EXPLANATORY MEMORANDUM

1. Context of the proposal

Grounds for and objectives of the proposal

The electronic payments market in Europe offers great opportunities for innovation. Consumers have already significantly changed their payment habits in recent years. In addition to the ever growing number of credit and debit card payments, the rise of e-commerce and the increasing popularity of smart phones have paved the way for the emergence of new means of payments. The benefits of better market integration and reduced fragmentation in this field at European level are substantial.

This initiative will allow consumers and merchants to benefit fully from the internal market, particularly in terms of e-commerce.The aim of the proposal is to help develop further an EU-wide market for electronic payments, which will enable consumers, retailers and other market players to enjoy the full benefits of the EU internal market, in line with Europe 2020 and the Digital Agenda. Such further integration is becoming increasingly important as the world moves beyond bricks-and-mortar trade towards a digital economy.

To achieve this and promote more competition, efficiency and innovation in the field of e-payments, there should be legal clarity and a level playing field, leading to downward convergence of costs and prices for payment services users, more choice and transparency of payment services, facilitating the provision of innovative payment services, and to ensure secure and transparent payment services.

These objectives will be achieved by updating and complementing the current framework on payments services; providing for rules that enhance transparency, innovation and security in the field of retail payments and improving consistency between national rules, with an emphasis on the legitimate needs of consumers. The proposed measures seek to do so in a technologically neutral manner that will remain relevant as payment services evolve further.

This proposal also incorporates and repeals Directive 2007/64/EC of the European Parliament and of the Council (the so called ‘Payment Services Directive’ or ‘PSD’)[1] which sets the basis for a harmonised legal framework for the creation of an integrated payments market, thus improving the level playing field and accessibility of the current payments framework for all stakeholders.

At a time when the distinction between payment institutions (subject to the PSD) and electronic money institutions (subject to Directive 2009/110/EC of the European Parliament and of the Council[2], the second Electronic Money Directive or ‘EMD’) is increasingly blurred as technology and business models converge, a full modernisation of the digital payment framework resulting in the merger of both categories of actors and respective legislations would be optimal. This would however entail as a pre-requisite to review the EMD to ensure a coherent regulatory framework. Unfortunately, the late transposition by many Member States of the EMD has not allowed gaining sufficient experience with this Directive to evaluate it together with the Payment Service Directive and consider possible synergies in the review. A review of Directive 2009/110/EC is foreseen to take place in 2014.

General context

Significant progress and integration of retail payments in the EU have been achieved over the past 12 years, with the current regulatory and legislative acquis on payments.

The legal framework established by the PSD, the cross-border payments Regulation (EC) No 924/2009[3] and the Second Electronic Money Directive have already resulted in significant progress regarding the integration of the European retail payments markets. The SEPA migration end-date Regulation (EU) No 260/2012[4] brought this development a step further by setting migration deadlines for pan-European credit transfers and direct debits, replacing national schemes for national and cross border euro payments within the EU (1 February 2014 for the Eurozone). This regulatory framework is complemented by ECJ case law and Commission decisions in the context of competition law in the field of retail payments.

The retail payments market is very dynamic and has experienced a significant innovation pace in the last few years. At the same time, important areas of the payments market, especially card payments and new means of payments, such as internet and mobile payments, are often still fragmented along national borders making it difficult for innovative and easy-to-use digital payment services to develop efficiently and to provide consumers and retailers with convenient and secure payment methods (with the possible exception of credit cards) at pan-European level to purchase an expanding range of goods and services. The latest developments in these markets have also highlighted certain gaps in the current legal framework for payments and market failures in the markets for card, internet and mobile payments to be addressed in this initiative.

The review of the European framework and notably the Payment Services Directive and the consultation on the Commission Green Paper ‘Towards an integrated European market for card, internet and mobile payments’[5] in 2012 have led to the conclusion that further measures and regulatory updates, including adjustments to the PSD, are required so that the payments framework can better serve the needs of an effective European payments market, fully contributing to a payments environment which nurtures competition, innovation and security.

In the Commission’s 2012 Communication “Single Market Act II – Together for new growth”[6], the modernisation of the legislative framework for retail payments has been identified as a key priority in view of its potential for new growth and innovation. The revision of the PSD and the preparation of a legislative proposal on multilateral interchange fees for card payments were defined as one of the key actions of the Commission for 2013.

Existing provisions in the area of the proposal

This initiative is part of a broader package of legislative measures on payment services. It will complement and update the existing legal framework for payment services within the EU, and notably:

– Directive 2007/64/EC creating a harmonised legal framework so that payments could be made more quickly and easily through the whole EU, introducing more competition in payment systems and facilitating economies of scale. It also facilitated the operational implementation of the Single Euro Payments Area (SEPA).

– Regulation (EC) 924/2009 on cross-border payments repealing Regulation (EC) No 2560/2001 and extending the scope of the Regulation to direct debits. It eliminated the differences in payment charges for payment service users between national and cross-border payments in euro with in the European Union. It applies to all electronically processed payments.

– Regulation (EU) No 260/2012 setting migration deadlines for pan-European credit transfers and pan-European direct debits and replacing national schemes for national and cross border euro payments within the European Union.

– Directive 2009/110/EC on electronic money providing for the legal framework to issue and redeem e-money and brings the prudential regime for electronic money institutions in line with the requirements for payment institutions in the PSD.

– Regulation (EC) No 1781/2006 laying 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.

In addition to the legislative framework, a number of competition proceedings conducted at European and national level have addressed anti-competitive practices in the payment market.

Consistency with other policies and objectives of the Union

The objectives of the proposal are fully coherent with the EU policies and objectives pursued by the Union. First, this proposal will improve the functioning of the internal market for payment services and more broadly for all goods and services given the need for innovative, efficient and secure means of payments. By facilitating economic transactions within the Union, this will also contribute to the attainment of the wider objectives of the EU 2020 strategy and the promotion of new growth. Second, this initiative supports EU policies in other areas such as data protection, administrative sanctions, anti-money laundering and terrorist financing and more in particular:

– The Commission's legislative initiatives regarding the Digital Agenda for Europe[7] and notably the Commission's proposal for a legal framework on electronic identification and trust in services for electronic transactions[8] and its proposal concerning measures to ensure a high common level of network and information security across the Union[9] and the key priorities identified in the Communication on e-Commerce and online Services[10], which aim to achieve a Digital Single Market.

– The Commission's efforts to increase competition through establishing equal obligations, rights and opportunities for market players and facilitating cross-border provision of payment services.

– The Commission’s legislative proposal on interchange fees for card-based payment transactions and on the use of certain restrictive business rules and practices which is prepared at the same time and in close coordination with the present proposal.

– Directive 2011/83/EC on Consumer Rights[11] which aims at promoting a real business-to-consumer internal market and at striking the right balance between a high level of consumer protection and the competitiveness of enterprises, thereby limiting the discretion of merchants to apply charges on the use of payment instruments to the costs at hand.

2. consultations with interested parties and impact assessment

Consultation of interested parties

On 11 January 2012, the European Commission published a Green Paper "Towards an integrated European market for card, internet and mobile payments”[12] which was followed by an extensive public consultation. The Commission received more than 300 replies from authorities, civil society, business federations and companies from different fields, representing a broad variety of stakeholders. An additional number of comments, position papers and contributions were received outside the consultation.

The comprehensive feedback by stakeholders[13] 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.

On 20 November 2012, the European Parliament adopted a resolution “Towards an integrated European market for card, internet and mobile payments[14]. The resolution acknowledges the objectives and integration hurdles identified in the Green Paper and calls for legislative action in different areas concerning card payments, while suggesting more caution regarding internet and mobile payments due to the lesser maturity of those markets. Furthermore, it calls for a reform of the Single Euro Payments Area (SEPA) governance model.

The consultation results called for important regulatory adjustments to the existing framework, in order to reinforce the effectiveness of the European payments market and contribute to a payment environment nurturing competition, innovation and security.

Use of expertise

Regarding the review of the PSD and of the Regulation on cross-border payments in the Internal Market, and the potential need for a revision of both legal texts, the Commission engaged in additional work to obtain evidence in the field and to ensure full engagement of the different stakeholders.

The Commission’s review process on the impact of the PSD and the Regulation on cross-border payments in the Internal Market has been based on two dedicated external studies. These studies have provided the Commission with a comprehensive picture of the economic and legal consequences arising from the PSD. The first study, carried out by external consultants Tipik in 2011, provided a legal conformity assessment regarding the transposition of the PSD in the 27 Member States[15]. Over the course of 2012, a second study prepared by London Economics and iff in association with PaySys, analysed the impact of the PSD on payment services in the internal market and the application of the Regulation on cross-border payments in the Community. Furthermore, input by Member States and relevant market actors was gathered via the Commission's advisory committees in the field of payments policy, i.e. the Payments Committee (composed of representatives from EU countries) and the Payment Systems Market Expert Group (composed of market representatives from both the supply and the demand side). In addition, the Commission consulted further relevant stakeholders on particular issues as appropriate.

Impact assessment

The Commission carried out an Impact Assessment[16], where it analysed the potential consequences of a lack of an integrated European payments market. Notably the following problem drivers were examined:

– Inconsistent application of the existing rules across Member States due to many options and often very general criteria of application. In particular, certain exemptions set out in the PSD appear too general or outdated with regard to market developments and are being interpreted very differently. Gaps in the scope of application also arise for payments with one leg of the transaction located outside the EEA and payments in non-EU currencies, leading to continued market fragmentation, regulatory arbitrage, and distortions of competition.

– Legal vacuum for certain newly emerged internet service providers, such as third party service providers offering online banking based payment initiation. These services represent a viable and often cheaper payment alternative to card payments, attractive also for consumers who do not dispose of cards. Most of these providers are currently not subject to the current legal framework as they do not hold funds at any moment. The legal vacuum risks impeding innovation and appropriate market access conditions.

– Lack of standardisation and inter-operability between different payment solutions (card, internet and mobile payments), in varying aspects and to different degrees especially at cross-border level, exacerbated by weak governance arrangements for the EU retail payments market.

– Diverse and inconsistent charging practices (for the use of a specific payment instrument applied by merchants) between Member States (where around half of EU Member States allow and the other half forbids surcharging) leading to confusion for consumers when they shop abroad or on the internet and an un-level playing field.

– In the area of payment cards, several restrictive business rules and practices distorting competition (regardings MIFs and rules on choice and flexibility of merchants regarding card acceptance).

The identified problems described above have resulted in consequences for consumers, merchants, new payment services providers and the payment services market as a whole.

The impact assessment concluded that the best policy options to improve the existing situation by (i) facilitating the emergence of a competitive level playing field between incumbents and new providers of card, internet and mobile payments, (ii) increasing the efficiency, transparency and choice of payment instruments for payment services users (consumers and merchants) and (iii) ensuring a high level protection of the latter would be, with respect to the PSD:

– To reinforce 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 (PSD fine-tuning measures);

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

The impact assessment received a positive opinion of the Impact Assessment Board during a hearing of 20 March 2013. In accordance with the Board recommendations, several changes were made to the document, notably in:

– substantiating the urgency for the revision of the Payment Services Directive (PSD) as well as the reasons for regulating MIF through legislation,

– 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,

– better explaining the interdependencies between different options and packages.

Most of the proposed policy measures are addressed in the current proposal. This applies especially to the areas already covered by the current rules in the PSD, e.g. market access for TPPs, surcharging and rules for payment institutions. Other measures, in particular the regulation of MIFs and ancillary measures, will be addressed by a dedicated legislative proposal, submitted in parallel.

Some measures described above should be addressed through non-legislative means, for example issues relating to the involvement of European Standardisation Organisations and SEPA governance.

The SEPA governance arrangements in place, including the role of the existing SEPA Council, an ad-hoc high level governing body, which has been put in place under the co-chairmanship of the Commission and the European Central bank for an initial period of three years in order to improve stakeholders’ involvement in SEPA, need to be strengthened. To this end, the mandate of the SEPA Council needs to be clarified, its composition reviewed and a better balance of interest of the supply and the demand side established, to ensure effective advice to Commission and the European Central Bank as regards the orientation of the SEPA project in the future and to facilitate the creation of an integrated, competitive and innovative market for retail payments, in particular in the Euro area. The Commission will work with the European Central Bank to identify appropriate ways to address the tasks, composition, chairmanship and functioning of the governance arrangements around SEPA.

3. LEGAL ELEMENTS OF THE PROPOSAL

Legal basis

The current proposal is based on Article 114 TFEU.

Subsidiarity and proportionality

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. The Directive remains globally fit for purpose; at the same time, the EU legal framework needs to evolve to take due account of the latest technological and business developments in the area of retail payments.

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 relevant market participants. Given the current fragmentation in the market, individual action at the level of Member States would not be able to achieve the aim of an integrated and efficient payment market for both domestic and cross-border goods and services.

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

4. BUDGETARY IMPLICATION

The Directive has a budgetary impact as indicated in the Legislative Financial Statement attached to the proposal.

5. Additional information

European Economic Area

The proposed act concerns an EEA matter and should therefore extend to the European Economic Area.

Explanatory documents

The proposed new Directive contains several adaptations to the existing Directive and certain new obligations for Member States with a fair margin of discretion with respect to the way these obligations are transposed in national law, such as the new provisions on security. Member States are therefore asked to provide explanatory documents in relation to the transposition measures to be adopted to allow the Commission to better identify the relevant national measures and monitoring the correct transposition of the Directive.

Detailed explanation of the proposal

The following short summary aims to facilitate the decision making process by sketching the main modifications compared to the to be repealed PSD:

Article 2 – Scope: It is proposed to extend the scope both as regards the geographical scope and currencies being covered.

Article 2(1): The PSD’s provisions on transparency and information requirements will also apply in relation to payment transactions to third countries, when only one of the payment service providers is located within the European Union (so called ‘one-leg transactions’), as regards those parts of the payments transaction which are carried out in the European Union.

Article 2(2): The PSD’s provisions on transparency and information requirements will be extended to apply to all currencies and not, as currently, only to EU currencies.

Article 3 – Negative scope: This provision clarifies and updates the ‘negative scope’ provided for in the current Directive, which exempts a number of payments (related) activities from the scope of the PSD:

Article 3(b): The ‘commercial agent’ exemption has been amended to only apply to commercial agents which act on behalf of either the payer or the payee, and not to those which act for both payer and the payee. The exemption under the current PSD has increasingly been used with regard to payment transactions handled by e-commerce platforms on behalf of both the seller (payee) and the buyer (payer). This use goes beyond the purpose of the exemption and should thus be further circumscribed.

Article 3(k): The ‘limited network’ exemption has increasingly been applied to large networks involving high payment volumes and ranges of products and services. This clearly goes beyond the original purpose of this exemption, leaving large volumes of payments outside the regulatory framework and creating a competitive disadvantage for regulated market actors. The new definition, which is in line with the definition of limited networks set out in Directive 2009/110/EC, should contribute to reducing these risks.

Article 3(l): The current digital content or ‘telecom’ exemption is redefined with a more restricted focus as it will apply exclusively to ancillary payment services carried out by providers of electronic communication networks or services, as for example telecom operators. The exemption will apply for the provision of digital content furnished by a third party, subject to certain thresholds set out in this directive. The new definition should ensure a level playing field between different providers and address in a more efficient way the consumer protection needs in the context of payments.

Deletion of old Article 3(o): The exemption of ATM services offered by independent ATM deployers from the PSD led to the creation of ATM networks where consumers were charged high fees for ATM withdrawals. It appears that this provision has provided incentives to the existing bank-owned ATM networks to cancel their current contractual relation with other payment service providers in order to be able to charge higher fees directly on consumers. Consequently, this exemption should be deleted.

Article 9 - Safeguarding requirements: These requirements will be streamlined and the safeguarding requirements for payment institutions licensed under the PSD will be harmonised further, in particular reducing current possibilities for Member States to limit safeguarding requirements and reduce the number of possible safeguarding methods with a view to an enhanced level playing field and improved legal certainty.

Article 14 – European electronic access point within EBA: A unique electronic access point should provide for enhanced transparency of authorised and registered payment institutions by providing for the interconnection at Union level of national public registers.

Article 27 – Conditions: The possibility to use a ‘lighter regime’ for ‘small payment institutions’ will be expanded to cover a higher number of small institutions, given that some Member States have had negative experiences (such as insolvency) with small payment service providers with activities beyond the current threshold for the waiver regime. The purpose is to achieve the right balance and on the one hand, avoid unnecessary regulatory burden for very small institutions and, on the other hand, making sure that payment services’ users enjoy an adequate level of protection.

Article 29 – Access to payment systems: This Article fine-tunes the rules around access to payment systems by clarifying the conditions of non-direct access of payment institutions to payment systems designated under Directive 98/26/EC (Settlement Finality Directive) in a way comparable to the access used by smaller credit institutions.

Article 55(3) and (4) – Charges applicable: This rule will harmonise surcharging practices further, taking due account of Directive 2011/83 on consumer rights and of the Commission proposal for a Regulation (EU) XXX of the European Parliament and of the Council on interchange fees for card-based payment transactions, which is being presented in parallel. The flexibility under the current PSD, allowing merchants to request from the payer a charge, offer him a reduction or otherwise steer him towards the use of the most efficient payment means, with the qualifier that Member States may forbid or limit any such surcharging for its territory, has led to extreme heterogeneity in the market. Thirteen Member States have used this option to prohibit surcharges under the current PSD. The different regimes in place in Member States create problems and confusion for merchants and consumers alike, notably when selling or purchasing goods and services cross-border via the internet. The proposed prohibition of surcharging is directly linked to the capping of interchange fees according to the abovementioned proposal for a Regulation on interchange fees for card-based transactions. Given the significant reduction of the fees that the merchant will have to pay to his bank, surcharging is no longer justified for the MIF-regulated cards which will represent more than 95% of the consumer card market. The proposed rules will thus contribute to a better consumer experience when paying with a card throughout the Union and to a greater usage of payment cards instead of use of cash.

As regards cards not subject to the Regulation of interchange fees as per the abovementioned proposal on interchange fees for card-based transactions, i.e. corporate cards and three-party scheme cards, merchants will still be allowed to surcharge, as long as the surcharge corresponds to the real cost incurred, taking due account of Directive 2011/83. Articles 65 and 66 – Payment service provider’s and payer’s liability for unauthorised payment transactions: The proposed modifications will streamline and further harmonise the liability rules in case of unauthorised transactions, , ensuring enhanced protection of the legitimate interests of payment users. Except in case of fraud and gross negligence, the maximum amount a payment user could under any circumstances be obliged to pay in case of an unauthorised payment transaction will be decreased from the current amount of 150 EUR to 50 EUR. It will also clarify that late payments do not necessarily trigger a refund.

Article 67 – Refunds for payment transactions initiated by or through a payee: This rule clarifies the refund right for direct debit transactions bringing it in line with the SEPA Core Direct Debit Rulebook, provided that the good or service paid for has not yet been consumed. Under the current rules, different refund regimes apply regarding direct debits, depending on whether a prior authorisation has been given, the amount exceeds the amount expected or whether, alternatively, a further right had been agreed.

Article 85 – Security measures: The proposed rules address security aspects and aspects of authentication in line with the Commission proposal for a Directive of the European Parliament and Council on Network and Information Security.

Title I-V and Annex I point 7: Coverage of new services and service providers enabling access to payment accounts - The current PSD does not cover these actors insofar as they do not dispose of the payer’s or payee’s fund at any time. The fact that these TPPs are currently unregulated, at least in certain Member States, has raised security, data protection and liability concerns, despite the potential benefits brought by these services and service providers. The proposal brings third party service providers offering notably online banking based payment initiation services under the scope of the PSD (Annex I point 7). This should enhance new low cost e-payment solutions on the internet while ensuring appropriate security, data protection and liability standards. In order to be allowed to provide payment initiation services, TPPs would be required to get licensed or registered and supervised as payment institutions (Title II. Like other payment service providers, they will be subject to harmonised rights and obligations, and in particular security requirements (Articles 85 and 86). The envisaged rules will in particular address conditions for access to account information (Article 58)requirements regarding authentication (Article 87) and rectification of transactions (Articles 63 and 64) and a balanced liability repartition (Articles 65 and 66). New payment services providers will benefit from this new regime, regardless of whether they dispose of the payer’s or payee’s funds at any time.

Chapter 6 - Out-of-Court complaint and redress procedures for the settlement of disputes - shall enhance effective compliance with the Directive. The new measures update the requirements on out of court complaint and redress procedures and appropriate penalties.

Article 92 – Sanctions: In line with other recent proposals in the financial services sector, Member States will be obliged to align administrative sanctions, ensure that appropriate administrative measures and sanctions are available for breaches of the Directive and ensure that these sanctions are duly applied.

European Banking Authority – The Directive contains several areas where work by EBA in its capacity of contributing to the consistent and coherent functioning of supervision is foreseen (as referred to in Regulation (EU) 1093/2010). In particular, EBA will be asked to issue guidelines and draft regulatory technical standards in various fields, for example in order to clarify the rules on ‘passporting’ for payment institutions operating in several Member States, or to ensure the establishment of adequate security requirements.

2013/0264 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

on payment services in the internal market and amending Directives 2002/65/EC, 2013/36/EU and 2009/110/EC and repealing Directive 2007/64/EC

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national Parliaments,

Having regard to the opinion of the European Economic and Social Committee[17],

Having regard to the opinion of the European Central Bank[18]

After consulting the European Data Protection Supervisor,

Acting in accordance with the ordinary legislative procedure,

Whereas:

(1) In recent years, significant progress has been achieved integrating retail payments in the Union, in particular in the context of the Union acts on payments, notably Directive 2007/64/EC of the European Parliament and of the Council[19], Regulation (EC) No 924/2009 of the European Parliament and of the Council[20], Directive 2009/110/EC of the European Parliament and of the Council[21], and Regulation (EU) No 260/2012 of the European Parliament and of the Council[22]. Directive 2011/83/EU of the European Parliament and of the Council[23] has further complemented the legal framework for payment services by setting a specific limit on the possibility for retailers to surcharge their customers for the use of a certain means of payment.

(2) Directive 2007/64/EC has been adopted in December 2007 on the basis of a Commission proposal of December 2005. Since then, the retail payments market has experienced significant technical innovations with the rapid growth in the number of electronic and mobile payments and the emergence of new types of payments services in the market place.

(3) The review of the Union legal framework on payment services and notably the analysis of the impact of Directive 2007/64/EC and the consultation on the Commission Green Paper “Towards an integrated European market for card, internet and mobile payments”[24] have shown that developments have given rise to important challenges from a regulatory perspective. Important areas of the payments market, in particular card payments, internet and mobile payments are often still fragmented along national borders. Many innovative payment products or services do not fall, entirely or in large parts, under the scope of Directive 2007/64/EC. Furthermore, the scope of Directive 2007/64/EC and in particular, the elements excluded therefrom, as certain payment-related activities from the general rules, proved in a few cases too ambiguous, too general or simply outdated, taking into account the market developments. This has resulted in legal uncertainty, potential security risks in the payment chain and a lack of consumer protection in certain areas. For innovative and easy-to-use digital payment services it has proven to be difficult to take off and provide consumers and retailers with effective, convenient and secure payment methods in the Union.

(4) Establishing an integrated single market for electronic payments is crucial in order to ensure that consumers, merchants and companies enjoy the full benefits of the internal market, given the development of the digital economy.

(5) New rules should be provided in order to close the regulatory gaps while at the same time providing for more legal clarity and ensuring a consistent application of the legislative framework across the Union. Equivalent operating conditions should be guaranteed to both existing and new players on the market, facilitating new means of payment to reach a broader market and ensuring a high level of consumer protection in the use of these payment services across the whole of the Union. This should lead to a downward trend in costs and prices for payment services users and more choice and transparency of payment services.

(6) In recent years, the security risks related electronic payments have increased, which is due to the greater technical complexity of electronic payments, the continuously growing volumes of electronic payments worldwide and the emerging types of payment services. As safe and secure payment services constitute a vital condition for a well-functioning payment services market, users of payment services should be adequately protected against such risks. Payment services are essential for the maintenance of vital economic and societal activities and therefore payment services providers such as credit institutions have been qualified as market operators according to Article 3(8) of Directive [pls insert number of NIS Directive after adoption] of the European Parliament and of the Council[25].

(7) In addition to the general measures to be taken at Member States' level in Directive [pls insert number of NIS Directive after adoption], the security risks related to payment transactions should also be addressed at the level of the payment service providers. The security measures to be taken by the payment service providers need to be proportionate to the security risks concerned. A regular reporting mechanism should be established, so as to ensure payment services should provide the competent authorities on an annual basis with updated information on the assessment of their security risks and the (additional) measures that they have taken in response to these risks. Furthermore, in order to ensure that damages to other payment service providers and payment systems, such as a substantial disruption of a payment system and to users is kept to a minimum, it is essential that payment service providers have the obligation to report within undue delay major security incidents to the European Banking Authority.

(8) The revised regulatory framework for payment services is complemented by Regulation (EU) [XX/XX/XX] of the European Parliament and of the Council[26]. That Regulation introduces rules with regard to the charging of multilateral and bilateral interchange fees for all consumer debit and credit card transactions and electronic and mobile payments based on those transactions, and puts restrictions on the use of certain business rules with regard to card transactions. That Regulation aims at further accelerating the achievement of an effective integrated market for card based payments.

(9) In order to avoid divergent approaches across Member States to the detriment of consumers, the provisions on transparency and information requirements for payment service providers in this Directive should also apply to transactions where the payer's or payee's payment service provider is located within the European Economic Area (hereinafter “EEA”) and the other payment service provider is located outside the EEA. It is also appropriate to extend the application of transparency and information provisions to transactions in all currencies between payment service providers that are located within the EEA.

(10) The definition of payment services should be technologically neutral and allow for the further development of new types of payment services, while ensuring equivalent operating conditions for both existing and new payment service providers.

(11) The exemption of payment transactions through a commercial agent on behalf of the payer or the payee, as established in Directive 2007/64/EC is being applied very differently in the Member States. Certain Member States allow the use of the exemption by e-commerce platforms that act as an intermediary on behalf of both individual buyers and sellers without a real margin to negotiate or conclude the sale or purchase of goods or services. That goes beyond the intended scope of the exemption and may increase risks for the consumers, as these providers remain outside the protection of the legal framework. Different application practices also distort competition in the payment market. The definition should become more precise and clearer to address these concerns.

(12) Feedback from the market shows that the payment activities covered by the limited network exception often comprise massive payment volumes and values and offer to consumers hundreds or thousands of different products and services, which does not fit the purpose of the limited network exemption as provided for in Directive 2007/64/EC. That implies greater risks and no legal protection for payment service users, in particular for consumers and clear disadvantages for regulated market actors. A more precise description of a limited network, in line with Directive 2009/110/EC, is necessary in order to limit those risks. A payment instrument should thus be considered to be used within such a limited network if it can be used only either for the purchase of goods and services in a specific store or chain of stores, or for a limited range of goods or services, regardless of the geographical location of the point of sale. Such instruments could include store cards, petrol cards, membership cards, public transport cards, meal vouchers or vouchers for specific services, which are sometimes subject to a specific tax or labour legal framework designed to promote the use of such instruments to meet the objectives laid down in social legislation. Where such a specific-purpose instrument develops into a general purpose instrument, the exemption from the scope of this Directive should no longer apply. Instruments which can be used for purchases in stores of listed merchants should not be exempted from the scope of this Directive as such instruments are typically designed for a network of service providers which is continuously growing. The exemption should apply in combination with the obligation of potential payment service providers to notify activities falling within the scope of the definition of a limited network.

(13) Directive 2007/64/EC exempts from its scope certain payment transactions by means of telecom or information technology devices where the network operator not only acts as an intermediary for the delivery of digital goods and services through the device in question, but also adds value to these goods or services. In particular, this exemption allows for so called operator billing or direct to phone-bill purchases which, starting with ringing tones and premium SMS-services, contributes to the development of new business models based on low-value sale of digital content. Feedback from the market shows no evidence that this payment method, trusted by consumers as convenient for low threshold payments, has developed into a general payment intermediation service. However, due to the ambiguous wording of the current exemption, this rule has been implemented differently in Member States. This translates into lack of legal certainty for operators and consumers and has occasionally allowed other payment intermediation services to claim eligibility for the exemption of the application of Directive 2007/64/EC. It is therefore appropriate to narrow down the scope of that Directive. The exemption should focus specifically on micro-payments for digital content, such as ringtones, wallpapers, music, games, videos, or applications. The exemption should only apply to payment services when provided as ancillary services to electronic communications services (i.e. the core business of the operator concerned).

(14) Similarly, Directive 2007/64/EC exempted from its scope payment services offered by deployers of automated teller machines (hereinafter “ATMs”) independent from banks or other payment service providers. Originally devised as incentive to install stand-alone ATMs in remote and poorly populated areas by allowing them to charge extra fees on top of fees paid to the payment service providers that issued the card, the provision was not intended to be used by ATM providers with networks comprising hundreds or even thousands of ATMs, covering one or more Member States. It leads to non-application of that Directive to a growing part of the ATM market, with negative effects on the consumer protection. It also incentivises the existing ATM providers to redesign their business model and cancel the usual contractual relation with the payment service providers in order to charge higher fees directly on the consumers. Consequently, the exemption should be deleted.

(15) Service providers seeking to benefit from an exemption under Directive 2007/64/EC often do not consult authorities on whether their activities are covered or exempted under that Directive but rely on their own assessments. It appears that some exemptions may have been used by payment service providers to redesign business models so that the payment activities offered would be outside the scope of that Directive. This may result in increased risks for payment service users and diverging conditions for payment service providers in the internal market. Service providers should therefore be obliged to notify certain activities to the competent authorities, to ensure a homogenous interpretation of the rules throughout the internal market.

(16) It is important to include a requirement for potential payment service providers to notify their intention to provide activities in the framework of a limited network if the volume of payment transactions is above a certain threshold. Competent authorities should examine and take a motivated decision on the basis of the criteria set out in Article 3(k) whether those activities can be considered activities provided in the framework of a limited network.

(17) The new rules should follow the approach taken in Directive 2007/64/EC, covering all types of electronic payment services. It is therefore still not appropriate that the new rules apply to services where the transfer of funds from the payer to the payee or their transport is executed solely in bank notes and coins or where the transfer is based on a paper cheque, paper-based bill of exchange, promissory note or other instrument, paper-based vouchers or cards drawn upon a payment service provider or other party with a view to placing funds at the disposal of the payee.

(18) Since the adoption of Directive 2007/64/EC new types of payment services have emerged, especially in the area of internet payments. In particular, third party providers (hereinafter “TPPs”) have evolved, offering so-called payment initiation services to consumers and merchants, often without entering into the possession of the funds to be transferred. Those services facilitate the e-commerce payments by establishing a software bridge between the website of the merchant and the online banking platform of the consumer in order to initiate internet payments on the basis of credit transfers or direct debits. The TPPs offer a low-cost alternative to card payments for both merchants and consumers and provide consumers a possibility to shop online even if they do not possess credit cards. However, as TPPs are currently not subject to Directive 2007/64/EC, they are not necessarily supervised by a competent authority and do not follow the requirements of Directive 2007/64/EC. This raises a series of legal issues, such as consumer protection, security and liability as well as competition and data protection issues. The new rules should therefore respond to those issues.

(19) Money remittance is a simple payment service that is usually based on cash provided by a payer to a payment service provider, which remits the corresponding amount, for example via communication network, to a payee or to another payment service provider acting on behalf of the payee. In some Member States supermarkets, merchants and other retailers provide to the public a corresponding service enabling the payment of utility and other regular household bills. Those bill-paying services should be treated as money remittance, unless the competent authorities consider the activity to fall under another payment service.

(20) It is necessary to specify the categories of payment service providers which may legitimately provide payment services throughout the Union, namely, credit institutions which take deposits from users that can be used to fund payment transactions and which should continue to be subject to the prudential requirements under Directive 2013/36/EC of the European Parliament and of the Council[27], electronic money institutions which issue electronic money that can be used to fund payment transactions and which should continue to be subject to the prudential requirements under Directive 2009/110/EC, payment institutions and post office giro institutions which are so entitled under national law.

(21) This Directive should lay down rules on the execution of payment transactions where the funds are electronic money as provided for in Directive 2009/110/EC. This Directive should, however, neither regulate issuance of electronic money nor amend the prudential regulation of electronic money institutions as provided for in that Directive. Therefore, payment institutions should not be allowed to issue electronic money.

(22) Directive 2007/64/EC has established a prudential regime, introducing a single license for all providers of payment services which are not connected to taking deposits or issuing electronic money. To that end, Directive 2007/64/EC introduced a new category of payment service providers, "payment institutions", by providing for the authorisation, subject to a set of strict and comprehensive conditions, of legal persons outside the existing categories to provide payment services throughout the Union. Thus, the same conditions should apply Union-wide to such services.

(23) The conditions for granting and maintaining authorisation as payment institutions have not substantially changed. As in Directive 2007/64/EC, the conditions include prudential requirements proportionate to the operational and financial risks faced by such bodies in the course of their business. In this connection, there is a need for a sound regime of initial capital combined with on-going capital which could be elaborated in a more sophisticated way in due course depending on the needs of the market. Due to the range of variety in the payments services area, this Directive should allow various methods combined with a certain range of supervisory discretion to ensure that the same risks are treated the same way for all payment service providers. The requirements for the payment institutions should reflect the fact that payment institutions engage in more specialised and limited activities, thus generating risks that are narrower and easier to monitor and control than those that arise across the broader spectrum of activities of credit institutions. In particular, payment institutions should be prohibited from accepting deposits from users and permitted to use funds received from users only for rendering payment services. The required prudential rules including the initial capital should be appropriate to the risk related to the respective payment service provided by the payment institution. Services solely enabling access to payment accounts, but without offering any accounts, should be considered of a medium risk with regard to the initial capital.

(24) Provision should be made for client funds to be kept separate from the payment institution's funds for other business activities. However, safeguarding requirements seem only necessary when a payment institution is in possession of the clients’ funds. Payment institutions should also be subject to effective anti-money laundering and anti-terrorist financing requirements.

(25) This Directive should not introduce changes in the obligations of payment institutions with regard to their account reporting and the account audits on their annual and consolidated accounts. Payment institutions should draw up their annual and consolidated accounts in accordance with Council Directive 78/660/EEC[28] and, where applicable, Council Directive 83/349/EEC[29] and Council Directive 86/635/EEC[30]. The annual accounts and consolidated accounts should be audited, unless the payment institution is exempted from this obligation under Directive 78/660/EEC and, where applicable, Directives 83/349/EEC and 86/635/EEC.

(26) With technological developments a range of complementary services have also emerged in recent years, such as account information and account aggregation services. These services should also be covered by this Directive in order to provide consumers with adequate protection and legal certainty about their status.

(27) Payment service providers when engaging in the provision of one or more of the payment services covered by this Directive should always hold payment accounts used exclusively for payment transactions. For payment institutions to be able to provide payment services, it is indispensable that they have access to payment accounts. Member States should ensure that such access is provided in a way proportionate to the legitimate aim it intends to serve.

(28) This Directive should regulate the granting of credit by payment institutions, i.e. the granting of credit lines and the issuance of credit cards, only where it is closely linked to payment services. Only if credit is granted in order to facilitate payment services and such credit is of a short-term nature and is granted for a period not exceeding 12 months, including on a revolving basis, it is appropriate to allow payment institutions to grant such credit with regard to their cross-border activities, on condition that it is refinanced using mainly the payment institution's own funds, as well as other funds from the capital markets, but not the funds held on behalf of clients for payment services. Such rules should be without prejudice to Council Directive 2008/48/EC of the European Parliament and of the Council[31] or other relevant Union or national legislation regarding conditions for granting credit to consumers not harmonised by this Directive.

(29) Overall, the functioning of the cooperation between the competent national authorities responsible for granting authorisations to payment institutions, carrying out controls and deciding on the withdrawal of those authorisations, has proven to work satisfactorily. However, the cooperation between the competent authorities should be enhanced, both with regard to the information exchanged as well as a coherent application and interpretation of the Directive, in cases where the authorised payment institution would like to provide payment services also in a Member State other than its home Member State, in exercise of the right of establishment or the freedom to provide services (“passporting”). The European Banking Authority (EBA) should be asked to prepare a set of guidelines on the cooperation and data exchange.

(30) To enhance transparency on the payment institutions authorised by or registered with competent authorities, including their agents and branches, a web portal serving as European electronic access point should be established with EBA, interconnecting the national registers. These measures should aim at contributing to the enhancement of the cooperation between the competent authorities.

(31) The availability of accurate, updated information should be enhanced by requiring payment institutions to inform the competent authority of their home state without undue delay of any changes affecting the accuracy of the information and evidence provided with regard to the authorisation, including additional agents, branches or entities to which activities are outsourced. The competent authorities should also verify, in case of doubts, that the information received is correct.

(32) While this Directive specifies the minimum set of powers competent authorities should have when supervising the compliance of payment institutions, these powers are to be exercised with respect to fundamental rights, including the right to privacy. For the exercise of those powers which may amount to serious interferences with the right to respect private and family life, home and communications, Member States should have in place adequate and effective safeguards against any abuse or arbitrariness, for instance, where appropriate through prior authorisation from the judicial authority of the Member State concerned.

(33) It is important to ensure that all persons providing remittance services are brought within the ambit of certain minimum legal and regulatory requirements. Thus, it is desirable to require the registration of the identity and whereabouts of all persons providing remittance services, including of persons which are unable to meet the full range of conditions for authorisation as payment institutions. This approach is in line with the rationale of Special Recommendation VI of the Financial Action Task Force on Money Laundering which foresees the provision of a mechanism whereby payment service providers unable to meet all conditions set out in that Recommendation may nevertheless be treated as payment institutions. For those purposes, Member States should enter such persons in the register of payment institutions while not applying all or part of the conditions for authorisation. However, it is essential to make the possibility of waiver subject to strict requirements relating to the volume of payment transactions. Payment institutions benefiting from a waiver should have neither the right of establishment nor the freedom to provide services, nor should they indirectly exercise those rights when being a member of a payment system.

(34) It is essential for any payment service provider to be able to access the services of technical infrastructures of payment systems. Such access should, however, be subject to appropriate requirements in order to ensure integrity and stability of those systems. Each payment service provider applying for a participation in a payment system should furnish proof to the participants of the payment system that its internal arrangements are sufficiently robust against all kinds of risk. These payment systems typically include e.g. the four-party card schemes as well as major systems processing credit transfers and direct debits. In order to ensure equality of treatment throughout the Union as between the different categories of authorised payment service providers, according to the terms of their licence, it is necessary to clarify the rules concerning access to the provision of payment services and access to payment systems.

(35) Provision should be made for the non-discriminatory treatment of authorised payment institutions and credit institutions so that any payment service provider competing in the internal market is able to use the services of the technical infrastructures of these payment systems under the same conditions. It is appropriate to provide for different treatment for authorised payment service providers and for those benefiting from a waiver under this Directive as well as from the waiver under the Article 3 of Directive 2009/110/EC, due to the differences in their respective prudential framework. In any case, differences in price conditions should be allowed only where this is motivated by differences in costs incurred by the payment service providers. This should be without prejudice to Member States' right to limit access to systemically important systems in accordance with Directive 98/26/EC of the European Parliament and of the Council[32] and without prejudice to the competence of the European Central Bank and the European System of Central Banks (ESCB) concerning access to payment systems.

(36) In certain cases, Member States have granted indirect access to specific payment service providers to designated payment systems, in analogy to the provisions of Directive 98/26/EC. This decision is at the discretion of the Member State concerned. However, to ensure fair competition between payment service providers, this Directive should provide that where a Member State has granted a payment service provider indirect access to such systems, other payment service providers which are in the same situation should be benefit from the same, non-discriminatory treatment.

(37) In recent years, certain three party payment systems in which the system acts as the sole payment service provider for both the payer and the payee, have become respectable players in the market for processing payments. It is therefore no longer justified to allow these systems to benefit from an exemption with regard to providing access to other payment service providers, where other payment systems cannot benefit from such exemption.

(38) A set of rules should be established in order to ensure transparency of conditions and information requirements for payment services.

(39) This Directive should apply neither to payment transactions made in cash since a single payments market for cash already exists nor to payment transactions based on paper cheques since, by their nature, these cannot be processed as efficiently as other means of payment. Good practice in this area should, however, be based on the principles set out in this Directive.

(40) As consumers and enterprises are not in the same position, they do not need the same level of protection. While it is important to guarantee consumers' rights by provisions which cannot be derogated from by contract, it is reasonable to let enterprises and organisations agree otherwise when they are not dealing with consumers. However, Member States should have the possibility to provide that micro-enterprises, as defined by Commission Recommendation 2003/361/EC[33], should be treated in the same way as consumers. In any case, certain core provisions of this Directive should always be applicable irrespective of the status of the user.

(41) This Directive should specify the obligations on payment service providers as regards the provision of information to the payment service users who should receive the same high level of clear information about payment services in order to make well-informed choices and be able to choose freely within the Union. In the interest of transparency this Directive should lay down the harmonised requirements needed to ensure that necessary and sufficient information is given to the payment service users with regard to the payment service contract and the payment transactions. In order to promote smooth functioning of the single market in payment services, Member States should be able to adopt only those information provisions laid down in this Directive.

(42) Consumers should be protected against unfair and misleading practices in line with Directive 2005/29/EC of the European Parliament and the Council[34] as well as Directive 2000/31/EC of the European Parliament and the Council[35] and Directive 2002/65/EC of the European Parliament and the Council[36]. The additional provisions in those Directives continue to be applicable. However, the relationship of the pre-contractual information requirements between this Directive and Directive 2002/65/EC should, in particular, be clarified.

(43) The information required should be proportionate to the needs of users and communicated in a standard format. However, the information requirements for a single payment transaction should be different from those of a framework contract which provides for the series of payment transactions.

(44) In practice, framework contracts and the payment transactions covered by them are far more common and economically important than single payment transactions. If there is a payment account or a specific payment instrument, a framework contract is required. Therefore, the requirements for prior information on framework contracts should be quite comprehensive and information should always be provided on paper or on another durable medium, such as printouts by account printers, CD-ROMs, DVDs and hard drives of personal computers on which electronic mail can be stored, and Internet sites, as long as such sites are accessible for future reference for a period of time adequate for the purposes of information and allow the unchanged reproduction of the information stored. However, it should be possible for the payment service provider and the payment service user to agree in the framework contract on the manner in which subsequent information on executed payment transactions is given, for instance, that in Internet banking all information on the payment account is made available online.

(45) In single payment transactions only the essential information should always be given on the payment service provider's own initiative. As the payer is usually present when he gives the payment order, it is not necessary to require that information should in every case be provided on paper or on another durable medium. The payment service provider may give information orally over the counter or make it otherwise easily accessible, for example by keeping the conditions on a notice board on the premises. Information should also be given on where other more detailed information is available (e.g. the address of the website). However, if the consumer so requests, the essential information should be given on paper or on another durable medium.

(46) This Directive should provide for the consumer's right to receive relevant information free of charge before being bound by any payment service contract. The consumer should also be able to request prior information as well as the framework contract, on paper, free of charge at any time during the contractual relationship, so as to enable them to compare payment service providers' services and their conditions and in case of any dispute verify their contractual rights and obligations. Those provisions should be compatible with Directive 2002/65/EC. The explicit provisions on free information in this Directive should not have the effect of allowing charges to be imposed for the provision of information to consumers under other applicable Directives.

(47) The way in which the required information is to be given by the payment service provider to the payment service user should take into account the needs of the latter as well as practical technical aspects and cost-efficiency depending on the situation with regard to the agreement in the respective payment service contract. Thus, this Directive should distinguish between two ways in which information is to be given by the payment service provider: either the information should be provided, i.e. actively communicated by the payment service provider at the appropriate time as required by this Directive without further prompting by the payment service user, or the information should be made available to the payment service user, taking into account any request he may have for further information. In the latter case, the payment service user should take some active steps in order to obtain the information, such as requesting it explicitly from the payment service provider, logging into bank account mail box or inserting a bank card into printer for account statements. For such purposes the payment service provider should ensure that access to the information is possible and that the information is available to the payment service user.

(48) The consumer should receive basic information on executed payment transactions for no additional charge. In the case of a single payment transaction the payment service provider should not charge separately for this information. Similarly, the subsequent monthly information on payment transactions under a framework contract should be given free of charge. However, taking into account the importance of transparency in pricing and differing customer needs, the parties should be able to agree on charges for more frequent or additional information. In order to take into account different national practices, Member States should be allowed to set rules requiring that monthly paper-based statements of payment accounts are always to be given free of charge.

(49) In order to facilitate customer mobility, it should be possible for consumers to terminate a framework contract after a year without incurring charges. For consumers, the period of notice agreed should be no longer than a month, and for payment service providers no shorter than two months. This Directive should be without prejudice to the payment service provider's obligation to terminate the payment service contract in exceptional circumstances under other relevant Union or national legislation, such as legislation on money laundering and terrorist financing, any action targeting the freezing of funds, or any specific measure linked to the prevention and investigation of crimes.

(50) Low value payment instruments should be a cheap and easy-to-use alternative in the case of low-priced goods and services and should not be overburdened by excessive requirements. The relevant information requirements and rules on their execution should therefore be limited to essential information, taking also into account technical capabilities that can justifiably be expected from instruments dedicated to low value payments. Despite the lighter regime payment service users should benefit from adequate protection considering the limited risks posed by those payment instruments, especially with regard to prepaid payment instruments.

(51) It is necessary to set up the criteria under which TPPs are allowed to access and use the information on the availability of funds on the payment service user account held with another payment service provider. In particular, necessary data protection and security requirements set or referred to in this Directive or included in the EBA guidelines should be fulfilled by both the TPP and the payment service provider servicing the account of the payment service user. The payers should give an explicit consent to the TPP to access their payment account and be properly informed about the extent of this access. To allow the development of other payment services providers which cannot receive deposits, it is necessary that credit institutions provide them with the information on the availability of funds if the payer has given consent for this information to be communicated to the payment service provider issuer of the payment instrument.

(52) Rights and obligations of the payment service users and payment service providers should be appropriately adjusted to take account of the TPP involvement in the transaction whenever the payment initiation service is used. Specifically, a balanced liability repartition between the payment service provider servicing the account and the TPP involved in the transaction should compel them to take responsibility for the respective parts of the transaction that are under their control and clearly point to the responsible party in case of incidents. In case of fraud or dispute, the TPP should be under a specific obligation to provide the payer and the account servicing payment service provider with the reference of the transactions and the information of the authorisation relating to the transaction concerned.

(53) In order to reduce the risks and consequences of unauthorised or incorrectly executed payment transactions the payment service user should inform the payment service provider as soon as possible about any contestations concerning allegedly unauthorised or incorrectly executed payment transactions provided that the payment service provider has fulfilled its information obligations under this Directive. If the notification deadline is met by the payment service user, it should be able to pursue those claims within the prescription periods pursuant to national law. This Directive should not affect other claims between payment service users and payment service providers.

(54) In the case of unauthorized payment transactions the payer should be refunded immediately the amount of the respective transaction. In order to prevent the payer from any disadvantages, the credit value date of the refund should not be later than the date when the respective amount has been debited. In order to provide an incentive for the payment service user to notify, without undue delay, the provider of any theft or loss of a payment instrument and thus to reduce the risk of unauthorised payment transactions, the user should be liable only for a very limited amount, unless the payment service user has acted fraudulently or with gross negligence. In this context an amount of EUR 50 seems to be adequate in order to ensure a harmonized and a high level user protection within the Union. Moreover, once users have notified a payment service provider that their payment instrument may have been compromised, the users should not be required to cover any further losses stemming from unauthorised use of that instrument. This Directive should be without prejudice to the payment service providers' responsibility for technical security of their own products.

(55) In order to assess possible negligence by the payment service user, account should be taken of all the circumstances. The evidence and degree of alleged negligence should generally be evaluated according to national law. Contractual terms and conditions relating to the provision and use of a payment instrument, the effect of which would be to increase the burden of proof on the consumer or to reduce the burden of proof on the issuer should be considered null and void. Moreover, in specific situations and notably where the payment instrument is not present at the point of sale, such as in the case of online payments over the internet, it is appropriate that the payment service provider is required to provide evidence of alleged negligence since the payer’s means are very limited to do so in such cases.

(56) Provisions should be made for the allocation of losses in the case of unauthorised payment transactions. Except for cases of fraud and gross negligence, a consumer should never be obliged to pay more than a maximum of 50 EUR in case of an unauthorised transaction from his account. Different provisions may apply to payment service users who are not consumers, since such users are normally in a better position to assess the risk of fraud and take countervailing measures.

(57) This Directive should lay down rules for a refund to protect the consumer when the executed payment transaction exceeds the amount which could reasonably have been expected. In order to prevent a financial disadvantage for the payer, it needs to be ensured that the credit value date of any refund is no later than the date when the respective amount has been debited. In the case of direct debits payment service providers should be able to provide even more favourable terms to their customers, who should have an unconditional right to a refund of any disputed payment transactions. However, this unconditional refund right which ensures the highest level of consumer protection is not justified in cases where the merchant has already fulfilled the contract and the corresponding good or service has already been consumed. In cases where the user makes a claim for the refund of a payment transaction refund rights should affect neither the liability of the payer vis-à-vis the payee from the underlying relationship, e.g. for goods or services ordered, consumed or legitimately charged, nor the users rights with regard to revocation of a payment order.

(58) For financial planning and the fulfilment of payment obligations in due time, consumers and enterprises need to have certainty on the length of time that the execution of a payment order takes. Therefore, this Directive should introduce a point in time at which rights and obligations take effect, namely, when the payment service provider receives the payment order, including when he has had the opportunity to receive it through the means of communication agreed in the payment service contract, notwithstanding any prior involvement in the process leading up to the creation and transmission of the payment order, e.g. security and availability of funds checks, information on the use of the personal identity number or issuance of a payment promise. Furthermore, the receipt of a payment order should occur when the payer's payment service provider receives the payment order to be debited from the payer's account. The day or moment in time when a payee transmits to the service provider payment orders for the collection e.g. of card payment or of direct debits or when the payee is granted a pre-financing on the related amounts by the payment service provider (by way of a contingent credit to the account) should have no relevance in this respect. Users should be able to rely on the proper execution of a complete and valid payment order if the payment service provider has no contractual or statutory ground for refusal. If the payment service provider refuses a payment order, the refusal and the reason therefore should be communicated to the payment service user at the earliest opportunity subject to the requirements of Union and national law.

(59) In view of the speed with which modern fully automated payment systems process payment transactions, which means that after a certain point in time payment orders cannot be revoked without high manual intervention costs, it is necessary to specify a clear deadline for payment revocations. However, depending on the type of the payment service and the payment order, the point in time may be varied by agreement between the parties. Revocation, in this context, should be applicable only to the relationship between a payment service user and payment service provider, thus being without prejudice to the irrevocability and finality of payment transactions in payment systems.

(60) Such irrevocability should not affect a payment service provider's right or obligation under the laws of some Member States, based on the payer's framework contract or national laws, regulations, administrative provisions or guidelines, to reimburse the payer with the amount of the executed payment transaction in the event of a dispute between the payer and the payee. Such reimbursement should be considered to be a new payment order. Except for those cases, legal disputes arising within the relationship underlying the payment order should be settled only between the payer and the payee.

(61) It is essential, for the fully integrated straight-through processing of payments and for legal certainty with respect to the fulfilment of any underlying obligation between payment service users, that the full amount transferred by the payer should be credited to the account of the payee. Accordingly, it should not be possible for any of the intermediaries involved in the execution of payment transactions to make deductions from the amount transferred. However, it should be possible for payees to enter into an agreement with their payment service provider under which the latter may deduct own charges. Nevertheless, in order to enable the payee to verify that the amount due is correctly paid, subsequent information provided on the payment transaction should indicate not only the full amount of funds transferred but also the amount of any charges.

(62) With regard to charges, experience has shown that the sharing of charges between a payer and a payee is the most efficient system since it facilitates the straight-through processing of payments. Provision should therefore be made for charges to be levied, in the normal course, directly on the payer and the payee by their respective payment service providers. However, that should apply only where the payment transaction does not require currency exchange. The amount of any charges levied may also be zero as the provisions of this Directive should not affect the practice whereby the payment service provider does not charge consumers for crediting their accounts. Similarly, depending on the contract terms, a payment service provider may charge only the payee (merchant) for the use of the payment service, which has the effect that no charges are imposed on the payer. The charging by the payment systems may be in the form of a subscription fee. The provisions on the amount transferred or any charges levied have no direct impact on pricing between payment service providers or any intermediaries.

(63) Different national practices concerning charging for the use of a given payment instrument (hereinafter “surcharging”) have led to extreme heterogeneity of the Union’s payments market and become a source of confusion for consumers, in particular in the e-commerce and cross-border context. Merchants located in Member States where surcharging is allowed offer products and services in Member States where it is prohibited and in this case still surcharge the consumer. Moreover, a strong rationale for revision of surcharging practices is supported by the fact that Regulation (EU) No xxx/yyyy establishes rules for multilateral interchange fees for card-based payments. As interchange fees are the main element making most card payments expensive and surcharging is in practice limited to card-based payments, the rules on interchange fees should be accompanied by a revision of surcharging rules. In order to promote cost transparency and the use of the most efficient payment instruments, Member States and payment service providers should not prevent the payee from requesting a charge from the payer for using a specific payment instrument, duly taking into account the provisions set out in Directive 2011/83/EU. However, the right of the payee to request a surcharge should only apply to those payment instruments for which interchange fees are not regulated. This should act as a steering mechanism towards the cheapest means of payments.

(64) In order to improve the efficiency of payments throughout the Union, all payment orders initiated by the payer and denominated in euro or the currency of a Member State outside the euro area, including credit transfers and money remittances, should be subject to a maximum one-day execution time. For all other payments, such as payments initiated by or through a payee, including direct debits and card payments, in the absence of an explicit agreement between the payment service provider and the payer setting a longer execution time, the same one-day execution time should apply. It should be possible to extend those periods by an additional business day, if a payment order is given on paper. This allows the continued provision of payment services for those consumers who are used to paper documents only. When a direct debit scheme is used the payee's payment service provider should transmit the collection order within the time limits agreed between the payee and the payment service provider, enabling settlement at the agreed due date. In view of the fact that payment infrastructures are often highly efficient and in order to prevent any deterioration in current service levels, Member States should be allowed to maintain or set rules specifying an execution time shorter than one business day, where appropriate.

(65) The provisions on execution for the full amount and execution time should constitute good practice where one of the service providers is not located in the Union.

(66) It is essential for payment service users to know the real costs and charges of payment services in order to make their choice. Accordingly, the use of non-transparent pricing methods should not be allowed, since it is commonly accepted that those methods make it extremely difficult for users to establish the real price of the payment service. Specifically, the use of value dating to the disadvantage of the user should not be permitted.

(67) The smooth and efficient functioning of the payment system depends on the user being able to rely on the payment service provider executing the payment transaction correctly and within the agreed time. Usually, the provider is in the position to assess the risks involved in the payment transaction. It is the provider that provides the payments system, makes arrangements to recall misplaced or wrongly allocated funds and decides in most cases on the intermediaries involved in the execution of a payment transaction. In view of all those considerations, it is entirely appropriate, except under abnormal and unforeseeable circumstances, to impose liability on the payment service provider in respect of execution of a payment transaction accepted from the user, except for the payee's payment service provider's acts and omissions for whose selection solely the payee is responsible. However, in order not to leave the payer unprotected in unlikely constellations where it may remain open (non liquet) whether the payment amount was duly received by the payee's payment service provider or not, the corresponding burden of proof should lie upon the payer's payment service provider. As a rule, it can be expected that the intermediary institution, usually a "neutral" body like a central bank or a clearing house, transferring the payment amount from the sending to the receiving payment service provider will store the account data and be able to furnish the latter whenever this may be necessary. Whenever the payment amount has been credited to the receiving payment service provider's account, the payee should immediately have a claim against the payment service provider for credit to the account.

(68) The payer's payment service provider should assume liability for correct payment execution, including, in particular the full amount of the payment transaction and execution time, and full responsibility for any failure by other parties in the payment chain up to the account of the payee. As a result of that liability the payment service provider of the payer should, where the full amount is not or only late credited to the payee's payment service provider, correct the payment transaction or without undue delay refund to the payer the relevant amount of that transaction, without prejudice to any other claims which may be made in accordance with national law. Due to the payment service provider’s liability, the payer or payee should not be burdened with any costs related to the incorrect payment. In case of non-execution, defective or late execution of payment transactions, Member States should ensure that the value date of corrective payments of payment service providers is always the same as the value date in case of correct execution.

(69) This Directive should concern only contractual obligations and responsibilities between the payment service user and the payment service provider. However, the proper functioning of credit transfers and other payment services requires that payment service providers and their intermediaries, such as processors, have contracts where their mutual rights and obligations are agreed upon. Questions related to liabilities form an essential part of these uniform contracts. To ensure the reliability among payment service providers and intermediaries taking part in a payment transaction, legal certainty is necessary to the effect that a non-responsible payment service provider is compensated for losses incurred or sums paid under the provisions of this Directive relating to liability. Further rights and details of content of recourse and how to handle claims towards the payment service provider or intermediary attributable to a defective payment transaction should be left to be defined by contractual arrangements.

(70) It should be possible for the payment service provider to specify unambiguously the information required to execute a payment order correctly. On the other hand, however, in order to avoid fragmentation and jeopardising the setting-up of integrated payment systems in the Union, Member States should not be allowed to require a particular identifier to be used for payment transactions. However, this should not prevent Member States from requiring the payment service provider of the payer to act in due diligence and verify, where technically possible and without requiring manual intervention, the coherence of the unique identifier, and where the unique identifier is found to be incoherent, to refuse the payment order and inform the payer thereof. The liability of the payment service provider should be limited to the correct execution of the payment transaction in accordance with the payment order of the payment service user.

(71) In order to facilitate effective fraud prevention and combat payment fraud across the Union, provision should be made for the efficient exchange of data between payment service providers who should be allowed to collect, process and exchange personal data relating to persons involved in payment fraud. Directive 95/46/EC of the European Parliament and of the Council[37], the national rules which transpose Directive 95/46/EC and Regulation (EC) No 45/2001 of the European Parliament and of the Council[38] are applicable to the processing of personal data for the purposes of this Directive.

(72) This Directive respects the fundamental rights and observes the principles recognised by the Charter of Fundamental Rights of the European Union, including the right to respect for private and family life, the right to protection of personal data, the freedom to conduct a business, the right to an effective remedy and the right not to be tried or punished twice in criminal proceedings for the same offence. This Directive has to be implemented in accordance with these rights and principles.

(73) It is necessary to ensure the effective enforcement of the provisions of national law adopted pursuant to this Directive. Appropriate procedures should therefore be established by means of which it will be possible to pursue complaints against payment service providers which do not comply with those provisions and to ensure that, where appropriate, effective, proportionate and dissuasive sanctions are imposed. In view of ensuring an effective compliance with this Directive, Member States should designate competent authorities which comply with the conditions under Regulation (EU) No 1093/2010 of the European Parliament and of the Council [39] and which act independently from the payment service providers. For transparency reasons, Member States should notify the Commission which authorities have been designated, with a clear description of their duties under this Directive.

(74) Without prejudice to the right of customers to bring action in the courts, Member States should ensure an easily accessible and cost-sensitive out-of-court resolution of conflicts between payment service providers and consumers arising from the rights and obligations set out in this Directive. Regulation (EC) No 593/2008 of the European Parliament and of the Council[40] provides that the protection afforded to consumers by the mandatory rules of the law of the country in which they have their habitual residence may not be undermined by any contractual terms on law applicable. With regard to establishing an efficient and effective dispute resolution procedure, Member States should ensure that payment service providers put in place an effective consumer complaint procedure that can be followed by their consumers before the dispute is referred to be resolved in an out-of-court procedure or before court. The complaints procedure should contain short and clearly defined timeframes within which the payment service provider should reply to a complaint.

(75) Member States should determine whether the competent authorities designated for granting authorisation to payment institutions might also be the competent authorities with regard to out-of-court complaint and redress procedures.

(76) This Directive should be without prejudice to provisions of national law relating to the consequences as regards liability of inaccuracy in the expression or transmission of a statement.

(77) This Directive should be without prejudice to the provisions relating to the VAT treatment of payment services in Directive 2006/112/EC of the European Parliament and the Council[41].

(78) In the interests of legal certainty, it is appropriate to make transitional arrangements allowing persons who have commenced the activities of payment institutions in accordance with the national law transposing Directive 2007/64/EC before the entry into force of this Directive to continue those activities within the Member State concerned for a specified period.

(79) The power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union should be delegated to the Commission in respect of adapting the reference to Recommendation 2003/361/EC where that Recommendation is amended and in respect of updating, in case of inflation or significant market developments, the average amount of payment transactions executed by the payment service provider used as a threshold for Member States that apply the option to waive (parts) of the licencing requirements for smaller payment institutions. It is of particular importance that the Commission carries out appropriate consultations during its preparatory work, including at expert level. The Commission, when preparing and drawing up delegated acts, should ensure a simultaneous, timely and appropriate transmission of relevant documents to the European Parliament and to the Council.

(80) In order to ensure consistent application of this Directive, the Commission should be able to rely on the expertise and support of EBA, which should have the task to elaborate guidelines and prepare regulatory technical standards on security aspects regarding payment services, and on the cooperation between Member States in the context of the provision of services and establishment of authorised payment institutions in other Member States. The Commission should be empowered to adopt those regulatory technical standards. These specific tasks are fully in line with the role and responsibilities of EBA defined in Regulation (EU) No 1093/2010, under which the EBA has been set up.

(81) Since the objective of this Directive, namely, the further integration of a single market in payment services, cannot be sufficiently achieved by the Member States because it requires the harmonisation of a multitude of different rules currently existing in the legal systems of the various Member States and can therefore be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective.

(82) In accordance with the Joint Political Declaration of Member States and the Commission of 28 September 2011 on explanatory documents[42], Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a Directive and the corresponding parts of national transposition instruments. With regard to this Directive, the legislator considers the transmission of such documents to be justified.

(83) Given the number of changes that need to be made to Directive 2007/64/EC it is appropriate to repeal and replace it

HAVE ADOPTED THIS DIRECTIVE:

TITLE I SUBJECT MATTER, SCOPE AND DEFINITIONS

Article 1 Subject matter

1. This Directive lays down the rules in accordance with which Member States shall distinguish the following six categories of payment service provider:

(a) credit institutions within the meaning of Article 4(1)(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council[43] , including branches within the meaning of Article 4(1)(17) of that Regulation located in the Union of credit institutions having their head offices inside or, in accordance with Article 47of Directive 2013/36/EU , outside the Union;

(b) electronic money institutions within the meaning of Article 2(1) of Directive 2009/110/EC;

(c) post office giro institutions which are entitled under national law to provide payment services;

(d) payment institutions within the meaning of Article 4(4) of this Directive;

(e) the European Central Bank and national central banks when not acting in their capacity as monetary authority or other public authorities;

(f) Member States or their regional or local authorities when not acting in their capacity as public authorities.

2. This Directive also lays down rules concerning transparency of conditions and information requirements for payment services, and the respective rights and obligations of payment service users and payment service providers in relation to the provision of payment services as a regular occupation or business activity.

Article 2 Scope

1. This Directive shall apply to payment services provided within the Union, where both the payer's payment service provider and the payee's payment service provider are, or the sole payment service provider in the payment transaction is, located therein. Article 78 and Title III shall also apply to payment transactions where only one of the payment service providers is located within the Union, in respect to those parts of the payments transaction which are carried out in the Union.

2. Title III shall apply to payment services in any currency. Title IV shall apply to payment services made in euro or the currency of a Member State outside the euro area.

3. Member States may waive the application of all or part of the provisions of this Directive to the institutions referred to in Article 2(5)(2)-(23) of Directive 2013/36/EU, with the exception of those referred to in paragraph 5(2) and (3) of that Article.

Article 3 Negative scope

This Directive shall not apply to any of the following:

(a) payment transactions made exclusively in cash directly from the payer to the payee, without any intermediary intervention;

(b) payment transactions from the payer to the payee through a commercial agent authorised to negotiate or conclude the sale or purchase of goods or services on behalf of either the payer or the payee;

(c) professional physical transport of banknotes and coins, including their collection, processing and delivery;

(d) payment transactions consisting of the non-professional cash collection and delivery within the framework of a non-profit or charitable activity;

(e) services where cash is provided by the payee to the payer as part of a payment transaction following an explicit request by the payment service user just before the execution of the payment transaction through a payment for the purchase of goods or services;

(f) cash-to-cash operations where the funds are not held on a payment account;

(g) payment transactions based on any of the following documents drawn on the payment s