The impact of CBPR2 on the payment industry – Part 2: Transparency rules

Regulation 2019/518 essentially introduces two amendments, consisting in (i) the extension of the equality of charges principle in non-euro Member States and (ii) new rules on the transparency of charges regarding currency conversions for payments at the point of sale (“POS“) or at the automated teller machines (“ATM“), the so-called “dynamic currency conversion” services (“DCC“), as well as for credit transfers.

This contribution analyses the second amendment brought by Regulation 2019/518, i.e. the transparency rules for currency conversion. The discussion of the first amendment can be found here.

How will the new transparency rules for currency conversion impact the payment industry?

The new Regulation introduces new transparency rules in respect of charges for currency conversion for (i) card-based transactions and (ii) credit transfers.

(a) Transparency requirements for card-based transactions

Although this is not specified as such in the text of CBPR2, those information requirements are designed to deal with “dynamic currency conversion services” (often referred to as DCC services) whereby the merchant or another person offers a currency conversion other than that of the merchant, typically to pay using the currency in which their card account is based. For example, a consumer from the UK buying a wine from a merchant in France would be offered the ability to pay in pounds sterling rather than in euro (sterling being the currency in which his/her card account is based). The work of the European Commission revealed that, due to a lack of clear and comparable information, payment service users often paid significant charges for that service without being aware of it.

To enhance transparency with regard to DCC, the new Article 3a CBPR2 imposes different obligations, applicable to different parties and situations:

(i) As a precision of the content of the existing transparency rules under PSD2, a general information obligation is imposed on payment services providers (“PSP“) and entities providing DCC services (being PSPs or non-regulated entities) (Article 3a (1) and (2))

(ii) An obligation to provide specific information prior to the transaction is imposed on entities providing currency conversion at the POS or at an ATM (Article 3a (3) and (4))

(iii) Obligations are imposed on PSPs issuing payment cards in relation with each individual transaction (Article 3a (5) and (6)).

General information obligation (on a continuous basis): Article 3a (1) CBPR2 details the requirements under the transparency rules of article 45 (1) PSD2 (information to be provided in case of single payment transaction), Article 52 (3) PSD2 (information to be provided in case of payments covered by a framework contract) and Article 59 (2) PSD2 (information to be provided by third parties providing currency conversion services at a POS or ATM), by imposing that the information regarding the currency conversion charges  be provided in the form of a percentage mark-up over the latest available euro foreign exchange reference rates issued be the European Central Bank (“ECB“). Despite the broad wording of Article 3a (1) CBpR2, this obligation is, in our opinion, in principle only applicable to currency conversion charges in relation to card-based transactions (pursuant to the very title of Article 3a (1)). The same PSPs are also required to provide that information on a “broadly and easily accessible electronic platform” (Article 3a (2)).

Prior to the initiation of the transaction involving a currency conversion service at a POS or ATM, the payer must be informed by the entity providing the DCC service of

– the total currency charges that they will pay, including

the charges for the currency conversion service as well as the exchange rate used (information to be provided pursuant to Article 59 (2) PSD2);

the percentage mark-up over the latest ECB euro foreign exchange reference rates (as described above) (new obligations under CBPR2); and

the amount to be paid in (i) the currency used by the payee and (ii) in the currency of the payer’s account (new obligation under CBPR2).

– the possibility of paying in the currency used by the payee and having the currency conversion subsequently performed by the payer’s PSP.

– their right to refuse the currency conversion service and pay in the currency used by the payee instead (new obligation under CBPR2).

That information must be provided at the ATM or the POS (as relevant).

At the same time, card issuers are on their side required to inform the payer of the charges for the currency conversion service that the payer would incur should they opt for a currency conversion post payment. For the sake of comparability, they must provide that information in the same form as the DCC provider (i.e. a mark-up on the last ECB exchange rate). The information must be provided “without undue delay after the reception of” the payment order (cash withdrawal at an ATM or payment at the POS) in a  currency different from that of the relevant account, through an electronic message (such as SMS, e-mails or push notifications through the payer’s mobile banking app) (as agreed before with the payer). The payer may opt out of receiving those messages. That information must also be sent on a monthly basis for each month where the card issuer received a payment order in a different currency than the one of the payment account.

(b) Currency conversion for credit transfers

When a currency conversion is offered in relation to a credit transfer initiated online directly (by website or mobile app), the payer must, prior to the initiation of the credit transfer, be provided with

(i) the estimated charges for the currency conversion and

(ii) the estimated total amount of the credit transfer (including any transaction fees and conversion charges ) in the currency of the payer’s account and the estimated amount that will be transferred to the payee in the currency used by the payee.

What’s missing?

The new provisions on transparency rules for currency conversion charges in CBPR2 will probably lead to important discussions on their interpretation. Notions such as “point of sale”, “ATM” or “card-based transactions”, which are key for the determination of the scope of application of the new obligations, are defined nowhere in the regulation. If, at first sight, the meaning of those terms seems obvious, as they are commonly used in the industry, industry players know that, in payments, the devil is always in the details and this lack of definition will most probably lead to divergent interpretations and, potentially, to different supervisory practises across the EEA.

Some of those notions are defined in other EU laws, which should help to a certain extent; this is the case for instance of “card-based (payment) transactions” and “point of sale”, which are defined in Regulation 2015/751 on interchange fees for card-based payment transactions (the MIF Regulation). however, in the absence of a clear reference to those definitions in CBPR2 and given the very different contexts in which these two regulations have been adopted, one cannot rely on them with certainty without official confirmation that they should be used in this case.

Overall the lack of clarity is all the more regrettable now that the new Regulation will have an important impact on the industry and could imply significant technical changes to infrastructures.

What’s next?

The new regulation sets different application dates in order to give sufficient time to the industry to implement these rules and adapt their technical infrastructures, especially for transparency requirements. The equality of charges principle will apply from 15 December 2019. In respect to transparency requirements, the requirements for pre-transaction disclosures for card-based transactions and credit transfers will be applicable from 19 April 2020 while requirements for card-issuers will apply from 19 April 2021.

This article was originally published in the June 2019 edition of Osborne Clarke’s EPSM Legal Research Newsletter.