As a European directive, PSD2 has to be transposed into UK law. HM Treasury has recently launched a consultation inviting comment on the proposed legislative changes. The consultation document is written in plain English, and explains some of the issues very clearly.
The directive is aimed at “maximum harmonisation”, which means that national law may not exceed the terms of the legislation. This is to prevent gold-plating of European legislation when it is transposed into national law. The ideal approach to transposition is to “copy-out” the wording of the Directive into national law, with the exception of areas where discretion is explicitly granted to Member States.
Reacting to external pressures
In reality, the Treasury has to deal with pressure from three sides. As well as PSD2, the UK CMA and Open Banking initiatives overlap with some areas of the Directive. The third pressure comes from banks who are worried that this will force massive and costly changes, with no compensating revenue streams in sight.
The Treasury’s response is to take a default approach of copy-out, while extending derogations (opt-outs) from the original PSD “to reduce the cost for businesses and consumers [and] ensure continuity and consistency”. Particularly in light of Brexit, it is not surprising that the government wants to reduce the burden of implementing this directive on business where possible.
Putting stakes in the ground
Probably the most interesting discussion is around the definition of a “payment account”, and the specific set of Account Information Services (AIS) and Payment Initiation Services (PIS) to be offered. Both areas are left infuriatingly vague in PSD2, so it is refreshing to see the Treasury putting stakes in the ground.
Regarding payment accounts, the Treasury document says the following types of account are “likely” to fall within the definition:
- personal current accounts
- business current accounts
- credit card accounts
- flexible savings accounts
- e-money accounts
As the document notes, this goes beyond the CMA Remedy, which only impacts current accounts. One surprise is the inclusion of credit card accounts in the list of payment accounts. It’s true that such accounts are used for payments (though only for card payments); but Annex I of PSD2 draws a clear distinction between services offered on a payment account (paragraph 3) and services offered on a credit line (paragraph 4), suggesting that credit card accounts should not be treated as payment accounts.
A pragmatic approach but with limitations
Regarding the Account Information and Payment Information services offered via third parties, the Treasury has taken the view that banks should offer the same information and functionality as is available to the user when accessing their account online directly. This is a very pragmatic approach, and extremely convenient for banks, but raises a barrier to interoperability. Third parties will not be able to rely on a consistent set of data and services across all banks, but will have to adapt on a case by case basis, or settle for the lowest common denominator.
This “keep doing what you do today” approach further confuses the question of credit card accounts. The one payment initiation service that is undoubtedly required by PSD2 is the initiation of a credit transfer. For banks this is relatively simple – they already initiate credit transfers from current accounts via Faster Payments and Bacs (or SEPA in Europe); but credit card companies do not make such transfers, indeed they are not even connected to those payment systems. Do they have to create that capability purely so that third parties can use it? Or do they only need to provide the Account Information services?
Keep doing what you’re doing?
Regarding the specific services to be offered, the document lists the following under Account Information:
- account information, such as name on the account, address of the account holder, account number
- product details, such as the product type, interest rate when in credit, overdraft amount, interest rate when overdrawn
- transaction data to the same level of granularity and covering the same time periods as is available to the end user online
The first bullet is uncontroversial. The second is a nod to the CMA Phase 1 requirement for product information. The third is a manifestation of the “keep doing what you do today” philosophy, and the lack of a common standard across banks will make life difficult for Account Information service providers, and lead to an inconsistent user experience.
An unlevelled playing field
The payment services listed by the Treasury are as follows:
- Credit transfers
- The establishment of standing orders
- NOT the establishment of direct debit mandates if this is not already available to the user online
This list seems very much tied to “business as usual”, and doesn’t clarify some of the key questions around these services. For example, should credit transfers only cover sterling payments to UK banks, or should international payments also be covered – in Euros, or in any EU currency? Can a value limit be imposed? And so on.
From a commercial point of view, Standing Orders are inflexible and of rather limited value, since they cannot be used even for “fixed price” subscriptions such as cable TV which actually vary on a monthly basis as customers purchase pay-per-view items etc. Direct debits are much more flexible and useful, and are allowed but not mandated. This mean that Payment Initiation service provides will need to track which products are offered by which banks, with which options and constraints. It seems that the playing field will remain unlevelled.
On the whole, the Treasury deserves kudos for setting out the issues and their proposals so clearly but ultimately, there’s still ambiguity around certain issues. The paper lays the groundwork for a productive consultation with wide participation which will help produce a coherent standard. Let’s hope the final UK legislation clears up some of the remaining uncertainties.
Written by Tom Hay
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