Can payment services be provided by non-banks, and if so on what conditions?
The Money Service Business Act 2016, as amended, allows for money transmission services, cashing cheques, issuing and redeeming drafts, money orders or traveller’s cheques for cash, operating a payment service business, and operating a bureau de change; to be conducted by non-banks. However, money services business can only be carried on by those companies who attain a license from the Bermuda Monetary Authority.
The DABA has further extended this to cryptocurrency exchange platforms and custodial wallet services. As mentioned above, any company looking to operate a cryptocurrency exchange platform or offer custodial wallet services, will be required to attain a licence from the Bermuda Monetary Authority.
Yes, provided that if the payment services fall within the definition of “money services business” pursuant to the MSL, the provider obtain a licence under that law.
If the services do not fall under the MSL and the business is operating locally within the Cayman Islands, the service provider will need to comply with the Local Companies (Control) Law (2015 Revision) (the LCCL) and the Trade and Business Licensing Law, 2014 (the TBL). A foreign registered company and/or ordinary non-resident company doing business within the Cayman Islands will need to be licensed under the LCCL and the TBL. Local companies are required to maintain 60 % or more Caymanian control. Cayman Islands exempted companies are prohibited from doing business within the Islands.
Yes. Based on the provisions of the PSL payment services may be provided by non-bank institutions:
- where licensed and authorised by the CBC under the PSL; and
- where passporting into Cyprus from another EEA state under the terms of the PSL and PSD.
In Denmark, non-bank entities can be authorised by the Danish Financial Su-pervisory Authority (hereinafter, the "FSA") in accordance with the Pay-ments Act enabling such entities to provide payment services on a full or lim-ited basis.
A fully licensed payment institution or electric money institution can be au-thorised to provide one or multiple types of payment services within the meaning of PSD 2, Annex 1. These licenses include full EU-passporting, but entail capital requirements, organisational and internal procedural require-ments, fit and proper management, KYC obligations and approval of qualified owners etc.
Danish companies operating a limited payment service business in Denmark only can apply for a less onerous, limited authorisation to provide payment services. Such limited authorisation can cover one or multiple types of pay-ment services (not including payment initiation services and account infor-mation services). A company operates a limited payment service business if the average monthly transaction volume for the last 12 months period does not exceed 3.0m EUR. Similarly, there is a limited and less onerous authorisa-tion for Danish companies operating a limited electronic money business in Denmark only. A company operates a limited e-money business if its obliga-tions deriving from issued e-money do not exceed a value equivalent to 5.0m EUR at any time.
The Payments Act also includes the newly introduced third-party-providers (TPPs), i.e. the account information service providers (AIS) and the payment initiation service providers (PIS).
Providers of payment initiation services only are required to obtain a full payment institution license, however, because PISs are never to actually hold any client funds, the license requirements are much less onerous than a full payment institution license covering other types of payment services.
Providers of account information services only need to obtain a special li-cense from the FSA in accordance with the relevant provisions of the Pay-ments Act. The requirements for the AIS-license is less onerous than the PIS-license and more similar to the limited licenses mentioned above.
Finally, due to the EU-passport regime pursuant to PSD 2, payment institu-tions, e-money institutions and TPPs from other EU countries may offer their services in Denmark through a local branch, or on a cross-border basis.
Finnish law does not require that the provider of payment services is a bank, but provision of payment services requires a prior authorisation or registration with the Finnish Financial Supervisory Authority ("FIN-FSA").
Generally, payment services may be provided under a notification (i.e. without authorisation) to the FIN-FSA, if the total value of the transactions completed by a legal person does not exceed 3 million euros per month.
While there are certain exceptions to the authorisation and notification requirements, payment services can be provided only if the service provider meets the requirements laid down in the Payment Institutions Act.
As a recent development, new payment service providers such as payment initiation service providers ("PISPs") and account information service providers ("AISPs") may also provide services in Finland under the supervision of the FIN-FSA.
Generally speaking, in France, payment services can be provided by non-banks. According to the article L521-1 of the French Monetary and Financial Code, “Payment service providers are payment institutions, electronic money institutions, credit institutions and account information service providers.”
- Payment institution s: designates the legal entity authorized by the ACPR, which is authorized to provide payment services but is not a credit institution. They are also not authorized to manage securities or asset transactions or to offer passbook, term account or securities account accounts ;
- Electronic money institutions are legal persons, licenced by the ACPR as electronic money institution other than credit institutions and other than the persons referred to in Article L. 525-2, who issue and manage the electronic money as defined in French Article L. 315-1 of the French Monetary and Financial Code ;
- Credit institutions are undertakings, licenced by the ACPR, whose business consists, on their own account and as a usual profession, in receiving repayable public funds referred to in Article L. 312-2 and in granting credits referred to in Article L. 313-1 f the French Monetary and Financial Code ;
- Account information service providers (see below) ;
For instance, Directive 2007/64 / EC on payment services (DSP 1), Directive (EU) 2015/2366 of 25 November 2015 (DSP 2) allowed the creation of two new payment services:
- The payment initiation service consisting in initiating a payment order at the request of a user from a payment account held with another PSP;
- The account information service providing consolidated information about one or more payment accounts held by the user with one or more other PSPs.
These new services may be provided by all PSPs, but also by new players whose activity will be dedicated to the provision of these activities, payment initiation service providers (PSIP) and account information service providers (PSIC). These do not hold funds on behalf of users, they will be subject to an accreditation procedure and reduced prudential requirements.
The creation of these new services has led the European legislator to create a right for users to access payment accounts maintained by PSP account managers when these accounts are accessible electronically. This right of access concerns PSIPs and PSICs, but also PSPs issuing payment instruments linked to a card. The distribution of responsibilities between PSPs in the event of unauthorized payment transactions or non-execution, poor execution or late execution of payment transactions is of course adjusted to take account of this right of access, even if the PSP account manager remains the entry point for the user in case of problems.
Yes, payment services can be provided by non-banks. It is not mandatory to ob-tain a banking license to provide payment services under German supervisory law. However, to offer payment services a license according to the ZAG is nec-essary for most businesses. It should be noted that the license application process is strictly regulated and entails considerable effort to comply with the legal re-quirements. The costs of a license range from EUR 5,000.00 to EUR 12,000.00 depending on which and how many kinds of payment services the license is sup-posed to cover. When providing a payment service, the institution has to be care-ful not to accept funds from others as deposits or other unconditionally repaya-ble funds from the public, because this is a deposit business and requires a li-cense according to the German Banking Act (Kreditwesengesetz - “KWG”).
Yes - except for credit facilities, such as loans, and provided they are authorised or registered by the Gibraltar Financial Services Commission (“GFSC”). Registered firms are subject to less stringent compliance requirements, but are limited in both the services they can provide as well as in terms of monthly turnover. A payment institution can apply for one of the three classes of licence available, depending on the services it intends to provide. To apply, the firm needs to present a bundle comprising of the application fee, the completed application form, a business plan, financial projections as well as questionnaires for individuals, body corporates or trusts – depending on the structure of the applicant. Lastly, the firm has to disclose specific sets of information when providing the payment services - the amount of information required to comply with such duty will depend on whether the firm will provide for a one-time or an ongoing payment service.
Yes - Payment services may be provided by standalone service providers commonly known as ‘payment institutions’, which are regulated entities under the Second Schedule to the FIA. Payment institutions are defined as companies which have obtained a licence under the FIA or that hold an equivalent authorisation in another country in terms of PSD, to provide and execute payment services. Once authorised, these entities may engage in activities such as providing services enabling cash to be placed on a payment account, as well as all the operations required for operating a payment account, execution of payment transactions, issuing and/or acquiring of payment instruments as well as money remittance.
Application and ongoing obligations for authorised payment institutions include:
(i) the submission of an application for authorisation and the required documentation;
(ii) capital holding requirements, which may range from EUR 25,000 to EUR 125,000 depending on the type of payment services being provided;
(iii) at least 2 individuals must effectively direct the licensed entity’s business in Malta;
(iv) all qualifying shareholders, controllers and all persons effectively directing the business are to be suitable persons to ensure the sound and prudent management of the business.
Besides not being allowed to receive deposits or other repayable funds from the public, payment institutions must only use funds to provide payment services.
Payment services may also be provided by electronic money institutions which under the FIA are defined as financial institutions that have been licensed under the FIA and authorised to issue electronic money or that hold an equivalent authorisation in another country in terms of the Electronic Money Directive to issue electronic money.
Yes. The Supervision Law regulates certain activities in this sector that are performed by non-banking entities. Future legislation (the Draft Payment Services Law and the Supervision Law Amendment) will expand the regulation in this sector, and thus not banking payment service providers will need to receive licenses and will be required to abide by other regulations that will be promulgated following the adoption of the legislation.
Non-banks can provide payment services up to JPY 1million.
As for PPIs, the issuer must register its PPI business and the characteristics of the PPI at the competent Local Finance Bureau. The application for registration will be rejected if any of the disqualification conditions provided under the Payment Services Act exists, such as the net assets of the issuer being less than JPY 100 million, the issuer fails to maintain compliance systems and fails to monitor and control the stores where such PPIs are to be used.
Credit providers for installed payments are required to file for registration with the head of the competent local bureau of the Ministry of Economy, Trade and Industry ("METI"). Disqualification conditions, such as insufficient net assets (e.g. an intermediary of comprehensive credit purchase must maintain net assets equal to 90% or more of its capital amount) depend on the types of goods and/or services the relevant instalment payment is made for. Similar to the PPI regulation, there are also certain compliance requirements.
Payment services in Mexico may be provided by non-banks, specifically:
a) E- money institutions: Considered under the Fintech Law, e-money institutions must obtain the authorization from the Banking and Securities Commission (CNBV) to receive or transfer funds in cash in Mexican currency, prior to establishing the disposal means and mechanisms to be implemented. In addition to this authorization, e-money institution must maintain the minimum account levels established by the Bank of Mexico.
In accordance with Circular 12/2018 issued by the Bank of Mexico in September 2018, e-money institutions may be authorized to perform their operations in Mexican currency, as well as with any of the following: (i) cryptocurrencies; (ii) foreign currencies; (iii) act as a clearinghouse; or (iv) to operate, design or market derivative financial instruments with underlying assets.
b) Payment aggregators: payment services may also be provided by payment aggregators in terms of Article 2 of the General provisions regulating disposition means networks as the network participants with service agreements with clients to support online money transfers to third parties by means of any telecommunication, digital or IT device. Payment aggregators, to act as such, must be registered with the CNBV and are subject to inspection and verification by the financial authorities.
British Virgin Islands
Payment services can be provided by non-bank organisations pursuant to the provisions of the FMSA. The FMSA regulates and licenses firms, other than banks, which provide financing and money services to the domestic population.
SSEK: Generally, there is no prohibition for non-bank institutions to provide payment services, be it the provision of card-based payment instruments, electronic money, or otherwise. Non-bank institutions can provide payment services to the public provided that they obtain the relevant license to provide such payment services. The conditions to be fulfilled depend on the payment services provided, and can range from legal requirements (e.g., completion of documents evidencing the legality of the non-bank institution) to more technical requirements, such as the result of an IT audit of the system used to provide the payment services.
Yes. Under the PSEFL, the provision of payment services may be performed by non-banking entities, notably payment institutions and e-money institutions. Both these entities are subject to regulatory requirements which must be met before beginning their activities.
The PSEMLF sets out the applicable rules and requirements for the incorporation and licensing of payment institutions and e-money issuers, both being subject to the Bank of Portugal supervision. For that effect, certain mandatory legal documentation must be filed with the Bank of Portugal, including, inter alia, draft bylaws, business plan, share capital commitment, corporate structure and beneficial ownership, the managers’ identification and fit and proper documentation, as well as corporate governance and internal compliance models and procedures. Current minimum statutory share capital requirements applicable to payment institutions ranges from € 20,000 to € 125,000 and a minimum of € 350,000 for e-money institutions.
The PSEMLF provides for an extensive list of products and services which may only be offered or rendered by either payment or e-money institutions.
Non-bank banks (or limited-service banks) can make loans or accept deposits, but generally cannot do both. Only banks, as defined under the Bank Holding Company Act, can both make loans and accept deposits.
In 2016, the OCC proposed issuing a special purpose national banking charter for non-bank entities that engage in one or more of the following activities: receiving deposits, paying checks, and lending money. Although the OCC has begun accepting applications this year for the special purpose national banking charter, its unclear whether the OCC will require entities accepting deposits (as opposed to those only paying checks and making loans) to obtain a traditional national bank charter.
The Conference of State Bank Supervisors and the New York Department of Financial Services (“NYDFS”) sued to block the OCC’s special-purpose national bank charter for nonbank companies on the basis that the OCC overstepped its authority, among other things. In 2017, the OCC moved to dismiss CSBS’s and NYDFS’ lawsuits, arguing that the suits were premature because the OCC was still deciding whether it would actually exercise its newly claimed power. The court dismissed the complaints without prejudice in 2018.
Payment services can be provided by non-banks, however, except for non-issuing payment services providers, the 2017 Regulations limits the scope of persons that may provide payment services as follows:
- Retail payment services providers: a commercial bank or consortium thereof must hold majority ownership of it;
- Micropayment payment services providers: it must be a telecommunications service provider or operator licensed by the Telecommunications Regulatory Authority, a UAE licensed money exchange business, or corporate entity providing transport services and licensed by the National Transport Authority. Additionally, one or a consortium of the following must hold majority ownership of it: commercial bank, telecommunications services provider or operator, transport services entity and monetary or financial intermediary licensed by the UAE central bank; and
- Government payment services providers: one or a consortium of a federal ministry or authority or local government authority must hold majority ownership of it.
Payment service providers in Financial Free Zones can be non-banks. However, they must satisfy an extensive range of requirements, many of which differ based on the applicable category. There are five categories of financial services in the DFSA, set out under the Prudential – Investment, Insurance Intermediation and Banking Business Module of the DFSA Rulebook. As explained above and illustrated below, although there are general conditions applicable to all provisions of financial services in the DIFC, there are no specific conditions set out for the provision of money services in the DIFC, and it is not expressly included under a category, therefore the category that best corresponds to the activities of a payment service provider would apply. The DFSA financial services categories are set out as follows:
- Category 1: Accepting deposits or providing credit;
- Category 2: Dealing in investments as principal (not including matched principal);
- Category 3: Dealing in investments as principal or agent, operating a collective investment fund, managing assets, providing custody, providing trust services, acting as the trustee of a fund;
- Category 4: Arranging credit or deals in investments, advising on financial products or credit, arranging custody, insurance intermediation, insurance management, operating an alternative trading system, providing fund administration; and
- Category 5: An Islamic financial institution managing a profit sharing investment account entirely in accordance with Sharia.
Payment service providers in Financial Free Zones can be non-banks. However, they must satisfy an extensive range of requirements, many of which differ based on the applicable category. There are five categories of financial services in the FSRA, set out under the Prudential – Investment, Insurance Intermediation and Banking Rules of the FSRA Rulebook. The provision of money services is included under Category 3C of the FSRA financial services. It is worth noting that an authorised person may, where authorised under its FSRA financial services permission to do so, conduct any number of regulated activities specified under any lower category than the one applicable to it.
The conditions applicable specifically to category 3C include:
- Capital requirements: Higher of Base Capital Requirement or Expenditure Based Capital Minimum:
- The maintenance at all times of an amount of assets exceeding its Expenditure Based Capital Minimum in the form of liquid assets;
- The maintenance at all times of a professional indemnity insurance in accordance with the FSRA’s requirements; and
- Supervisory review and evaluation processes requirements.
a) Base Capital Requirement: USD 250,000, and
b) Expenditure Based Capital Minimum: 18/52nds of the Annual Audited Expenditure, calculated as all expenses and losses that arise in the license holder’s normal course of business in a 12-month accounting period (excluding exceptional items) which are recorded in its audited profit and loss account, not including the following: non-discretionary staff bonuses, non-discretionary incentive shares, other automatic appropriations of profits, shared commissions and fees payable, fees, brokerage and other charges paid for purposes of executing, registering or clearing transactions, foreign exchange losses and contributions to charities;
The payment services can be provided by both the bank and non-banking institutions.
The legislation of Ukraine sets out that the money transfers in Ukraine may be effected through domestic and international payment systems.
The legislation of Ukraine states the following participants of the payment system: the payment agency (the legal entity that determines the rules for operation of payment system), the participant of the payment system (that provides money transfer services according to the contract with the payment agency), the settlement bank and payment system operators(the legal entities that effect processing, clearing, acquiring and other technical services related to the money transfer organization).
With respect to the said participants the exclusive functions of the banks include opening accounts for the participants of the payment system (the settlement bank), issue of electronic payment instruments (payment cards) and issue of e-money. The other functions of the payment system may be effected by non-banking institutions.
A bank and also a non-banking financial institution licensed by the National Bank of Ukraine to transfer money without opening accounts may be the participants of the payment system in Ukraine.
The rules of the payment system operation shall be approved by the National Bank of Ukraine. All participants of the payment system shall be registered in the Register of payment systems.
A payment system requires a banking license if it accepts deposits from the public on a regular basis; if deposits are made only for future purchases of goods or services, no interest is paid and the maximum amount of the customer claims is Swiss francs 3'000 (USD 3'000), they are not deemed deposits that require a banking license; the same applies if a licensed bank guarantees the deposits.
If a payment system is deemed to be of systemic relevance, or if Finma is of the opinion that supervision is required for the protection of the participants of the payment system, Finma can in its discretion require a payment system to obtain a license under the FinfraG. For the time being, Finma does not subject normal payment systems to such license requirement. Payment systems of systemic relevance are furthermore subject to reporting obligations to the Swiss National Bank (SNB). SNB has the competence to subject also foreign payment systems which are of systemic relevance to Switzerland to its supervision.
Hence, most payment systems are not subject to prudential supervision or license requirements. However, all payment systems that enable third parties to transfer values need to comply with anti-money laundering (AML) rules and become either a member of a so-called self-regulatory organisation (SRO) or direct supervision by Finma for AML purposes.
Yes, payment services may be provided by non-banks. The PSS Act provides that any person, including non-banking financial companies (NBFC) or any other entity that wishes to operate a payment system, may do so upon receiving authorisation under the PSS Act by the RBI. However, there are certain eligibility criteria to be met in order for an applicant to obtain such authorization from the RBI to issue and operate a payment system. In addition ‘payment gateway service providers’, which merely act as technology service providers between merchants and banks (that process or settle the transaction) may not require an RBI authorization. Examples of such payment gateways operating in India are BillDesk, RazorPay and Instamojo.
Under the Payment Service Regulations, non-banks can become authorised to provide payment services. There are a number of ways that they can do this.
The first is to become an authorised payment institution. In order to do so they must go through the authorisation process with the FCA, for which purpose they must meet a number of requirements including the holding of capital, safeguarding funds, record keeping, accounting and audit, conditions around material outsourcings, and provision of information to customers of the payment services.
The second is to become authorised as a small payment institution. The compliance burden is significantly less than for an authorised payment institution, but with restrictions such as that a small payments institution cannot have an average monthly transaction volume over the previous year (or projected volume) of more than €3 million.
In addition, the FCA provides for a simplified application process for entities providing account information services only. The application is shorter and the compliance burden is lower, reflecting the fact that AISPs transact in data only and do not move or hold funds.
The FCA decides when an application is complete, and has up to 3 months from receipt of the completed application to make a decision on whether or not the application is successful.
Apart from banks, payment services can also be provided by authorized payment institutions (“PIs”) and E-money institutions. The Dutch Central Bank (“DNB”) is responsible for granting a PI license and ongoing supervision. Most regulatory requirements for obtaining a PI license are based on the PSD/PSD2. However, DNB also imposes “local” requirements. For example, institutions that apply for a PI license must submit a so-called recovery and resolution plan and a systematic integrity risk analysis (SIRA). The purpose of a recovery plan is to make sure that if the financial viability of a PI can no longer be guaranteed, sufficient funds are available to orderly dissolve the business without any adverse effects for payment service users and other stakeholders. In addition, institutions must have sufficient “substance” in the Netherlands. Although this will be assessed by DNB on a case-by-case basis, a PI should in any event have two directors who are based in the Netherlands and also be active on the Dutch market. Moreover, payment transactions must be routed via depository, typically in the form of a customer accounts foundation. Such a stand-alone legal entity does not have shareholders and its sole purpose is to receive and transfer customer funds. This regulatory requirement has the advantage that such “ring-fenced” customer funds would not fall in the PI’s bankruptcy estate.
Authorized PIs in other EU member state are allowed to provide payment services in the Netherlands by means of the so-called "pass-porting" regime.
Under the current payments law, payment services can be provided by non-banks. A non-bank entity can provide payment services if it can be granted an administrative license, entitled the Permit for Payment Business, by the PBOC.