ABBL

...for Marc Hemmerling, Head of Organisation, Technology & Payment Systems at the ABBL.

1. What is the difference between the PSD (Payment Services Directive) and SEPA (Single Euro Payments Area)?

The PSD is often mentioned in the same breath as SEPA. However, while both are indeed related, the two need to be distinguished. SEPA is an initiative by the European banking sector with the aim to introduce advanced payment systems in Euro to the end consumer. This goal will be achieved by implementing efficient and Europe-wide inter-operable intra-bank solutions. With SEPA, the distinction between national and cross-border payments is essentially abolished. It covers credit transfers, Direct debit and card payments. The PSD, on the other hand, defines the legal framework on which SEPA bases itself. This is particularly relevant to Direct debit, as the PSD inscribes the client’s refund right into law - an important feature that hadn’t existed before. It is also important to know that SEPA only applies to Euro payments, whereas the PSD, besides customers’ cash deposits and bank withdrawals, covers the same payment systems plus currencies other than the Euro. In Luxembourg, the PSD was transposed as the Law on Payment Systems. In brief, one could say that, with SEPA, banks aim to provide an improved and more efficient customer service on a voluntary basis, while the PSD cements this aim by legally safeguarding the customer’s rights.

2. What changes for bank customers with the introduction of the PSD as well as under SEPA?

For bank clients, one of the most important aspects will be an increase in transparency, both on the contractual as well as on the operational side. Importantly, this transparency is given a legal foundation in the shape of the PSD. Thus, for payment transactions, banks are required to make available important information on the transaction to the customer (fees, exchange rates, etc.). Payments will also become faster. Customers will have guaranteed execution times, now fixed at Day+1 (until 2012 banks may, however, agree with their customers to apply D+3). Concretely, this means that if I make a transaction on a given day, my bank will be required to execute this transaction at the latest by the end of the next business day. The next business day rule also applies for value dating of payments -- that is the day specified for the bank to debit and credit funds. It should be noted that these faster payment times only apply to payment services. It thus excludes, for example, other transactions such as buying shares or receiving dividends. Neither does the PSD apply to termed savings accounts that do not allow payment transactions to be made directly from the account, for example.

Another important new feature for clients is the guaranteed and improved refund right. This is particularly important in the case of Direct debit. Now, customers can contest non-authorised payments for a period of up to 13 months. Authorised payments can be contested for up to 8 weeks. An example of the latter would be, let’s say, if my telephone provider whom I’ve given permission to debit my account on a monthly basis all of a sudden debits 2000 euros, while my usual monthly payments averaged around 150 euros. Even though the payment was authorised, I can argue that it wasn’t reasonable for the company to debit such a large amount all in one go. Again this was not the case before. In addition, any refund by my bank has to take place at the latest the next business day after I have made my complaint.

The transposition of the PSD in Luxembourg encourages clients’ use of electronic payment systems. Thus, the Luxembourg Law on Payment Systems prohibits that retailers charge clients for paying with payment cards. The Luxembourg government and the ABBL believe that such surcharges, which are permitted under the PSD, would not only be punishing clients for using an electronic payment system, but such a practice would also implicitly discriminate certain payment systems over others.

It has to be noted that the PSD, as well as its transposition in Luxembourg, mainly concern consumers. The law allows for companies to have other contractual relations with banks than those foreseen by the PSD (value dating, however, will be the same, both for private consumers and companies). Consumer provisions may, however, apply to micro-enterprises - that is companies employing less than 10 people and with a limited turnover. Luxembourg law has left it up to banks to classify this type of activities on a case-by-case basis for the simple reason that the status between a micro-enterprise and a company can fluctuate – a micro-company might, for instance, make a significant profit in a given year, and decide to hire 10 more employees, thus changing its status.

3. What is the ABBL’s role with regards to SEPA and the transposition of the PSD?

The ABBL represents the interests of Luxembourg banks nationally, vis-à-vis the Luxembourg legislator, and on a European cross-border level. At a national level, the ABBL was the government’s interlocutor during the drafting process of the Luxembourg law. This was particularly relevant in cases where the PSD was not sufficiently clear, potentially leading to diverging interpretations. On a national basis, the ABBL created a working group analysing the draft law, and providing interpretations of ambiguous articles and, consequently, recommendations for banks on how to apply such articles and provisions. At a cross-border level, the ABBL represented Luxembourg banks at the European Banking Federation’s PSD Industry Expert Group, where we tried to establish a common ground between the various national interpretations. This was particularly important since the PSD not only deals with national, but also cross-border payment services. The ABBL contributed to the European Guide for the Implementation of the Payment Services Directive and also developed a Luxembourg Guide for Payment Service Providers, based on the draft transposition law. Currently, this guide is only available for our members. As soon as the draft law has been approved, we will publish an updated version of the guide in French and English. The guide will be kept up-to-date on the basis of frequently asked questions.

(Interview from the Luxembourg Banking Quarterly - 3/2009)