I'm often approached by marketplace businesses, for example, who've been asked this question by their credit card acquirer. There is often no simple answer, but I've explained the main issues below. In later posts, I'll explain how your payment activities might fall outside the scope of regulation, or benefit from an exclusion even if they are in scope, as well as compliance with the regulatory technical standards for strong customer authentication and secure communications. Please get in touch with me at Leman Solicitors if you would like to discuss any of these issues from an Irish/EEA standpoint.
Who should care?
This question tends to arises where your business:
- receives money from one set of customers and makes payments to other customers. Examples range from e-commerce marketplaces, to escrow service providers, to fundraising or crowdfunding platforms;
- issues vouchers or other forms of value that can be exchanged for goods or services, either from the same business or some other participating retailers or suppliers;
- enables customers to send transaction data to their card acquirer, initiate a payment from their bank account or share bank statements or other financial information with third parties.
Depending on the circumstances any of these activities could mean that you are either:
- offering an "e-money" service and/or a "payment service", in which case you would and need some form of regulatory authorisation or registration; or
- your activities might be outside the scope of regulation, or in scope but specifically excluded from some or all of the authorisation or registration requirements.
What are the different types of payment service?
Unless you enable the collection and withdrawal of physical cash, the types of “payment services” that you're most likely to be concerned with involve:
- the 'execution' (processing etc) of payment transactions, involving card-based payments, bank/credit transfers, direct debits, either with or without credit;
- money remittance, where funds are received from a payer, without any payment accounts being created in the name of the payer or the payee, for the sole purpose of transferring a corresponding amount to a payee or to another payment service provider acting on behalf of the payee, and/or where such funds are received on behalf of and made available to the payee;
- issuing payment instruments: contracting to provide a payer with a payment instrument to initiate and process the payer’s payment transactions (a payment instrument is any personalised device(s) and/or set of procedures agreed between the user and the service provider that is used to initiate a payment order);
- aquiring payment transactions: contracting with a payee to accept and process payment transactions, which results in a transfer of funds to the payee (e.g. debit/credit card acquiring or 'merchant acquiring');
- payment initiation services: a service to initiate a payment order at the request of the user with respect to a payment account held at another payment service provider; or
- account information services: an online service to provide consolidated information on one or more payment accounts held by the user with on or more other payment service provider(s) - which is actually more a data service than a payment service.
There are many related definitions, but the central one is "payment transaction", which means "an act initiated by the payer or payee, or on behalf of the payer, of placing, transferring or withdrawing funds [i.e. money, including "e-money"], irrespective of any underlying obligations between the payer and payee." This definition can involve some degree of legal fiction, such as when applied to card acquiring, which actually involves multiple payment transactions.
What is e-money?
The term “electronic money” or "e-money" means monetary value that is:
- electronically stored;
- represented by a claim on the electronic money issuer,
- issued on receipt of funds,
- for the purpose of making “payment transactions”;
- accepted by a person other than the electronic money issuer; and
- not a “limited network” service.
"Limited networks" are services based on specific payment instruments that can be used only in a limited way and meet any one or more of the following conditions:
- allow the holder to acquire goods or services only in the issuer's premises;
- are issued by a professional issuer and allow the holder to acquire goods or services only within a limited network of service providers which have direct commercial agreements with the issuer;
- may be used only to acquire a very limited range of goods or services; or
- are valid only in a single EEA State, are provided at the request of an undertaking or a public sector entity, and are regulated by a national or regional public authority for specific social or tax purposes to acquire specific goods or services from suppliers which have a commercial agreement with the issuer.
The exclusion for limited networks also applies to payment services generally. This can include loyalty schemes, fuel card schemes and so on- and large networks are still subject to a registration requirement. Some regulators may consider gift cards as falling within this exclusion, while others may not see them as within scope of payments regulation at all.
Meanwhile, Ireland has also regulated gift cards separately, albeit with some issues.
Please get in touch with me at Leman Solicitors if you would like to discuss any of these issues from an Irish/EEA standpoint.
I'm often approached by marketplace businesses, for example, who've been asked this question by their credit card acquirer. There is often no simple answer...