Dropshipping is a retail business model where the product is taken from the merchant and sold directly to the customer without actually handling the product.

The Hungarian National Bank (MNB) has recently analyzed a five party transaction where an intermediary collected money from consumers, which in turn raised the question whether this service is subject to a license from the financial supervisory authority.

MNB analyzed the case from different perspectives, first whether the transaction implements a payment service under the Act on Credit Institutions and financial Enterprises (Hpt.) or certain exclusions brought by PSD2 apply. Furthermore the Civil Code regulating agency contracts were also taken into account.

There were five players in the case brought to the MNB:

• Customer
• Dropshipper (webshop)
• Intermediary
• Courier service
• Wholesaler

In the scheme the  intermediary undertakes to package the products ordered by the customers on the website of the dropshipper and to hand it over to the courier service. After delivery, the courier service transfers the consideration of the orders to the intermediary. The intermediary keeps the considerations separately per dropshipper, deducts the parcel delivery and registration fee from the amount collected, pays the wholesaler and then transfers the remaining amount to the dropshipper.

Is it necessary to obtain a license for the cash handling of the intermediary acting on behalf of the dropshipper in the above transaction? If yes, which activities are subject to a license?  

Hpt. lists the activities that qualify a payment service.

The execution of payment transactions between payment accounts is regarded as a payment service and thus it is subject to a license.

In the MNB's view, if the courier service transfers the purchase price paid by the customer to the intermediary's payment account, the transfer is received by the intermediary. If a certain part of the purchase price is transferred to the wholesaler and the dropshipper, then in the event of a commercial continuation of the activity, the provision of payment transactions between payment accounts may arise.

The acquiring of payment transactions means a payment service where payment transactions are accepted and processed which results in a transfer of funds to the payee. This activity is subject to a license.

In the MNB's view, the transaction satisfies the elements of  the activity of acquiring payment transactions, as the intermediary accepts the countervalue of the ordered goods from the courier service and from this amount it settles the claims towards the courier service, the wholesaler and the dropshipper.

According to the facts, the intermediary is not in a contractual relationship with the customers of the website and does not provide services for them either.  The purchase price paid by the purchasers in cash is transferred by the courier service to the intermediary's payment account who accepts these on behalf of the dropshipper. The intermediary transfers a specified part of the purchase price to the wholesaler and to the dropshipper on the basis of the same assignment. So, payments from buyers in cash on delivery are considered as fulfillments to the wholesaler and to the dropshipper.

The activity of the intermediary corresponds to the activity of a commercial agent as regulated by Hpt. (the so-called fee collection), thus the intermediary receives the transfer of cash paid by the customers to the courier service on behalf of the beneficiary dropshipper.

According to Hpt. a payment transactions from the payer to the payee through a commercial agent under a personal service contract shall not be recognized as a payment service.

This exclusion was incorporated into Hungarian law on the basis of PSD2. In accordance with Preamble 11 of PSD2: The exclusion should apply when agents act only on behalf of the payer or only on behalf of the payee, regardless of whether or not they are in possession of client funds. Where agents act on behalf of both the payer and the payee (such as certain e-commerce platforms), they should be excluded only if they do not, at any time enter into possession or control of client funds.

The council directive 86/653/EEC  on the coordination of the laws of the Member States relating to self-employed commercial agents was incorporated into the Hungarian Civil Code.

According to the Civil Code under an agency contract the agent undertakes to provide services with a view to facilitating the conclusion of a contract between his principal and a third party, and the principal undertakes to pay the fee agreed upon.

In the MNB's view, the legal relationship between the dropshipper and the intermediary corresponds to the agency contract of the Civil Code. The dropshipper concludes a contract with the intermediary, who acting on behalf of dropshipper, obtains the products from the wholesaler and delivers them to the courier service, therefore a sales contract is established between dropshipper and the wholesaler, and a service contract between dropshipper and the courier service and the dropsipper pays a commission to the intermediary.

According to the MNB's interpretation, the ownership of the product(s) is transferred from the wholesaler to dropshipper after ordering and the delivery of the product and then to the customers, if the consideration of the products is paid, regardless of when the amount of the payment transaction is actually transferred to the wholesaler and the dropshipper.

As an additional condition, the intermediary acts solely on behalf of the dropshipper, subject to the provisions of Section 6:288 of the Civil Code, given that the intermediary is only entitled to remuneration from dropshipper.

In view of the above, according to the MNB, it can be concluded that the conditions of the exception aid down in Section 6 (4) (b) of the Hpt. are fulfilled, so the activity carried out by the intermediary on behalf of dropshipper does not constitute a payment service.