Commercial Agents

In payment transactions where a commercial agent acts as an intermediary in the usual scenario (payee – payer - commercial agent), the risks against which PSD1 secures the market and users do not arise in principle[1]. However the picture becomes different if we consider such huge online marketplaces like eBay or Amazon. Under PSD1 it was possible to get an exemption in order to avoid from requiring a payment institution licence:

“Payment transactions from the payer to the payee through a commercial agent authorized to negotiate or conclude the sale or purchase of goods or services on behalf of the payer or the payee.”[2]

The exclusion was made available for payment transactions carried out from the payer (buyer) to the payee (seller/merchant) through a commercial agent authorized to negotiate or conclude the sale or purchase of goods or services on behalf of the payer or the payee.

Lieferheld, a German platform for the delivery of meals was sued by a competitor because it offered online payment for its clients. A German court decided that Lieferheld unlawfully offered payment services. Subsequently, Lieferheld changed its contract terms with restaurants in order to comply with the commercial agent exemption and to continue to offer its payment services without a payment institution license.[3]

Even though many online platforms have sought to rely on the above exemption, not every EU regulator has accepted it for this purpose. Particularly, the German regulator, BaFin has issued public guidance discouraging its use[4].

The Study on the impact of PSD1 has also confirmed that based on the insufficient clarity of PSD1 regarding a situation where the provider acts for both parties at the same time, providers facilitating the trade of goods or services between a payer and payee may seek to rely on the exemption for commercial agents to remain outside the PSD regime[5].

Although the language of Article 3(b) has not materially changed in PSD2, reference to the word “agreement” became important. According to the Study on the Impact of Directive 2007/64/EC, businesses providing mere communication with no specific focus on any of the participants should not benefit from the exemption because active solicitation is required[6]. The second important feature of this Article is that the exemption applies when agents act only on behalf of the payer or payee but not both:

“Payment transactions from the payer to the payee through a commercial agent authorized via an agreement to negotiate or conclude the sale or purchase of goods or services on behalf of only the payer or only the payee.”[7].

Where agents act on behalf of both parties (e.g. eBay) the exemption will only apply in cases where the agent does not come into possession, or have control of, clients’ funds[8].

It seems though that PSD2 does not exclude totally its applicability from the e-commerce marketplace providers. These could still rely upon this exemption if they act as agents of their customers, that is merchants, although the transaction is carried out to the benefit of both merchants and buyers. This will be left to the national law to decide whether to exempt such marketplaces or to apply a strict approach and deny exemption.

The Limited Network Exemption

The PSD1 exempts payment transactions based on payment instruments accepted only within the issuer\'s premises or certain limited networks:

“Services based on instruments that can be used to acquire goods or services only in the premises used by the issuer or under a commercial agreement with the issuer either within a limited network of service providers or for a limited range of goods or services.”[9].

This applies e.g. to store cards, gift cards, fuel cards and loyalty programs. There are four joint conditions of this exemption:

1. the service should involve an instrument,
2. the service shall be designed for paying for goods or services,
3. the goods or services are purchased on the issuer’s premises and finally
4. the limited nature of either the service provider network (regardless of the range of goods or services) or of the range of goods or services affected by the payment.

So the question arises whether loyalty cards valid for certain stores and their subsidiaries which are used to acquire an unlimited range of goods are caught or not? What does a limited network actually mean? Do premises include the internet?

The French financial regulator, ACP tried to interpret the above exemption of PSD1 restrictively. Thus the above exemption was limited to a network of stores operating under the same brand. It explicitly excluded subsidiaries and other third parties within the network using other brands. Interestingly, the Conseil d’Etat has overruled this decision but has specified that a network may be considered as limited if it meets other objective criteria, such as \"a limited geographical area, significant financial relations, or close commercial relations, between members of the network.\" The French court highlighted that anyone providing payment services, even if it is exempted from a license is involved in the financial system, therefore the ACP can impose any conditions \"which are designed to safeguard the security of means of payment and protect their users.”[10]

The German BaFin also applied the strict approach: no authorization was needed for local public transport cards even when used for the purchase of travel supplies and petrol cards were exempted only when issued by local petrol stations[11]. Where the choice of products was particularly limited (i.e. only transport service), BaFin has shown willingness to accept a nationwide scope. Department store cards usable in multiple stores belonging to one concern were considered to require authorisation by BaFin. Discount cards may thus only be issued without authorisation where their application is regionally limited[12].

According to the Recital of PSD2 the main reason for re-regulating this exemption was to catch those unregulated service providers whose payment activities often comprise significant payment values but escaped regulation due to PSD1’s vague and too general wording:

“Feedback from the market shows that the payment activities covered by the limited network exception often comprise significant payment volumes and values and offer to consumers hundreds or thousands of different products and services, which does not fit the purpose of the limited network exemption as provided for in Directive 2007/64/EC. That implies greater risks and no legal protection for payment service users, in particular for consumers and clear disadvantages for regulated market actors. To help limit these risks, the same instrument cannot be used to make payment transactions to acquire goods and services within more than one limited network or to acquire an unlimited range of goods and services.”[13]

These players are now competing regulated institutions and therefore enjoy unjustified competitive advantages in terms of initial capital and liabilities[14].

 Although PSD2 tried to make the wording precise this was not very successful as the current text contains some undefined legal terms which are subject to interpretation. This causes legal uncertainty and results in an approach that PSD2 tried to aviod: different national interpretations will co-exist and the application of the exemption will need to be decided on a case-by-case basis.

On the bais of PSD2 the directive shall not apply to

„ (k) services based on specific payment instruments that can be used in a limited way should be excluded if one of the following conditions is met:

•  instruments allowing the holder to acquire goods or services only in the premises of the issuer or within a limited network of service providers under direct commercial agreement with a professional issuer;
• instruments which can be used only to acquire a very limited range of goods or services;

• instruments valid only in a single Member State provided at the request of an undertaking or a public sector entity and regulated by a national or regional public authority for specific social or tax purposes to acquire specific goods or services from suppliers having a commercial agreement with the issuer[15]”.

 The main criticism of PSD1’s limited network exemption was that there were no clear guidelines on what is meant by limited other than some domestic regulator’s case by case guidance[16]. PSD2 does nothing to further clarify the criteria of this exemption.

Reference to premises is insufficient as a lease relationship between the issuer and seller could be an adequate substitute. The wording of “limited networks of service providers that are under direct commercial agreement with a professional issuer“ is not explicit enough. Direct could mean the exclusion of subcontractors, therefore PSPs in a limited network must conclude commercial contracts with the issuer directly but not with its subcontractors. The term professional issuer remains equally undefined.

Let’s compare (a) a card issued by a large department store with nationwide presence for acceptance in its own stores (e.g. Tesco’s clubcards) and (b) a card ssued by several merchants (i.e. a group of companies) (e.g the Hungarian SuperShop card[17]) While (a) will not require authorization, in case of (b) it seems that authorization would be necessary on the basis of the term that the network is not very limited.

The new expression of PSD2 “very limited” is not explicit. Instruments for the acquisition of only one range of goods are definitely covered but what about 3, 5 or 20 ranges?

Unlike PSD1, PSD 2 under Article 30 provides for mandatory notification by PSP’s if they intend to offer activities within a limited network[18]. Accordingly, PSPs cannot commence operations and then decide whether the preconditions have been met. On the contrary, they shall ask for a mandatory review by the authorities before commencing their activity if their payment transactions exceed a threshold of EUR 1 million of the preceding 12 months. The description of services shall be made publicly available on EBA’s website[19].

This concept again would go contrary to the principle of the internal market as the procedure could imply divergent interpretation and also could distort competition. Furthermore, the public disclosure of the decision could persuade how certain regulators may approach its review. Given the uncertainty of the scope of this exemption, PSPs would be prudent to seek regulatory approval regardless of the payment transactions volumes carried out.

Picture: Advapay

Andrea  Egertz attorney at law, Hungary Budapest
The above excerpt is taken from my Thesis on PSD2 at Kings College London.

[1] Study on the Impact of Directive 2007/64/EC on Payment Services in the Internal Market, London Economics, 2013 February p.124
[2] Article 3(b) of PSD1:
[3] LG Köln, Urteil v. 29.09.2011, Az. 81 O 91/11, http://tlmd.in/u/1307
[4] Merkblatt - Hinweise zum Zahlungsdiensteaufsichtsgesetz (ZAG), December 2011 http://www.bafin.de/SharedDocs/Veroeffentlichungen/DE/Merkblatt/mb_111222_zag.html
[5] Study on the impact... p.125
[6] Study on the impact... p.125
[7] “Article 3(b) of PSD2
[8] Recital 18 of PSD2
[9] Article 3(k) of PSD1
[10] Case No.354957 ECLI:FR:CESSR:2013:354957.20130424 of the Conseil d’ Etat, http://www.legifrance.gouv.fr/affichJuriAdmin.do?oldAction=rechJuriAdmin&idTexte=CETATEXT000027353547&fastReqId=1333016665&fastPos=1
[11] Dr. Matthias Terlau, Dr. Daniel Walter, „PSD2 – Future authorisation requirements for department store cards, gift vouchers, petrol cards and stadium cards? The new limited network exception“ (2013) Payment Services Law Blog
[12] Merkblatt - Hinweise zum Zahlungsdiensteaufsichtsgesetz (ZAG), December 2011
[13] Recital 12 of PSD2
[14] Recital 12 of PSD2
[15] Article 3(k) of PSD2
[16] Recital 12 of PSD2
[17] SuperShop is not a prepaid card. Certain % of each purcahse is credited to the card. The cardholder can use this card for purchases within a limited network of merchants, e.g. Spar, OMV, Burger King. www.supershop.hu
[18] Article 30(2)of PSD2
[19] Article 30(4) of PSD2