PSD2 Fact 4: Scaling Down on Exempt Payment Institutions?
Under the current PSD, entities with an average volume of monthly payment transactions below €3 million can benefit from a lighter authorisation regime, if their Member State of establishment makes use of that option.
This (under PSD1-called “waiver”, but under PSD2-called “exemption”) regime will remain as is, except that Member States making use of the option can decide to define a lower threshold under which such exemptions can be granted.
Article 32 of PSD2: “….the monthly average of the preceding 12 months’ total value of payment transactions executed by the person concerned, including any agent for which it assumes full responsibility, does not exceed a limit set by the Member State but that, in any event, amounts to no more than EUR 3 million. That requirement shall be assessed on the projected total amount of payment transactions in its business plan, unless an adjustment to that plan is required by the competent authorities.
The considerations of PSD2 do not provide any detailed insight on why this change has been made, other than that “…it is essential to make the possibility of an exemption subject to strict requirements relating to the value of payment transactions.” (consideration 47). Consideration 106 further implies that the liberty provided to Member States is to take inflation into account.
Member states will have until 13 January 2018 to notify the European Commission of its decision to apply the exemption or not and if so, which threshold they will apply. By 13 January 2021, the European Commission shall submit to the European Parliament a report on the application and impact of PSD2, which shall include a review of the appropriateness and the impact of the threshold for the exemption.
If a company previously relying on the exemption no longer fulfils the requirements and has not yet obtained full authorization as Payment Institution by 13 January 2019 will be prohibited from providing payment services in accordance with Article 37 of this Directive. Member States may allow natural and legal persons benefiting from an exemption as referred to be deemed to benefit from an exemption and automatically entered in the registers where the competent authorities have evidence that the requirements laid down in Article 32 are complied with. The competent authorities shall inform the payment institutions concerned. More than enough work ahead for the regulator.
Payment institutions that are providing payment services pursuant to this lighter regime, will need to re-assess their status under PSD2 and will heavily rely upon the local implementation of this rule. I predict that the threshold will (again) be set depending upon the regulators’ views on the market and desires on what it should look like in the future. With the upcoming changes including a whole lot of TPP licensees and the stricter applications of scope exclusions (commercial agent, limited network..), it may very well be that no Member State will lower the threshold since they will have too much on their plate already. On the other hand, it could be a scare tactic for regulators to push some players out of the market that won’t have the resources to apply for a full license and will never be able to meet the license requirements, to push them in the arms of the bigger and already licensed players to work together. The current bucket of registered exempt Payment Institutions is (at least in the Netherlands, but can imagine in other countries too) all over the place. Looking at some of the names in the register, you may wonder what in the world they are doing in the payments field. It may well be a good clean-up exercise.