Response to consultation on draft Guidelines on the limited network exclusion under PSD2
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In some member states, gift cards are automatically treated as payment instruments although no payment service is provided to the customer. This should be aligned as it stands against the idea of a harmonized interpretation of PSD2.
We support that there should be no restrictions on the means of transferring funds to the payment instrument under the LNE (cf. Guideline 1.3). The transfer of funds to the payment instrument is directly connected to the issuance and use of the card. A separate assessment of the transferal of funds would be therefore counterproductive to the removal of restrictions even if the transferal is made by a third party other than the issuer, e.g. affiliates or franchisees of the issuer who have at the same time agreed to accept the instrument as a means of payment. In practice, the money is often collected by such third parties (e.g. for the issuance of a gift card) within a limited network and then transferred to the issuer. Following the wording of Guideline 1.3 the third party (franchisee, affiliate) which are not the issuer would be considered as intermediaries even though they are part of the limited network. This contrasts with the EBA’s rationale in paragraph 10 that bases Guideline 1.3 on a direct connection to the purchase of goods and/or services. Also, the LNE would then be redundant as every third party within the limited network could be considered a money remittance service provider.
Therefore, the EBA should consider clarifying in Guideline 1.3 that certain third parties within a limited network that accept the specific payment instrument under Art. 3(k) PSD2 fall within the LNE even if they are not the issuer.
We welcome that the EBA defines criteria to assess whether a network of service providers is limited (cf. Guidelines 2.1 and 2.2.). However, it is unclear how the criteria relate to each other. The EBA should clarify a weighting or prioritization of the criteria to enhance transparency and legal certainty and secure the convergence of supervisory practice by the CAs.
The EBA designates as a criterion the maximum number of providers for goods and services operating within the limited network (cf. Guideline 2.1 b)). At the same time the EBA does not provide a ballpark figure or a scale for the assessment. Following the EBA´s rationale that it will not be possible to introduce a specific cap of the growth of the network the EBA should consider discarding the maximum number as a criterion. Otherwise, there would be severe limitations in transparency and legal certainty for issuers. Also, this would contradict the aim of the Guidelines to achieve convergence in supervisory practices between different CAs. CAs would have no scale to assess whether a network is “too big” to be limited and therefore any assessment on the basis of the maximum number of providers would be arbitrary.
We believe that the Guidelines could achieve more transparency and convergence between CAs when implementing (not exhaustive) examples for use cases. This would make CAs assessments more predictable. At the same time, this would not stop innovative business models, as the use cases would be only indicative.
The EBA lists such examples in paragraph 25 of its rationale as the following:
A single shopping center containing different stores;
Different providers belonging to the same group;
Different providers working under the same franchise system;
A specific region with local producers of goods and services; and
Stores within a town, which are registered in the local town chamber of commerce.
The EBA should consider expanding the use cases. Following the practice, further use cases could be:
A stadium containing different providers and stores.
Casino Cards.
Hospital Cards.
Club Cards.
Some CAs interpret the LNE in a way that a network is only limited if it is limited to the domestic use in one Member State. From our perspective such interpretation does not necessarily follow from Art. 3(k)(i) PSD2 but rather contradicts the logic in Art. 3(k) PSD2 which explicitly requires such restriction in Art. 3(k)(iii) PSD2 but not in Art. 3(k)(i) PSD2. Also, restricting limited networks to domestic networks is not consistent with the establishment of an internal market and undermines the freedom of goods and services as a fundamental right of the European Union.
Therefore, the criterion in Guideline 2.1 c) is not sufficiently specified. The EBA should consider specifying in Guideline 2.1 c) that a network can be limited even if established cross-border.
It is welcomed that limited networks also apply to the ecommerce and that online-offerings may differ from offerings in physical stores (cf. 2.4), which is important to establish a level playing field. Yet, the situation for online platforms remains somewhat vague, particularly as geographical limitations shall not apply for services offered online. This aspect must furthermore be seen in the light of EU’s right of freedom of goods and services, which is at risk of being undermined.
It would furthermore curtail the purpose of platforms encompassing a myriad of sellers. The latter are enabled to access a large number of customers via platforms: customers on marketplaces with homogenous terms and conditions for consumers across all sellers, may not notice that they are buying from different sellers given the “one-shop experience”. The fact that Recital 29 only applies to corporate groups or franchises is not representative for modern forms of ecommerce. LNE shall thus also apply to internet platforms to establish a level playing field.
Based on the outline above, restricting applicability based on the size of geographical areas (cf. 2.2 (a)) is misleading: it curtails the freedom of providing goods and services without alleviating levels of consumer protection. Capping the number of payment instruments acquired by consumers as well as their total value, however, may deliver the intended results EBA is aiming for. For deepening the single market and for the freedom of goods and services, the EBA should refrain from applying geographical restrictions but rather limit the use on the consumers’ ends. If not, the proposed level playing field among different distribution channels (cf. 2.3) is at risk.
According to Bitkom, LNE shall also apply for internet platforms if the following set of criteria are met:
Brand recognition: if the platform has a dedicated consumer brand associated with a particular type of service, products or similar providing for a specific shopping experience recurring for every purchase.
Customer accountability: the platform takes care of the consumer needs for instance by reducing risks . This may include monitoring product accuracy, offering a centralized payment system, offering pay-back guarantees or extended return rights; this includes that the same level of customer service and consumer protection apply to all goods purchased on the platform.
Limited use: the payment instrument is exclusively used on the platform and not directly transferable to other shops operating on the platform.
The above-mentioned bullets shall be reflected in the EBA Guidelines by adding another item under “Chosen criteria for determining a limited network of service providers" (23-30).
For instance, if the leading products are sweatshirts, would trousers be ancillary (because then the person is dressed from head to toe) or t-shirts (because they may be worn under a sweatshirt)? Is fuel the leading product for a fuel card and is a Windshield wiper an ancillary product to fuel? Or is a lipstick a leading product for beauty products in general?
The determination of the LRE by a “leading product” would only be reasonable if it is clarified that the leading product can be a product category and not only a single product. If the common denominator is chosen as a category (e.g. clothing, car accessories or beauty products), it will be much easier to come to a uniform interpretation across all member states.
As we already explained in Question 2 we welcome the provision of a catalogue of criteria by the EBA for the assessment of business models. However, as already outlined when referencing Guidelines 2.1 and 2.2, Guideline 4.4 is missing the needed clarity in terms of how the criteria are to be weighted, prioritized and correlate with Guidelines 4.1 and 4.2. EBA is asked to provide further guidance regarding the implementation and usage of the criteria.
Further, EBA should add in the Guidelines a typology of use cases as suggested above for the LNE.
We appreciate that there is no right to passport the exemptions under Article 3(k) of PSD2. At the same time, there is a valid interest - especially among those merchants operating in more than one jurisdiction - to have a reliable and at the same time coherent legal framework that could prevent competitive distortion and regulatory forum shopping. Against this background, the EBA should encourage the CAs to issue clearance certificates that, subject to material concerns, are accepted by other CAs.
Especially Guidelines 2.1 and 4.2 stipulate a very extensive form of notification under Art. 37(2) PSD2 that’s exceeds the former practice. A notification in that extent would result in a considerably higher effort on the part of issuers and on the part of both CAs. Such an enormous effort is not needed in clear cases. In cases of doubt the information provided following Guidelines 2.1 and 4.2 would not suffice for the assessment by a CA. In practice, the assessment whether the LNE is met requires a considerable effort. Therefore, it is not to be expected that CAs will assess every individual case. Therefore, the new notification procedures would lead to an enormous bureaucratic effort without avail. Rather, the notification should be of a formal nature and in cases of doubt CAs may request further information from the issuer. Otherwise issuers would operate at a great expense without supervisory benefits.
Therefore, we urge the EBA to reconsider the proposed procedure of notification in order to make it less bureaucratic.
We believe that the calculation of the threshold under Art. 37(2) PSD2 should follow a payment instrument based approach rather than an approach on service provider level (cf. Guideline 6.7). The criteria for the LNE as well as the requirements in Art. 3(k) PSD2 follow a payment instrument based approach. The volume of transactions is not relevant to the assessment. If CAs would calculate the threshold on a service provider level the needed bureaucratic effort on both CAs and issuers part would grow even more due to the assessment of Mini-Systems. Therefore, the EBA should amend Guideline 6.7 to a calculation on a payment instrument level.
Q1. Do you have comments on Guideline 1 on the specific payment instruments under Article 3(k) of PSD2?
We agree with EBA that the term payment instrument should be interpreted in the same way for regulated as well as excluded payment instruments. Clarification is needed that the use of stored value cards is limited to buying goods from one merchant; i.e. they do not apply as payment instruments as this requires an agreement between payment service provider and payment service users as referred to in Article 4 (14) PSD2.In some member states, gift cards are automatically treated as payment instruments although no payment service is provided to the customer. This should be aligned as it stands against the idea of a harmonized interpretation of PSD2.
We support that there should be no restrictions on the means of transferring funds to the payment instrument under the LNE (cf. Guideline 1.3). The transfer of funds to the payment instrument is directly connected to the issuance and use of the card. A separate assessment of the transferal of funds would be therefore counterproductive to the removal of restrictions even if the transferal is made by a third party other than the issuer, e.g. affiliates or franchisees of the issuer who have at the same time agreed to accept the instrument as a means of payment. In practice, the money is often collected by such third parties (e.g. for the issuance of a gift card) within a limited network and then transferred to the issuer. Following the wording of Guideline 1.3 the third party (franchisee, affiliate) which are not the issuer would be considered as intermediaries even though they are part of the limited network. This contrasts with the EBA’s rationale in paragraph 10 that bases Guideline 1.3 on a direct connection to the purchase of goods and/or services. Also, the LNE would then be redundant as every third party within the limited network could be considered a money remittance service provider.
Therefore, the EBA should consider clarifying in Guideline 1.3 that certain third parties within a limited network that accept the specific payment instrument under Art. 3(k) PSD2 fall within the LNE even if they are not the issuer.
Q2. Do you have comments on Guideline 2 on the limited network of service providers under Article 3(k)(i) of PSD2?
According to Bitkom, clarification is needed in terms of why LNE applies. References made to AML, unnecessity of supervision, or proportionate consumer protection remain somewhat unclear. A clearer outline, however, would facilitate the decision making process on LNEs.We welcome that the EBA defines criteria to assess whether a network of service providers is limited (cf. Guidelines 2.1 and 2.2.). However, it is unclear how the criteria relate to each other. The EBA should clarify a weighting or prioritization of the criteria to enhance transparency and legal certainty and secure the convergence of supervisory practice by the CAs.
The EBA designates as a criterion the maximum number of providers for goods and services operating within the limited network (cf. Guideline 2.1 b)). At the same time the EBA does not provide a ballpark figure or a scale for the assessment. Following the EBA´s rationale that it will not be possible to introduce a specific cap of the growth of the network the EBA should consider discarding the maximum number as a criterion. Otherwise, there would be severe limitations in transparency and legal certainty for issuers. Also, this would contradict the aim of the Guidelines to achieve convergence in supervisory practices between different CAs. CAs would have no scale to assess whether a network is “too big” to be limited and therefore any assessment on the basis of the maximum number of providers would be arbitrary.
We believe that the Guidelines could achieve more transparency and convergence between CAs when implementing (not exhaustive) examples for use cases. This would make CAs assessments more predictable. At the same time, this would not stop innovative business models, as the use cases would be only indicative.
The EBA lists such examples in paragraph 25 of its rationale as the following:
A single shopping center containing different stores;
Different providers belonging to the same group;
Different providers working under the same franchise system;
A specific region with local producers of goods and services; and
Stores within a town, which are registered in the local town chamber of commerce.
The EBA should consider expanding the use cases. Following the practice, further use cases could be:
A stadium containing different providers and stores.
Casino Cards.
Hospital Cards.
Club Cards.
Some CAs interpret the LNE in a way that a network is only limited if it is limited to the domestic use in one Member State. From our perspective such interpretation does not necessarily follow from Art. 3(k)(i) PSD2 but rather contradicts the logic in Art. 3(k) PSD2 which explicitly requires such restriction in Art. 3(k)(iii) PSD2 but not in Art. 3(k)(i) PSD2. Also, restricting limited networks to domestic networks is not consistent with the establishment of an internal market and undermines the freedom of goods and services as a fundamental right of the European Union.
Therefore, the criterion in Guideline 2.1 c) is not sufficiently specified. The EBA should consider specifying in Guideline 2.1 c) that a network can be limited even if established cross-border.
It is welcomed that limited networks also apply to the ecommerce and that online-offerings may differ from offerings in physical stores (cf. 2.4), which is important to establish a level playing field. Yet, the situation for online platforms remains somewhat vague, particularly as geographical limitations shall not apply for services offered online. This aspect must furthermore be seen in the light of EU’s right of freedom of goods and services, which is at risk of being undermined.
It would furthermore curtail the purpose of platforms encompassing a myriad of sellers. The latter are enabled to access a large number of customers via platforms: customers on marketplaces with homogenous terms and conditions for consumers across all sellers, may not notice that they are buying from different sellers given the “one-shop experience”. The fact that Recital 29 only applies to corporate groups or franchises is not representative for modern forms of ecommerce. LNE shall thus also apply to internet platforms to establish a level playing field.
Based on the outline above, restricting applicability based on the size of geographical areas (cf. 2.2 (a)) is misleading: it curtails the freedom of providing goods and services without alleviating levels of consumer protection. Capping the number of payment instruments acquired by consumers as well as their total value, however, may deliver the intended results EBA is aiming for. For deepening the single market and for the freedom of goods and services, the EBA should refrain from applying geographical restrictions but rather limit the use on the consumers’ ends. If not, the proposed level playing field among different distribution channels (cf. 2.3) is at risk.
According to Bitkom, LNE shall also apply for internet platforms if the following set of criteria are met:
Brand recognition: if the platform has a dedicated consumer brand associated with a particular type of service, products or similar providing for a specific shopping experience recurring for every purchase.
Customer accountability: the platform takes care of the consumer needs for instance by reducing risks . This may include monitoring product accuracy, offering a centralized payment system, offering pay-back guarantees or extended return rights; this includes that the same level of customer service and consumer protection apply to all goods purchased on the platform.
Limited use: the payment instrument is exclusively used on the platform and not directly transferable to other shops operating on the platform.
The above-mentioned bullets shall be reflected in the EBA Guidelines by adding another item under “Chosen criteria for determining a limited network of service providers" (23-30).
Q3. Do you have comments on Guideline 3 on the instruments used within the premises of the issuer under Article 3(k)(i) of PSD2?
In our view there are some uncertainties in the interpretation of the term “premises”. Some CAs follow a restrictive approach when they demand for example a “defining building situation”. To enhance legal certainty and transparency as well as convergence between CAs the EBA should consider specifying the term “premises”.Q4. Do you have comments on Guideline 4 on the limited range of goods or services under Article 3(k)(ii) of PSD2?
The suggested approach to determine the functional connection of a limited range of goods and services not by their functionality (e.g. everything that dresses a person or everything that moves a car), but by one (leading) product (cf. 4.2) should be repealed. In practice it will lead to a great amount of confusion. The link to a specific product would be hardly conceivable for a meaningful differentiation.For instance, if the leading products are sweatshirts, would trousers be ancillary (because then the person is dressed from head to toe) or t-shirts (because they may be worn under a sweatshirt)? Is fuel the leading product for a fuel card and is a Windshield wiper an ancillary product to fuel? Or is a lipstick a leading product for beauty products in general?
The determination of the LRE by a “leading product” would only be reasonable if it is clarified that the leading product can be a product category and not only a single product. If the common denominator is chosen as a category (e.g. clothing, car accessories or beauty products), it will be much easier to come to a uniform interpretation across all member states.
As we already explained in Question 2 we welcome the provision of a catalogue of criteria by the EBA for the assessment of business models. However, as already outlined when referencing Guidelines 2.1 and 2.2, Guideline 4.4 is missing the needed clarity in terms of how the criteria are to be weighted, prioritized and correlate with Guidelines 4.1 and 4.2. EBA is asked to provide further guidance regarding the implementation and usage of the criteria.
Further, EBA should add in the Guidelines a typology of use cases as suggested above for the LNE.
Q5. Do you have comments on Guideline 5 on the provision of services under Article 3(k) of PSD2 by regulated entities?
We welcome that also regulated entities may provide an unregulated payment instrument.Q6. Do you have comments on Guideline 6 on the notifications under Article 37(2) of PSD2?
In Guideline 6.1 it is set out that the “service provider providing excluded goods and/or services” is to submit the notification. However, we believe this should be the professional issuer of the payment instrument as otherwise it is not clear if all or only one service provider of a limited network is obliged to submit the notification.We appreciate that there is no right to passport the exemptions under Article 3(k) of PSD2. At the same time, there is a valid interest - especially among those merchants operating in more than one jurisdiction - to have a reliable and at the same time coherent legal framework that could prevent competitive distortion and regulatory forum shopping. Against this background, the EBA should encourage the CAs to issue clearance certificates that, subject to material concerns, are accepted by other CAs.
Especially Guidelines 2.1 and 4.2 stipulate a very extensive form of notification under Art. 37(2) PSD2 that’s exceeds the former practice. A notification in that extent would result in a considerably higher effort on the part of issuers and on the part of both CAs. Such an enormous effort is not needed in clear cases. In cases of doubt the information provided following Guidelines 2.1 and 4.2 would not suffice for the assessment by a CA. In practice, the assessment whether the LNE is met requires a considerable effort. Therefore, it is not to be expected that CAs will assess every individual case. Therefore, the new notification procedures would lead to an enormous bureaucratic effort without avail. Rather, the notification should be of a formal nature and in cases of doubt CAs may request further information from the issuer. Otherwise issuers would operate at a great expense without supervisory benefits.
Therefore, we urge the EBA to reconsider the proposed procedure of notification in order to make it less bureaucratic.
We believe that the calculation of the threshold under Art. 37(2) PSD2 should follow a payment instrument based approach rather than an approach on service provider level (cf. Guideline 6.7). The criteria for the LNE as well as the requirements in Art. 3(k) PSD2 follow a payment instrument based approach. The volume of transactions is not relevant to the assessment. If CAs would calculate the threshold on a service provider level the needed bureaucratic effort on both CAs and issuers part would grow even more due to the assessment of Mini-Systems. Therefore, the EBA should amend Guideline 6.7 to a calculation on a payment instrument level.