Regulation (EU) 2019/518 entered into force on April 2019 and amended Regulation (EU) 924/2009 (CBPR1) as regards certain charges on cross-border payments and currency conversions in the European Union. CBPR1 required Payment Service Providers (PSPs) to charge the same fee for cross-border payment transactions in euros within the Eurozone as applies to euro payment transactions within a Member State.

Under CBPR2 Regulation, two basic amendments are introduced:

* The equality of charges principle is extended to EU Member States outside of the Eurozone. Particularly, all cross-border payments in euro in non-eurozone Member States, will be priced the same as domestic payments.

* new rules providing transparency of charges related to currency conversion charges for card-based payments at a point of sale (POS) or at ATM machines and credit transfers, which can be summarized as follows:

For all card-based payments, currency conversion charges will be expressed as percentage mark-ups over the most recent euro foreign exchange rate issued by the European Central Bank (ECB). PSPs should express these mark-ups on a publicly available and easily accessible electronic platform prior to the initiation of the payment transaction. This information should be also provided to the payer through an electronic message, once the payment transaction has been initiated.

For all credit transfers involving a currency conversion, PSPs should disclose information concerning (i) the estimated amount of the credit transfer in the currency of the payer’s account (ii) any transaction fee or currency conversion charges and (iii) the estimated amount to be transferred to the payee in the currency used by the payee.

The provisions for both card-based payments and credit transfers are already applicable to EU Member States since April 2020, with the exception of the requirement to inform the customers through an electronic message, which shall apply as of April 2021.

Overall, the extension of the equality of charges principle practically means that citizens and businesses in non-euro area countries will enjoy the same conditions as euro area residents when making cross-border payments in euro.

Moreover, the new rules aim to protect consumers against excessive charges and increase the transparency requirements associated with currency conversion rates and transfer fees applied to cross-border payments.

The transparency principle embodied on the Regulation, will empower customers to compare alternative currency conversion charges and choose the best currency conversion option for their benefit. Also, since customers will become much more informed of these charges, banks will have to redefine their pricing strategies, with obvious downward pressures, thus contributing to an improved and cheaper access to financial services.

However, financial institutions might possibly face certain challenges associated with the implementation of these rules.

Specifically, transparency requirements for transaction payments might lead to high implementation costs and considerable technical challenges for PSPs. As a result, financial institutions will have to reform their contractual terms and restructure their IT systems, so that they can manage to provide the information needed for cross-border charges to all parties involved. Subsequently, they will have to a find a new, technology-enabled framework to ensure compliance in the most cost- effective way.

Furthermore, since banking services for cross-border payments are becoming increasingly digitalized, financial institutions will have to adapt to the developments of the new digital era and improve their web banking services, such as their client advisory tools, online banking and mobile applications.

Another challenge financial institutions might face is linked to regulatory compliance issues. In order to achieve a high level of compliance, certain basic definitions of the Regulation, such as the “calculation of the total amount” required for credit transfers, should be further clarified. In this way, misinterpretations that could lead to the imposition of penalties for non-compliance with the rules set by CBR2, could be avoided.

The clarification of such definitions will be also beneficial for customers, so that the lack of explicit inclusion of the charges embedded in the exchange rate will not lead to those charges being excluded from upfront fees shown to them.

Edited by Dafni Sotirchou