Payment Services and E-money Business
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The Payment Services in detail

The German “Law about Payment Services” (henceforth: ZAG) specifies six payment services in section 1 subsection 2 ZAG. These are: 

  • deposit and disbursement business
  • payment business without granting credit
  • payment business involving the extension of credit
  • payment authentication business
  • digitised payment business
  • money remittance business

Relevant for companies which are not part of the financial sector is primarily the money remittance business as the following short explanation of the different payment services shows. 

Deposit and Disbursement Business:

Whoever provides services by either enabling cash to be placed on a payment account (1st alternative) or enabling cash withdrawals from a payment account (2nd alternative) or by performing all the operations required in order to operate a payment account (3rd alternative), thereby conducts the deposit and disbursement business. 

Deposit and disbursement business mainly covers any service effecting the conversion of cash into book money and vice versa. Typically, these services are provided by a bank when they accept cash from a client to credit it to the client’s account or paying out cash to a client and subsequently debiting the client’s account accordingly. But any third party enabling an account holder to place money into or withdraw money from a payment account conducts the deposit and disbursement business, too. That for example is the case for an independent operator of “white-label-ATMs”, where withdrawals and/or deposits are possible. Cash withdrawals at the supermarket checkout (so called cash-back processes) are not a payment service by way of the exception in section 1 subsection 10 No 4 ZAG. A supermarket may conduct the lending business pursuant to section 1 subsection 1 sentence 2 No 2 KWG by facilitating “cash withdrawals”. The supermarket – if not exempted under section 2 subsection 4 KWG - then needs a licence under section 32 subsection 1 KWG.

Payment Business without granting Credit:

Payment business involves the transfer of book money via direct debit, credit transfer or payment card (e.g. credit card). The payment business is only conducted by someone who is directly involved in the transfer of book money, e.g. in the process of direct debit as paying agent or collecting agency. The mere submission of a remittance slip, for instance, is therefore not sufficient to fall within the scope of the provisions. To fulfil the definition of payment business without granting credit, it is necessary that the accounts of the payer contain funds sufficient to cover the transferred amount.

Payment Business involving the Extension of Credit:

Payment business involving the extension of credit entails the transfer of book money via direct debit, credit transfer or payment card with an extension of credit. Within the scope of its application in practice are for example loans under section 488 BGB (German Civil Law Code), which are extended in connection with a credit card payment. Payment institutions may only extend credit under the conditions designated in section 2 subsection 3 ZAG. That provision determines that 

  • loans may only be extended as an ancillary activity and in connection with the execution of payment transactions (here: transfer of book money); 
  • the term of the loan agreement may not exceed 12 months;
  • the loan may not be granted from the moneys which the payment institution previously accepted for execution of a payment transaction.

Payment Authentication Business:

Payment authentication business is a service which is not aimed at a payment transaction itself. In contrast to what may be suspected from the name of the payment service, it covers companies which issue cash or credit cards (particularly commercial banks and savings banks) (1st alternative) and companies which accept and settle payment transactions triggered by payment authentication instruments, e.g. with a retailer (2nd alternative). The latter is the typical business of a so called acquirer who is positioned between the card issuing company and the retailer accepting the card. The acquirer settles the payment by card with the card issuing company (e.g. the buyer’s bank) and transfers the money to the retailer. Acquirers are companies such as for example B&S Card-Service or easycash.

Digitised Payment Business:

Digitised payment business is the execution of payment transactions, which are triggered by the payer via a telecommunication, digital or IT device (e.g. a smartphone or laptop) and in which the payment is initially made to the telecommunication, IT system or IT network operator (e.g. a mobile network operator). Digitised payment business is relevant for the payment of goods or services (e.g. tickets for public transport) via the telephone bill of a mobile network operator. Mobile network operator are the provision’s addressees. The service may only be qualified as digitised payment business, though, if a mobile network operator is acting solely as an intermediary between the payment service user (payer) and the supplier of the goods or services (recipient of payment) in order to settle the underlying claim. This is no longer the case in a situation where the network operator is involved in the delivery of the goods or the provision of the service.

Money Remittance Business:

Simply put, it may already constitute a payment service if moneys are accepted and subsequently transferred to a third person. Therefore money remittance business is the most important payment service for companies which are not part of the financial sector. Payers and recipients of payments are not affected. Subject to the provisions is only someone who accepts money from the payer and transfers it to the payment’s recipient. Companies such as, for example, Western Union, offer money remittance services as their core business. Affected by the regulations, though, are primarily also companies which - by accepting and forwarding moneys - provide an ancillary service to their core business from the non-financial sector, i.e. where the money remittance is not the company’s main activity (as in the case of „Lieferheld“, an online service with the core business of acting as an agent for food orders, which also accepts payment of the food for the purpose of forwarding it to the gastronomes as an additional service). The question whether that constitutes a payment service is a matter of the merits of the individual case.

Whether the money is accepted in cash, via credit transfer or offsetting is irrelevant for the question whether an activity is within the scope of provisions about the money remittance business. Decisive is that the money is accepted solely to forward it to a third person (recipient of the payment) or that person’s agent. Moreover, it is irrelevant whether the person providing the service acts at the payer’s or the recipient’s disposition. Forwarding the money (i.e. money remittance) must be effected without employment of accounts under the name of payer or recipient of payment, but must rather be effected from an account administered by the service provider (payment account). Furthermore, the remittance must be conducted by offsetting or actual flow of funds. An actual flow of funds is effected by delivering cash or by credit transfer from a collective account administered by a different payment service provider. An offsetting occurs if for example a service provider instructs a cooperating service provider to pay out the money to the payment’s recipient and that pay-out is subsequently offset with a financial transfer flowing in the opposite direction.

Money remittance business is typically conducted by companies such as Western Union or MoneyGram.

According to the disputed judgment in the „Lieferheld“-case of the Cologne District Court dated 29.09.2011 (Landgericht Köln, Az. 81 O 91/11) all websites acting as agents (be it regarding services pertaining to food ordering, apartments or other real estate or any other goods or services), which accept moneys from clients with the purpose of forwarding it, should be affected by regulation of money remittance business – at least from the judiciary’s point of view. 

The Cologne District Court does not consider, though, that the Payment Service Directive neither intends to regulate nor in fact covers cases in which the payment services are solely provided as ancillary services (in the “Lieferheld” case the money remittance business as an ancillary service to the core business of acting as agent). We therefore consider the verdict to be contestable. 

The provision covering money remittance business may moreover be relevant for trustees. Gas stations, kiosks and other shops commonly conduct the money remittance business as an agent (§ 1 Abs. 7 ZAG) or external service provider (§ 25b KWG) in connection with certain business models (e.g. by accepting moneys from customers and forwarding it in another company’s name. 

According to the BaFin and the rationale of the Law about Payment Services (in accordance with its explanatory memorandum), the money remittance business meanwhile is not conducted in the following cases:

  • Tax advisors who make payments as an additional service in connection with payroll accounting.
  • Debt collection agencies which collect receivables in the framework of an outsourced accounts receivables department or in terms of an enforced debt collection.
  • Acceptance of so called cash on delivery payments by a parcel courier in the framework of mail order trading.
  • The mere transportation of cash.
  • The so called payment form business, where a payment service institution accepts money from someone who is not the company’s customer with the order to transfer the amount to the account of the payment’s recipient with another payment service institution.

The examples of cases in which services are either covered or not covered by provisions regulating the money remittance business show how far the scope of rules regarding payment services extend into the economy. Particularly companies from the non-financial sector should therefore examine – where appropriate in cooperation with the BaFin – whether the company’s activities could fall in the scope of regulation regarding the money remittance business.