Thursday, May 23, 2024

    Exclusion confusion dogs PSD2

    With the implementation of PSD2 gathering steam, issues abound about how exclusion to it will work – with direct impact on the telemedia sector – and how to balance fraud with customers actually benefiting from using PSD2 regulated charge to mobile services.

    Within the updated Payment Services Directive, exclusions exist for entities operating under certain circumstances. One of these exclusions is related to telecommunications providers, who provide a payment service to their customers along with telecommunication services. This exclusion from PSD2 is conditional on the limitations set in the exclusion and reporting to the Financial Conduct Authority (FCA). If the limitations are not applied or have been breached, the telecommunications provider is providing a payment service that will require registration and regulation by the FCA.

    But according to industry body AIME, there are issues with these exclusions. The type of content or service and the price per service are reasonably easy to control through contractual arrangements between the Telecom Operator and their intermediaries, but the overall consumer spend (on “third party products”) is not, it warns.

    AIME says: “Where an individual subscriber spends more than €300 in any month, it may push the Telecom Operator into a technical breach of the payment services regulation if they are not registered as a PSP”.

    To avoid a technical breach, networks may need to implement a “hard stop” at €300 spend. The cost and complexity to do so would far outweigh any consumer benefit and would actually provide detriment for those users who would be unable to access the services they need. Preventing a call to Directory Enquiry (DQ) Services breaches another EU regulation.

    Other issues exist around the regulations definitions, says AIME, namely around the definition of an “individual subscriber”, the differences in how “Digital Content” is defined in the PSD2 and the Consumer Rights Directive, and the rate at which the caps convert from Euros into Sterling needs to be set and adjusted on an annualised or permanent basis and can conflict with Ofcom regulation which allowed up to £45 for premium rate voice services.

    Where it gets really complicated, though, is where intermediaries fit in, warns AIME. According to its most recent consultation briefing document “The Telecom Operator, after charging their customer for the merchant product or service, would pass the funds through a value chain to the merchant. This value chain generally also supplies communication connectivity and IT facilities to enable the service and / or the transaction.

    “As the value chain takes possession of the funds as they pass from the consumer’s network to the merchant, then they may be considered to be acting in the role of a Payment Service Provider (with the “Payment Service User” being the upstream party in the value chain).

    “The Telecom Operators exclusion from Payment Services regulation in PSD2 does not automatically cascade down to its value chain.

    “The value chain therefore may be acting in the role of “acquiring payments” as defined in section 5 of Annexe 1 of PSD2. It is unclear if this definition applies to the complete value chain or solely to the party that contracted with the Merchant for whose products the payment was made.

    “It is also unclear if this definition actually is intended for the telecoms payment value chain or is linked to the card payment schemes and other financial instruments. Even FCA has said that “it is complicated”,”.

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