From 3 December 2018, the so-called Geo-blocking Regulation will enter into force in the European Union and therefore also in Germany. It is intended to prevent discrimination in cross-border transactions within the European Union, including geo-blocking.
Who is affected by the Geo-blocking Regulation?
The Geo-blocking Regulation affects traders, i.e. business persons who offer goods or services within the scope of their professional activities. The Geo-blocking Regulation applies to B2C business, but also partially to B2B business. Potential customers include both consumers and companies, provided that they purchase the goods or services exclusively for end use.
What is regulated in the Geo-blocking Regulation with regard to payment methods?
In essence, the Geo-blocking Regulation contains three prohibitions. These relate to access restrictions to online user interfaces and discriminatory provisions contained in general business terms and conditions. Additionally, Art. 5 of the Geo-blocking Regulation, which is the subject of this article, contains a prohibition to discriminate against customers when offering payment methods.
According to Art. 5 para. 1 of the Geo-blocking Regulation, a trader shall not, within the scope of means of payment accepted by the trader, apply, for reasons related to a customer’s nationality, place of residence or place of establishment, the location of the payment account, the place of establishment of the payment service provider or the place of issue of the payment instrument within the Union, different conditions for a payment transaction, where:
(a) the payment transaction is made through an electronic transaction by credit transfer, direct debit or a card-based payment instrument within the same payment brand and category;
(b) authentication requirements are fulfilled pursuant to Directive (EU) 2015/2366; and
(c) the payment transactions are in a currency that the trader accepts.
However, under Art. 5 para.2 of the Geo-blocking Regulation, the prohibition of discrimination does not prohibit the trader – to the extent justified by objective reasons – from holding back the goods or services until he has received confirmation that the payment transaction has been properly initiated.
What does this mean exactly?
This all sounds quite complicated and begs the question what exactly this means for traders.
In principle, if a trader offers a certain payment method, he may not refuse a customer wishing to pay in the way offered from the outset on the basis that this particular customer is not a German national or resides outside of Germany. A blanket refusal is also inadmissible if it is based on the fact that an account to be debited is held in a Member State other than Germany or that a payment card has been issued in a Member State other than Germany. On the other hand, it is still up to the trader to decide which payment methods (e.g. purchase on account, credit transfer, direct debit, credit card) he generally wants to accept. With regard to credit cards, the trader may also restrict the methods accepted to the credit cards of certain credit card providers. It is only once he has decided to accept a certain method of payment that payment via this payment method must be possible on a non-discriminatory basis.
So far, so good. The key question then is, however, to what extent traders are permitted to reject customers from abroad based on creditworthiness, for example due to the fact that no reliable information on creditworthiness is available for certain countries or because the payment service provider only buys receivables from German customers and therefore only takes the credit risk off the trader to this extent. It should be noted that the legislator generally recognises credit risk as a legitimate justification for different treatment of customers. In this context, recital 33 to the Geo-blocking Regulation explains that traders accepting direct debits should be allowed to request an advance payment by credit transfer in the case of a request for a payment by direct debit before the goods are dispatched or the service is rendered.
What do you need to do?
Traders should review their payment terms with regard to the prohibition of discrimination by 3 December 2018 and amend them if necessary. Blanket rejections of payment methods (e.g. entries of non-German IBANs generally lead to the payment transaction being terminated) should most definitely be avoided.
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