Contents

1 Introduction. 4

2 Procedural issues and consultation of interested parties. 5

1.1 Procedural issues. 5

1.2 External expertise and consultation of interested parties. 5

3 Policy context, Problem definition and Subsidiarity. 7

1.3 Background and context 7

3.1.1 The EU retail payments market 7

3.1.2 Payment cards – basic functioning, market size and integration. 9

3.1.3 Overview of legislative framework. 14

1.4 Problem definition. 15

3.2.1 Drivers for integration gaps. 15

3.2.2 Specific Problems stemming from the problem drivers. 17

3.2.3 Effects of the identified problems – a baseline scenario. 28

3.2.4 The problem tree. 33

1.5 The EU's right to act and justification. 35

4 Objectives. 35

5 Policy options. 37

1.6 Market fragmentation. 37

5.1.1 Weak governance arrangements. 37

5.1.2 Standardisation and interoperability gaps (for card and mobile payments) 37

1.7 Ineffective competition in certain areas of card and internet payments. 38

5.2.1 Interchange Fees (IFs) for card payments. 38

5.2.2 Restrictive business rules. 39

1.8 Diverse charging practices between Member States. 40

5.3.1 Steering practices - surcharging. 40

1.9 Legal vacuum for certain payment service providers. 40

5.4.1 Access to information. 40

1.10 Scope gaps and inconsistent application of the PSD.. 41

5.5.1 Negative Scope of the PSD.. 41

5.5.2 “One-leg” transactions and payments in non-EU currencies. 42

1.11 Other measures. 42

5.6.1 Ancillary measures addressing competition issues. 42

5.6.2 PSD ‘fine-tuning’ measures. 43

6 Analysis of Impacts. 43

1.12 Market fragmentation. 44

6.1.1 Weak governance arrangements (operational objective 1) 44

6.1.2 Standardisation of card payments (operational objective 2) 46

6.1.3 Standardisation of mobile payments (operational objective 2) 48

1.13 Ineffective competition in certain areas of card and internet payments. 50

6.2.1 Interchange Fees (IFs) for card payments (Operational objective 3) 50

6.2.2 Restrictive business rules (Operational objective 4) 58

1.14 Diverse charging practices between Member States. 60

6.3.1 Steering practices (Operational objectives 4, 5 and 9) 60

1.15 Legal vacuum for certain payment service providers. 63

6.4.1 Access to information. 63

1.16 Scope gaps and inconsistent application of the PSD.. 65

6.5.1 Negative Scope of the PSD (Operational objectives 7 and 9) 65

6.5.2 "One-leg" transactions and payments in non-EU currencies. 69

7 Choice of the most appropriate policy instrument 71

8 Cumulative impacts, impacts on stakeholders and choice of policy instruments. 72

1.17 Cumulative impact of the recommended policy options. 72

1.18 Impact on different stakeholders. 78

1.19 Other impacts. 80

9 Evaluation and monitoring. 81

1 Introduction

Secure, efficient, competitive and innovative electronic payments are crucial if consumers, merchants and companies are to enjoy the full benefits of the Single Market, and increasingly so as the world moves beyond bricks-and-mortar trade towards e-commerce. Many European consumers and payment users have become used to travelling outside of their country of origin and to buying goods and services abroad. More importantly still, today the internet enables consumers to make purchases abroad without even having to leave their home. In both cases, electronic payments that work smoothly across borders are of utmost importance.

Despite the significant progress achieved in the development of a regulation framework for the payments market, card payments and new means of payments, such as internet and mobile payments, remain fragmented along national borders, making it often difficult for consumers to use these payment methods at pan-European level (with the possible exception of credit cards). Recent developments in these markets have also highlighted certain gaps and inconsistencies in the current payments regulation framework.

An initiative to drive market integration for card, internet and mobile payments has benefits along several axes:

– A more competitive market leading to downward convergence of costs and prices for payment users;

– More choice and transparency of payment services for payment users;

– More innovation based on improved scale effects and easier market access for payment service providers; and

– More security and trust regarding payment services.

In view of the importance of payments systems for the real economy and in line with the Commission’s better regulation approach, policy orientations need to be carefully considered and their impact thoroughly assessed. Accordingly, this report identifies problems in EU payment markets, in particular those owing to the identified market failures and regulatory and supervisory gaps, and analyses the rationale and potential implications of intervention at EU level.

It is important to note that robust data for the payment methods analysed in this paper is not always available. For core payment instruments such as credit transfers, direct debits and, to some extent, payment cards, transaction data is regularly published by the European Central Bank (ECB). While business related data for card schemes has been gathered by the Commission it cannot be used and published in the present report due to on-going proceedings in competition cases. Reliable data for internet and mobile payments is even more difficult to collect and identify as the environment is fragmented and transaction data cannot easily be separated from the overall data for core payment instruments.

2 Procedural issues and consultation of interested parties

1.1 Procedural issues

This initiative was led by the Directorate-General Internal Market and Services. It was foreseen in the Commission Work Programme for 2013[1] and subject to a dedicated Roadmap[2].

Work on the Impact Assessment started in September 2012 with the first meeting of the steering group taking place on 19 October 2012, followed by two further meetings, the last one taking place on 30 January 2013. The following Directorates General (DGs) and Commission Services participated in the steering group: Communications Networks, Content and Technology; Competition; Enterprise and Industry; Health and Consumers; Justice; Legal Services and the Secretariat General.

The report was sent to the Impact Assessment Board on 20 February 2013. The Board discussed the report on its hearing on 20 March 2013. Following the hearing, several changes were made to the document, in accordance with the Board recommendations. The most important include:

– substantiating the urgency for the revision of the Payment Services Directive (PSD);

– providing supplementary information on the card market, its functioning and on the EU case law about interchange fees,

– clarifying the difficulties relating to SEPA governance,

– streamlining the presentation of impacts by focussing on the impacts of the most important options in the main text and moving less significant issues to annexes,

– substantiating the reasons for regulating MIF through legislation,

– better explaining the interdependencies between different options and packages,

– providing the stakeholders’ view on individual issues and summarising their positions in annexes.

1.2 External expertise and consultation of interested parties

The Commission has reviewed the impact of the PSD and the Regulation on cross-border payments on the Internal Market. The review process was based on two dedicated external studies, providing the Commission with a comprehensive picture of the economic and legal consequences arising from the PSD. The first study provided a legal conformity assessment regarding the transposition of the PSD in the 27 Member States.[3] The second study analysed the economic impact of the PSD in comparison to its original objectives.[4] For the same purpose, input by Member States and the relevant market actors was gathered via the Commission's advisory committees for the retail payments policy, i.e. the Payments Committee (representing Member States) and the Payment Systems Market Expert Group (representing non-governmental stakeholders from the demand and supply side of the payments market).

Additionally, the Commission published a Green Paper “Towards an integrated European market for card, internet and mobile payments”[5] in January 2012 which was followed by a public consultation. The comprehensive feedback by stakeholders[6] provided relevant information on some recent new developments and on possible requirements for changes to the existing payments framework. A public hearing in the same context took place on 4 May 2012 and was attended by some 350 interested stakeholders.

The extensive consultation process has allowed the identification of some key messages. First, stakeholders from all categories consistently agreed that there was a need to provide legal clarity on multi-lateral interchange fees (MIFs)[7] between banks. This was seen as particularly relevant due to the number of on-going competition cases launched at European and national level. Second, especially merchants but also stakeholders from other categories pointed to obstacles for cross border acquiring[8], compromising a genuine Single Market for payment services. Third, the importance of a regulatory framework on payment initiation services[9] was highlighted by both payment service providers (PSPs) and users. Fourth, many stakeholders across all categories stressed the negative effects of surcharges[10]. Finally, there was broad stakeholder consensus regarding the benefits of technical standards and inter-operability and the fact that a sufficient level of standardisation and inter-operability has not been reached yet. Annex 3 provides more details on stakeholder feedback, in the context of both the public consultation on the Green Paper and the Commission's advisory committees.

The European Parliament adopted an own-initiative report on the Green Paper in November 2012[11]. The report acknowledges the objectives and integration hurdles identified in the Green Paper and calls for legislative action in a number of areas concerning card payments while it suggests a more cautious approach regarding internet and mobile payments due to the lesser maturity of those markets.

Overall, the consultation results call for important regulatory adjustments to the existing framework. This should reinforce the effectiveness of the European payments market and contribute to a payment environment which nurtures competition, innovation and security.

3 Policy context, Problem definition and Subsidiarity

1.3 Background and context

3.1.1 The EU retail payments market

The European Union's retail payments market is one of the largest in the world and involves millions of companies and hundreds of millions of citizens. According to the latest European Central Bank (ECB) payments statistics, 8,829 institutions offered retail payments services in the EU27 in 2011 and €90.6 billion transactions were undertaken for a total value of €240.24 trillion.

The economic benefits of integrating this market are substantial and were driving the establishment of the Single Euro Payments Area (SEPA). A study conducted for the European Commission[12] suggests that full migration to SEPA for credit transfers, direct debits and payment cards could yield direct and indirect benefits of more than EUR 360 billion over a six-year period.[13]

Payment cards, followed by credit transfers and direct debits, are the most popular non-cash payment instruments in the EU (see Figure 1). Together, these three methods of payment account for over 90% of all cashless transactions.

Figure 1 - Number of transactions by type of payment instrument (millions) – EU-27

Source: European Central Bank, Payment Statistics, Data as of September 2012[14]

The current degree of payment integration at European level varies markedly between the various payment methods. While pan-European credit transfers and direct debits schemes have already been established, an integrated market for payment cards or for internet payments (e-payments) and mobile payments (m-payments) yet has to be achieved. The graph below illustrates the different possibilities for retail payment transactions (cash excluded).

Figure 2 – Illustrations of the different possibilities for retail payment transactions

Annex 4 provides a general description of the payment market and payment methods.

3.1.2 Payment cards – basic functioning, market size and integration

Basic functioning

A distinction can be made between debit cards and credit cards as well as between consumer cards and corporate cards. Debit cards, when used at a Point of Sale (POS) withdraw money directly from a cardholder's current account provided there are sufficient funds. Debit card payments imply an “immediate” or "near-time" deduction of the funds for the individual transaction from the cardholder's account. Transactions with credit cards and 'deferred debit' cards are aggregated for some period of time and settled on the cardholder account at regular intervals, for example monthly. Credit cards offer a credit facility that the cardholder may use each time he receives the (monthly) bill, instead of paying back the entire due sum at once. If the user does not take advantage of the credit facility, the card is used the same way as a differed debit card. Corporate or business cards are issued to corporations or small businesses and are intended for 'business related transactions' whereas consumer cards are intended for general use – although in practise the difference might not always be so clear-cut.

Card payments are made possible through the existence of card schemes at national and international (cross-border) level. Purely domestic debit card schemes exist in several Member States. However, domestic debit cards, when not co-badged[15] with an international scheme, are not accepted outside the Member State of origin, which makes any cross-border use impossible. International card schemes, such as Visa and MasterCard, are available across the EU and are usually accepted outside the country where they were issued.

In most cases, payment cards are provided to the consumer by the issuing bank. On the acceptance side, merchants usually have one or several acquiring bank(s).

The most common type of card scheme is the so-called 'four party' scheme (for example MasterCard and Visa), under which usually a collectively agreed Multilateral Interchange Fee (MIF) is in place between the acquiring leg (i.e. the PSP of the merchant) and the issuing leg (i.e. the PSP of the cardholder) of the payment.

The bank of the cardholder (issuing PSP) pays to the bank of the merchant (acquiring PSP) the amount of the transaction after the deduction of MIF. The MIF along with other fees - a card scheme fee (network fee) and a fee paid by merchant for the services of the acquiring PSP - is passed on by the acquiring PSP (bank of the merchant) to the merchant through the Merchant Service Charge (MSC). Hence, when a customer uses a payment card to buy from a merchant, the acquiring PSP pays the merchant the sales price after deduction of the MSC. MIFs thus act as a minimum price floor and determine to a large extent (in general 50 % or more) the price charged by PSPs to merchants for card acceptance.

Figure 3 - Illustration of the operation of a four-party scheme, including the transfer of the IF

A second type of card scheme model is the so-called 'three party' scheme (e.g. American Express, Diners Club). In the case of a three-party scheme, only one PSP is involved, being at the same time the issuer and the acquirer.[16] Three-party schemes do not have a MIF explicitly agreed between PSPs. There are only the fees paid by the cardholder (annual fees, fees per transaction, etc.) and Merchant Services Charges paid by the retailer. Nevertheless, the scheme may use the collected fees to subsidise one ‘leg’ of the transaction or the other (i.e. the merchant or the cardholder), resulting in an implicit MIF.

Three party schemes are often more expensive to accept for merchants. Even though three party schemes do not have explicit IFs, they do charge proportionately higher fees to merchants than to cardholders. It can therefore be said that these schemes have an implicit IF, as one side is 'overcharged' for the service.

Figure 4 - Basic operation of a three-party scheme

Generally, the justification for charging a MIF has been to stimulate the card issuing business by increasing their revenues from card payments. Issuing banks often use part of the revenues from these inter-bank fees to incentivise the use of payment cards through bonuses (air miles, etc.). In principle, the higher the interchange fees the more card use is stimulated by issuing banks. Cardholders are therefore encouraged by bonuses and other rewards to use cards that generate higher fees. Hence, on the cardholder side, typically the direct cost of using the payment instrument is often not apparent unless merchants convey the information about the costs to consumers or turn down costly payment instruments, both of which they are reluctant to do for fear of losing business.

Usually, MIFs are justified by card schemes and card issuers either as a means to make a merchant cover the costs to the issuing banks or as a means to encourage consumers to use a payment card. In accordance with this theory, MIF enables low cardholder fees and allows card issuers to encourage the frequent use of the card by offering bonuses to consumers (e.g. air miles). More recently the ‘balancing mechanism’ argument has been used. Under this argument the MIF allows issuers to promote greater card use, which creates efficiencies for the society as card use is presumed to be more efficient and less costly than the use of cash.

These justifications have been much discussed and contested in economic literature, including as regards (imperfect) competition in the issuing and acquiring markets, the issue of internalisation of costs, the limits of steering and interchange fees acting as a means of transferring rent from acquiring to issuing banks which cannot be competed away by merchants as well as in competition enforcement cases. Regulatory intervention has gained prominence as a possible tool to deal with the competition and welfare issues raised by collectively set interchange fees. More details on this subject and card market are provided in Annex 5 and in the problem description below.

Payment cards: Market size and integration

Payment cards are the most common and frequently used electronic payment instrument for retail payments.

In terms of volume (number of transactions), card payments represented 41% of all non-cash retail payments in 2011. There were some 727 million payment cards in use in the EU, representing 1.44 cards per capita. 63% of all cards issued in the EU were debit cards. On average, EU consumers spent on a yearly basis EUR 2 596 per card in 50 point-of-sale card transactions (in 2011[17]).

However, the potential economies of scale associated with this volume and its significant growth over the last two decades, have either not been realised so far or they have not been translated into substantially lower fee levels for consumers or merchants. The reasons for such situation are explained in this impact assessment.

The usage of payment cards across the EU Member States varies strongly, as shown by the table below.

Figure 5 - Card payments (other than e-money) in value as a percentage of GDP

Source: European Central Bank, Payment Statistics, Data as of September 2012[18]

Internet payments: Market size and integration

With the emergence of e-commerce, i.e. the buying and selling of products and services over the internet, payments over internet play an increasingly important role. They can take on different forms. For example, they can be based on card payments, credit transfers, direct debits, or through pre-funded accounts with dedicated internet payment providers.

According to Forrester Research the number of online shoppers in Europe is expected to increase from 157 million in 2010 to 205 million by 2015[19]. Annual growth rates of the e-commerce market size over the next five years are projected at around 10%. Average spending per capita at EU level is forecast to rise from EUR 483 in 2009 to EUR 601 in 2014. Despite its significant growth potential, e-commerce currently only represents 3.4% of all retail trade in the 27 Member States[20]. The internet economy has generated 21 % of the GDP growth of the last 5 years and could represent as much as 20% of GDP growth in the period up to 2015 in the Netherlands and the UK[21].

According to a public consultation on the future of e-commerce[22], payments have been identified as a significant barrier[23] to the future growth of e-commerce. The related key issues that were identified include the diversity of payment methods across Member States, the cost of payments for consumers and merchants and payment security. Regarding online banking based payments the lack of a coherent and comprehensive (self-) regulatory framework for payment initiation services[24] currently leads to a European internet payments environment that is largely fragmented along national borders with a limited number of domestic internet payment schemes[25] and a few proprietary solutions[26] for online-banking based payment initiation services. Furthermore, (potential) market participants seem reluctant to invest as long as the legal situation regarding scope for applying collective fee arrangements[27], such as for payment cards, has not been settled and common standards have not been identified.

Mobile payments: Market size and integration

Like internet payments, mobile payments can be based on card payments, credit transfers and direct debits, in each case using the underlying infrastructure of bank accounts, or performed through pre-paid cards or dedicated payment accounts which are not linked to bank accounts (e-money). Finally, mobile payments can also be settled through the Mobile Network Operator's (MNO) billing to the consumer.

Several studies indicate that the volume of payments made by using mobile phones is the fastest growing of all payment methods at the global level. The rapid proliferation of smart phones is fuelling this growth in developed markets. Gartner estimates the world-wide value of m-payments in 2012 at USD 171.5 billion, growing to USD 617 billion in 2016.[28] IE Market Research estimates the world-wide value of m-payments in 2012 at slightly above USD 100 billion and in 2015 at USD 945 billion.[29] This reflects annual growth rates of more than 37% and more than 100%, respectively.

However, market penetration of m-payments in the EU still lags behind, in comparison to other regions. According to Gartner, there were 26.7 million mobile payment users in Europe in 2012, compared to 85 million users in Asia/Pacific, 57.8 million users in Africa and 32.8 million users in North America.[30] A recent study suggests that the 'latent’, i.e. untapped, demand for mobile payments in the EU amounts to more than EUR 50 billion in 2012.[31]

Several national initiatives started to emerge in Europe, for example the so-called 'Weve' joint-venture between three MNOs (Vodafone, O2, and Everything Everywhere) in the UK which is foreseen for commercial launch in 2013. Overall however, the market for mobile payments at European level is still fragmented. The lack of a concrete European framework addressing main concerns, such as technical standards, security and inter-operability, risks perpetuating market fragmentation for the m-payments market in Europe.

3.1.3 Overview of legislative framework

Regulation (EC) No 2560/2001 on cross-border payments in euro was the first building block of the legislative framework on retail payments in the EU. The Regulation was later repealed by Regulation (EC) No 924/2009 on cross-border payments, primarily to include direct debits in the scope of the Regulation. The Regulation eliminated the differences in payment charges for payment service users (PSUs) between cross-border and national payments in euro within the Union. The Regulation applies to all electronically processed payments, including credit transfers, direct debits, cash withdrawals at ATMs, payments by means of debit and credit cards and money remittance.

The Payment Services Directive (PSD), adopted in 2007, aimed at establishing a harmonised legal framework necessary for the creation of an integrated payments market so that payments could be made more quickly and easily throughout the whole EU. By removing the legal and technical obstacles blocking the creation of a single payments market as well as by promoting market entry by a new class of financial institutions, namely payment institutions, the Directive aimed at introducing more competition in payment systems and facilitating economies of scale. At the same time the PSD facilitated the operational implementation of the Single Euro Payments Area (SEPA). The PSD also provides a set of rules with regard to information requirements and reinforces the rights and obligations linked to payment services.

More background on the PSD, including its objectives and impact, is provided in Annex 6.

While the PSD did bring significant improvements in many areas a number of specific regulatory failures and gaps remain. These will be described in more details in the next section.

Other relevant legislation for the retail payments sector includes inter alia:

– The SEPA migration Regulation (EC) No 260/2012 which sets migration deadlines for pan-European credit transfers and pan-European direct debits, replacing national schemes for national and cross border euro payments within the European Union as of 1 February 2014. Regulation 260/2012 also addressed interchange fees for direct debit transactions;

– The E-Money Directive 2009/110/EC which provides for the legal framework to issue and redeem e-money (pre-paid payment instruments) and which brings the prudential regime for electronic money institutions in line with the requirements for payment institutions in the PSD; and

– Regulation (EC) No 1781/2006 which lays down rules for payment service providers to send information on the payer throughout the payment chain for the purposes of prevention, investigation and detection of money laundering and terrorist financing.

The regulatory framework is complemented by a number of investigations and cases in the context of EU competition law which were launched by the Commission over the past years in the field of retail payments.

1.4 Problem definition

The following section provides a short overview of the main problem drivers. The specific problems created by these drivers are described in more detail under section 3.2.2. The negative effects caused by the specific problems are described under 3.2.3.

3.2.1 Drivers for integration gaps

The Payment Services Directive has already allowed for significant progress regarding the overall integration of the retail payments market. However, there are a number of specific and well-defined problems in the field of card, internet and mobile payments. The drivers behind these problems broadly fall into two categories. First, in a number of areas, the market is not functioning optimally. Second, there are a number of gaps and shortcomings that revolve around the existing provisions in the legal framework.

3.2.1.1 Market failures

The retail payments market is a two-sided market. This means that there are two distinct groups of users to which providers need to align their services: The consumers who are serviced by the issuer of payment instruments and the merchants who are serviced by acquirers of payment instruments. In the field of card, internet and mobile payments, transactions between these user groups are based on the intermediaries - "schemes" or "platforms" that connect the two user groups through a network.

Even if the corporate form may vary, banks often exercise control over key elements of schemes, especially in the case of card schemes, and have a commonality of interests in deriving revenues from it. While such schemes create societal value by enabling payment transactions, in certain cases schemes and/or scheme participants can use their market position to impose restrictive rules and business practices on other market actors. This is for example the case for so-called multi-lateral interchange fees (MIFs) which are fees set multilaterally and paid by the PSP of the merchant (acquirer) to the PSP of the card holder (issuer). Furthermore, certain rules, such as the so-called Honour All Cards Rule (see 3.2.2.2. below) limit the choice of payment instruments for merchants and consumers.

Restricted access to crucial components of the payments infrastructure is a possible source of market distortion. In many cases, these restrictions are applied by incumbent payment service providers (mostly banks) based on their market position in comparison to new entrants, such as new card schemes or new service providers of internet and mobile payments.

Finally, the lack of standards and inter-operability between different market actors, for example in the case of mobile payments, is possibly delaying the broad scale adoption of innovative payment methods.

3.2.1.2 Regulatory and supervisory gaps in the PSD

The PSD has been adopted in December 2007 on the basis of a Commission proposal from December 2005. It constitutes the first, comprehensive legislation on payments in the EU and a good basis for the development of EU-wide payments. This legal framework generally proved valid and robust. However, an unprecedented development of the payments market, in particular the rapid emergence of e- and m-payments, gave rise to important challenges from a regulatory perspective. Many innovative payment products or services do not fall, entirely or in large parts, under the current scope of the PSD. This leads to legal uncertainty (no supervision, no regulation), potential security risks in the payment chain and to a lack of consumer protection. This is for example the case for online-banking based payment initiation services (PIS) provided by third party providers (TPPs)[32].

Furthermore, the current scope definition of the PSD and in particular the existing ‘negative scope’, which exempts certain payment-related activities from the general rules, proved in a few cases too ambiguous and too general, in particular taking into account market developments. As a result, the justification for some exemptions (like in the context of mobile payments and within so called limited networks) has changed. Some of the exempted and therefore unregulated service providers are now competing with the regulated players, enjoying unjustified competitive advantages (e.g. in terms of initial capital, own funds required, safeguarding of funds or liabilities and responsibilities vs. consumer) which results in an un-level playing field and creates consumer protection gaps.

Finally, some few of the 23 options set out in the PSD have been implemented and are enforced by Member States in very different ways. This has led to considerable regulatory arbitrage (e.g. as regards so called waived Payment Institutions), legal uncertainty, cases of poor consumer protection (e.g. in cases of consumer liability) and competitive distortions in a number of areas. This is e.g. the case of national options regarding so called small (waived) PIs, safeguarding rules, consumer liability thresholds and surcharging.

3.2.2 Specific Problems stemming from the problem drivers

Five specific problems were identified and descriptions of these problems are presented in the following sections. Annex 7 provides more details and illustrations of the specific problems.

3.2.2.1 Market fragmentation

Technical standardisation and interoperability are crucial in the network-based payments business to maximise the reach between users (consumers and merchants). Under a payment scheme, payment relevant information is transmitted on the basis of technical and commercial rules. In order to maximise the reach between payers, payees and their payment services providers, either a common set of technical requirements (such as those established for credit transfers and direct debits under Regulation 260/2012) or inter-operability between different schemes is required. In this context, card, internet and mobile payments all suffer, in varying aspects and to different degrees, from a lack of standardisation and inter-operability between different solutions, especially at cross-border level.

In the case of card payments, there is a lack of inter-operability between national debit card systems, resulting in diverging standards and messaging protocols, for example between the card terminal at the merchants’ Point-of-Sale (POS) and the PSP acquiring the card payment. Similarly, card terminals are subject to different national certification procedures in order to comply with obligatory security criteria. While several European market initiatives are attempting to overcome these problems by setting common standards, the adoption and implementation of these standards across the market represents a major challenge and national protocols and approaches therefore still prevail.

Regarding internet payments, online-banking based payments are an attractive and often cheaper alternative to card payments. They could also open the world of e-commerce to many EU citizens, as less than half of the EU citizens own a credit card while more than 80% of EU citizens have a bank account.[33] However, inter-operability between online-banking based payment solutions is very limited, meaning that individual solutions only cover small clusters of banks and are limited to the national level.

Mobile payments, due to the nascent state of the market, show by far the strongest degree of fragmentation. The current landscape for proximity m-payments is characterised by applications for niche users and by a myriad of pilot projects, mostly at domestic or even local level. A lack of standards and inter-operability is identified as one of the key obstacles for the broad-scale adoption of mobile payments by numerous studies.

The problems described above are overarched by insufficient governance arrangements for the European retail payments market. Until very recently, the European banking industry under the umbrella of the European Payments Council (EPC) has been the main driving force of the SEPA project by defining and developing business rules and standards for retail euro payments, in particular credit transfers and direct debits, as well as high level principles and rules for card payments.

The EPC is nonetheless perceived by large parts of the market, notably by users of payment services (consumers, retailers, corporates including SMEs), non-licensed market players offering payment-related services (such as TPPs) and new players in the field of e- and m payments as not balancing or adequately representing the interest of all actors in the market in its standardisation work. Even more, lack of adequate involvement of users (corporates, SMEs, retailers, consumers) and of the supply side players other than banks in the consultation and decision making process raises serious concerns about the capacity of this body to coordinate the development of the SEPA project from the governance perspective. Furthermore, the EPC does not possess the powers to ensure the implementation of the already defined standards.

In order to improve stakeholder involvement in the governance and to balance the interests of all market participants in the SEPA project, including in the process of the development of standards, an informal body, the SEPA Council was established in March 2010. It is composed of high-level representatives from the demand side (corporates, SMEs, retailers, consumers and public administrations) and the supply side (banks and payment institutions) of the market as well as the representatives of National Central Banks. The European Commission and the ECB, which strongly supported the creation of the Council, are co-chairing the meetings and providing the secretariat support. The SEPA Council started playing an important role in the SEPA project and providing useful input and support to the work of the Commission in the field of retail payments (notably in the run up to the migration to SEPA credit transfer and SEPA direct debit).

However, due to uncertainties surrounding the informal mandate of the SEPA Council (no clear responsibilities are defined, no follow-up to the recommendations, guidance and statements is ensured by the market) and its composition (specific groups on the supply side, e.g. some categories of payment service providers, market players falling outside the scope of current payments regulation, as well as some important participants on the demand side, e.g. internet retailers are still not represented), there is a need to reform the current arrangements. With the quick development of e- and m-payments the balancing of interests of all stakeholders and the need to meaningfully steer the SEPA process, including in the area of standardisation, is more pronounced than ever. Otherwise, there is a high risk of fragmentation of the market along national borders and proprietary standards for e- and m-payments. This is already the case for cards and the lack of standardisation in this area has deeply impacted the EU market.

The European Parliament and Council highlighted these problems and, in the context of the adoption of the SEPA Regulation[34], called for a review of SEPA governance and if necessary for a revised governance model.

3.2.2.2 Ineffective competition in certain areas of card and internet payments

In the area of cards there are several restrictive business rules and practices that lead to a situation of ineffective competition. This results in sub-optimal market outcomes and relatively high prices for card payments that are at the end of the day reflected in the prices of goods and services.

In this context, the ECB estimates the total social cost of payments at €156 billion per year in the EU or 1,2%% of GDP[35]. According to the same ECB report, the social costs of debit cards are about 1.4% of the transaction value, of cash about 2.3% and of credit cards about 3.4%[36].

Interchange fees

Multilateral Interchange Fees (MIFs) and Bilateral Interchange Fees (BIFs) for card based payments and the way they are defined and applied cause several problems.

First, IFs are subject to reverse competition meaning that competition between card schemes to attract card issuers (banks) leads to ever higher interchange fees (and consequently, MSCs). IFs are basically revenues offered to banks by card schemes in exchange for issuing their cards rather than the cards of the competitors. Therefore, an increase in MIFs offered by one card scheme leads banks to issue the cards of this particular scheme.

The UK debit cards market is an excellent example of how competition between Visa and MasterCard triggered an increase in interchanges fees. In 2005, MasterCard increased its MIFs to 6.93p per debit card transaction. In reaction Visa increased its interchange fee to 8.00p in 2007. MasterCard did not react at that time. The result was immediate: a number of banks decided to move to Visa. For example in 2009, HSBC switched 10 million customers from Maestro to Visa debit. Maestro had 27 million cards in 2008 but only 2.8 million in 2011, losing 90% of its market share in the process.

A similar situation was observed in Hungary, where in the result of the competition proceedings Visa consumer debit card MIFs were lowered to a level of 0.20%. This led to the massive migration of debit card issuers from Visa to MasterCard, with Visa losing 45% of its market share (more than a million cards) in the first semester of 2012 compared to 2009[37].

Table 1

UK debit cards market[38]

|| || 2005 || 2006 || 2007 || 2008 || 2009 || 2010 || 2011

Mastercard || MIF per transaction (pences) || 5.97 || 6.93 || 6.93 || 6.93 || 6.93 || 6.93 || 6.93

Number of cards (million) || 24.6 || 24.9 || 25.8 || 27 || 20.8 || 8 || 2.8

Visa || MIF per transaction (pences) || 6.50 || 6.50 || 8.00 || 8.00 || 8.00 || 8.00 || 8.00

Number of cards (million) || 42.4 || 43.7 || 45.8 || 49.3 || 58.5 || 76.6 || 83.5

As a result, a large and still growing part of the merchant service charge, paid by the retailers to acquirers for payment card acceptance, is determined by the interchange fee. MSCs in the EU add up to an amount of app. 14 billion EUR annually[39]. Close to 75 % of these charges, app. 10 billion EUR is transferred to issuers as MIFs, although a large share of this corresponds to credit cards, and expensive ones in particular (e.g. premium)[40]. MIFs made up 60% of MSCs in Czech Republic in 2003, 60% in Italy in 2003 and 73% in Belgium in 2002[41].

Another aspect of the same problem is that banks issuing cards, getting ever higher MIF revenues can encourage consumers to use these cards through additional incentives (such as air miles, insurances, etc.), as the cost for these benefits is not directly apparent to the cardholder as they are borne in the first place by the merchant accepting the card. Merchants are normally reluctant to turn down payment instruments which are costly to them (and ultimately to their subsequent purchasers) for fear of losing business. For the same reason, most merchants prefer not to use surcharging (see also the section below, diverse charging practices – surcharging). As a result, merchants pass on to all their customers the increasing costs of accepting card payments through the general prices of their goods and services.

Furthermore reverse competition on MIFs also means that market entry for new pan-European players remains difficult. Such new schemes would have to offer issuing banks interchange fees that are at least comparable to those prevailing in the market they want to enter. This also explains why in a number of Member States, national ('cheaper') card schemes continue to dissapear and beeing replaced by MasterCard and Visa. This happened, for example, in the UK, Ireland, the Netherlands, and Finland. On top of maintaining the status quo in favour of incumbent card schemes, high MIFs also form barriers to entry for cheaper and more efficient payment solutions, e.g. in online payments area (offered e.g. by TPPs). This results in limited market entry and less payment innovation.

Secondly, the widely diverging levels of MIFs between Member States constitute a real obstacle for market integration.

Figure 6 - Average domestic MIF levels in the Member States, 2012[42]

The above graph illustrates that MIF levels show significant variation between Member States. When looking at consumer card transactions, their weighted average level range between 0.1-0.2% to 1.4-1.5% among various Member States. Country average MSC rates range between 0.3-0.4% to 1.9%. MSC rates also vary between merchants within the same Member State, smaller merchants may end up paying average MSCs of up to 3–3.5% of the transaction value.

This is especially the case when the widely diverging levels of MIFs between Member States are seen in combination with scheme rules which force acquiring banks to apply the MIFs applicable in the country where the payment transaction takes place even if the acquirer is based in a different country with a potentially lower domestic MIF level. This effectively eliminates the benefits of cross-border and centralised acquiring for merchants and limits their ability to avoid paying high MSCs resulting from high MIFs through using acquirers in other Member States.

Another problem in the MIF area is the perceived limited legal certainty.

The General Court's MasterCard ruling of 24 May 2012[43] has confirmed the Commission's analysis that Multilateral Interchange Fees restrict competition, are forbidden under the competition rules and not justified for efficiency reasons. However, MasterCard has appealed the judgement, and the ruling still leaves the question of the appropriate level of MIFs open - even if it the General Court endorsed the Commission’s assessment that debit cards generate important commercial benefits for banks apart from interchange fees, and therefore questioned the necessity of a MIF for debit cards[44].

However, the EU proceedings against MasterCard and Visa cover only cross-border transactions in case of MasterCard and cross-border and domestic transactions in 10 Member States in the case of Visa. In spite of the many past and current competition proceedings against MIFs at national and European level, domestic IFs are still there and vary widely in most Member States at a high level. The remaining domestic MIFs remain to be addressed by National Competition Authorities (NCAs), in close cooperation with the Commission, by the Commission itself or through private damages action. While arguably these domestic fees are not different from the MasterCard ones that were deemed unlawful and not justifiable under competition rules, competition enforcement for each MIF would be a long and fragmented process, which is unlikely result in a coherent, consistent and timely outcome across the EU. Arguably, only an 'across the board' lowering of fees by all market players for instance on the basis of regulation could assure EU wide alignment of the market based on the Court judgment.

In addition, since competition between payment card schemes is based on offering higher IFs to convince issuing banks to issue their cards, it is difficult for individual schemes to reduce their fees, as it will only result in giving the market to the other banks/schemes– as happened in Hungary. There is a 'last-mover-advantage' in complying as late as possible with Court cases and decisions from (European) competition authorities.

Competition proceedings on MIF

The Commission’s Decision of 19 December 2007[45] prohibits MasterCard’s multilateral intra-EEA interchange fee for cross-border payment card transactions made with MasterCard and Maestro cards. It states that the MasterCard's MIF restricts price competition between acquiring banks by artificially inflating the basis on which these banks set their charges to merchants and effectively determining a floor under the merchant service charge below which merchants are unable to negotiate a price.

The main argument of MasterCard was based on the efficiencies created by encouraging the issuing and use of cards to match greater demand from merchants to receive card payments ('scheme optimisation'). The Commission however challenged these efficiencies and the indispensability of MIFs to achieve them. The Commission held that the MIFs must be set at a level that allows merchants overall to receive some of the benefits of these alleged efficiencies.

In 2009, MasterCard offered Undertakings to reduce its cross-border consumer MIFs to 0.2% for debit cards and 0.3% for credit cards (this latter category including deferred debit cards); it introduced a number of changes to its scheme rules to facilitate competition in the card payments markets; and it repealed the increases in its scheme fees to acquirers which could have had a similar effect on the market to MIFs. The Commission stated that, in light of the Undertakings, it did not intend to open proceedings against MasterCard for non-compliance with the Decision[46].

Following the expiry of the Visa II exemption decision in December 2007, the Commission opened an antitrust investigation against Visa. In 2009 the Commission issued a Statement of Objections ("SO") to Visa for all the MIFs it sets in the EEA (cross-border MIFs and the MIFs for domestic transactions in eight Member States). In 2010 Visa Europe offered commitments, based on the MasterCard Undertakings, but the MIF reduction only covered debit transactions (reduced to 0.2%). These commitments were made binding in December 2010[47].

In May 2012, the General Court rejected MasterCard's appeal against the Decision of 2007. The General Court confirmed in particular that MIFs are not objectively necessary for the operation of a four party payment scheme. According to the Court banks can operate within a payment system without a MIF, save costs from card issuing (the use of debit cards reduces the need for cash handling by banks) and receive additional revenue from card issuing (interest on credit card balances). It was therefore unlikely that banks would stop issuing cards if MIFs did not exist and the argument that MIFs were indispensable for the functioning of a payment card system was rejected. MasterCard appealed the judgment to the ECJ[48].

In July 2012 the Commission issued Visa a supplementary SO covering its MIFs for credit card transactions. In the supplementary SO sent to Visa in 2012, the Commission also expressed the concern that Visa's rules on the conditions of cross border acquiring were an infringement in their own right of the competition rules[49].

In April 2013 the Commission opened further proceedings against MasterCard, this time addressing MasterCard's MIFs applied to so-called inter-regional transactions (ie payments made to merchants established in the EEA with cards issued outside the EEA, for instance by American tourists in Europe) and MasterCard's cross border acquiring rules[50].

A number of competition proceedings have also covered interchange fees at Member State level, following the approach under the MasterCard case. The French Competition Authority for instance made binding the commitments from the Groupement des Cartes Bancaires – the domestic card scheme- on 7 July 2011 to reduce its interchange fees on payment cards by 20 to 50%, to level equivalent to the ones agreed by MasterCard and Visa for their cross-border transactions. Proceedings are on-going in a number of other Member States[51], including in the UK, Germany and Italy.

Other issues

The ability of merchants to resist high IFs is also hindered by a number of business rules that for instance limit their ability to differentiate their prices according to the cost of a given means of payment (no surcharge, non-discrimination rule), or force them to accept all cards of a given brand (honour all cards/products).

The Honour All Cards Rule (HACR) requires merchants to accept all products issued under the same brand, even if the fees for these cards can vary by a factor of 3-4 within the same card category (i.e. credit / debit cards in Belgium) or by a factor of up to 25 between card categories, such as premium credit card and low-cost debit cards in the UK. These costs, initially borne by the merchant are usually passed to the consumer through the price of the goods and services. Some of the business rules of card schemes, in addition to MIFs, have been addressed through the MasterCard Undertakings and the Visa Commitments, the applicability of which is however by nature limited in time.

Another problem caused by market restrictions is the lack of access to information on the availability of funds on a payment account by third parties. For example, for new card schemes, this implies that they depend on the willingness of the account servicer (often a bank) to provide this information in order for a payment to be initiated and guaranteed. This puts new players possibly at a disadvantage versus incumbents.

Finally, small Payment Institutions (PIs) often have difficulties to directly participate in designated payment systems. This creates competitive disadvantages versus banks. Indirect participation is possible for PIs in some cases, but again this creates competitive advantages for the bank through which indirect participation for the PI is enabled. In any case, there is an unlevel playing field between these PIs and incumbent banks.

3.2.2.3 Diverse charging practices between Member States

A surcharge is a charge from merchants to consumers that is added on top of the requested price for goods and services when a certain payment method (usually a card) is used by the consumer. One of the reasons for surcharging is to direct consumers to cheaper (from the merchant’s perspective) or more efficient payment instruments. The PSD provides an option for Member States to allow or prohibit surcharging in their territory. This has led to a situation where around half of the Member States allow surcharging while it is forbidden in the other half.

The problem of surcharging lies both in its original design and implementation. Because of the divergent national practices, it is often unclear for consumers whether merchants can surcharge them and under which conditions. Especially in the e-commerce sphere this can be confusing as merchants located in a country where surcharging is allowed can offer products and services in countries where it is not and in this case surcharge the consumer. Therefore the lack of harmonisation in this regard is a rapidly growing problem in itself.

Furthermore, surcharging was intended to allow merchants to steer consumers to the most cost-efficient payment method. However this method has not led to the intended results. Many merchants cannot or prefer not to surcharge. One of the difficulties for merchants to efficiently steer consumers follows from the Honour All Cards Rule. As merchants are obliged to accept all cards within a brand and the fees for the use of these cards are usually not separated, merchants do not know which cards are most expensive and how much a single transaction costs them.

Moreover, in those countries where surcharging is allowed, surcharges are sometimes exploited by retailers who applied excessive surcharges to increase their revenues. Even though the Consumer Rights Directive 2011/83/EU prohibits excessive surcharges[52], consumer representatives from several Member States, in the public consultation on the Green Paper on payments, called for a ban on surcharging.

As the cost of a card payment for merchants is to a large extent determined by the MIF, any regulation of MIF should logically be accompanied by a revision of surcharging rules.

3.2.2.4 Legal vacuum for third party providers (TPPs) for payment initiation services, account information services and other equivalent services

Since the adoption of the PSD in 2007, new services have emerged especially in the area of internet payments. In particular, third party providers, which do not maintain payment accounts for payers, offer so-called payment initiation services (PIS) to merchants. These services facilitate the use of the consumer’s online banking platform to initiate immediate (typically guaranteed) internet payments on the basis of credit transfers. For this purpose, most PIS require that consumers introduce their online banking credentials (e.g. username, password and transaction authorisation codes) on the PIS provider’s website for the initiation of a payment transaction. Some other PIS (often based on a scheme) are forwarding the consumer to the online banking website and are receiving the confirmation of the successful payment initiation from the account servicing PSP.

However, access to consumer online banking credentials by third parties raises a series of issues, ranging from consumer protection, security, liability to competition and data protection. As PIS providers are not licensed, they are not supervised by any competent authority and do not follow the PSD requirements. There is clearly an issue with the scope of the Payment Services Directive as it did not foresee such market developments.

TPP providers are present in the majority in the EU Member States, with an established position in the German, Dutch, French and Scandinavian market, as well as an increasing presence in Spain and Poland, among other countries. As the number of transactions initiated by the market leaders is counted in millions each month and rapidly increasing, and as the established providers enter new EU markets, there is an urgent need to address the concerns listed above.

3.2.2.5 Scope gaps and inconsistent application of the PSD

Certain exemptions in the PSD lead to very divergent interpretation and application across Member States. In some cases the exemption criteria appear too general or outdated in respect of market developments, raising doubts about the appropriateness of the current scope of the Directive. In other cases the same exemptions are being interpreted by Member States in very different ways, thus indicating implementation difficulties. Finally, in many cases “would-be PSPs” often decide on their own that they should be subject to specific exemptions and do not consult or even inform the authorities about their exempted payment activities, indicating a serious enforcement problem. These identified problems are particularly applicable for the PSD exemptions regarding commercial agents (acting on behalf of the payer or payee), limited networks (in which payment activities take place), payment transactions initiated by a telecom device and independent ATM providers.

A second issue related to the scope of the PSD are the so-called one-leg transactions, i.e. when one of the PSPs involved in a payment transaction is located outside the EEA (e.g. in Switzerland or USA). In those cases the rights and obligations related to the transaction as well as transparency and information requirements of the PSD do not necessarily apply, since it is left to the discretion of the Member State or PSP. This creates confusion and detriment for PSUs, for example regarding information on applicable charges or liability rules for incorrectly executed transactions. Furthermore, payments in non-EU currencies fall outside the current scope of the PSD which creates similar problems as for one-leg transactions.

Finally, there are some issues around licensed Payment Institutions (PIs), a category of service providers which was introduced by the PSD. First and foremost, the possibility offered in the PSD for Member States to waive some requirements for small PIs seems to have led to an un-level playing field, giving competitive advantages for “waived” PIs. Some larger PSPs seem to have circumvented the law by setting up multiple legal entities which on an individual level stay below the waiver threshold.

The significance of these problems is often difficult to assess, given the lack of any reliable market data “by design”. Clearly, as the exempted providers are bound neither by a requirement to seek authorisation nor by any specific conduct of business rules, current exclusions encourage “would-be PSPs” to design or redesign their products so as to meet the exemptions criteria and, thus, to fall outside the PSD scope. It is unofficially observed by some market experts and representatives of the Member States that the size of the exempted market in terms of volumes and values may be much larger than the size of the regulated market. Certainly, in some Member States non-regulated providers have developed into powerful competitors to authorised providers in their respective niche markets (e.g. pre-paid cards, independent ATM deployers, bill payment providers, currency exchange bureaus). Given even these anecdotal data, there is an urgent need for revisiting the scope of the PSD.

The scope of the regulatory divergences and possible effects of arbitrage may also be roughly assessed by the distribution of PI licenses and national waivers for small PIs, though of course many other factors influence these figures. As much as 40% of the authorised PIs (224 out of 568 in the EU) and 43% of e-money institutions (30 out of 70) are registered in the UK. A similarly divergent approach to the possibility of creating a category of small, waived institutions (PIs with a limited, national only license) lead to the creation of 2094 small PIs in only eight Member States, with the huge majority located again in the UK and Poland. Many of the PIs using extensively passporting are located just in two/three Member States.

3.2.2.6 Conclusions

PSD

The case for a selective revision of the PSD some six years after its adoption and only four years after it has been transposed is strong and supported by the results of external studies[53], opinions of Member State authorities[54] and stakeholders[55]. The need for urgent action has been also highlighted by the European Parliament resolution of 20 November 2012[56]. Four main issues requiring the regulatory intervention are:

– Addressing the issue of legal vacuum for TPPs,

– Limiting risks of circumvention of the PSD in reviewing its negative scope,

– Changing these Member State options that lead to regulatory arbitrage (including surcharging) and

– Ensuring appropriate governance arrangements for SEPA.

These main changes could be accompanied by some fine-tuning measures (see chapter 5.6).

Interchange fees

IFs lead to much higher costs to merchants and ultimately their customers. Any efficiencies they generate do not appear to justify these costs, at least at the current IF levels. IFs also constitute an obstacle to market integration. These negative IF effects are reinforced by a number of business rules, which reduce transparency, limit the ability of retailers to steer their customers towards more efficient means of payment and the ability of retailers to choose an acquirer in another Member State. The lack of a level playing field persists, in spite of the many national and European competition proceedings. Fragmented competition law enforcement may even lead to further legal uncertainties and distortions. A reduction of IFs by all market players, would be the most appropriate way to ensure a competitive market.

3.2.3 Effects of the identified problems – a baseline scenario

The problems identified in the sections above result in significant consequences for all stakeholders. The effects described below should be understood as a description of the situation in the payments market both today and in the foreseeable future, if no intervention is taken at the EU level. They can therefore be considered as a baseline scenario for the policy options described in Chapter 5 of this impact assessment. A short presentation of the main effects is provided in the following sections. Annex 8 provides a more detailed overview.

3.2.3.1 Unlevel playing field between service providers / payment institutions

Barriers to market entry for new and innovative PSPs an: Standardisation and interoperability gaps prevent competition among incumbents and create a significant barrier to the market entry for new and innovative payment service providers, in particular in the context of online and mobile payments. Even already existing and successful payment solutions face serious difficulties when they try to diversify their service offering into new areas or expand geographically.

While standardisation and interoperability work in the domain of card payments is advanced in most areas and is likely to progress further, the rate of this progress would continue to be slow. Market participants are unlikely to either universally agree on the choice and use of already existing standards or implement them, even in the medium term perspective (5-10 years), without a major regulatory push[57].

Providers operating with no authorisation and supervision by Member States: The gaps in the scope of the PSD lead to a situation where some market players are subject to authorisation and supervision by the Member States while others, operating on the same market and providing similar payment services, are not. This leads to very different costs and market access possibilities for regulated versus non-regulated players.

Within the category of regulated PIs the competitive playing field is far from being equal or harmonised across the Member States. There are very different authorisation and prudential requirements for PIs, including different national rules for registration of small, waived PIs.

Yet another example of the unlevel playing field for PIs can be found in inconsistent application of the PSD passporting rules by the Member States and ambiguities surrounding the role of PI agents. Thus, some Member States grant numerous passports and allow for active provision of services by PI agents abroad, while other Member States are much more reluctant in this respect. Voluntary passporting guidelines, although existing, are not applied by those Member States that are against the cross-border provision of services without an establishment (either via an office or through an agent).

Market dominance of (expensive) card schemes: Market incumbents – in particular banks issuing cards and card schemes - are eager to protect and if possible increase the revenues from card payments, above all from MIFs. In some Member States national schemes – with lower fees – are being abolished and replaced by international schemes that offer higher fees to issuing banks than the domestic payment card scheme. Recent examples of this include the UK, the Netherlands, Austria, Finland and Ireland. The market share of two biggest international schemes in issuing cards in 2008 was 41.6% (Visa) and 48.9% (MasterCard) respectively[58].

Consequently, service providers offering payment solutions that could challenge the payment model based on MIFs (for example online-banking based payments) encounter serious difficulties in entering the market and in introducing their product onto the market. As explained above, this market dominance is unlikely to be comprehensively and consistently addressed through the enforcement of competition rules and precedents by the national competition authorities alone.

No direct access to payment systems for PIs: As PIs depend on banks for the settlement of their payments, this could in many cases impact negatively on the services they offer, including prices and execution times.

Table 2 - Effects of the identified problems (Unlevel playing field between service providers / payment institutions)

Effect || PSPs || Consumers || Merchants || Other stakeholders

Barriers to the market entry for new and innovative payment service providers || X (main impact) || X || X || X (businesses)

Providers operating with no authorisation and supervision by MS || X || X || X || X (waived providers, other businesses))

Market dominance of (expensive) card schemes || X (main impact) || X || X || X (businesses)

No direct access to payment systems by PIs || X (main impact) || X || X || X (businesses)

3.2.3.2 High costs, limited choice and protection for Payment Service Users (consumers, merchants)

High merchant service charges for the acceptance of card payments: High MIFs lead to high Merchant Service Charges (MSCs) from acquiring PSPs to merchants. This is a challenge especially for small merchants as to whether they can afford to accept card payments due to their high cost.

On-going competition cases at the EU and national level as well as the General Court MasterCard case may address some of the MIF-related issues on a national and cross-border basis. This would however be a very long and fragmented process, with no guarantees to ensure any consistency across the EU[59]. Any competition and national procedure would also leave the question of the appropriate level of MIFs open. MIF could be also lowered in some Member States on the basis of regulation. However, in such case, the change would apply in a single Member State, lead to a similar fragmentation as the competition enforcement and be potentially easily circumvented by banks and card schemes due to a national-only scope reach of the law.

Socialisation of costs for expensive payments instruments: As card-issuing PSPs wish to obtain high revenues through the MIF income, they provide consumers with incentives to use high MIF cards, such as premium cards. Due to restrictive business rules of the card schemes merchants may not refuse to accept or charge the consumer for the use of such expensive cards. As a result, all consumer prices are inflated as the costs of even most expensive payment instrument are included in the prices for goods and services offered by the merchant

Limited choice of payment instruments: In those cases where merchants decide not to accept certain payment instruments based on their high cost, consumers are often limited in their choice of payment instrument and in many cases restricted to cash payments.

Excessive surcharges in some cases: Even if surcharging is often not allowed due to a prohibition at Member State level or restrictions based on the business rules of card schemes, in those cases where surcharges can be lawfully applied, they are sometimes used to generate incremental revenues for merchants.

The Consumer Rights Directive aims at addressing this problem. Its provisions should be enforced in the Member States as of 13 June 2014. However, actual enforcement might be complex in practice, taking into account the existing blending practices and HACR. At the same time, limitation to costs may also result, in different treatment of cardholders from different Member States[60].

Overly strict liability rules: Due to Member States’ inconsistent application of the PSD rules on liability, payment service users are often exposed to overly strict liability regimes. This concerns in particular the liability for an unauthorised transaction and responsibility for the use of lost, stolen or misappropriated payment instrument or credentials.

Limited or non-existent protection for some categories of payment transactions: As a result of the scope of the PSD, payment service users suffer from a lack of consumer protection, for example in the case of one-leg transactions, payments in limited networks or payments initiated by mobile devices.

Table 3 - Effects of the identified problems (High costs, limited choice and protection for Payment Service Users)

Effect || PSPs || Consumers || Merchants || Other stakeholders

High merchant service charges for card payments || - || X || X || -

Socialisation of costs of expensive payment instruments through prices for goods and services || - || X || - || -

Limited choice of payment instruments || - || X || X || X (businesses, administration)

Excessive surcharges || - || X || - || -

Inconsistent and often overly strict liability rules || - || X (main impact) || X || -

Limited or no protection for some categories of payment transactions (one leg, limited networks, IT devices, payment initiation services) || - || X (main impact) || X || X

3.2.3.3 Low cross-border activity (market integration)

No genuine cross-border acquiring: A genuine Single Market for acquiring services has not yet materialised. There is no incentive for even large European retail companies to use the services of acquirers located in another Member State since domestic rules apply. This leads to missed opportunities for economies of scale and the streamlining of operations.

Limited choice of payment service providers: Similar barriers make it difficult for providers to expand their operations beyond their country of origin. For merchants, this usually limits the choice of payment or acquiring service providers to the domestic incumbents.

Limited choice of payment instruments for cross-border online purchases: Due to a lack of inter-operability, in particular for debit cards or online-banking based payments, consumers are mostly restricted to credit cards and wallet solutions (such as Paypal) when buying online in a different country. These payment methods are expensive for merchants and discourage many of them from taking-up cross-border trade.

Slower take-up of cross-border e-commerce: As a consequence, there is a growing gap between the popularity of domestic and cross-border e-commerce. In 2011, 34% of consumers in the EU ordered goods or services over the internet domestically, but only 10% of them ordered products on a cross-border basis.

Table 4 - Effects of the identified problems (Low cross-border activity)

Effect || PSPs || Consumers || Merchants || Other stakeholders

No genuine cross-border acquiring for retailers || X || - || X (main impact) || -

Limited choice of payment service providers || X || - || X (main impact) || -

Limited possibilities for payments on cross-border basis, in particular in online context, frustrated cross-border payment attempts || - || X || X || -

Slower uptake of cross-border e-commerce || - || X || X || X (businesses)

3.2.3.4 Dispersed and hampered innovation

Limited economies of scale for providers: Due to technical differences between national payment formats and infrastructures, new market entrants or existing payment providers who would like to start offering innovative services see their business case restricted to the national market. This limits the potential for scale economies, both in terms of cost reductions and potential revenues and therefore discourages start-up investments.

Competitive disadvantage of EU versus other regions: A fragmented environment along national borders might lead to lagging innovation in Europe in comparison to other regions. Whereas leading players in internet payments mostly originate in the US (PayPal, Amazon), the most promising developments in mobile payment can currently be observed in Asia Pacific.

Table 5 - Effects of the identified problems (Dispersed and hampered innovation)

Effect || PSPs || Consumers || Merchants || Other stakeholders

Limited economies of scale for providers || X || - || - || -

Competitive disadvantage of EU vs. other regions || X || - || - || X (businesses)

3.2.4 The problem tree

The figure below provides an overview of the various problems, their drivers and their consequences.

Figure 7 - Problem tree:

1.5 The EU's right to act and justification

An integrated EU market for electronic retail payments market contributes to the aim of Article 3 of the Treaty on the European Union stipulating an internal market. Market integration is necessary to fully unlock a number of benefits for European citizens. These benefits include more competition between payment service providers and more choice, innovation and security for payment service users, especially consumers. An integrated payments market ultimately facilitates the cross-border provision of goods and services and thereby contributes to a genuine Single Market. The depth of revision of the Payment Services directive is proportionate to the issues arisen to date. PSD remains globally fit for purpose; at the same time, this EU legal framework needs to evolve to take due account of the latest technological and business developments in the area of retail payments.

According to the subsidiarity principle, EU action should only be taken if the envisaged aims cannot be achieved by Member States alone.

By its nature an integrated payments market, based on networks that reach beyond national borders, requires a Union-wide approach as the applicable principles, rules, processes and standards have to be consistent across all Member States in order to achieve legal certainty and a level playing field for all market participants. The alternative to a Union-wide approach would be a system of multilateral or bilateral agreements the complexity and costs of which would be prohibitive as compared to legislation at European level.

Member States, in many cases, have refrained from acting at national level, pending the adoption of possible measures at the level of the Union.

A possible intervention at EU level therefore complies with the subsidiarity principle.

The approach supports the Single Euro Payments Area (SEPA) and is consistent with the Digital Agenda, in particular the creation of a Digital Single Market. It promotes technological innovation and contributes to growth and jobs, in particular in the areas of e- and m-commerce.

4 Objectives

According to Article 26 of the Treaty on the Functioning of the EU, the internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties. In the context of the Union policy and in accordance with the problems identified in Chapter 3, the following policy objectives are identified:

General:

– To ensure a level playing field between incumbent and new providers of card, internet and mobile payments

– To increase the efficiency, transparency and choice of payment instruments for payment service users (consumers and merchants)

– To facilitate the provision of card, internet and mobile payment services across borders within the EU by ensuring a Single Market for payments

– To create an environment which helps innovative payment services to reach a broader market

– To ensure a high level protection for PSUs across all Member States of the EU

Specific:

– To address standardisation and interoperability gaps for card, internet and mobile payments

– To eliminate hurdles for competition, in particular for card and internet payments

– To better align charging and steering practices for payment services across the EU

– To ensure that emerging payment service providers are covered by the regulatory framework governing retail payments in the EU

– To improve the consistent application of the legislative framework (PSD) across Member States and to better align licensing and supervisory rules for payment services across Member States

– To protect the consumer interest in view of regulatory changes in the card business and to extend the regulatory protection to new channels and innovative payment services

Operational:

– To reinforce the governance of the SEPA project and to empower all stakeholders to take a more active role in the conception and realisation of the retail payments policy (governance)

– To facilitate standardisation through adequate governance framework and through the better involvement of the European Standardisation Organisations (standardisation)

– To ensure legal certainty in the field of interchange fees for card-based payments and provide clarity on an acceptable business model for current and future payment initiatives based on cards (interchange fees)

– To abolish restrictive business rules for card payments which lead to market distortions (interchange fees flanking measures)

– To harmonise the Member States policies on surcharging in line with the regulatory decisions on interchange fees (interchange fees flanking measures)

– To define conditions of access to the information on the availability of funds for third party providers, including payment initiation services (scope of the PSD)

– To adjust the scope and improve the consistency of the legislative framework (scope of the PSD),

– To improve the implementation of the existing PSD rules (PSD fine-tuning measures)

– To reinforce the rights of PSUs in the PSD and safeguard the consumer rights in view of the regulatory changes (scope of the PSD, interchange fee flanking measures)

5 Policy options

1.6 Market fragmentation

5.1.1 Weak governance arrangements

5.1.1.1 No policy change

No legislative or non-legislative action from the Commission is envisaged. The SEPA Council would remain an informal body based on its current mandate.

5.1.1.2 A self-regulatory body set up by market participants

A new self-regulatory body could be set in place at the initiative of market participants. The existing EPC which currently only consists of banks and one payment institution could be invited by the Commission to open its membership to all stakeholders in the field of retail payments. The current EPC could become a balanced forum of the supply and the demand side. The existing SEPA Council would remain as it is today in its composition and functioning.

5.1.1.3 Formal body based on legal act of the co-legislators

An alternative option would be to transform the informal SEPA Council into a European Retail Payments Council and set it up as a formal body based on a legal act of the co-legislators with a clarified mandate. This could be achieved through the revision of the PSD or in an autonomous new Regulation. The draft legislation would be accompanied by a Commission Communication on the review of retail payments governance arrangements.

5.1.2 Standardisation and interoperability gaps (for card and mobile payments)

5.1.2.1 No policy change

No legislative or non-legislative action from the Commission is envisaged.

5.1.2.2 Drive standardisation through the governance framework for retail payments

In order to ensure the involvement of all relevant stakeholders, standardisation for card or mobile payments could be addressed through a formally set up governance body (see previous section) in the future. Possible technical working groups in this context would be entirely open to all interested stakeholders.

5.1.2.3 Mandate to European Standardisation Organisation

Three independent European Standardisation Organisations (ESOs) are officially recognized by the European Institutions as competent in the area of technical standardisation[61]. The two relevant ESOs in the context of card and mobile payments are the Committee for European Standardisation (CEN) and the European Telecommunications Standards Institute (ETSI). These organisations provide a framework to prepare voluntary standards with the participation of all relevant stakeholders. The Commission may issue standardisation mandates to the ESOs to develop standards that are needed in support of policy or legislation, or that meet a set of pre-determined requirements. Applying standards would nevertheless remain voluntary.

5.1.2.4 Establish mandatory technical requirements through legislation

In the context of credit transfers and direct debits, Regulation (EU) No 260/2012 established a number of technical and business requirements for credit transfers and direct debits. The requirements become mandatory upon the entry into force of the Regulation after a transition period. A similar approach could be envisaged for card and/or mobile payments.

1.7 Ineffective competition in certain areas of card and internet payments

To address the restrictive business rules and practices that lead to a situation of ineffective competition, several options can be envisaged.

5.2.1 Interchange Fees (IFs) for card payments

It is proposed that the options following below cover debit and credit card transactions, as well as the e- and m-payments that are based on card transactions.

5.2.1.1 No policy change

No legislative or non-legislative action from the Commission is envisaged. This would imply that those practices would only be addressed by possible competition proceedings.

5.2.1.2 Regulate cross-border acquiring and the level of interchange fees for cross-border transactions only

Caps for the IF for cross-border transactions could be set – e.g. at 0.2% of the transaction value for debit cards and 0.3% of the transaction value for credit cards. Allowing cross border acquiring would mean the IF paid would be either the IF for cross-border transactions (capped), or the IF applicable in the acquirer’s Member State.

5.2.1.3 Mandate Member States to set domestic IFs on the basis of a common methodology

Legislation would define the methodology for setting domestic interchange fees, and it would be up to each Member State to implement it. The disparity between national measures could in theory be reduced by supplementary use of caps or cap ranges, on top of the national solutions.

5.2.1.4 Regulate a common, EU-wide maximum level for interchange fees.

A maximum, EU-wide interchange fee level for consumer debit cards and consumer credit cards would be set. There are four sub-options possible, depending on (1) whether the maximum IF cap covers both debit and credit cards or just debit cards and (2) whether the IFs for debit card transactions are to be forbidden altogether or just reduced to a low level.

Table 6 – Sub-options (Regulate a common, EU-wide maximum level for interchange fees)

Suboption || Debit cards IFs (domestic) || Credit cards IFs (domestic)

1 || maximum 0.2% of the transaction value || Not covered by the legal act

2 || Prohibition || Not covered by the legal act

3 || maximum 0.2% of the transaction value || maximum 0.3% of the transaction value

4 || Prohibition || maximum 0.3% of the transaction value

This option could be considered in combination with the option of regulating cross border acquiring above. The caps identified above (0.2%; 0,3%) are set on the basis of existing proceedings, cases at European level and recently negotiated agreements between French competition authorities and Groupement des Cartes Bancaires.

5.2.1.5 Exemption of commercial cards and cards issued by three party schemes

Commercial cards and three party schemes – to the extent that they do not make use of licensed banks – would be exempted from the options previously discussed as these schemes have limited market shares in the EU and different fee structures.

5.2.1.6 Regulate Merchant Service Charges.

This would imply regulating the fees paid by the retailer to its acquiring bank (Merchant Service Charges (MSCs)). These fees cover not only interchange fees but also the other fees merchants have to face i.e. scheme fees and fees for the acquiring Payment Service Provider.

5.2.2 Restrictive business rules

5.2.2.1 No policy change

No legislative or non-legislative action from the Commission is envisaged.

5.2.2.2 Voluntary removal of Honour All Cards Rule by card schemes

Under this option, the Honour All Cards Rule would be voluntarily removed by card schemes by self-regulation, thereby allowing merchants to differentiate between the payments cards they wish to accept.

5.2.2.3 Regulating a Prohibition of (part of) the Honour All Cards Rule

This option would give merchants the freedom to choose the payment cards that they wish to accept within each card brand. Nevertheless, merchants would have to accept these cards regardless of where they were issued. (Honour All Issuer Rule).

1.8 Diverse charging practices between Member States

5.3.1 Steering practices - surcharging

5.3.1.1 No policy change

No legislative or non-legislative action from the Commission is envisaged.

5.3.1.2 Prohibit surcharging for all payment transactions in all Member States

In order to harmonise current practices regarding surcharging, an option would be to prohibit it in all Member States.

5.3.1.3 Allow surcharging in all Member States

In order to harmonise current practices regarding surcharging, an option would be to allow merchants to use surcharging in all Member States.

5.3.1.4 Oblige merchants to always offer at least one "widely used payment means" (non-cash) without any surcharge

This option would ensure that merchants always offer the consumer the possibility to pay with one payment means available on a pan-European basis without being surcharged.

5.3.1.5 Ban surcharging for IF-regulated payment instruments and allow for non-regulated

Under this option merchants would not be able to surcharge for those payment instruments that were subject to IF regulation, but would be allowed to surcharge those that are based on these and entail additional costs and those instruments that are expensive for them.

1.9 Legal vacuum for certain payment service providers

5.4.1 Access to information

Access to information on the availability of funds for new card schemes and other third party providers (TPPs), including payment initiation services, account information services and other equivalent services

5.4.1.1 No policy change

No legislative or non-legislative action from the Commission is envisaged.

5.4.1.2 Define the conditions of access to the information on the availability of funds, define rights and obligations of the TPPs, clarify the liability repartition

Under this option, the conditions of access to the information on funds would be set in the PSD. Whereas card issuers, new or existing, are considered and licensed as payment institutions (or credit institutions), TPPs would be required to become licensed under the scope of the PSD before they offer their services within the EU. The issues of rights, obligations and liabilities between TPPs, banks servicing the accounts and consumers would be also set. TPPs would be obliged to explicitly inform consumers about the information they access. Security and data protection requirements applying to TPPs and banks would be specified in order to foster trust in these services and to ensure an equivalent level of protection for the users as the ones already provided in the PSD.

5.4.1.3 Allow TPPs access to the information on the availability of funds under a contractual agreement with the account servicing bank

The possibility for a TPP to access payment accounts on behalf of consumers would be subject to a mandatory collective or individual contract between the TPP and the account issuing PSP.

1.10 Scope gaps and inconsistent application of the PSD

In order to address the specific problems related to inconsistent application of the PSD, several possible options for each of the identified problems are proposed:

5.5.1 Negative Scope of the PSD

Each of the options discussed below could be chosen separately for each of the discussed exemptions

5.5.1.1 No policy change

Under this baseline option the scope of exemptions in the PSD would remain unchanged.

5.5.1.2 Update and clarify the scope of exclusions

Following this option the scope of the commercial agent, limited network, telecom and ATM exemptions would become more clearly defined through an update of the definitions in the PSD.

5.5.1.3 Delete the exclusions

Under this option, payment transactions through commercial agents, telecom and IT devices, payment activities in the context of a limited network as well as cash withdrawals through stand-alone ATMs would become subject to the PSD rules.

5.5.1.4 Require payment service providers that make use of the exclusions under the PSD to inform the competent authorities and ask for their clearance.

Any payment service provider that intends to benefit from the exemptions under the PSD would be obliged to inform the competent authorities on the scope of these exemptions or to receive their approval before starting any payment activities, if appropriate.

5.5.2 “One-leg” transactions and payments in non-EU currencies

5.5.2.1 No policy change

The application of the PSD to one-leg transactions and to transactions in non-EU currencies would not be harmonised across the Member States.

5.5.2.2 Full extension to all one-leg transactions and all currencies

The PSD would become fully applicable to one-leg payment transactions and payments in non-EU currencies.

5.5.2.3 Selective extension of certain PSD rules to one-leg transactions and to all currencies

Only certain specific provisions of the PSD, for example on the information requirements or liability, would become applicable to one-leg payment transactions and payments in non-EU currencies.

1.11 Other measures

The previous sections described the main policy options addressing the identified problems. Beyond this, there are a number of other possible measures which either address problems of a lower priority or ensure that the main policy options are fully effective without having a significant impact per se (ancillary measures).

5.6.1 Ancillary measures addressing competition issues

The first set of measures includes additional requirements to make the policy options addressing interchange fees and interchange fees flanking measures more effective. This includes:

- The requirement for card schemes and issuing banks to enable merchants to technically distinguish between different card types, in particular consumer versus commercial cards.

- The requirement for card schemes and acquiring banks not to blend fees for different types of payment cards unless it is requested by the merchant, so that merchants are enabled to make a choice of the charging method and distinguish the fees of individual payment instruments, if required.

- The requirement for card schemes and acquiring banks to issue invoices when charging merchants.

- The requirement for card schemes and acquiring banks to allow merchants to provide information on the cost of different payment instruments to consumers.

- The requirement for terminals at the Point-of-Sale to enable the consumer to make a choice of the preferred payment instrument in case several payment instruments are available on the same device.

- The requirement for card schemes to allow acquirers to operate on a cross-border basis once they are licensed under the scheme and not to limit the acquiring services to one country.

- The requirement for certain card schemes not to prevent merchants from applying surcharges for the use of a specific means of payment, implying the abolishment of the so-called Non-Discrimination Rule imposed by some card schemes.

- Addressing the possible circumvention of MIF regulation, in particular possible fee increases to compensate the revenue losses of card schemes and banks.

The cumulative impact of these measures is low in comparison to the main measures proposed in the previous sections. Nevertheless, a more detailed description of these measures is provided in Annex 10.

5.6.2 PSD ‘fine-tuning’ measures

The second set of measures represents a ‘fine-tuning’ of provisions which already exist in the current PSD. This includes:

- Strengthening the implementation of information requirements from PSPs to payment service users, in particular regarding the timeliness and transparency of the provided information.

- Streamlining and harmonising the safeguarding requirements for Payment Institutions (PIs) licensed under the PSD, in particular reducing current possibilities for Member States to limit or extent safeguarding requirements and reducing the number of possible safeguarding methods.

- Clarifying the rules for the passporting regime of PIs operating in several Member States by providing notification guidelines (for example issued by a European Supervisory Authority) and criteria to distinguish between the free provision of services and the right of establishment.

- Clarifying the rules on passporting for PIs operating in several Member States, via guidelines or regulatory technical standards, specifying cooperation between competent authorities in home and host Member States in the context of notification and supervision of the PI, their agent and branches (for example through a mandate to the a European Supervisory Authorities).

- Fine-tuning the provisions on access to payment systems by PIs, by providing the PIs with a possibility to access the designated payment systems indirectly, in a way comparable to the access enjoyed by smaller banks.

- Clarifying the refund right for direct debit transactions,

- Lowering and harmonising across the Member States the consumer liability threshold in case of theft or loss of a payment instrument and adding precision to the gross negligence concept,

- Decreasing the waiver threshold for small payment institutions.

- A more detailed impact analysis of these measures is provided in Annex 11.

6 Analysis of Impacts

This section summarises the policy options and their impacts on stakeholders. The policy options are not necessarily mutually exclusive and should not therefore automatically be viewed as alternatives. They may be combined to achieve a more effective and efficient outcome. The preferred policy options are indicated in bold. When comparing the options, the tables illustrate how each of the policy options contributes to meeting the objectives and their efficiency (cost-effectiveness) in doing so when compared to the 'Do nothing' hypothesis. The following schema is used: +++ (strong positive contribution), ++ (moderate positive contribution), + (weak positive contribution), --- (strong negative contribution), -- (moderate negative contribution), - (weak negative contribution) and 0 (neutral contribution). The impact on stakeholders follows a similar approach.

The following sections combine key conclusions on the impact of each option and on the comparison between available options. A more detailed impact analysis, mirroring the structure of this chapter, is provided in Annex 9.

1.12 Market fragmentation

6.1.1 Weak governance arrangements (operational objective 1)

6.1.1.1 Option 1 (No policy change)

The demands of both suppliers and end-users of retail payment for the Commission to address the weaknesses of the current SEPA Council would remain unanswered. Therefore, the governance of retail payments in Europe, particularly for payments in euro would remain sub-optimal. The EPC is currently re-examining its role and it might decide to decrease its level of involvement in standard-setting activities.

The status quo would translate in a much slower integration of the European retail payments market to the detriment particularly of end-users of payments.

6.1.1.2 Option 2 (A self-regulatory body set up by market participants)

This market-driven approach would not satisfy all stakeholders, especially consumer representatives, who clearly call for a strong driving role of the Commission and the European Central Bank in the whole SEPA project. Moreover, all market participants are clearly in favour of a ‘co-operative approach’ between the respective stakeholders, national SEPA committees and the European Institutions.

This self-regulatory approach, where the SEPA Council would remain as it is, could give rise to risks of foreclosure vis-à-vis new market participants that would not be “founding” members. Lack of compliance with the new self-defined governance arrangements could not be excluded. All this might in the end call for increased corrective measures by the Commission.

6.1.1.3 Option 3 (Formal body based on legal act of the co-legislators)

The SEPA Council, renamed as “the European Retail Payments Council”, would see its composition, accountability and mandate clearly defined. The body would gain the legitimacy and credibility that stakeholders are calling for. In the public consultation on the Green Paper on payments market participants consistently asked for a more active involvement of public authorities. Option 3 would allow both addressing the call from most market participants for a co-operative model and contributing to clarifying the role of the Commission and the European Central Bank as co-chairmen. The European Retail Payments Council would have a better clarified role vis-à-vis the Commission and the ECB who would keep their freedom to act at any time, in accordance with their competences as laid down in the Treaty.

Option 3 would contribute to defining the steering that all stakeholders are looking for on the direction that the European retail payments market should follow to ensure that tomorrow the EU has effective, efficient, innovative and cheap means of payments available across all Member States. Failing this, the emergence of such a market could take many more years to the detriment of payment’s end-users and society at large.

Conclusion

A European Retail Payments Council, set up as a formal body and based on a legal act adopted by the co-legislators (e.g. through the revised PSD) will provide the necessary legal clarity as to the role and responsibilities of the different actors (industry, end-users and European institutions). By strengthening the retail payments governance as requested by al