14 September 2008 Comments

 

Comment: Payment Services Directive

John Chaplin, First Data

A quick glance through the agendas of recent industry conferences shows clearly that the Payment Services Directive is one of the hottest topics in European retail banking at present. With 23% of banks estimating their compliance costs at more than e50m and a further 18% projecting costs of e10-50m (PSE Survey 2008) it is easy to understand some of the more alarmist headlines along the lines of "The PSD is the new Y2K".

However, the PSD has to be seen as an essential building block in the creation of a single European market for electronic payments. The European Commission realised at the outset of the Single Euro Payments Area process that the existence of different national legal frameworks would prevent its objectives being achieved. So although it is currently being seen by many as yet another compliance programme it is in fact essential if the benefits of a single European market are to be delivered.

As a strong supporter of the overall SEPA process, we are already working closely with clients to ensure on-time compliance with the new requirements and regulations. As we do so, it is clear that some banks are starting to take a more positive view of the PSD and see it not just as a compliance programme but also as a key to the door of increased business opportunities. We are already seeing clients wanting to issue payment cards to customers throughout Europe and use consistent SEPA payment products for people to pay their bills. We think that this will be a growing trend.

As a card payments processor we are not required to be PSD compliant - that obligation rests on our financial sector clients. However, as a major outsource partner, clients are quickly turning to us to help them achieve and demonstrate compliance. As we work through the issues with individual clients we are facing a number of challenges.

Perhaps the biggest concern at this stage is how exactly in practice the PSD rules will apply to card transactions. When the directive was in development, many industry players argued that the new rules should apply only to ACH transactions and not to card transactions where adequate rules were already in place. This argument was lost and the European Commission took the view that all low-value electronic payment transactions would be covered. However, there will be challenges in interpreting some of the rules for card transactions. And not all banks will necessarily make the same interpretation of the rules.

As a pan-European service provider with clients in almost all of the 27 EU markets, we would ideally want to make one set of changes to our business and systems that can be applied to the whole of the European market. However, as we make our detailed assessment of the PSD impact on individual business units and technology platforms, we have to recognise that the PSD allows for some variation in how the regulations are implemented on a national basis. This raises the possibility that the same service or activity could be PSD-compliant in one market but not in another. The European Commission is coordinating the national implementation process and is trying to restrict national variations to the minimum. We are very supportive of the Commission showing vigilance in this regard.

The national implementation process is also proceeding at a different pace in different markets. The UK is particularly well advanced and has run a detailed consultation process with the industry but in many markets there has so far been little visible evidence of the implementation process. The risk is of a last minute rush of legislation but hopefully the European Commission coordination effort will prompt countries to move in good time.

Many of the PSD compliance impacts, especially in relation to increased requirements for transparency of pricing, directly affect bank clients and not First Data as an outsourced processing partner. However, we are anticipating a significant potential impact on our systems from the new rules relating to customer disputes. There are new requirements for financial institutions to provide more information more quickly to personal customers in the case of a service problem or dispute. The new timeframe of 13 months for disputes to be raised is also a significant increase on the current timescales applied by most major card payment schemes. At First Data we are confident that our technical architecture makes the accommodation of the new requirements quite easily achievable, although we will have to modify some of our data storage and retrieval systems to meet the new timescales.

As a provider of outsourced services, every increase in the compliance burden for banks presents us with additional business opportunities. A key benefit for banks from partnering with First Data is that we are capable of helping banks achieve compliance with legal requirements and payment industry regulations and we share that burden across a large client base. From an industry perspective, handling customer enquiries and disputes is already a major cost burden and the PSD will increase this still further. As banks look at how best to comply with these additional requirements we expect many to re-evaluate the case for moving to an outsourced partner.

John Chaplin is European Payments Adviser at First Data