Tuesday, August 01, 2017

Dutch central bank can further encourage innovation for payment institutions with a quick win

Article 18.2 in PSD2 (Article 15 in PSD1) on the nature of funds
 in a payment account of a payment institution

It's a logical thing. As the bakery provides bread, banks provide loans and allow savings, e-money institutions offer e-money, payment institutions are allowed to provide payment accounts to their customers. These accounts would neither be redeemable deposits or repayable funds, nor e-money, as the article in the PSD(2) states.

Stricter interpretation by De Nederlandsche Bank 
De Nederlandsche Bank, our local supervisor, however does not appear to allow the above flavour in the Netherlands easily. Companies that have business models in which payment accounts (whether with or without IBAN) are offered, should not be surprised if they are told that the funds would qualify either as redeemable deposits or e-money, with little inbetween.

 As a result, one will not encounter a lot of payment-account issuing by payment institutions in the Netherlands. And this is in spite of the fact that even the Explanatory Memorandum of our Financial Supervision Act explicitly mentioned this possibility.

Other supervisors follow the EU-approach 
Thus we can see issuers from other countries, such as Pocopay from Estonia, offer payment services and payment accounts to students where these can't be offered by local players. On their website, we see this issuer outlining (USING CAPITALS) in the terms and conditions that the funds are not redeemable, to be used for payments and not covered by deposit insurance of any kind.

Other instances can be found in German or French markets, leading to the situation that Dutch payment institutions are restrained in product innovation and less able to compete with PIs from other countries, which may offer a broader solution range to their customers.

Quick win to facilitate innovation in payments in the Netherlands 
There is a clear quick win here in the Netherlands in terms of payment regulation. Instead of claiming that funds are either deposits or e-money, De Nederlandsche Bank should more easily allow payment institutions to also offer the third flavour: non-redeemable funds on payment accounts, used for payment purposes.

Of course, one could raise the question whether it is possible to make such a business model work, but it should be the market that decides rather than the supervisor.

This article is a translation of a contribution to the Financieel Dagblad of July 29, 2017.