The current PSD sets out ‘negative scope’ provisions that list a range of services that would be considered out of scope of payments regulation. Many of these followed pre-existing legal and commercial practice, while others simply draw a distinction between electronic and paper based payment products.
Three of these exemptions have been much used by new payment service providers, and all have been amended in some way by PSD2 in response to competing business and regulatory policy objectives.
(i) The first and much discussed is the limited network exemption; a demarcation of three circumstances where payments regulation is disproportionate. It exempts from the PSD (and EMD2) payment schemes that are limited by geography, limited by the number of merchants participating or by the range of goods and services for which payments are made. This is a key exemption that exempts staff canteens, book tokens as well as many gift card products. Regulators have however struggled with the interpretation of ‘limited’, and continue to do so. In an effort to contain the size of such schemes PSD2 has introduced ‘very limited’ to one limb and qualified issuers as ‘professional’ in another. More significantly however, notification is now required if the turnover associated with exempt schemes exceed EUR 1m. This is likely to increase regulators’ workload significantly, without necessarily increasing clarity or pan European consistency. A new limb provides products with a specific tax or social purpose such as ‘luncheon vouchers’ with exemption now and these are also free from notification obligations.
(ii) The second exemption relates to commercial agents, and provides for some conditions to be fulfilled. The idea is that where a payment is undertaken to a party acting as commercial agent for another person, then the agent does not provide a payment service; they simply receive the payment on behalf of their principal as payee. This is an important exemption and has been relied upon by bill payment service providers for decades. It also precedes the PSD. Increasing use of this arrangement by e-commerce platforms has however prompted a change limiting its scope of application. PSD2 now prohibits such arrangements where the agent acts for both payer and payee. It is not clear however if the change achieves the intended purpose.
(iii) The third exemption, the ‘IT Operator’ exemption, widely used by mobile network operators to offer premium rate service payments has been relaxed in some ways and restricted in others. It now extends the scope of products that can be purchased under the exemption, from digital goods that are delivered to a device to the purchase of ‘tickets’ and also to charitable donations. Simultaneously however, it introduces transaction and cumulative turnover limits that apply to each subscriber.
The nature of the changes, their impact and interpretation will be another focus of discussion at next week’s EMA Conference.
The article “PSD2 Exemptions” was written by Dr Thaer Sabri, EMA CEO