(Note: the below is a high level review of certain potential issues and is not to be relied upon in any definitive manner nor as legal and/or regulatory advice).
The Payment Services Directive (PSD) became law on 1 November 2009. It is the first major piece of legislation to cover payment services and its providers across the EU. The European Commission outlines it key aims as follows:
“The PSD aims at establishing a modern and comprehensive set of rules applicable to all payment services in the European Union. The target is to make cross-border payments as easy, efficient and secure as ‘national’ payments within a Member State. The PSD also seeks to improve competition by opening up payment markets to new entrants, thus fostering greater efficiency and cost-reduction. At the same time the Directive provides the necessary legal platform for the Single Euro Payments Area (SEPA)”.
The PSD creates a new form of entity known as a “Payment Institution” – requiring a licence to carry out payment services and who are neither deposit-takers nor e-money issuers. The current planned changes to the PSD (known as PSD2) also look to increase the scope of businesses that would potentially require a licence, including those involved in initiating payment instructions, but do not necessarily “touch” the underlying payments.
There continues to be a great deal of commentary and confusion generated by the operative provisions of the PSD and its proposed changes. This in large due to the lack of harmonisation of its implementation across Europe, lack of clarity of key concepts, and also the Member States inability to consistently apply the Directive’s derogations.
Some of the key considerations for a payment service provider to consider under the PSD include:
- Does our business need to be licensed as a Payment Institution? (are there any applicable exemptions or transitional provisions applicable?)
- Do we afford our customers the sufficient level of consumer protection rights as set out in the Directive, are we informing our customers of all necessary information and allowing them to contract with us in the manner prescribed?
- Do we carry out and execute our payments in the manner prescribed – are there any operational issues which we need to adjust to comply?