Presentation by Paul Anning, Partner at Osborne Clarke, on 3 April at the International Payments Summit 2014

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International Payments Summit 2014 – Boot Camp
PSD II – Third Party Access To Accounts
Paul Anning, Partner
3 April 2014

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Agenda
• PSD Review – leading to PSD2
• Overview of proposed changes
• Overlay (or Third Party) services
• Concluding remarks

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PSD
• Objective:
"to establish at Community level a modern and coherent legal framework for
payment services, whether or not the services are compatible with the
system resulting from the financial sector initiative for a single euro
payments area, which is neutral so as to ensure a level playing field for all
payment systems, in order to maintain consumer choice, which should
mean a considerable step forward in terms of consumer cost, safety and
efficiency, as compared with the present national systems"
• In force from 25 December 2007; transitional deadline of 1 November 2009
• Review date set for 2012
• Full harmonisation measure albeit with 25 optional provisions

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PSD Review
Conclusions
• Globally fit for purpose
• Any changes must be 'evolutionary' not 'revolutionary'
• Market is very dynamic and has experienced significant innovation
• Recent developments show:
‒ still fragmentation along national borders
‒ some regulatory gaps
‒ market failures for card, internet and mobile payments
• Key themes:
‒ general updating
‒ improve security
‒ reduce processing fees
‒ encourage competition

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PSD Review
Not in isolation
• PSD2 proposals published on 24 July 2013
• Alongside a proposed Interchange Fees Regulation
• No proposals on Governance
• No proposals to amend 2EMD or consolidate with PSD2
• Live discussions within EC legislature!

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PSD Review
Overview
Mobile
payments
Overlay (or
third party)
services
Operational
security and
authentication
Access to
payment
systems
One-leg
transactions
and all
currencies
'Negative
scope'
adjustments
Digital
economy
Acquiring
Liability
framework
Surcharging
Enhanced
PI
conditions
PSD 2
Passporting
issues

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PSD Review
Overlay (or Third Party) services (1)
• New type of payment services defined as:
“Services based on access to payment accounts provided by a
[PSP] who is not the account servicing [PSP], in the form of:
(a) payment initiation services
(b) account information services”
• PIS and AIS very distinct types of services
• Technical services provider exemption adjusted accordingly
• EC’s objective is to enhance competition, encourage the digital
economy and achieve harmonisation

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PSD Review
Overlay (or Third Party) services (2)
Key issues under discussion:
• Credentials – share user's personalised security credentials or
create fresh ones?
• Interface/communication protocols – what standard or
technology should apply?
• Scope of access of TPPs, especially when acting for
consumers:
‒ all account information
‒ sufficient funds check
‒ initiate payment?

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PSD Review
Overlay (or Third Party) services (3)
Key principles emerging:
• Rights of access:
‒ no contract should be required between AS PSP and TPP
‒ AS PSP can't deny access, but could charge for it
‒ AS PSP can't discriminate payment orders received from TPPs
• Transparency: PSU must tell AS PSP it is using a TPP; AS PSP
should be able to tell at TPP from a PSU; etc
• Liability: liability should lie with the fault; but where a TPP is
involved, the PSU should first seek remedy from the AS PSP, which
in turn can seek remedy from the TPP unless the TPP can
demonstrate that it is not liable (and if not will be liable for the AS
PSP's reasonable costs)

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PSD Review
Conduct of business requirements
• Harmonisation and refinement of surcharging rules:
‒ steering permitted but any charges must not exceed the costs for the specific
payment instrument
• Replacement card charges are to be limited to directly attributable replacement
costs
• Refinement of liability framework:
‒ unauthorised transactions – payer's liability limited to €50 (now €150) and where
'strong customer authentication' has not been used, to where payer acted
fraudulently. Immediate refunds (within 24 hours)
‒ refund right for payee-initiated transactions – doesn't apply in cases of immediate
consumption; back-value dating of refunds
‒ non-execution/defective execution – provisions extended to 'late' execution
• Introduction of customer complaint resolution procedures

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PSD2
Concluding remarks
• PSD2 is a natural evolution of PSD
• TPP provisions are most significant – potentially creating
competition in different ways
• There will be a PSD3!

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Further reading
• Payment Services Directive
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32007L0064:EN:NOT
• Electronic Money Directive
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32000L0046:EN:NOT
• European Commission’s Green Paper: Towards an integrated European market for card, internet and mobile
payments
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011DC0941:EN:NOT
• European Commission's draft proposal for a Network and Information Security Directive
http://ec.europa.eu/information_society/newsroom/cf/dae/document.cfm?doc_id=1666
• ECB's Recommendations for the Security of Internet Payments
http://www.ecb.int/pub/pdf/other/recommendationsforthesecurityofinternetpaymentsen.pdf
• Single Market Act II
http://ec.europa.eu/internal_market/smact/docs/single-market-act2_en.pdf
• European Commission's proposal for a Payment Account Directive
http://ec.europa.eu/internal_market/finservices-retail/inclusion/index_en.htm
• European Commission's July 2013 package of draft legislative proposals for a revised PSD and a new Interchange
Fees Regulation
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0550:FIN:EN:PDF
• ECB's Recommendation for the Security of Mobile Payments
https://www.ecb.europa.eu/paym/cons/pdf/131120/recommendationsforthesecurityofmobilepaymentsdraftpc201311en.pdf?7f9004f1cbbec932447c1db2c
84fc4e9
• ECB's Recommendation for the Security of Internet Payments
https://www.ecb.europa.eu/pub/pdf/other/recommendationssecurityinternetpaymentsoutcomeofpcfinalversionafterpc201301en.pdf

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Contact details – Paul Anning
Paul Anning is head of European law-firm, Osborne Clarke's Financial Institutions Group and a
specialist financial services lawyer. Paul has market leading experience and expertise in the
payments industry where he has guided clients through new product development, regulatory
change and transformational projects, such as the creation of the UK's Payments Council (which
sets the strategy for UK payments), the merger creating VocaLink (the UK’s largest payments
processor), the UK's first NFC enabled stored value mobile payment solution (QuickTap) and the
acquisition of one of Europe's leading prepaid card issuers.
Paul is well versed in the complexities of the payments industry's network arrangements. He also
has a deep knowledge of legal and regulatory developments affecting the payments industry,
including key European developments such as the Single Euro Payments Area (SEPA), the
Payment Services Directive (PSD) and the Second Electronic Money Directive (2EMD). On PSD
specifically, he has been involved since its inception in 2003 and has been advising the UK's
Payments Council, banks and other payment service providers.
Paul and the Osborne Clarke Payments team act for a range of clients from infrastructure
providers and traditional credit institutions and GTS businesses through to electronic money
issuers and corporates and retailers (including on corporate card and co-branded arrangements).
Their Payments practice is recognized externally as top-tier ranking, with commentary such as -
"Osborne Clarke is one of the leading practices working in the payments services sphere" and in
July 2012 an award for "TMT Team of the Year 2012" at The Lawyer Awards for their work on
Everything Everywhere and Barclaycard's QuickTap product.
Paul Anning
Partner
T+44 (0) 20 7105 7446
paul.anning@osborneclarke.com
TMT Team of the Year
2012
The Lawyer Awards
IT Firm of the Year 2012
JUVE Awards