What is the Payment Services Directive ?
The Payments Services Directive (PSD) came into force across the EU and EEA countries on 1 November 2009.The PSD aims to establish a modern and harmonised legal framework necessary for the creation of an integrated payments market which would enable payments to be made more quickly and easily throughout the whole EU.
The PSD has two main objectives:-
to generate more competition in payment markets by removing market entry barriers and guaranteeing fair market access, and
to provide a simplified and harmonised set of rules with regards to the information requirements and the rights and obligations linked to the provision
and use of payment services.
The Directive has a wider scope covering payments made in any EU currency and is not limited to euros only. It applies not only to banks but to all providers of payment services be they supermarkets, money remitters or in some cases, telecom or IT providers. First it is pertinent to explain some technical terms for the sake of clarity.
The PSD regulates ‘payment services’ which include:-
cash placements on a payment account;
cash withdrawals from a payment account;
execution of payment transactions; and
issuing/acquiring payment instruments.
Cheques or cash are not considered as payment services in terms of the PSD.
An account is deemed to be a payment account where a customer can place, transfer and withdraw funds without any additional intervention or agreement of the account provider. However, an account that does not enable a customer to place funds on it freely or an account that does not enable a customer to transfer or withdraw funds from it freely is unlikely to be a ‘payment account.’
Current and conventional savings accounts automatically qualify as payment accounts. If on the other hand a savings account exhibits restrictive features relating to withdrawals then it is unlikely to be considered as a payment account. As another example, fixed term deposits account are not generally considered as payment accounts.
The meaning and scope of a framework contract or arrangement.
The Payments Services Directive (PSD) requires that a payment account has a framework contract to govern the terms of the payment service. A framework contract/arrangement means a contract for payment services which governs the future execution of individual and successive payment transactions and which may contain the obligation and conditions for setting up a payment account.
Local banks are currently informing their customers about changes which need to be made to the terms and conditions applicable for payment accounts. You may receive the revised terms via your online banking facility, if available. Alternatively, you may be asked to collect your terms personally from your branch.
Whichever way these terms are delivered, it is imperative that you go through them carefully and identify those provisions which you may not understand or disagree with. If you do not respond by a specific date (as announced by your bank) the bank will take it that you have agreed to the revised terms.
The terms may be offered to you in English. Do not keep back from asking for a Maltese version if that is the language with which you are more conversant – it is within your right to do so. After all, signing the revised terms signifies your understanding and agreement. If you disagree with the terms being proposed, ask your bank to suggest a mutually acceptable remedy in the circumstances.
A framework contract/arrangement is focused on a specific set of terms governing the provision of payment services. Such contracts must contain information regarding:-
a specification of the Unique Identifier to be provided by the payer in order for the payment to be properly executed. Typically Unique Identifiers involve the payer providing the beneficiary
’s IBAN (or International Bank Account Number) of the beneficiary
Maximum execution time (see hereunder);
Charges payable and a breakdown of the charges;
The exchange rate to be applied, if applicable; and
The frequency of statements indicating the transactions passed through the account. You may receive such statement electronically (if you have an internet banking system available) or by post.
Depending on the type of service or product being offered, the terms may also include other more comprehensive information such as:-
The use of the payment service and its main characteristics;
Means of communication;
Safeguards and corrective measures in the case of unauthorised or incorrectly executed payments;
Changes in and termination of the contract; and
Redress available to the payer.
Your bank is obliged to inform you two months in advance before it can amend any aspect to the agreed terms and condition. The PSD specifically makes reference to situations when a consumer refuses to accept proposed changes and identifies those rights which the customers enjoys in such situations.
Changes in the interest or exchange rates may be applied immediately without notice, provided that such a right is agreed upon in the framework contract. A payment service user shall be informed of any change in the interest rate at the earliest opportunity. However, changes in interest or exchange rates which are more favourable to the payment services users, may be applied without notice.
The Payments Services Directive (PSD) is also quite specific when it deals with information requirements relating to payments in and from a payment account. For example, following receipt of a payment order into the account, a bank is required to provide the following typical information:-
A reference for identifying the payment and information relating to the payee
Amount of the payment in the currency used;
Breakdown of all charges, if applicable;
Exchange rate used, if applicable; and
Date of receipt of the payment instructions.
A payment order must be executed within a specific timeframe, referred to as the execution time. Rapid payment is essential for a modern and properly functioning economy. Today, several countries already provide that national payments must be made by the end of the next business day and some even make payments on the same day.
Under the PSD, up to January 2012, parties (i.e. payer and his/her payment service provider) may agree on a maximum execution time of three business days for credit transfers. Furthermore the Directive allows parties to agree on an extra business day for paper-initiated payment transactions.
From 1 January 2012, the following credit transfers must be made at the latest by the end of the next business day:-
That stated, nothing stops the bank and its client from mutually agreeing to a short execution time. Once credited, funds are at the payee’s disposal immediately.
The PSD introduces the ‘full amount principle’ according to which the full amount specified in a payment order shall be credited without any deduction to the beneficiary. Therefore although banks may still charge for the receipt of credit transfers, the amount charged will have to be separately shown and deducted. The PSD does not go into the merits of how much a payment order should charge for a payment in or out from an account. As long as the applicable fees and charges are made known prior to the transaction, a payment provider is at liberty to set any level of tariff.
The payee and his payment service provider may agree that the latter deducts its charges from the amount received before crediting it to the payee’s account. In such cases, the full amount of the payment and the charges deducted must be shown separately in the information given to the payee.
For more information about the Payment Services Directive, click here for the brochure issued by the Malta Bankers Association. Last updated: Sep 07, 2016