The question of when a business requires authorisation as a payment institution has occupied FinTechs, platform operators and regulators for many years. The European Court of Justice (ECJ) has now provided important guidance on this issue. In its recent judgment, the Court makes clear that the mere receipt and onward transfer of third-party funds does not automatically constitute the provision of payment services within the meaning of the Second Payment Services Directive (PSD2). The ruling is likely to extend well beyond the specific facts of the case and is expected to influence the interpretation of both the forthcoming Third Payment Services Directive (PSD3) and the Payment Services Regulation (PSR).
Table of Contents
The Facts
The ECJ’s judgment of 16 July 2026 (Case C-51/25, Betaal Garant Nederland CV v De Nederlandsche Bank NV) concerned the following facts.
The Dutch company Betaal Garant provides security arrangements for construction contracts. Under Dutch construction law, it is common practice for part of the contract price to be retained as security until the works have been completed satisfactorily.
Rather than depositing the retained amount with a notary, the customer paid the security amount – typically around six per cent of the contract price – into the bank account of a foundation affiliated with Betaal Garant. Once the construction works had been completed to the customer’s satisfaction, the foundation instructed its bank to transfer the funds to the contractor.
De Nederlandsche Bank (DNB) took the view that Betaal Garant was providing payment services within the meaning of PSD2 without the required authorisation.
The ECJ disagreed.
The Court’s Key Findings
The Court based its reasoning on a classic interpretation of PSD2 by reference to its wording, context and purpose.
The Wording of PSD2 Is Clear
The Court first considered the definition of a credit transfer in Article 4(24) PSD2.
Under that provision, a credit transfer requires the payment service provider to hold the payer’s payment account. That was not the case here.
Instead, the payment transactions were carried out entirely by the banks involved. The customer’s bank transferred the security amount to the foundation’s bank account. Once the funds had been released, the foundation instructed its bank to transfer the amount to the contractor.
Betaal Garant itself neither maintained payment accounts for its customers nor executed transfers or any other payment transactions.
PSD2 Is Intended for Businesses Whose Main Activity Is the Provision of Payment Services
The ECJ further emphasised that the extensive authorisation, organisational, supervisory and liability requirements under PSD2 are intended to apply to businesses whose regular commercial activity consists of providing payment services.
Betaal Garant pursued a different commercial objective. It provided a legally recognised security arrangement for construction contracts. The associated movement of funds was merely a necessary element of that security arrangement.
In the Court’s view, it would therefore be disproportionate to subject such a business to the full payment services regulatory regime solely because of this ancillary function.
Consumer Protection Does Not Justify an Expansive Interpretation
The Court also stressed that the high level of consumer protection pursued by PSD2 does not justify interpreting statutory concepts beyond their ordinary meaning. Such an expansive interpretation would undermine the legal certainty that PSD2 is intended to provide.
Practical Significance
The judgment is significant well beyond the construction sector.
In supervisory practice, it has sometimes been argued that the mere receipt and subsequent transfer of third-party funds may, in itself, constitute a regulated payment service.
The ECJ has now placed clear limits on that interpretation.
The Court makes clear that not every involvement in the receipt and onward transfer of third-party funds constitutes a payment service. What matters is the function actually performed by the business and the nature of its overall business model.
The decisive question is whether the business provides payment services as an independent commercial activity. Where the receipt and onward transfer of third-party funds merely forms an ancillary element of another principal service, the ECJ’s judgment indicates that, as a general rule, no payment service exists within the meaning of PSD2.
The judgment therefore strengthens legal certainty for businesses whose commercial activities involve the movement of funds but whose principal business lies outside the provision of payment services. At the same time, it is likely to have a lasting influence on the interpretation of both PSD2 and its future successors, PSD3 and the PSR.
That said, the judgment should not be regarded as a blanket exemption. Whether a particular business model constitutes a payment service within the meaning of PSD2 and therefore requires authorisation will continue to depend on its specific structure and operation.
