On 29 November 2017, BaFin issued a long-awaited new guidance note on the German Payment Services Supervisory Act (“ZAG”). The focus of the BaFin guidance note is not only changes triggered by the transposition of PSD2. BaFin also deals with its administrative practice with regard to legal issues that already form part of the law today. And BaFin has some special surprises in store. It’s Christmas time. However, these may not be nice surprises for all persons concerned. But read for yourself how BaFin will now deal with acquiring….
Acquiring is acquiring…is acquiring?
As we suspected over a year ago, acquiring will comprise more activities than before. To date, acquiring, which the ZAG currently still calls “payment authentication business”, consisted mainly of the settlement of girocard or credit card transactions at POS. In future, acquiring will be a payment service (named acquisition business) to process payment transactions which result in a transfer of funds and where the payment service provider has a contractual relationship with the payee to accept and process payment transactions.
BaFin writes further:
“Equally within the larger scope of acquisition business […] are service providers who […] enable the acceptance of payment transactions, be it credit transfers, direct debits, card transactions, e-money or alternative payment methods, including services that enable the acceptance of cash payments, to the extent that they are in possession of the funds.”
Sounds complicated? That’s what I think, too. Therefore, I would like to explain to you what this means by way of a few examples.
New authorization requirement for many CNOs and Internet PSPs
Let’s assume a service provider (we will call it MSP), sells payment terminals to a merchant. And, because it is so convenient for the merchant, MSP also offers the merchant to process the credit card transactions. Since MSP does not have a license, it asks a payment institute (we will call it PI), to settle the transactions to an account owned by the PI and to pay out the money from the transactions directly to the merchant. PI does not have a direct contractual relationship with the merchant because MSP does not like that.
Until now, one could argue that MSP does not need a license for its activities because it did not process credit card transactions itself. It is unlikely that this will still hold today. For one thing, the activities of MSP fall squarely within the new definition of acquiring because (only) MSP has a contract with the merchant on the processing of credit card transactions. Further, the exemption as technical service provider (in future Sec. 2 para. 1 No. 9 ZAG) may not apply because it is MSP who designates into which account PI has to pay the money from the credit card transactions. This gives MSP control over the monies. This means that MSP either needs to apply for a license or change its business and contract model. Decide for yourself whether this is a nice surprise for MSP or not….
Impact on existing payment institutes
Would you like another example? Let’s assume, you are a payment institute with a payment license granted by BaFin. Due to the fact that you only process ELV payments, your license is granted only for the money remittance business. The reason for this is that BaFin used to treat the processing of ELV as money remittance. In future – I am sure you can already guess – this will be deemed to constitute acquiring. Thus, you should already start to consult with BaFin which documents you need to submit to extend your license to acquiring. Merry Christmas!
Pre-financing of merchants
But what would be the pre-Christmas season without the thrill of anticipation? In this regard, I have some good news at last. It is good news for payment institutes that would like to offer their merchants pre-financing for their credit card transactions but as of today are not allowed to do so. Pursuant to the ZAG, a payment institute may not grant credit in connection with money remittance but this is different for the acquiring business. For this reason, these payment institutes will be able to offer pre-financing options for more payment methods than today. If this makes up for the other issues above, everyone has to decide for themselves…
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