A recent Opinion (Case C-51/25) by Advocate General Manuel Campos Sánchez-Bordona before the European Court of Justice (ECJ) could significantly reshape how payment services are interpreted across the EU, especially for business models that hold customer funds in a fiduciary capacity or process payment transfers as an ancillary service to their main business. Should the ECJ adopt this Opinion, it promises far-reaching implications for national administrative practices, including in Germany, where interpretations of payment service regulations have historically been more extensive.
The dispute prompting this preliminary ruling questions whether an entity's business activity qualifies as a "payment service" under Directive (EU) 2015/2366 (PSD2) when it acts as an intermediary between a client and a building contractor. This involves receiving funds from the client (intended as a security payment for the contractor) and then transferring them to the contractor upon the client's consent when being satisfied with the performance of the contractor. The Dutch supervisory authority, DNB, contended that the intermediary was operating without the necessary authorization. Consequently, the referring court has sought the ECJ's guidance on interpreting PSD2 to determine the legality of the DNB's order for the entity to cease its operations until proper authorization was secured.
The Case: Betaal Garant Nederland CV v. De Nederlandsche Bank NV
At the heart of the matter is the Dutch company Betaal Garant Nederland CV (Betaal), which acts as an intermediary between clients and construction contractors. Betaal offers a "security deposit" service, where clients transfer a portion of the construction costs to the affiliated Betaal Foundation. This amount is held in a bank account of the Foundation and is only paid out to the contractor once the client has confirmed in writing that the work has been completed to their satisfaction.
The ECJ has been asked for clarification on whether this activity constitutes a "payment service" - specifically, the "execution of credit transfers" - within the meaning of PSD2.
The Advocate General's arguments: Why Betaal's Service is not a payment service
The Advocate General concludes that Betaal's service should not be classified as a payment service under PSD2. He bases this on a multi-faceted interpretation:
1. Literal interpretation: Who executes the transfer?
The Advocate General points out that a "credit transfer" under PSD2 defines a payment service executed by the payment service provider that holds the payer's payment account. In this case, two distinct payment transactions occur: from the client to the Betaal Foundation and from the Betaal Foundation to the contractor. Both are technically executed by the respective banks of the client and the Foundation, not by Betaal or the Foundation itself. Neither Betaal nor its Foundation holds payment accounts in the name of their clients. Furthermore, the transfer from the client to the contractor is not automatic but conditional on the client's approval. The client's ability to "revoke" the transfer by not acknowledging completion would contradict Article 80 PSD2, which generally precludes revocation after the payment order is received. The money transfers are thus incidental to Betaal's main service, which is providing a guarantee.
2. Systematic interpretation: A matter of primary activity
PSD2 applies to service providers who offer payment services as a regular occupation or business activity. According to the Advocate General, Betaal does not fall into the categories of strictly regulated payment service providers like credit institutions or payment institutions. The stringent requirements for authorization, supervision, and capital would be disproportionate if applied to purely ancillary services. Betaal's main activity is providing real estate security deposit services, not payment services.
3. Teleological interpretation: Consumer protection in context
While consumer protection is an important objective under PSD2, the Advocate General takes the view that it cannot override other interpretive criteria to broadly expand the definition of a payment service provider. Such an expansion would be difficult to reconcile with professionals like notaries or lawyers, who also manage client funds in escrow and transfer them to third parties without being considered payment service providers under PSD2, as this activity is ancillary to their primary functions. Specifically, Dutch law allows clients to deposit funds with a notary as security, similar to Betaal's service.
4. Distinction from "money remittance"
The Advocate General also rejects classifying the service as "money remittance". He argues that Betaal's transactions lack the immediacy and unconditional transfer characteristic of a "simple" money remittance. The payout is conditional, and Betaal also deducts a commission. Here too, the activity would be ancillary to the primary security service.
The Advocate General's conclusion
The Advocate General proposes that Article 4(3) in conjunction with Annex I point 3(c) PSD2 should be interpreted to mean that a service involving the receipt and forwarding of funds by an intermediary does not constitute a payment service if, in the context of a contract with a client and a contractor, that entity receives the client's funds into its payment account and, after the client's consent, transfers those funds from that payment account to the contractor. At the same time, the Advocate General stresses that national legislators can provide alternative consumer protection mechanisms, such as insurance or strict conditions for companies that manage funds in a fiduciary capacity.
Implications for practice and a look at Germany
While not binding, Advocate General Opinions are frequently adopted by the ECJ. A ruling in line with this Opinion could provide clarity for a wide array of businesses operating at the intersection of regulated financial services – from online platforms to other activities where client funds are accepted on own accounts or held in a fiduciary capacity before being remitted to payees.
German supervisory authority BaFin has historically adopted a broad interpretation of payment services, particularly regarding "money remittance." A favourable ECJ ruling for Betaal, aligning with the Advocate General's Opinion, could prompt a re-evaluation and potential moderation of BaFin's existing classifications.
For instance, BaFin considers escrow services as money remittance business when a provider, acting for buyers and sellers (e.g., on online trading platforms), fiduciarily receives the purchase price into its pooled accounts and forwards it to the seller only after the buyer confirms defect-free delivery. BaFin's interpretation is largely shaped by the "Lieferheld judgment" (LG Köln, 29.9.2011), where an online delivery platform that collected customer payments for restaurants was deemed to be conducting money remittance business. The court emphasized that the payment function's ancillary nature was irrelevant, as no "general ancillary-services exception" existed, and the service was commercial due to platform commissions.
While Betaal's situation might be distinguishable from typical online platforms like Lieferheld - given the Advocate General's emphasis that Betaal's funds are not received for "immediate" transfer to the payee - it remains uncertain whether this reasoning will ultimately prevail. Establishing clear, objective boundaries for the permissible duration funds can be held in a on own accounts (in a fiduciary capacity) without triggering payment service regulations could prove challenging.
Nevertheless, despite BaFin's official stance against a broad ancillary services privilege in payment services, its practical application shows some nuance. Notably, liberal professions such as lawyers, notaries, and tax advisors can transfer client funds as part of their professional activities without needing a payment services license. As pointed out by the Advocate General there it does not appear to be plausible not to apply the same approach for other professions.
How the ECJ will ultimately rule on this issue remains to be seen; a judgment is anticipated in the coming months.
/Passle/5832ca6d3d94760e8057a1b6/MediaLibrary/Images/589c84f6b00e80160866cbf3/2021-10-04-12-51-09-696-615af8bd49b2340f205862e5.jpg)
