The European Commission last month drafted another version of its proposed revision of the Payment Services Directive, known as PSD2 in Europe, with a goal of enacting a wider regulation of payments and interchange fees that reflects modern technology, security threats and stakeholders in payments.
The first European Union Payment Services Directive was adopted in 2007 and became law in most member states in 2009. It established ground rules for a "payment institution" while also lowering the amount of initial capital needed to enter the electronic money market. That stipulation alone enabled the creation of more than 200 European payment institutions, 80% of which are in the U.K.
But technology has changed, and critics of PSD2 say the newly proposed regulations have not accurately reflected how some payment methods operate or how to define a payment transaction, including card payments.
It does not help when each draft of PSD2 has introduced new elements, rather than "refining the existing," making it a complex proposal with "many layers," said Gareth Lodge, a London-based industry analyst with Celent.
The European Commission introduced its PSD2 proposal in July of 2013 in hopes it would be implemented early last year. Instead, many observers are saying European financial institutions and payments providers will continue to debate the complex proposal through this year, with implementation more likely in 2016.
At its surface, PSD2 seeks revised regulations for procedures and security at financial institutions and new payment services, as well as e-commerce, gift card and loyalty schemes, bill payment services, mobile wallets and direct debit payments.
The major objective of PSD2 is to allow new players, mostly non-banks, to enter the payments landscape, said Enrico Camerinelli, a senior analyst in wholesale banking and payments based in Milan, Italy for Aite Group.
PSD2 increases the range of services defined as "payment services," while limiting exemptions and applying requirements to money transfers and payments outside of the European Union.
"For once, regulators are listening to what corporate users want and their intervention is shaping the payments ecosystem, at least in Europe, to create more competition and business opportunities in an otherwise stagnant market," Camerinelli said.
Banks most likely are trying to provide input to the commission while keeping abreast of how the revisions affect their payments networks and procedures. For now, they aren't sharing a whole lot on how they view PSD2.
However, Visa Europe, a cooperative of more than 3,700 European banks and payment providers that operate Visa-branded products, has released a public statement that says it generally supports the revision, but has several concerns.
Visa Europe does not want telecommunication providers exempt from PSD2 regulations, viewing those companies as key players in current payments schemes as well as future mobile initiatives.
It also wants ATMs to be part of any transparency or consumer choice requirements on currency conversions that apply to the retail point of sale, and seeks clarity on directives to third-party provider contracts as they relate to liabilities and rights.
Payment service providers also need time to investigate refunds of unauthorized payment transactions, Visa Europe said. As such, the commission should not require those providers to "immediately" issue refunds, as it is worded in the proposal, Visa Europe said.
The commission should not remove any reference to fraud prevention in the directive, Visa Europe adds. Fearing unnecessary costs, Visa Europe also suggested that PSD2 allow providers to define the appropriate authentication strength for a given transaction, rather than establish a single regulation for all to follow.
Overall, it is not clear if most banks fear higher costs, unfair competition and less innovation as a result of PSD2, or if they believe it would strengthen consumer protection, while lowering costs and prices and providing more choice and transparency for payment services users.
Even though they are not particularly talkative at the moment, it is not likely European banks are ignoring PSD2, Lodge said. "I know of two big banks that are closer to publishing to their boards a paper on the implications of PSD2."
HSBC in London said in an e-mailed statement to PaymentsSource: "We support greater competition and innovation in the payments market, provided that the security of payments is ensured." Barclays declined to comment at this time.
In addition, a group called the Open Transaction Alliance [OTA] is also working on its position paper, Lodge added.
The OTA is concentrating on the "access to the account" provision, or XS2A, as presented in the new payments directive proposal. The alliance fears XS2A will make it easier for new and existing providers to offer payment services to merchants and consumers by making use of standardized access to consumers' payment accounts after the consumer provides consent.
While the European Commission views account access as a way to drive innovation and competition, the OTA says PSD2 does not cover the non-technical aspects, such as governance, branding and licensing that are common in collaboration in a two-sided market of payments services.
In a published statement last month, the European Payments Council took issue with the commission's proposal to abandon a directive on consumer protection that states "under no circumstances should a consumer share his or her personalized security credentials with a third party."
The payments council says this directive is necessary.
"This is a pre-condition to ensuring the continued security of consumers' funds and data in the online banking environment," the council said. The PSD2 proposal includes complicated stipulations on re-usable vs. non re-usable security credentials that would confuse consumers, the council said.
It is difficult to "realistically assess" the impact PSD2 will have on banks and other payments players in the industry, said Zil Bareisis, also a London-based senior analyst for research firm Celent.
PSD2 has many major proposals that could have significant implications on the payments industry in Europe, but "there are many uncertainties at this stage that still need resolving," he said.
Still, a foundation of guidelines and "somehow binding rules" must be in place to provide all participants with the same opportunities to compete in payments, Aite's Camerinelli said.
"When it comes to payments, it is very hard, and risky, to let market dynamics set 'de facto' rules," Camerinelli added. "A globalized economy must deal with multiple habits, jurisdictions and behaviors."