Uniform Approach to Merchant Acquiring Legislation Jeopardises Small Businesses
By Phil Curtis, Managing Director, First Data Merchant Solutions
With payment devices now ranging from touch screen point of sale systems to smartphone apps, coupled with the increasing number of customers that are ditching cash and opting for the ease of paying with plastic, the card payment market has risen dramatically in recent years.
It has never been more important for businesses of all shapes and sizes to accept cashless payments, but as the marketplace grows, regulation becomes an issue. Consequently the Payment Services Directive (PSD) was devised by the European Commission in 2009 to provide a single regulatory regime for all payment services in the European Union for the first time.
While any attempt to enforce the regulation of card transactions was a welcome one in theory, in practice the PSD’s blanket approach to monitoring the payment process fails to recognise that small businesses, for whom the ability to accept card payments is crucial to survival, require a different approach to the likes of big corporations.
With the PSD soon to come under review, what can be done to address this issue and ensure that the directive accommodates small businesses?
Problems with the PSD
Developed with the aim of enhancing efficiency, competition and innovation in the European payments market, the PSD lays out rules and guidelines for payment services including merchant acquiring – the process that enables merchants to accept debit and credit card payments.
However, Manager of Banking and Payments Conduct Policy at the Financial Services Authority (FSA) Vyv Brook said in a recent FSA Merchant Acquiring Workshop:
“It is clear from the [original] drafting of the Payments Services Directive that merchant acquiring was not properly understood.”
Consequently the FSA’s successor the Financial Conduct Authority (FCA) has pledged to review the PSD, specifically in relation to its guidelines for merchant acquiring.
What should the review consider?
First Data, along with other leading industry bodies, is heavily involved in the consultation process for PSD, which is currently underway, and is committed to ensuring that the views of all merchant segments are considered.
A review of the current basic directive is exactly what is needed, but there is a danger that moves to pin better focus on regulations surrounding merchant acquiring will lead to stricter payment rules that are even further removed from the needs of small businesses.
A current focus for government centres on faster payment services. Chancellor George Osborne announced in his most recent Budget Report that the payment card industry has committed to reducing the time it takes for credit and debit card payments to reach SMEs’ bank accounts by up to three days, by using the Faster Payment System to process transactions.
However it remains unclear how long it will take for this to come into force and whether it will become mandatory for all payments to go through the Faster Payments System. It is also important to acknowledge that the introduction of faster payment processing will not be free. If it is mandated that all payments are to be processed via Faster Payments, small businesses will find themselves hit with an additional expense.
While speed of transactions and faster access to cash flow is a priority for many businesses which would happily pay the extra cost of using the Faster Payments System, the FCA needs to recognise that every business is different.
For some, this is an additional cost that cannot be met and small businesses would rather have payments processed once a week to save on bank fees and charges. It is therefore essential that Faster Payments is offered as an optional service, or some small businesses may be forced back into cash only transactions, despite the growing preference for card.
If, as Vyv Brook claims, merchant acquiring was not fully understood in the original draft of the PSD, it is time to consult those who do understand the process. As a payment provider for 6.2 million merchant locations around the world, First Data is actively engaging with the FSA and FCA to support a review of the payment services directive. If the PSD is to meet the needs of the UK’s diverse business community, the FCA needs to work with those that will be affected most, namely businesses, merchant service providers and payment companies, or risk developing untailored legislation that is potentially damaging to small businesses.
At First Data we urge the FCA to use this opportunity to review the uniform nature of the current PSD, which relies on the same regulations for everyone from sole traders through to large corporations, and consider the range of requirements that businesses have when it comes to making and receiving payments.