Question ID
2018_4131
Legal act
Directive 2015/2366/EU (PSD2)
Topic
Strong customer authentication and common and secure communication (incl. access)
Article
97
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Name of institution / submitter
European Payment Institutions Federation (EPIF)
Country of incorporation / residence
Belgium
Type of submitter
Industry association
Subject matter
Payee-initiated transactions with irregular period or variable amount
Question

Please clarify whether standing agreements between a customer and a merchant resulting in subsequent billing (irregular or otherwise) to be payee-initiated transactions, and as such excluded from the SCA requirement.

Background on the question

Several use cases exist where merchants debit an account or card at irregular intervals and/or with variable amounts, according to a standing agreement with the account holder or cardholder. All transactions initiated pursuant to a standing agreement would not be subject to SCA, as these payments are initiated by the payee only, without any participation of the payer in the process. The initiation of such transactions is triggered by certain pre-defined criteria agreed to in the standing agreement, and are not initiated by the payer. Application of SCA in such contexts is difficult (e.g. payer may not be available), as the transactions are solely initiated by the payee.

Examples include:

- Car or bike sharing services, where the usage of the service is aggregated over a period of time (usually a week or a month), and subsequently debited in a single transaction, rather than at each individual use. Transactions therefore come at regular intervals (although some transactions can be absent in case there is no usage within a given period), but the amount may vary.

- Utility services (e.g. for mobile phone or internet access), where there is usually a fixed subscription amount, to which can be added additional items (over time communication, over data plan data usage, pay-per-use items such as On Demand videos, Applications, etc.). The billing period is usually regular, but the amount may vary.

- Prepaid account or wallet automated top up transactions (e.g. prepaid mobile phone service, prepaid payment wallet, public transports). When the prepaid balance falls below a pre-agreed threshold, a loading transaction of a pre-defined amount is automatically initiated by the payee. In this case, the amounts do not vary, but periods are very irregular.

- An agreement between a customer and a merchant, whereby the customer provides a mandate to the merchant to debit their account when a purchase is carried out. In this case, both the amount and periods will vary. 

Submission date
Final publishing date
Final answer

Pursuant to Article 97(1) PSD2, Member States shall ensure that a payment service provider applies strong customer authentication when the payer (a) accesses its payment account online, (b) initiates an electronic payment transaction, or (c) carries out any action through a remote channel which may imply a risk of payment fraud or other abuses.

Payment transactions that are not initiated by the payer but by the payee are therefore not subject to strong customer authentication (SCA) to the extent that these transactions are initiated without any interaction or involvement of the payer.

Payments that are based on a (standing) agreement between a customer and a merchant, according to which the customer authorises the merchant to initiate subsequent transactions in relation to the agreed delivery of goods or services can be considered as payee initiated transactions, provided that these  payments are not dependent on a specific action of the payer to trigger the initiation of the payment by the payee.

Where a standing agreement between a customer and a merchant results in a subsequent billing by the merchant without the merchant having been provided with the mandate by the customer to initiate the subsequent payments, such payments cannot be considered as payee initiated payments.

See also reply to QA 2018_4031.

Disclaimer:

This question goes beyond matters of consistent and effective application of the regulatory framework. A Directorate General of the Commission (Directorate General for Financial Stability, Financial services and Capital Markets Union) has prepared the answer, albeit that only the Court of Justice of the European Union can provide definitive interpretations of EU legislation. This is an unofficial opinion of that Directorate General, which the European Banking Authority publishes on its behalf. The answers are not binding on the European Commission as an institution. You should be aware that the European Commission could adopt a position different from the one expressed in such Q&As, for instance in infringement proceedings or after a detailed examination of a specific case or on the basis of any new legal or factual elements that may have been brought to its attention.

Status
Final Q&A
Answer prepared by
Answer prepared by the European Commission because it is a matter of interpretation of Union law.

Disclaimer

The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.