The Banking Supervision Department today published the final version of a new Proper Conduct of Banking Business directive regarding merchant acquirers and the acquiring of payment card transactions (Directive 472). The objectives of the directive are to increase competition in the merchant acquiring market, among other things by easing the entry of new merchant acquirers into the market; to ensure fairness vis-à-vis businesses; and to advance the transition of the payments market to advanced technologies. This directive comes in addition to the drafts published by the Banking Supervision Department regarding the easing of licensing policy for new merchant acquirers, and an update to the criteria and conditions for requesting a permit to control or hold means of control of a merchant acquirer.
· The directive for the first time brings the regulation of merchant acquiring activity in Israel together into one document.
· The directive imposes reduced capital requirements relative to those required of merchant acquirers until now. The requirements are in line with the European Payment Services Directive (PSD) for a merchant acquirer that is not a significant credit provider. For merchant acquirers who provide significant amounts of credit, the requirements are reduced relative to the Basel requirements for banks.
· The directive regulates the relationship between the merchant acquirer and the business, including the details and conditions to be included in the acquiring agreement and ways of changing them, including the price.
· The directive makes it possible for merchant acquirers to sell, lease and market points of sale (POS) to businesses, in order to make it easier for businesses and to advance the transition of the Israeli market to EMV technology.
Supervisor of Banks Dr. Hedva Ber said, “The directive constitutes a significant step in increasing competition in the payment cards field and in the retail credit field, to benefit households and small and medium businesses. The directive creates a new supervisory “level” within the Banking Supervision Department, one that is more lenient than for the banks in terms of the capital requirements. The more lenient requirements will make it easier for new players to enter the merchant acquiring business, and will also make it easier for the credit card companies to provide credit to households and small businesses. The directive will also contribute to advancing the technological level of the payments market in Israel.”
This directive for the first time relates specifically to financial entities that deal mainly with acquiring of payment card transactions, in view of the increasing importance of this payment system.
The directive sets out the main rules for payment card transaction acquiring activity, and eases some of the regulatory requirements that have so far been imposed on the credit card companies and merchant acquirers. As part of this, it significantly eases the capital requirements for merchant acquirers, and “levels the playing field” with regulations on the matter adopted in Europe (the Payment Services Directive (PSD) approach). Later on, additional directives will be adjusted to ease the regulatory burden on merchant acquirers in view of the uniqueness of these entities and the lower risk in their activity relative to the banks.
The directive also defines the details that will be included in the acquiring agreement between the merchant acquirer and the business, and how those conditions can be changed, including the price of the service. The directive makes it possible for merchant acquirers to sell or lease points of sale to businesses with the aim of advancing the market’s transition to advanced technologies (EMV and contactless).