The European Parliament and the Council reached a political agreement on 19 December 2018 covering charges on cross-border payments and currency conversion charges. What is changing and when will the new rules be applicable? The European Parliament and the Council reached a political agreement on 19 December 2018 on a Commission proposal to review and amend Regulation (EC) No 924/2009 covering charges on cross-border payments in the Union and currency conversion charges. The proposal was published by the European Commission as recently as 28 March 2018, which makes the agreement reached on the text in December the result of a fairly quick, nine-month long set of negotiations between the three institutions.
So what is changing for cross-border payments in Europe and when will the new rules be applicable? The Regulation application date is set for 15 December 2019, except for certain aspects, leaving less than one year for the industry to adopt it.
First of all, the new regulation extends the “same charges” rule to transfers in Euros between non-euro area member states. This means that the charges levied by payment service providers for cross-border payments in Euros between two EU member states cannot be higher than the charges for national payments made in the national currency of the Member State where the payment service provider of the payment service user is located. Moreover, non-euro member states may notify their intention to extend this rule to EU cross-border transactions made in their national currency.
The second and most important change in the regulation is the increase in transparency of currency conversion charges, for Dynamic Currency Conversion (DCC) providers as well as for non-DCC providers (payment service providers). Building up on PSD2’s requirements in article 45 (1c and 1d) for the transparency of charges and of exchange rates prior to the transaction – on the side of Payment Services Providers (PSPs) – and on article 59 (2) for information from DCC providers at Point of Sale and ATMs, the new regulation allows for comparability between DCC and non-DCC for the payment service user. This is achieved through the following measures:
- The currency conversion charges, for both PSPs and DCC providers, for all card-based payments should be expressed as a percentage mark-up over the European Central Bank’s latest available euro foreign exchange reference rate(s);
- DCC providers must disclose information on their charges in a clear and accessible manner (at the counter on a placard or digitally on the terminal, for example), including information on the amount in the payee’s currency (corresponding to the price of the goods/services, and could be displayed on the checkout) and the total amount after conversion in the payer account’s currency (could be displayed on the payment terminal). Confirming article 59 (2) PSD2, the payer shall remain free to refuse DCC and use non-DCC for the transaction.
- Payers’ Payment Service Providers must make easily accessible the information on their charges on an electronic platform (websites, home-banking websites – if available -, mobile banking apps). PSPs also have to inform the payer of the rates by appropriate means when a transaction is made in another currency (and every month following such transactions), and regularly if the payer seems to be staying in the country.
- As for credit transfers, when a currency conversion service is offered by the payer’s payment service provider in relation to a credit transfer that is initiated online directly at the website or at the application of the payment service provider, the payment service provider shall inform the payer, in a clear, neutral and comprehensible manner, of the estimated charges for currency conversion services applicable to the credit transfer prior to the initiation of the transaction. Moreover, the payment service provider shall disclose the estimated total amount of the credit transfer in the currency of the payer’s account, including any transaction fee and any currency conversion charges. That amount shall be communicated in a clear and neutral manner to the payer. The payment service provider shall also disclose the estimated amount to be transferred to the payee in the currency of the payee’s account.
While the new Regulation constitutes quite a change compared to the 2009 version, the final text of the Regulation leaves aside some ideas raised in the negotiation by the European Parliament, for example, the idea to extend the “same charges” rule to all EU currencies, the idea of the possibility for Payment Services Users to block the use of DCC on their payment method, or the idea to require Payment Services Providers and DCC providers to display currency-exchange markups side-by-side at the POS and ATM on terminals in order to have full comparability and transparency.
All in all, the approved text does not threaten the offering of the DCC service itself as other options proposed may have done; yet, having the DCC and issuers’ markups over the same European Central Bank benchmark rate, may result in reduced DCC use overtime. As for banks, while the initial Commission text did not include in its scope credit transfers at all, credit transfers are now included, and there is, for example, the obligation to disclose the estimated total amount of the credit transfer in the currency of the payer’s account, including any transaction fee and any currency conversion charges, or the obligation to disclose the estimated amount to be transferred to the payee in the currency of the payee’s account, which may result in extra transparency efforts for the banking sector.
On a positive note, the initial temporary cap on the maximum amount of all charges allowed for the currency conversion services that could be applied to a payment transaction, which was mentioned in the Commission March 2018 draft text, is not part of the agreed outcome.
The Regulation is now to be published in the Official Journal of the European Union (the OJ); it will become law 20 days after its publication.
About the author
Based in Brussels since 2003, Monica is the founder of Trust EU Affairs. She is a member of the Society of European Affairs Professionals since 2004, a member of the Europol Virtual Currencies Taskforce, and of the European Commission Payment Systems Market Expert Group. Monica can be contacted at firstname.lastname@example.org.
About Trust EU Affairs
Trust EU Affairs is a regulatory affairs consultancy specializing in financial services legislation at the European Union level. Founded in Brussels in 2013, it draws upon over 17 years of EU regulatory and public affairs experience.