Payment Services Directive 2 – What it means for Debt Collection Firms

At a high level PSD2 aims to:

• contribute to a more integrated and efficient European payments market

• improve the level playing field for payment service providers

• promote the development and use of innovative online and mobile payments

• make payments safer and more secure

• protect consumers

• encourage lower prices for payments

PSD2 includes, amongst other things, services relating to the operation of payment accounts (for example, cash deposits and withdrawals from current accounts and flexible savings accounts), execution of payment transactions, card issuing, merchant acquiring, and money remittance. The Directive focuses on electronic means of payment including direct debit, debit card, credit card, standing order, mobile or fixed phone payments and payments from other digital devices as well as money remittance services; it does not apply to cash-only transactions or paper cheque-based transfers.

In this article, we’ll explore the main aspects of the Directive:

Customer rights

PSD2 enhances customers rights through increase transparency requirements meaning providers must make charges clear to the customer. Equally adding a surcharge on a debit, credit or pre-paid card transaction fee is now banned under the legislation.

Complaints

Providers need to respond to most complaints within 15 days, although the firm can extend this to 35 days provided a legitimate reason for doing so is communicated to the customer.

Earmarking of funds

PSD2 requires card issuers to make funds available to customers as soon as the final amount is known.

Regulatory Oversight

PSD2 creates authorisation and registration regimes for firms who provide holders of online payment accounts with payment initiation services and account information services. It does so through a range of authorisation options such as a Payment Institution or Small Payment Institution. A point to note can be found in PERG 15.2 which outlines exemptions to the need to be authorised specifically for payment services, the FCA give examples of a firm of Solicitors passing on client money and debt management firms undertaking similar activities as exempt. It follows that debt collection would not need similar authorisation.

However, there are some aspects which do impact such firms

Secure Customer Authentication

Designed to reduce fraud, this will have an impact on the way in which firms take payment. In order to make a payment, customers will be required to provide two forms of ID from the following three options:

1. Knowledge: something only the customer knows, such as a PIN or password.

2. Possession: something only the customer has, such as a mobile phone or payment card.

3. ​Inherence: something unique to the customer, such as their fingerprint.

That is unless the transaction falls within one of the following exemptions:

• Face-to-face contactless payments: this includes single transactions under €50, with a maximum cumulative value of €150 or five transactions.

• Online payments: single transactions must be less than €30, up to a maximum of €100 or five transactions.

• Transaction risk analysis: a transaction can be exempted from SCA if it is “low risk”. This exemption is subject to certain requirements and conditions being met.

• Corporate payments: this includes ‘secure virtual payments’, such as virtual cards or B2B cards. The transaction must be initiated by a legal person (e.g. a business) rather than a consumer.

• Whitelisting: consumers can whitelist merchants so that all future transactions with that merchant do not require additional security checks.

• Recurring payments: this refers to recurring payments made to the same merchant for the same amount.

The above is coming into force in September so firms should review their payment processes or providers to ensure compliance. Equally you should gear up your staff to be able to handle an expected increase in queries where a transaction has failed due to the lack of authentication. Where customers are in financial difficulty it will be hugely important that firms have new processes to ensure a rejected payment does not push a customer into further difficulty.

For more information the FCA has a useful PSDII navigator which helps you understand how it impacts your firm.

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