Revision of the Payment Services Directive: quasi-banking regulation for e-commerce platforms?
Published on 14th Jan 2015
In 2007 the first Payment Services Directive (2007/64/EC – “PSD I”) harmonized the regulation of payment services across the European Union. This had varying consequences for operators of e-commerce platforms depending on the member state they conducted their business in. Now, according to sources, PSD II shall enter into force by June 2015, and the national application of European payment regulation shall be harmonized – unfortunately, not in a positive way for e-commerce platforms.
1 Situation under PSD I
2007 PSD I provides for a list of payment services that result in a license requirement for the company conducting such services. One of these payment services is so-called “money remittance”. According to the definition in PSD I money remittance means
“a payment service 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.”
In this context, the handling of the payments of purchase prices by e-commerce platforms came into focus. The receipt of the purchase price from the buyer and the subsequent forwarding to the seller can meet the aforementioned definition of money remittance.
During the past years national supervisory authorities had to establish an administrative practice on how to deal with this. In Germany it took more than two years from the implementation of the German payment regulation until the German financial supervisory authority (“BaFin”) had come to a final conclusion. In the meantime, different approaches were tested by operators of e-commerce platforms in order to avoid a regulation.
For example it was argued that the handling of payments only was an ancillary service compared to the operation of the e-commerce platform – however, BaFin did not accept this. Other marketplaces acquired the receivables from the sellers and collected purchase prices in their own name (“Factoring Model”). Although, this Factoring Model does not live up to the definition of money remittance, BaFin did not accept this either – instead, BaFin took an economic approach and argued that economically the money still flows from the buyer to the seller.
Another argument against a regulation of e-commerce platforms as payment institutions – across Europe – was the “commercial agent exception” contained in PSD I. According to this exception PSD I does not apply to
“payment transactions from the payer to the payee through a commercial agent authorised to negotiate or conclude the sale or purchase of goods or services on behalf of the payer or the payee”.
The argument that the e-commerce platform acts as a commercial agent and therefore, payment regulation is not applicable was received very differently across Europe.
While the UK supervisory authority FCA accepted this argument, in particular German BaFin followed a different approach. After extensive time for consideration and many discussions, BaFin issued a general ruling that e-commerce platforms cannot benefit from the commercial agent exception. Following this interpretation, different supervisory authorities across Europe adopted BaFin’s approach. In summer 2014 the French financial supervisory authority (“ACPR”) contacted all e-commerce platforms in France that were handling payments for their customers – informing them that they were conducting regulated payment services.
As a result, platforms in Germany and France either have to apply for a license as a payment institution or must cooperate with a licensed bank or payment institution. However, the detailed structure of such cooperation remains a complicated matter.
2 Clarification in PSD II
This varying application of a harmonized European regulation contradicts the approach of a single European market. Hence, this topic is explicitly dealt with in the current revision of PSD I.
Recital 11 of the draft of a revised payment directive (“PSD II”) reads as follows
“The exemption of payment transactions through a commercial agent on behalf of the payer or the payee, as established in Directive 2007/64/EC is being applied very differently in the Member States. Certain Member States allow the use of the exemption by e-commerce platforms that act as an intermediary on behalf of both individual buyers and sellers without a real margin to negotiate or conclude the sale or purchase of goods or services. That goes beyond the intended scope of the exemption and may increase risks for the consumers, as these providers remain outside the protection of the legal framework. Different application practices also distort competition in the payment market. Therefore, to address these concerns, it has to be clear that the exemption can apply to agents acting on behalf of both the payer and the payee (such as some e-commerce platforms) only when not entering at any time in possession of clients’ funds.” (Accentuation by the author)
This explanation shows the intention to harmonize also interpretation and application of European payment regulation across the member states. Although the wording only covers structures in which the e-commerce platform acts on behalf of both the payer and the payee (which is in reality not true in all cases), it appears to be the intention to catch all scenarios where e-commerce platforms are involved in the handling of payments. Here, the European legislators seem to follow the German approach.
In general, the harmonisation of European payment regulation is a welcomed approach. However, to use the strictest interpretation might result in severe consequences for e-commerce platform across Europe.
3 Consequences for e-commerce platforms
In case PSD II is implemented in its current form, e-commerce platforms would be banned from the handling of payments for their customers. It would be determined bindingly that the buyer cannot pay the purchase price to the platform who then forwards the received amount to the seller.
Rather, the platform would either have to apply for a license as a payment institution itself or cooperate with a bank or a payment institution. As a license as a payment institution is comparable to a small version of a banking license, this alternative only comes into consideration for big international e-commerce platforms that are willing to establish (inter alia) an organization and a reporting system like other regulated companies.
Otherwise, the handling of customers’ payments only is permitted if the e-commerce platform cooperates with a bank or payments institution. In such structure the actual handling of payments (Zahlungsabwicklung) is conducted by the regulated company (bank or payments institution) and the e-commerce platform only acts as a (technical) service provider and/or an outsourcing company.
The German experience shows that the establishment of such cooperation involves intense negotiations with the supervisory authorities. BaFin, – again – tries to find ways to prevent the handling of payments in the context of e-commerce platforms. The background for this is that – as a general rule – BaFin sees no need for a payment via the e-commerce platform at all. BaFin neglects the benefits for the customers and the operator of the e-commerce platform and proposes that the purchase price should rather be paid directly from the buyer to the seller – without any intermediary.
If PSD II will be implemented in its current form is still unclear. Currently, PSD II is still in discussion. After the European Parliament had amended the initial draft by the European Commission in April 2014 the Council of the European Union has issued its proposal on 24 October 2014 and has agreed on a so-called General Approach in December 2014.
This initiated the process of further tri-party negotiations between the Council, the Commission, and the Parliament, which will result in the final version of PSD II. However, due to the fact that the wording regarding the application of the commercial agent exception to e-commerce platforms was included in all previous drafts it is likely that this remains unchanged in the final PSD II.
According to unconfirmed speculations the final PSD II shall be published in May 2015 and enter into force by June 2015. Once PSD II is finalized on a European level the member states must – according to the current draft –adapt national payment regulations within two years.
In Germany and France, e-commerce platforms already are subject to payment regulation if they handle payments between buyers and sellers. According to the current draft of PSD II it appears that this shall become the rule all across the EU.
Although PSD II itself will probably not affect e-commerce platforms directly before 2017, it cannot be excluded that supervisory authorities across Europe will take the current draft of PSD II as a reason to follow a more strict interpretation.
As a result, also e-commerce platforms in currently more relaxed jurisdictions might become subject to payment regulation. In this case, also in these countries solutions for cooperation between e-commerce platforms and banks / payment institutions must be established if – in particular smaller e-commerce platforms – are not willing (or able) to apply for a license themselves.