Payment Services #.0: When Payments Finally Become Less Visible

Today marks the dawn of new payments regulation under the second Payment Services Directive (PSD2). Yawn, you say. But, unusually for a technology-based industry, the experience for customers should outstrip the hype. Is this Payment Services 2.0? 3.0? 4.0?  Who cares? After all, "paying" for something or "checking your balance" should not be an activity all on its own. It should be just a small part of something else you're in the middle of doing. In other words, it's what you won't see that should make all the difference...

You might not deal with your bank anymore when paying or checking statements

New “payment initiation services” will mean you can use a separate service provider to make payments from your bank account or other payment accounts, without logging-in to your payment account provider's systems.

New “account information services” will combine the information from all your payment accounts and display it to you in one place. You could also permit that information to be sent to others (e.g. a lender, a comparison website or professional adviser). 

Not only will such services cut the amount of time you spend logging-in to different providers. They'll also make it easier for you to gather your financial information, understand and control your financial affairs and make payments from a range of accounts. 

You won't see retailers charging you for the privilege of paying them

From now on, nobody can add a charge based purely on how you pay them. So all their profit will be in the price of the goods or services you buy, not the extras. 

The UK has typically gone further than other EU countries to apply this to every type of consumer payment method. So, any contract term requiring such a 'surcharge' will not be enforceable. In fact, there will be an implied requirement to refund the excess. Or you could initiate a chargeback via your debit/credit card issuer, or make a claim against your credit card issuer under section 75 of the Consumer Credit Act. 

In addition, any extra charge for using a commercial payment method must be limited to the supplier's cost of accepting that type of payment. Again, no room for extra margin here.

You won't realise that big loyalty schemes are now policed by the FCA

Retail loyalty schemes, such as gift cards, fuel cards and other ‘limited network’ programmes, will need to be registered with the Financial Conduct Authority if the value of their transactions meets or exceeds €1 million (or the GBP equivalent) in any 12 month period.

The intention is to safeguard customer funds that are paid into wider schemes, as with any other e-money or payment service.

The FCA must then decide if the scheme really is a ‘limited network’ that's entitled to an exclusion from e-money and payments regulation. 

If not, then the retailer may have already committed an offence by offering the scheme in the first place.

The retailer also commits an offence if it fails to notify the FCA within 28 days after reaching the €1 million threshold. So retailers should check the status of their loyalty programmes well before then!

You will see less delay in handling your complaints 

The time for processing customer complaints has been cut from 8 weeks to 15 business days. This increases the pressure on payment service providers to operate much more efficiently, so they have fewer complaints and find it easier and less costly to solve any problems you do have. 

You won't see the increased security

You won't see all the standards-setting and development work that's going on behind the scenes to make all of this happen in a far more secure way than payment services have worked before.

The new regulations bring mandatory technical standards for better ways to make sure customers are who they claim to be, and for the different types of payment service providers to work together where you need them to do so.

So, finally, "payments" will become less visible... if you know what I mean.

Are UK Retailers Ready for The Ban On Payment Charges To Customers?

As mentioned previously, UK retailers won't be able to charge their customers a fee for using most forms of payment from 13 January 2018, and must refund any charges that violate the ban or limit. Certain surcharges within the scope of the regulations will remain permissible, but must not exceed the actual costs incurred in accepting the relevant payment method.

Customers will have teeth. Any contractual term requiring payment of a problem fee will be unenforceable to the extent of the excess charged, and will be treated as requiring the excess to be repaid. These rights can be enforced in the courts or alternative dispute resolution schemes. Customers might 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).

Local Trading Standards authorities will have to consider complaints they receive from payers concerning prohibited charges, and must then decide whether to apply for an injunction or any other appropriate relief or remedy against the relevant payee or to accept undertakings to avoid court action. They must also notify the Competition and Markets Authority of any undertakings or the outcome of proceedings taken, which will be publicised for their reputational impact.

In addition, the authorities may seek enforcement orders under the Enterprise Act 2002. Where there is collective harm, the court can restrain continued or repeated conduct. 

I should add that the above restrictions apply to any "payee", not just retailers, as well as to bank transfers and direct debits in euros. They also cover business “payers”, not just consumers. However, excluded from the ban are charges for using commercial payment instruments - issued to businesses, public sector entities or the self-employed and limited to use for business expenses where the payments are charged directly to their account. But charges for using those must only cover the cost to the retailer of using that specific payment instrument.

The restrictions have been introduced in The Consumer Rights (Payment Surcharges) Regulations 2012 by the Payment Services Regulations 2017.

Update on 15.12.17: The government has now published its revised guidance on the Regulations, taking into account the ban introduced from 13 January 2018, as well as how to calculate appropriate surcharges where they are expressly permitted.