Qualification of services

The regulation of payment services is governed by the Payment Services Directive (PSD2) and its implementation in the Dutch Financial Supervision Act (Wet op het financieel toezicht, Wft).

Under PSD2, payment services are the regulated services listed in Annex I of the directive. This annex consists of eight different payment services. The various payment services recognized under PSD2 are the following:

• Services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account.
• Services enabling cash withdrawals from a payment account as well as the operations required for operating a payment account.
• Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider.
• Execution of payment transactions where the funds are covered by a credit line for a payment service user.
• Issuing of payment instruments and/or acquiring of payment transactions.
• Money remittance.
• Payment initiation services.
• Account information services.

These services contain the central concept ‘cash’. DNB has specified on its website that for this specific purpose, cash must be understood as coins and banknotes. This service can only be provided by payment institutions that also operate payment accounts. The method of deposit and withdrawal is irrelevant, as long as the coins and banknotes are received on or from a payment account.

Examples of this payment service are execution of direct debits, execution of payment transactions through a payment card or similar device, or execution of credit transfers. A payment transaction is an act, initiated by the payer or on his behalf by the payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and the payee.

This payment service is only provided by payment service providers that are directly involved in the transfer, in a limited sense, as the paying or receiving service provider through the necessary entries in the electronic payment system.

Examples of this payment service are execution of direct debits, execution of payment transactions through a payment card or a similar device, or execution of credit transfers. Similar to the previous payment service, this payment service is only provided by payment service providers that are directly involved in the transfer, in a limited sense, as the paying or receiving service provider through the necessary entries in the electronic payment system.

The main difference between this service and the previous service, is that the funds must be covered by a credit line. This service includes situations where the payment service provider advances the amount to be paid, or where services are provided in connection with the operation of a payment account on which an overdraft is permitted.

The issuing of payment instruments is a payment service by a payment service provider contracting to provide a payer with a payment instrument to initiate and process the payer’s payment transactions. A payment instrument is a personalized device(s) and/or set of procedures agreed between the payment service user and the payment service provider and used in order to initiate a payment order.

The definition of a payment instrument is very broad. Examples are payment cards, mobile phones, pin codes, tan codes, and login credentials and passwords for giving payment instructions on the internet. In order for an instrument to be considered ‘personalized’, the instrument must allow the payment service provider to verify that the payment order was initiated by a user authorized to do so.

Acquiring of payment transactions is a payment service provided by a payment service provider contracting with a payee to accept and process payment transactions, which results in a transfer of funds to the payee. This service is deemed to be applicable when an entity is responsible for settling transactions by means of an agreement with the beneficiary (e.g., an online store). The entity in question (the acquirer) ensures payment to the beneficiary on the basis of the payment orders received.

PSD2 introduces a neutral definition of this service to capture not only the traditional acquiring models structured around the use of payment cards, but also different business models, including those where more than one acquirer is involved. Technical services provided to payment service providers, such as the mere processing and storage of data or the operation of payment terminals, should not be considered acquiring.

Some acquiring models do not provide for an actual transfer of funds by the acquirer to the payee because the parties may agree upon other forms of settlement.

Money remittance is 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.

This service may apply, for example, to bill-paying services which enable the public to pay utilities and other regular household bills. Also, this service is mainly used to send money to recipients abroad. This is particularly the case for countries with a less developed banking system and where the use of bank accounts is less common. Money transfers are also used for unexpected urgent payments.

Payment initiation is a service to initiate a payment order at the request of the payment service user with respect to a payment account held at another payment service provider. A payment order in an instruction by a payer or a payee to its payment service provider requesting the execution of a payment transaction.

For this service, it is instrumental that the payment service provider initiates an actual transfer of funds from an online bank account at another payment service provider, at the request of the payment service user. The payment initiation service provider does not hold the payer’s funds in connection with the provision of the payment initiation service. An example of this service is the initiation of an online purchase at an online store.

An account information service is an online service to provide consolidated information on one or more payment accounts held by the payment service user with either another payment service provider or with more than one payment service provider.

Account information services provide the payment service user with aggregated online information on one or more payment accounts held with one or more other payment service providers and can be accessed via online interfaces of the account servicing payment service provider.

It is not required that the account information service provider provides the consolidated information to the payment user itself. The service provider may also transmit the consolidated information to a third party with the payment service user’s explicit consent.

Electronic money (e-money) is monetary value stored electronically or magnetically, representing a claim against the issuer, issued in exchange for money received to execute payment transactions, and which allows payments to be made to another person than the issuer.

E-money is an electronic payment product. The value is held electronically or magnetically on the payment instrument itself and payments using the value are made electronically. For example, this concerns monetary value stored on a:

• Prepaid payment card;
• Personal computer; or
• Plastic card that uses magnetic stripe technology.

E-money is a monetary asset separate from the funds received. The issuance of e-money entails the conversion of funds received into an electronically, including magnetically, stored money which could be used by a network of customers who would accept it voluntarily.

Pre-payment is a necessary component of e-money. For a product to qualify as e-money, it has to be issued in exchange for money received. Unlike credit provided through a credit card, the customer pays for the spending power in advance.

However, not every customer balance, prepaid product or wallet structure is automatically e-money. The analysis depends on whether there is stored monetary value, whether that value represents a claim on the issuer, whether it is issued on receipt of funds, and whether it is accepted by a third party.

Find more information on e-money authorisation requirements on our e-money page.

At Watsonlaw, we approach qualification questions in a practical, pragmatic and hands-on manner. We understand that clients developing payment, wallet and stored-value products need advice that is not only legally sound, but also workable in light of their product design, operations and growth strategy. Qualification is often the first and most important step, because it determines whether a licence is required, which regulatory framework applies, and how the business should be structured going forward.

Our work usually starts with a close analysis of the actual service, product and payment flow. We help clients assess whether a model qualifies as a regulated payment service, the issuance of e-money, both, or neither. We also assess whether an exclusion, exception or exemption may apply, and whether adjacent frameworks – such as MiCA, DORA and AMLD – should also be taken into account. In doing so, we focus on the legal and operational substance of the model rather than labels or high-level descriptions alone.

Our advice is tailored to the structure at hand. Whether you are assessing a new product, reviewing an existing set-up, or preparing for a licensing trajectory, we focus on clear analysis and workable next steps. Our aim is not only to identify the applicable legal framework, but to help clients move forward with a robust and commercially workable structure.

Not always. Some gift cards, festival wristbands and other stored-value products may qualify as electronic money, but depending on the model an exception or exemption may be relevant. The qualification is fact-specific and depends, among other things, on where the value can be used and whether it is accepted by persons other than the issuer.