Ecommerce Europe signed a Joint Statement on the treatment of Merchant Initiated Transactions under the Payment Services Regulation

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The proposed Payment Service Regulation (PSR), in conjunction with the Payment Services Directive 3 (PSD3) will replace the existing Payment Service Directive 2 (PSD2), which establishes the legal framework for all retail payments within the EU. The Payment Service Regulation (PSR) addresses various aspects relevant to how online payments are done today. Among its measures, it introduces new provisions to combat and mitigate payment fraud. This includes new liability rules, fraud-related information sharing, consumer’s awareness, and updates to the Strong Customer Authentication (SCA) standards. The new Regulation will also aim at improving consumer rights and level the playing field between banks and non-banks. For more information on online merchant’s take on all these issues, you can find Ecommerce Europe’s full position paper on PSR here.

Especially relevant to the e-commerce industry is the Commission’s introduction of new refund rights for merchant-initiated transactions (MITs) within the PSR proposal. It did so by extending the unconditional refund right that exists for direct debits (DDs) under the PSD2 to all MIT transactions. Simply put, MITs are transactions initiated by a merchant on behalf of a customer, often involving recurring payments. For example, MITs are commonly used in subscription-based services, online groceries, or in the hospitality industry. With a very wide range of use cases, MITs are estimated to represent around 30% of all e-commerce transactions. The key distinction from direct debits lies in the initiation process. While consumers have control over direct debits, where they authorise a third party to debit funds, MITs involve customers authorising merchants to initiate transactions.

With the European Commission’s wording, consumers would now have the ability to request a “no questions asked” refund from payment service providers (PSPs) within eight weeks of any MIT. If this change was to be agreed upon by co-legislators, it could lead to significant unintended consequences. For example, genuine customers may increasingly rely on this refund right as an exclusive mean of managing their subscriptions rather than approaching merchants directly. Providing an 8-week unconditional refund right for MITs might also drive fraudsters to systematically request refunds for digital goods and services they have already consumed. In addition, fraudsters would also be able to simultaneously claim charge back from their bank while also claiming a refund from the merchant. Given delayed settlement times, a rejected transaction may only be noticed by the merchant once a refund has been issued. This is detrimental to merchants, especially smaller ones, who will have to bear the operational and financial burdens of additional chargebacks.

For these various reasons, Ecommerce Europe, along with other European associations have asked co-legislators to consider removing the obligation for unconditional refund rights for MITs, under a Joint Statement available here. At the European Parliament, the file is spearheaded by the Rapporteur Marek Belka (S&D, Poland) who drafted a Report adopted by MEPs from the Committee on Economic and Monetary Affairs (ECON) on 22 February. Most welcome is the change proposed by the Rapporteur to remove the introduction of the 8-week unconditional refund right. The Report is expected to be endorsed in Plenary on 22 April.

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