Payments and Payment Services in the PSD

Th ere is no Community-based defi nition for payment services. In fact payment services are described only as “any business activity listed in the Annex”. According to the PSD Annex, the concept of payment ser-vices covers (i) any activities enabling cash to be paid into and withdrawn from a payment account, (ii) any activities based on a payment account that aim to execute payment transactions by means of direct debit, credit transfer and/or card-based payments, (iii) the activities of issuing and acquiring payment instruments and (iv) money remittance . ¹⁴ Apart from the technical diff erences, it seems that a payment service exists if the

ser-14 PSD draws the diff erence between payment services and payment transactions. Both of them are referred under article 4: compare n. 3, 5 and the Annex.

vice provider professionally “enters into possession of the funds to be transferred” ¹⁵ for making a payment.

Indeed, laying down the negative scope of PSD, article 3, letter (j) provided that the directive is not applied to:

Services provided by technical service providers, which support the provi-sion of payment services, without them entering at any time into posses-sion of the funds to be transferred, including processing and storage of data, trust and privacy protection services, data and entity authentication, information technology (IT) and communication network provision and maintenance of terminals and devices used for payment services (article 3, letter (j)).

Drawing a comparison with m-payments as outlined in the SEPA- based principles, there is little doubt that these are payment services according to the concept mentioned above. In fact, PSD Annex (n. 7) on payment services expressly covers the:

Execution of payment transactions where the consent of the payer to exe-cute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods and services.

Th is means that, when telcos and MNOs perform a mere task of data transferral, the professional provision of payment services by mobile devices is a regulated activity. Th is activity can be performed only by enti-ties that have been provided with a specifi c licence as credit institutions, e-money institutions or payment institutions.

Th anks to the principle of mutual recognition, the European licence enables the legal entity to provide the payment services throughout the Member States, either establishing a branch or providing services from abroad, and no further authorization may be required. However, the European licence is issued on condition that the entity meets a set of

15 See Maria Chiara Malaguti, “Th e Payment Service Directive. Pitfalls between the Acquis Communautaire and National Implementation”, ECRI Research Report 9 (2009): 11.

82 G. Gimigliano

initial and ongoing requirements in terms of capital level, own funds and corporate organization. Moreover, the home State authority is entrusted with supervising sound and prudent management of the entity.

In this context, it is conceivable that the fi nancial intermediaries will professionally provide m-payments, while telcos and MNOs intervene as agents or as outsourcees in one or more steps of the payment chain. In this way, the payment service providers take on all the risks. Indeed, the payment service provider is fully liable for the regular and correct execu-tion of payment services (for example, see article 17 and 18 PSD).

A slightly diff erent situation exists when a mobile operator acting as an intermediary between the fi nancial institution and the user is the only entity the user deals with. Th is happens when a mobile operator holds a payment account with a bank in its name but on behalf of each and all of its customers and through which customers’ payment transactions are processed. Here, again, the mobile operator might act as a mere agent for the bank, but this depends, considering the above remarks, on who holds responsibility for the proper execution of payments and fund safety in the customer-provider relationship. If the mobile operator takes on this responsibility, the mobile operator is actually acting as a payment service provider and should have the necessary licence; on the other hand, if the responsibilities are taken by the bank, the mobile operator is acting as an agent of the bank. ¹⁶

Furthermore, telcos and MNOs might consider the possibility of entering the relevant market either as “pure” or as “hybrid” payment institutions.

Th e payment institutions are the fi nancial intermediaries specialized in the provision of payment services as laid down in the PSD Annex.

However, they have less cumbersome requirements in terms of organiza-tion, capital and own funds compared with credit institutions. Indeed, the main objective pursued at Community Law level was to lay down a risk-based regulation. Th e payment institution set up would become a subsidiary of one or more telcos and MNOs taking advantage of their wide customer base.

16 Compare: Th e World Bank, From Remittance to M-Payments”, October 2012, 3 and Maria Chiara Malaguti, “Th e Payment services Directive. Pitfalls between the Acquis Communautaire and National Implementation”, ECRI Research Report 9 (2009): 18.

European authorization for payment institutions enables them to pro-vide not only m-payments and the other payment services listed in the Annex, but also to operate closely related activities and payment systems.

In addition, the payment institutions are authorized to provide both single payment transactions and payment accounts services, as well as to extend a line of credit, provided that the credit is granted for a limited period of time and in connection with a payment to be carried out.

“Hybrid” payment institutions are “in-between” entities. Th ese enti-ties are engaged in both the provision of payment services and in non- fi nancial business. Th is is the case of telcos and MNOs that plan to bridge the gap between the two markets.

Th e so-called hybrid payment institutions are legal persons with a proper licence but the competent authorities may (article 10.5 PSD):

Require the establishment of a separate entity for the payment services business, where the non-payment services activities of the payment institu-tion impair or are likely to impair either the fi nancial soundness of the payment institution or the ability of the competent authorities to monitor the payment institution’s compliance with all obligations laid down by this Directive.

Like “pure” payment institutions, they are authorized to provide the payment services listed in the Annex, perform complementary activities such as the operation of payment systems and extend credit for a limited period of time by using funds other than user funds, with the exclusive aim of executing payments.

However, the harmonized framework suff ers from a set of hetero-geneous exemptions. Such exemptions turn out to be of some interest to the m-payments framework too. Apart from the general exemptions based either on the lack of any direct or indirect relationship between the service provider and the fi nal user (article 3, letter (n)) or the business volume of the service provider (article 26 PSD), a very interesting exemp-tion is set out in article 3, letter (i):

Payment transactions executed by means of any telecommunication, digi-tal or IT device, where the goods or services purchased are delivered to and are to be used through a telecommunication, digital or IT device, provided

84 G. Gimigliano

that the telecommunication, digital or IT operator does not act as an inter-mediary between the payment service user and the supplier of the goods and services (article 3, letter (l)).

Here, a reference is made to markets others than the market for pay-ment services. Indeed, this exemption covers those instances in which the digital goods and services, such as music, newspapers, or ring tones, are produced either by a third party or by the mobile operator, but the latter may “add intrinsic value to them in the form of access, distribution or search facilities.” (preamble (6) PSD).

M-Payments and Payment Services in the ( forthcoming ) PSD2