Background
"Payment cards are the most frequently used electronic payment instrument for retail purchases. However, integration of the [European] Union [(EU)] payment card market is far from complete as many payment solutions cannot develop beyond their national borders or new pan-[EU] providers are prevented from entering the market.".1 The EU Proposal for a Regulation of the European Parliament and of the Council on Interchange Fees for Card-Based Payment Transactions (the "Regulation") is intended to address each of these issues.2
First Things First: Scope and Definitions
The Regulation will apply to card-based payment transactions carried out within the EU, where the payer's and the payee's payment services providers are both in the EU. But it won't apply to commercial card transactions, or cash withdrawals at ATMs.3For these purposes: 4
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"acquirer" means |
"a payment service provider contracting with a payee to accept and process card-based payment transactions, which result in a transfer of funds to the payee"
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"card-based payment transaction" means |
"a service based on a payment card scheme's infrastructure and business rules to make a payment transaction by means of any card, telecommunication, digital or IT device or software if this results in a debit or a credit card transaction. Card-based payment transactions exclude transactions based on other kinds of payment services"
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"interchange fee" means |
"a fee paid for each transaction directly or indirectly (i.e. through a third party) between the issuer and the acquirer involved in a card-based payment transaction. The net compensation or other agreed remuneration will be considered as part of the interchange fee"
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"issuer" means |
"a payment service provider contracting to provide a payer with a payment instrument to initiate and process the payer's card-based payment transactions"
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"net compensation" means |
"the total net amount of payments, rebates or incentives received by an issuing payment service provider from the payment card scheme, the acquirer or any other intermediary in relation to payment transactions or related activities"
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"payment service provider" means |
"natural or legal persons authorized to provide the payment services listed in [the First Payment Services Directive]5 or to issue electronic money according to the [Second Electronic Money Directive]6. A payment service provider can be an issuer or an acquirer or both"
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"processing" means |
"the performance of payment transaction processing services in terms of the actions required for the handling of a payment instruction between the acquirer and the issuer"
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Restrictions on Interchange Fees
With effect from 6 months after the Regulation comes into force:7
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Transaction type |
Interchange fee cap – payment service providers shall:8 |
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For cross border debit card transactions |
not offer or request a per transaction interchange fee of more than 0.2% of the value of the transaction
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For domestic debit card transactions |
not offer or request a per transaction interchange fee of more than 0.2% of the value of the transaction. Member States may allow a payment service provider to apply a per transaction interchange fee of no more than 5 eurocents, in combination with a maximum 0.2% of the value of the relevant transaction, provided that the sum of interchange fees of the payment card scheme does not exceed 0.2% of the annual transaction value of the domestic debit card transactions within each payment card scheme. For the first five years after the Regulation comes into force, Member States may also allow payment service providers to apply a weighted average interchange fee of no more than the equivalent of 0.2% of the annual average transaction value of all domestic debit card transactions within each payment card scheme. The EU Member States may define a lower weighted average interchange fee cap applicable to all domestic debit card transactions
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For cross border credit card transactions |
not offer or request a per transaction interchange fee or more than 0.3% of the value of the transaction
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For domestic credit card transactions |
not offer or request a per transaction interchange fee or more than 0.3% of the value of the transaction, or such lower amount as the relevant EU Member States shall choose to set
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For these purposes, any agreed remuneration, including net compensation, which has the equivalent object or effect as an interchange fee, which is received by an issuer from the payment card scheme, the acquirer, or any other intermediary, in relation to payment transactions or related activities shall be treated as part of the interchange fee.
Other Provisions
The Regulation will also:
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(From 6 months after it comes into force), 9 prohibit (i) intra-EU territorial restrictions; (ii) requirements or obligations to obtain country specific licences or authorisations to operate on a cross-border basis; and (iii) (in either case) rules with an equivalent effect in licensing agreements or payment card scheme rules;
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(From 12 months after it comes into force),10 require that payment card schemes and processing entities:
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Are separated in accounting and organisational terms;
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Do not:
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Present bundled prices for payment card scheme and processing activities;
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Cross-subsidise these activities;
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Discriminate between (i) their subsidiaries or shareholders, on the one hand; and (ii) users of these schemes, and other contractual partners, on the other; or
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Make the provision of any service they offer conditional on the acceptance of any other service they offer;
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(From 12 months after it comes into force),11 require processing entities within the EU to ensure that their systems are interoperable with the systems of other processing entities by meeting the standards developed by international or European standardisation bodies;
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(From 12 months after it comes into force),12 require acquirers to:
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Offer and charge payees merchant service charges that are individually specified for different categories and different brands of payment cards with different interchange levels; and
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(In relation to the agreements between acquiring payment services providers and payees), include individually specified information on the amount of the merchant services charges, interchange fees and scheme fees applicable to each category and brand of payment card,
Unless, merchants (in the first case) request in writing acquiring payment services providers to charge blended merchant services charges, or payees (in the second) make a different request in writing;
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Require the payee's payment service provider to provide the payee with:
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The reference enabling the payee to identify the card-based payment transaction;
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The amount of the transaction in the currency in which the payee's payment account is credited; and
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The amount of any charges for the card-based payment transaction, with the merchant service charge and the amount of the interchange fees appearing separately;
(in each case), at least once a month, in a form that allows the payee to store and reproduce the information unchanged. As is so often the case with European legislation, the Regulation is ambiguously drafted. It doesn't include any express provisions requiring European delegated legislation or guidance of any kind. But that doesn't necessarily mean that guidance won't be produced at a European or Member State level, which seeks to explain what some of the more ambiguous provisions require. Either way, the Regulation should be read alongside, and interpreted with, the proposed second Payment Services Directive13, second Information Accompanying Transfers of Funds Regulation14, and fourth Anti Money Laundering Directive15 which are all intended by the European institutions to form part of a cohesive legislative whole that will enhance consumer protection, lower prices and fees, and ensure the continued development of the internal market over time. Our Client Alerts on these other legislative proposals will follow in due course.
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1 See recital 8 to the Regulation.
2 The latest publicly available version of the Regulation, marked "final compromise text … as a result of the Trilogue of 17 December" was published by the Council of the European Union on 16 January 2015. The European Parliament is currently expected to vote on and approve this text in a plenary session scheduled for April 2015.
3See article 1 of the Regulation.
4See article 2 of the Regulation.
5 "First Payment Services Directive" is a reference to the Directive 2007/64/EU of the European Parliament and of the Council on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC. The European Institutions are developing a second Payment Services Directive that will repeal and replace the First, when it comes into force (currently expected 2017). Our Client Alert on the proposed Second Payment Services Directive will be available on Cooley.com in due course.
6 "Second Electronic Money Directive" is a reference to the Directive 2009/110/EC of the European Parliament and of the Council on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC.
7 The Regulation is expected to come into force in mid-2015.
8 See articles 3, 4 and 5 of the Regulation.
9 See article 6 of the Regulation.
10 See article 7(1) of the Regulation.
11 See article 7(4) of the Regulation.
12 See article 9 of the Regulation.
13 The Council's Permanent Representatives Committee agreed its negotiating stance on the proposed Directive on 5 December 2014. This agreed stance is the latest public version of the Directive available and is Interinstitutional File 2013/0264
14 The Council published the final draft of the Regulation on 30 January 2015 in its Political Agreement (5748/15).
15 The Council published the final draft of the Directive on 30 January 2015 in its Political Agreement (5748/15).
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