PSD Part 3: Value Dates and Cycle Times
The PSD has the concept of day “D”, which is the day that the payment instruction arrives at the Payer’s PSP (e.g. a credit transfer instruction or a credit card payment request).
The PSD aims to minimise the delay between the time taken between D and the time the payee gets the money. Its rules say that by 01/01/2012 the payee must get the money by D+1. Prior to 2012 it must get to the payee by D+3. Both of these deadlines do not permit any extra delay for foreign exchange processing (e.g. for International card payments such as Maestro or Cirrus).
The rules apply to both cross border and in country payments. Obviously schemes and countries can offer higher levels of service (e.g. UK Faster payments).
For incoming payments the payee’s PSD must credit value to the Payee on the day of arrival at the payee’s PSP. The money must be available to use immediately on arrival at the payee’s PSP. These rules apply even if FX is involved (e.g. in being able to credit a € payment to £ account).
The payer’s PSP must not debit the payer’s account prior to D.
The overall effect of compressing the cycle time for payments and not permitting value dating is to drive hard to eliminate “float”; i.e. where the payer is debited before the payee gets paid and banks earn interest on holding the money in the interim.
The most interesting area here is that related to credit and debit cards. Typically a debit or credit card customer has his balance reduced at the moment he makes a purchase, however the merchant typically does not get paid until 2 or 3 days later. This would seem to be completely contrary to the PSD. Currently, the banks are fighting the application of the PSD to the card-related float.
Float is mostly eliminated from UK domestic banking payment systems, particularly when UK Faster payments gets up and running. However, many smaller banks, building societies and subsidiaries may still be incurring float on their standing order payments and the PSD will give the legal underpinning to make the elimination of this float mandatory.
In contrast to the rest of the PSD, the rules on value dating apply, even where only one PSP is in the PSD regulated zone. For the rest of the PSD both the Payer’s PSP and Payee’s PSP have to be in the PSD zone.