Guideline 1.7 states that a “single card-based means of payment cannot accommodate simultaneously payment instruments within the scope of PSD2 and specific payment instruments within the scope of Article 3(k) of PSD2”. According to the EBA, combining regulated and non-regulated payment instruments in a single card-based means of payment would make it difficult for the users of the instrument to delineate between the two, understand which instrument they will be using and what protection is offered by each payment instrument. However, the EBA guidelines do not consider the possibility of mandating enhancements to customer disclosures to ensure customers better understand the protections being offered by each payment instrument. In addition, they do not make any distinction in the case of a single card-based means of payment combining regulated and unregulated payment instruments where the regulated and unregulated legs of the transaction are clearly distinct and differentiated (in substance and in terms of the information provided to users). The EBA’s proposal is not a proportionate means of securing appropriate consumer protection. The EBA should consider the different structures that single card-based means of payment may incorporate and provide relevant guidance to firms. Otherwise, such a guideline will likely stifle innovation in this space.
Guideline 2.2 grants Competent Authorities the ability to consider “complementary optional indicators” as to whether a payment instrument is only being used within a “limited network of service providers.” These optional indicators include “the volume and value of payment transactions envisaged to be carried out with the payment instruments on an annual basis”, the “envisaged maximum amount to be credited on the payment instruments” and “the envisaged maximum number of users of the payment instruments”. While we welcome the EBA’s view that a common brand is an important criterion in determining whether a network should be considered limited, we believe that including “additional indicators” regarding the volume and value of payment transactions, the maximum number of users and the maximum amount to be credited to the payment instrument may lead to inconsistent standards across the EEA, stifling innovation and creating an uneven playing field and legal uncertainty. If an issuer qualifies for the LNE because the instrument may only be used within a limited network of service providers, it does not follow that the LNE should cease to apply purely because the instrument proves popular with consumers. This restriction would penalise growth per se, which is economically counterproductive.
Guideline 3 limits the meaning of “premises” to physical locations. Restricting the meaning of “premises” in this way is regressive and does not acknowledge the prevalence and necessity to consumers of online stores. This interpretation, has the potential to create a (unjustified) discrimination between brick-and-mortar and online stores. In paragraph 42, the EBA states that service providers that intend to offer goods and/or services online are not prevented from benefitting instead from a different exclusion under Article 3(k) of PSD2. However, there does not seem to be any valid reason to afford ecommerce merchants fewer opportunities to qualify for the LNE than brick-and-mortar businesses (such as large supermarkets).
The rationale of the limited range exemption remains rather unclear. Does the law tolerate the LRE because they pose a limited AML risk, or the issues require less regulatory supervision, or the users of those products need less protection? We think that a well-defined rationale will enable better decisions on whether the LRE applies or not. The chosen 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) but by one (leading) product only leads to a uniform interpretation if it is clarified that the leading product can be a product category and not only a single product. 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 beneath a sweatshirt)? If the common denominator is chosen as a category (e.g. clothing), it will be much easier to come to a uniform interpretation across all member states.
Further, we believe that it should also be taken into account not so much the number of user or the payment volume but the risk of AML in that industry and the protection awarded to customers. For instance, if the limited range of goods and services carries only a low risk with respect to AML, then this should be a stronger indicator than the payment volume. Also, if the customer is provided with sufficient protection (expiry date of unregulated payment instrument no shorter than statutory period of limitation) and effective customer complaint processes, then this should be an indicator for allowing such a payment instrument as an unregulated product.
Guideline 7 suggests that payments instruments for tax and social purposes should not be required to fulfil the requirements applying to limited networks or limited range products. This might impact payment instruments issued as “tax-exempt benefits in kind” (also so-called “44-euro exemption” in Germany).
The German Federal Ministry of Finance actually indicate that only products issued in a limited network or as limited-range products are to be recognized as tax-exempt benefits in kind. It is unclear how this reconciled with the EBA’s draft Guideline 7. Member states have tax sovereignty with regard to income tax. However, the legislator has referred to the ZAG exemption in Section 8 Para. 1 sentence 3 of the German Income Tax Act. It would be appropriate to clarify the point to prevent any conflicting application of this requirement and reconcile supervisory application and tax law terms.