Allocation of Liability in Case of Unauthorised or Erroneous Payments

A well-functioning European market for electronic payments (Payments) requires both payment service providers (PSPs) and payment service users (PSUs) to have complete confidence in the correct and timely execution of authorised Payments. Because the execution of Payments often requires the involvement of multiple PSPs, every participant in the payment chain has a responsibility to safeguard its own part of the execution process. It is therefore essential to have clear rules on the allocation of responsibilities and liabilities between PSPs in case a Payment is lacking the payer's consent (i.e., unauthorised transaction) or is incorrectly executed (i.e., erroneous transaction). This has become even more important with the introduction of open banking services, in particular when a payment initiation service provider participates in the payment chain. In such instances, it is not always clear to the PSU which of the involved PSPs is responsible for a particular step in the Payment chain. This chapter covers the allocation of responsibilities and liabilities between PSPs in case of an unauthorised or erroneous transaction under different scenarios, i.e., when the payer’s bank, beneficiary’s bank or a third-party service provider is to be held responsible for an unauthorised or erroneous transaction.