When a company wants to develop new financial or payment products, the question always arises as to whether the product in question is covered by an existing license. Or in other words: What can I actually do with the respective license?
Payment services must therefore be distinguished from other services requiring license. Two “classic” services that must be distinguished are factoring in accordance with Section 1 para. 1a sentence 2 no. 9 of the German Banking Act (KWG) and guarantee business in accordance with Section 1 para. 1 sentence 2 no. 8 of the KWG.
Distinction between factoring and payment services
When differentiating the factoring from a payment service, a distinction must be made between the civil law design of factoring and its regulatory valuation.
When it comes to factoring, the civil law differentiates between recourse and non-recourse factoring. In non-recourse factoring, the factoring company purchases receivables from companies that those have against their customers. The factoring company assumes the risk that the receivables are not paid (so-called default risk or delcredere risk). In terms of civil law, this is a receivables purchase agreement. In the case of recourse factoring, the receivables are also transferred to the factoring company, but the factoring company does not assume the risk of default. The factoring company can take recourse to the company in case of default of the purchased receivables. Under civil law this is classified as a loan agreement.
According to the German regulator Bundesanstalt für Finanzdiensteistungsaufsicht (BaFin), non-recourse factoring can be a payment service under the ZAG or a financial service under the KWG. The BaFin distinguishes according to whether the service, from an economic point of view, is aimed at payment processing or at financing the contractual partner. If the financing is the main focus, it is factoring according to the KWG. If it is more of a payment processing, it is considered a payment service. Since the BaFin takes an economic view, it is difficult to make a detailed distinction.
To return to the initial question: What can I actually do with the respective licence? The answer is simpler than expected. With a payment service license, factoring can be operated both in the form of a payment service under the German Payment Services Act (ZAG) and in the form of financial services under the German Banking Act (KWG). Unfortunately, it is not possible the other way round: With a license under the KWG, factoring cannot be operated in the form of a payment service.
Guarantee business and payment services
The guarantee business is a banking service in accordance with section 1 para. 1 sentence 2 no. 8 of the KWG and involves the “assumption of sureties, guarantees and other warranties on behalf of others“. This includes the granting of typical bank guarantees and sureties. In particular, the granting of a loan order or the assumption of debt are regarded as other warranties. This is generally not covered by a payment service license.
What does the guarantee business have to do with payment services? If a customer makes a purchase from a merchant using a credit card, the merchant receives an “assurance” from his payment service provider that the goods purchased with the credit card have been paid for. Only with this assurance it is legally secure for the merchant that payment by credit card is economically equivalent to cash. Depending on how this assurance is legally structured, it may be a guarantee. Usually, the courts regard the assurance as a so-called unconditional promise of payment (abstraktes Schuldanerkenntnis) and not as a guarantee. In some cases, individual payment service providers design this assurance more as a guarantee or (falsely) refer to it as a guarantee to the merchant. It is possible that the merchant also receives more extensive guarantees. Therefore, when drafting acceptance contracts, care must be taken to ensure that the payment service provider does not provide guarantees that are not covered by its respective license.
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