As a retailer you may offer customers your own gift card or voucher that can be used to pay for items you sell; or you may offer a wider 'loyalty programme' that enables customers to earn points and pay for items among a group of participating retailers. I've covered the regulation of gift cards/vouchers in Ireland in a previous post. This post highlights some aspects of the new guidance from the European Banking Authority on whether a loyalty programme benefits from the 'limited network exclusion' from e-money and payments regulation ("LNE"). The new guidelines will apply from 1 June 2022 and may differ from advice or regulatory interpretation relating to some existing programmes. If the LNE does not apply, then the issuer of the value in the programme will likely need to be authorised by the Central Bank as an e-money or payment institution (or be registered as the agent of a firm that is), on pain of being told to stop the programme and possibly face a fine or worse (along with the officers involved). Even if the LNE does apply, the programme must be registered with the Central Bank if the total value of transactions exceeds €1million over the preceding 12 months, so you need to decide in advance if registration is going to create a problem... If you need actual advice on any of this, please get in touch.
What instruments are covered?
Of the four types of payment instruments that benefit from the LNE only three are relevant in a typical commercial context. The EBA says that a firm can only take advantage of one of these 'limbs' of the LNE. There are some more general points that the EBA says should or should not be taken into account in deciding whether the LNE applies, but here I've highlighted those relating specifically to the three limbs I mentioned.
Instruments which can only be used on the premises
These allow the holder to acquire goods or services only in the issuer's premises. This is reasonably straightforward, but it's worth noting that the EBA says that “premises of the issuer” means physical premises and not online stores. This may differ to the historical interpretation of some national regulatory authorities.
Instruments that can only be used in a limited network of service providers
To qualify under this limb of the LNE, the instrument can only be used by the holder to acquire goods or services within a limited network of service providers who each has a direct commercial agreements with the issuer. The recitals to the Payment Services Directive say this must be limited to use at a specific retailer or specific retail chain (e.g. the use of a single payment brand used at points of sale and on the instrument itself); and the network of service providers must not be 'continuously growing'. The EBA also explains that the issuer should set:
- the maximum number of providers of goods and services;
- the geographic area for use;
- the maximum volume and value of transactions;
- the maximum amount to be credited to the payment instrument;
- the maximum number of payment instruments to be issues; and
- the common brand under which the relevant goods or services should be offered.
This level of detail may be new to some operators.
Instruments used only to acquire a very limited range of goods or services
The Payment Services Directive states that this limb of the LNE is intended to apply where the scope of the instrument's use is effectively limited to a closed number of functionally connected goods or services, regardless of the geographical location of the point of sale.
The EBA says the issuer should therefore identify:
- the specific category of goods and/or services;
- their common purpose and functional connection;
- the maximum volume and value of transactions;
- the maximum amount to be credited to the payment instrument; and
- the maximum number of payment instruments to be issued.
Again, this level of detail may be new to some operators.
The EBA's new guidelines will apply from 1 June 2022 and may differ from advice or regulatory interpretation relating to some existing programmes. This is significant because, if the LNE does not apply, the issuer of the value in the programme will likely need to be authorised by the Central Bank of Ireland as an e-money or payment institution (or be registered as the agent of someone who is). It is possible for such an institution to be authorised in another EEA member state and to passport its services into Ireland for this purpose. However, there is no such passport for the LNE itself, so the exclusion is judged nationally by each EEA regulator.
The consequences of a programme not qualifying for the LNE would likely be that the CBI could order a halt to the programme (or perhaps an orderly wind-down) and/or the return to customers of an amount equivalent to the 'value', with the possibility of a fine or worse (along with the officers involved in running the programme).
Even if the LNE does apply, however, the programme must be registered with the CBI (and each local regulator in other member states where it is offered) if the total value of local transactions exceeds €1million over the preceding 12 months. The CBI (or other local regulator) is then under a duty to decide whether the LNE applies, so you need to decide in advance if your registration is going to create a problem...
If you need actual advice on any of this, please get in touch.