In 2019, cross-border payments made in euro will cost no more than the equivalent national transfer made in the local currency, anywhere in the European Union, the European Commission announced on Wednesday 28 March, presenting a legislative proposal to amend the regulation (924/2009) on cross-border payments.
The measure, which was announced in its action plan on retail financial services (see EUROPE 11752), is aimed at “granting citizens and businesses in non-euro area countries the same conditions as euro area residents when making cross-border payments in euro”, explained the Commissioner for Financial Services, Valdis Dombrovskis.
The change is not a minor one. Currently, the cost of a cross-border transaction in the amount of €10 between Finland and Bulgaria – which is not in the Eurozone – is between €15 and €24. With the change, the Commission estimates that the cost of such a transaction will be only around €1.
The savings to European consumers have been estimated at €1 billion a year, Dombrovskis added.
The amending regulation should be up and running from 1 January 2019, as long as it is adopted seamlessly by the European Parliament and the Council of the EU.
Only transactions in euro will be affected
This regulation will apply only to intra-EU payments and does not cover cross-border transactions in the EU currencies other than the euro. In its impact assessment, however, the Commission considered four different options to bring down the cost of cross-border payments, including the possibility of extending the existing rules to different currencies.
Following its assessment, it finally considered that this option would be not only too cumbersome, but would produce few advantages, due to the low volumes of intra-EU cross-border transactions in currencies other than the euro.
However, the original regulation already set out the option for member states to extend its scope of application to other currencies. So far, only Sweden is believed to have made use of this, deciding to bring cross-border payment costs in krona into line with national payments made in the same currency.
In the long term, a further aim is to improve integration between countries in the Eurozone and outside it, by creating fair competition conditions.
More transparent monetary conversion
The Commission has also proposed a second modification of the regulation (924/2009), with a view to reinforcing the transparency of payments requiring currency conversion, for instance withdrawing cash from an ATM, at a point of sales or online.
The new rules state that payment service providers must disclose to consumers the exchange rate applied, the reference exchange rate used and the total amount of all costs applicable to the conversion of the payment transaction – before the payment is carried out.
A particular aim is to tackle – but not necessarily prohibit – the highly controversial practice of dynamic currency conversion, which consists of allowing traders to offer consumers the option to pay in their local currency.
Article 59 of the payment services directive (PSD2) already provides for an obligation to notify the consumer of all costs and the exchange rate to be used. What is different about this proposal is that it allows consumers – who often have to deal with more than one currency conversion offer – to compare offers in order to choose the most beneficial.
The Commission decided to leave it up to the European Banking Authority (EBA) to define the regulatory technical standards (RTS) to set these requirements. These will not apply until after a three-year transition period, in order to give the EBA enough time to draft the technical standards and allow the market to adapt.
In the meantime, the European authority will be tasked with establishing, no later than six months after the regulation enters into force in 2019, a provisional ceiling setting the maximum of all authorised costs for currency conversion services that may apply to a payment transaction during this period.
According to a European official, it is too early to speculate as to the exact level of this ceiling, as the EBA has still to consult the market and carry out an impact assessment. The ceiling, which will take immediate effect, will be removed once the RTS standards are in place.
Mixed reaction of users
Although the Commission’s action on the dynamic conversion plank was applauded by the European Consumer Organisation, Finance Watch, which defends general interests in the financial domain, they had hoped that the Commission would go further in aligning the costs.
“Choosing not to cover money transfers from EU to non-EU countries in the regulation review is, however, a missed opportunity: the extremely high average money transfer industry fee of 7% on remittances remains untouched, even though these costs are erode much-needed financial flows towards developing countries”, the organisation states in a press release.
The proposed regulation is available here: https://bit.ly/2pLYbKN (Original version in French by Marion Fontana)