Here at PayTechLaw, we have always dealt with the PSD2-exceptions for limited networks and limited product ranges. Those who wish to review what this entails can find further information in Lesson 7 of our FinTech online course. The FinTech enthusiasts among our readers know that companies wishing to utilize such exceptions must notify their supervisory authority (in Germany, this is BaFin). There is also an informative article on PayTechLaw regarding this matter. Caution: The notification procedure has since been changed. Further information can be found in a BaFin information sheet (under section G).
BaFin Register of LNE (Limit Network Exclusion) notifications
With the notifications of exceptions claimed, BaFin in Germany feeds into a register. These national registers, in turn, are consolidated by the EBA. These registers are interesting because they provide a good overview of which companies are utilizing the exceptions. Based on this information, we first analyzed in 2018 which industries the exceptions are obviously relevant for. After a creative pause of around two years, BaFin has now published the national register on its website. We have taken this opportunity to take a closer look at the current register. We find the results of our analysis quite intriguing.
Extended content of the BaFin register
The currently available BaFin register (as of January 5, 2024) now also contains notifications for the so-called telecommunications exemption. However, the so-called social cards within the meaning of section 2 para. 1 no. 10c ZAG, for which there is no obligation to notify, are not included. In this blog post, we only deal with the notifications of 211 companies that have notified one or more payment instruments that fall under the “limited network” or “limited range” exemption. According to the EBA’s new requirements for the notification procedure, the EUR 1 million payment volume limit applies cumulatively to all payment instruments issued by a company. The register therefore relates to the issuer. For this reason, the register also contains 2 notifications for which an issuer has indicated that it is making use of different exemptions (presumably for different products).
Decreased number of LNE-notifications
At first glance, it is noticeable that the number of notifications has significantly decreased compared to the previous state of the register. In the previous procedure, BaFin registered approximately 1,000 products. These entries (as of February 13, 2024) can still be found in the EBA’s Euclid register, which had not been updated for Germany until then. The main reason for this decrease appears to be the fact that in the previous procedure, potential issuers notified many products as a precaution – for whatever reason. The previous state of the register, for example, included over 400 public transport companies, although only a few of these companies actually issue payment instruments. In the current register, however, we only see 9 public transport companies with payment instruments that have exceeded the 1-million-euro threshold. A similar phenomenon apparently occurred in the gambling sector. Although the revenues in this economic segment are not to be underestimated, it is unlikely that there were nearly 150 betting shops in the previous version of the register, each gambling over one million euros per year using prepaid betting cards. Due to the inflated number of notifications in Germany, the European Euclid register also presented a distorted picture. With almost 70% of the notifications within the EU, Germany seemed to be the El Dorado of the “Limited Network Exclusion” (LNE) for many years[1]. This image has changed.
Predominance of Notifications Related to Limited Range Products
Unchanged, however, is the predominance of fuel cards, accounting for 65% of notifications. It is not surprising that most issuers (88%) opt for the “limited range” exception. According to BaFin, these cards may only be used to purchase products serving a specific function (e.g., “anything related to vehicle operation“). Other issuers may opt for the “limited network” alternative to cover a broader range of products but must accept other restrictions (e.g., regional limitations). Even without fuel cards, the “limited range” exception remains the favourite choice. All public transport cards prefer this alternative, although some transportation authorities – due to regional factors – could potentially opt for the “limited network” option and expand the product range to include additional nearby products (e.g., coffee-to-go).
Advertisements from companies from other countries
The notifications are not limited to companies based in Germany. As many as 5% of the notifications are sent by foreign issuers with Facebook in a prominent position. The notification was placed by Facebook Payments International, an e-money institution authorized in Ireland. Apparently, Facebook issues various payment instruments, including (in addition to e-money) an “other card”, which falls under the “limited range” exception.
No notifications for multi-merchant loyalty schemes
One segment is entirely missing. According to BaFin’s guidance in the ZAG information sheet, multi-merchant loyalty schemes can, under certain conditions, fall under the LNE discussed here. It is reasonable to assume that the payment volume made with these loyalty points as monetary units exceeds the 1 million euro threshold for at least the major discount systems such as Payback, Lufthansa Miles & More, and DeutschlandCard. These systems are also not found in the BaFin register of authorized e-money institutions. This suggests that the issuers of these products assume that their products are neither e-money nor covered by the LNE.
[1] For more details, see PSD2: The Limited Network Exclusion (LNE), PaySys Report 6/7 (2021).
