Payment Systems

Retail payment systems and services

Retail payments, which constitute the bulk of payment transactions in the economy, include consumer and corporate payments, but exclude high-value payments generated within the interbank space.

While cash constitutes legal tender and is thus the basis of the monetary system, its drawbacks are becoming more evident in a modern economy. In particular, its use entails physical transfer to a payee, making it inefficient to process and handle. Above all, cash escapes the banking system and is thus more prone to be used in money laundering and terrorist funding. On the other hand, retail payments are increasingly being carried out by non-cash payment instruments, including credit and debit cards, credit transfers and direct debits. While cheques have been the traditional non-cash retail payment instrument of choice in Malta, electronic payment services bring the costs and inefficiencies of cheque processing to light.

Efficient and reliable retail payment services are essential for the smooth functioning of the economy.  With the introduction of the euro, Malta became a full member of the Eurosystem, whose objective is to create a single payments market for the euro and to promote the harmonisation and efficiency of domestic and cross-border euro payments in terms of delivery and costs. The three main policy goals of the Eurosystem, in terms of payment systems, include:

  • the promotion of transparency in the operation of payment systems and services;
  • monitoring the determination of fees and charges;
  • the encouragement of competition, efficiency and market access.

Within this context, the European banking industry created the Single European Payments Area (SEPA) to build an area where consumers, companies and other economic actors are able to make and receive payments in euro, whether within or across national boundaries, under the same basic conditions, rights and obligations, regardless of location. SEPA comprises the following payment instruments: credit transfers, direct debits and card payments. The SEPA credit transfer was introduced in 2008 and SEPA direct debit in 2009.

EU Regulation No 260/2012 establishes the technical and business requirements for credit transfers and direct debits in euro. The SEPA project also introduced the International Bank Account Number (IBAN), a set standard for bank account numbers that uniquely identify a customer’s bank account held at a bank anywhere in the world.

Another important aspect of retail payment systems and services is the Malta Clearing House, which the Central Bank of Malta set up in virtue of its authority to promote the establishment of a bank clearing system for retail payments and to provide facilities for it.

The revised Payment Services Directive (PSD2)

What is PSD2?

The PSD2 is a Directive issued by the European Commission which regulates payment services throughout the European Union. This Directive builds on the first Payment Services Directive which was introduced in 2009 with the aim to create a single market for payments in the European Union. The PSD2 is designed to make payments safer, increase consumer protection and foster innovation and competition.

When will it become applicable?

The PSD2 became applicable on 13 January 2018.

What are the main changes of this Directive?

The PSD2 will regulate new market players known as Third Party Providers (TPPs). The PSD2 identifies two types of TPPs: Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs). AISPs provide a consenting client with an aggregated view of all the client's payment accounts held with different banks. PISPs are able to initiate a payment on behalf of a consenting client from the client's payment account held with a particular bank.

Moreover, in order to enhance security and mitigate card fraud, the PSD2 enforces strong customer authentication and therefore banks are no longer permitted to continue issuing local debit cards that only use magnetic stripe technology to store card information. To this effect, all local magnetic stripe-only debit cards such as HSBC's Quikcash, BOV's Cashlink and APS' Premier have to be upgraded to EMV, commonly referred to as Chip & Pin technology. The aforementioned banks will be advising their clients in due course on the way forward. These changes will also pave the way forward for the implementation of contactless cards, which make low value payments more efficient.

Finally, bank transfers where both the payer's bank and the payee's bank are located in an EEA country will attract the sharing of charges irrespective of the currency. This means that the payer pays the charges levied by his bank while the payee pays the fees charged by his bank.

How will consumers benefit from this Directive?

The new Directive provides further consumer protection whereby, if a client has his card lost or stolen and it transpires that a fraudulent transaction has been effected, the client is only liable to pay a maximum of EUR 50 unless the client acted fraudulently or with gross negligence. The PSD2 also prohibits surcharging on electronic payments which translates to cheaper transactions. This means that merchants are unable to charge an extra fee to those payers opting to pay with an electronic instrument such as a card.

In order to promote greater transparency, banks are obliged to provide both monthly and annual statements to their clients, free of charge, either electronically or in paper format. Furthermore, upon termination, banks are obliged to provide an annual statement for the previous calendar year together with an interim statement covering the period from the last date of the annual statement until the date of the termination of the account.

Consumers have a right to submit a complaint with the bank relating to any alleged infringements of PSD2 provisions. The bank is obliged to handle the complaint within 15 business days which may be extended to 35 business days when the information required is not within the bank's control. If the consumer is not satisfied with the complaint resolution, he may resort to the Office of the Arbiter for Financial Services for alternative dispute resolution.

Titles III and IV of the PSD2 have been transposed to the CBM Directive No. 1 on the Provision and Use of Payment Services. Directives published by the Central Bank of Malta under the Central Bank of Malta Act in respect of retail payment services can be found here.