customers pay them, regardless of the type of consumer payment method used. The idea is to “create a level playing field between payment instruments” and for consumers to know the full price upfront without fear of hidden extra costs.

Retailers will not be able to enforce a contract term requiring payment of a banned surcharge. In fact, they must repay it. Customers could also initiate chargebacks for the excess amounts via their card issuer (or make a claim against the issuer under section 75 of the Consumer Credit Act).

Meanwhile, any charge for using commercial payment methods must be limited to the costs of accepting that type of payment. There can be no blended charge covering multiple types of payment method or instrument.

Big loyalty and reward schemes to be registered

Retailers also need to realise that their gift card and similar ‘limited network’ schemes will need to be registered with the FCA if the volume of transactions meets or exceeds €1 million (or the GBP equivalent) in any 12 month period.

The retailer commits an offence if it fails to notify the FCA within 28 days after reaching the threshold. The FCA must then decide if the scheme really is a ‘limited network’. If not, then the retailer may have already committed an offence by offering the scheme in the first place. Retailers should therefore check the status of their loyalty programmes before reaching the threshold.

Two new payment services

The new “account information service” basically means a service that provides information from one or more payment accounts to the customer, or to both the customer and a third party (e.g. a comparison website or adviser).

The new “payment initiation service” involves the service provider being permitted to use the customer’s log-in details to initiate a payment from the customer’s payment account at another institution.

We can expect a lot of these two services to be offered in the coming year, as big online service providers seize the opportunity to help you make better use of your current account information, in particular.

E-commerce Marketplaces

The new regulations do not permit “commercial agents” to handle funds between customers and merchants where they act for both parties. So expect changes to the way some e-commerce marketplaces operate, for example. Other operators may conclude they are not offering a payment service ‘by way of business’ anyway, and the buyer’s obligation to pay is satisfied by paying the operator.

Complaints handled faster

The time for processing customer complaints has been cut from 8 weeks to 15 business days.

Greater security

The new regulations bring a heavy focus on secure customer log-ins (strong authentication) and numerous technical standards that must be adopted over the next 18 months.

Ban on retailers adding a surcharge for how you pay

The UK government has typically gone further than PSD2 by banning anyone from adding a charge for how their customers pay them, regardless of the type of consumer payment method used. The idea is to “create a level playing field between payment instruments” and for consumers to know the full price upfront without fear of hidden extra costs.

Retailers will not be able to enforce a contract term requiring payment of a banned surcharge. In fact, they must repay it. Customers could also initiate chargebacks for the excess amounts via their card issuer (or make a claim against the issuer under section 75 of the Consumer Credit Act).

Meanwhile, any charge for using commercial payment methods must be limited to the costs of accepting that type of payment. There can be no blended charge covering multiple types of payment method or instrument.

Big loyalty and reward schemes to be registered

Retailers also need to realise that their gift card and similar ‘limited network’ schemes will need to be registered with the FCA if the volume of transactions meets or exceeds €1 million (or the GBP equivalent) in any 12 month period.

The retailer commits an offence if it fails to notify the FCA within 28 days after reaching the threshold.The FCA must then decide if the scheme really is a ‘limited network’. If not, then the retailer may have already committed an offence by offering the scheme in the first place. Retailers should therefore check the status of their loyalty programmes before reaching the threshold.

Two new payment services

The new “account information service” basically means a service that provides information from one or more payment accounts to the customer, or to both the customer and a third party (e.g. a comparison website or adviser).

The new “payment initiation service” involves the service provider being permitted to use the customer’s log-in details to initiate a payment from the customer’s payment account at another institution.

We can expect a lot of these two services to be offered in the coming year, as big online service providers seize the opportunity to help you make better use of your current account information, in particular.

E-commerce Marketplaces

The new regulations do not permit “commercial agents” to handle funds between customers and merchants where they act for both parties. So expect changes to the way some e-commerce marketplaces operate, for example. Other operators may conclude they are not offering a payment service ‘by way of business’ anyway, and the buyer’s obligation to pay is satisfied by paying the operator.

Complaints handled faster

The time for processing customer complaints has been cut from 8 weeks to 15 business days.

Greater security

The new regulations bring a heavy focus on secure customer log-ins (strong authentication) and numerous technical standards that must be adopted over the next 18 months.