Gregory Cronie recently held an interview (in Dutch) about a.o. the impact of the Payment Services Directive 2 (PSD2), a new EU regulation which was enforced at the beginning of this year, on Marketplaces and Platforms. The article was published in Online Retailer.
The main takeaway of the interview is that Marketplaces and Platforms that manage the pay-in and pay-out process themselves i.e. have control or possession of client funds, should get a Payment Institution license or start using a specialised Marketplace PSP. In the Netherlands, the Dutch Central Bank has started writing letters to Marketplaces and Platforms that are not compliant. These Marketplaces and Platforms do risk a fine.
Do you want to know if your Marketplace or Platform complies with the latest PSD2 regulations? We have created a simple 5-minute assessment that will help you determine if it’s likely or not your Marketplace or Platform needs to obtain a Payment Institution License or not.
A fresh look at the payment landscape
The digital landscape is undergoing many changes. Marketplaces are booming business, subscription models are gaining in popularity, and new sales channels keep appearing. This is causing complete upheaval in the payment world. The new payment legislation PSD2, which has been in force since September 2019, was intended to put the house in order, but according to Gregory Cronie of 2knowlab, many marketplaces are unwittingly failing to comply with it. They risk administrative fines, as De Nederlandsche Bank announced in a recent publication.
It appears that in most cases Marketplaces do not satisfy the new PSD2 legislation, Cronie begins. “Prior to September 2019 they still fell within an exemption, the so-called commercial agent exemption. The payment handling was regarded as an ‘ancillary service’, which meant that a marketplace was not classified as a payment institution by De Nederlandsche Bank. So, there was also no need to apply for a licence. This was all changed in PSD2 and the definition of this exemption was tightened up, because it was feared that the risks were becoming too great for the buyer and the seller. This has serious consequences for the majority of the marketplaces.”
PSD2 states quite clearly that a marketplace or platform may not be in possession of or have control over the flow of funds, not even via a third-party funds foundation PSP, Cronie explains. “A marketplace is only eligible for the commercial agent exemption if it is acting on behalf of one of the two parties, that is to say the buying party or the selling party. A lot of market places don’t satisfy this requirement. That means that they either need to revise their conditions/the model, or apply for a licence from De Nederlandsche Bank. Fortunately, there is another option; to ensure that a marketplace or platform is not in possession of or have control over the funds flows between buyer and seller. For this, they can call on the services of highly specialised marketplace PSPs, of which there are only a handful in Europe. These marketplace PSPs satisfy the requirements, which means that marketplaces don’t need to apply for a payment licence or revise their model.”
De Nederlandsche Bank has recently issued a notice in which they call on marketplaces to immediately discontinue their payment services and to outsource them to a licence-holding payment service provider or apply for a licence themselves. Cronie: “Marketplaces need to quickly become compliant, otherwise they risk heavy fines. We can support them in this process by selecting the right PSP-provider for them and adapt the financial and customer processes accordingly.” According to Cronie, ignorance about this vital theme can often be attributed to the lack of a payment manager within many (smaller) organisations. “Many e-commerce companies work in collaboration with a PSP, but that doesn’t automatically mean that they are benefitting to the full from this and that, where necessary, they are fully compliant. Certainly not, if they are active beyond the country’s borders. A good payment manager is constantly busy, monitoring and tweaking for example the risk settings, engaging the right payment methods for each country, etc. We provide payment management services via our subsidiary company Finabling to e-commerce parties that don’t have their own payment manager, for a fresh look at the payment landscape and a sound payment setup. A service which quickly pays for itself through higher conversion rates, as we have already proven.”