PSR/PSD 3: The digital purse – The “wallet”

PSR/PSD 3: The digital purse - The "wallet"

The proposals for the Payment Service Directive 3 (“PSD3”) and the Payment Services Regulation (“PSR”) are taking shape. PayTechLaw has published an overview article  on the innovations regarding the draft voted for on 14 February 2024 by the European Parliament’s Committee on Economic Affairs (Commission  for  economic  policy– “ECON”).

Below we take a look at what applies with regard to so-called wallets.

Two categories of wallets

A wallet is virtually integrated on the smartphone and enables contactless payments with the smartphone or smartwatch at the point of sale (“POS”).  Well-known providers include Apple Pay, Google Pay, Samsung Pay and Payback Pay.

There are two categories of these wallets in the ECON drafts (see recital 24 of the PSR and recital 13 of PSD3):

  • “pass-through wallets and
  • so-called “staged wallets”.

The pass-through wallet

The pass-through wallet is used to tokenise an existing payment instrument (e.g. a credit card). Here, the payment is made directly using the existing payment instrument. For example, the credit card can be used even if it is not used for the transaction itself.

The recitals clarify that tokenisation does not lead to the creation of a new payment instrument. It is therefore “only” a technical service, meaning that providers of pass-through wallets are not subject to authorisation. This clarification also ends the dispute as to whether the provider of a pass-through wallet should be categorised as a payment initiation service provider.

The staged wallet

However, the situation is different with staged wallets: here, an amount of money paid in advance by the user is stored for future transactions. There are different “stages” here: First, the wallet is topped up with an amount in the “funding stage”, figuratively speaking, money is put into the purse. The second phase, the “payment stage”, involves spending this money at the POS.

The ECON drafts clarify that this category of wallets are payment instruments, meaning that their issuance constitutes a payment service in accordance with Article 2 (32) PSD3. Accordingly, providers are subject to authorisation in accordance with Article 3 et seq. PSD3 and must fulfil the regulatory requirements.

It continues at the end of April

The ECON draft will be voted on in the plenary session of the EU Parliament at the end of April 2024. PayTechLaw will keep you posted.

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