What is a Payment Service?

(under the Payment Services Regulations):

with respect to an activity carried on before 13 January 2018 the Payment Services Regulations 2009 (SI 2009/209), and with respect to an activity carried on on or after 13 January 2018 the Payment Services Regulations 2017 (SI 2017/752).

The FCA defines what qualifies as a “payment service” according to certain rules. If a company or business does certain activities as part of its regular operations, those activities might be considered payment services.

This section says that, except where part (b) might change things (we’ll get to part (b) later), a payment service includes activities like the following, as long as these are done as part of a regular job or business:

(A) Main Definition

• This means any service that allows you to deposit cash into an account that can be used for making payments (like a bank account or mobile money account). It also includes all the necessary tasks to manage and operate that account properly.

• Services that allow you to withdraw cash from a payment account: This means any service that lets you take out money from your account, which could be through a bank, an ATM, or online platforms that enable cash withdrawals.
• All the operations necessary for managing a payment account: This includes not just the ability to withdraw cash but also encompasses all the various tasks and services needed to keep a payment account running smoothly. This could involve checking your balance, transferring money, paying bills, and any other management activities related to the account.

• This section is about carrying out payment transactions. This includes moving money from one account to another, whether those accounts are with the same financial service provider or with different ones. It breaks down further into three key activities:(A) Execution of direct debits, including one-off direct debits;
  • This refers to allowing payments to be automatically taken from a payment account. Direct debits can be for regular payments (like monthly subscriptions) or one-off payments (for a single purchase or bill).
  (B) Execution of payment transactions through a payment card or a similar device;
  • This covers payments made using a payment card (like a debit or credit card) or another similar device (this could include mobile phones or other digital wallets). Essentially, it’s about enabling transactions that deduct money directly from a user’s account.
  (C) Execution of credit transfers, including standing orders;
  • This involves moving money from one account to another upon the instruction of the account holder. It includes both one-time transfers (credit transfers) and regular, scheduled payments (standing orders), such as for rent or utility bills.

• This part deals with payment transactions that are made possible through a credit line provided to the user. This means the transactions are not directly funded by the user’s own money in their account but rather by a pre-approved amount of credit. This could be through a credit card, overdraft, or any other form of credit arrangement. It specifically includes:(A) Execution of direct debits, including one-off direct debits;
  • Similar to the earlier point, this involves automatically taking payments from the account. However, in this case, the funds come from a credit line rather than the user’s deposit. This can be for both recurring payments and one-time charges.
  (B) Execution of payment transactions through a payment card or a similar device;
  • This refers to transactions made with a payment card or device that accesses a credit line. For example, when you use a credit card to make purchases, the funds are initially provided by the credit issuer, not your own bank balance.
  (C) Execution of credit transfers, including standing orders;
  • This involves transferring funds from the credit line to pay others, including setting up regular, scheduled payments like standing orders. The payments are made using the credit available to the user, rather than direct withdrawals from their own money.

(v) Issuing payment instruments or acquiring payment transactions;

This part covers two main activities within the payment services sector:

• Issuing payment instruments: This refers to the process of providing devices or methods that allow users to make payments. Payment instruments include things like debit cards, credit cards, electronic wallets, and prepaid cards. Essentially, if a company gives customers a tool or method to initiate a payment, that company is issuing a payment instrument.
• Acquiring payment transactions: This involves the service of processing payment transactions on behalf of merchants or sellers. Acquirers accept and process payments made by payment instruments (like those mentioned above) from customers, ensuring that the money is correctly transferred from the customer’s account to the merchant’s account. This service is crucial for businesses that accept payments electronically, as it enables them to receive funds from sales made via various payment methods.

In simpler terms, this section indicates that if your business is involved in providing customers with methods to make payments (issuing) or in processing payments made to businesses (acquiring), then you are engaged in offering a payment service under the FCA’s regulations.

(vi) Money remittance;

Money remittance refers to a service that allows individuals to send money from one person to another, often across international borders. This can be done through various channels, including banks, specialized remittance service providers, or digital platforms. The key aspects of money remittance services include:

• Transfer of funds: Money remittance services enable the sending of money by a person (the sender) to another person (the recipient). These services are commonly used by individuals working in one country who want to send money back home to their families in another country.
• Cross-border transactions: While money remittance can occur within the same country, it is particularly important for international transfers, providing a crucial financial link between migrants or expatriates and their home countries.
• No requirement for a payment account: Unlike some other payment services, money remittance does not always require the sender or the receiver to have a bank or payment account. Services may allow cash to be sent and received, or they might utilize mobile wallets or other digital means that do not require traditional banking accounts.

In plain English, this section means that if your business offers a service that enables people to send money to each other, especially across countries, then you are involved in providing a payment service known as money remittance, according to the FCA’s regulations.

(viii) Payment initiation services;

Payment initiation services (PIS) refer to a financial technology that allows third-party providers to initiate a payment transaction at the request of a user, from the user’s bank account to the merchant’s bank account, without directly accessing the user’s banking credentials. This is how it works in simpler terms:

• Initiating payments on behalf of users: When you use a payment initiation service, you’re essentially giving permission to a third-party service to instruct your bank to transfer money on your behalf. This is usually done during the checkout process on a website or an app where the PIS provider acts as an intermediary between you and the merchant.

• No need to share sensitive details: One of the key benefits of payment initiation services is that they allow you to make a payment without having to give your credit card or banking details directly to the merchant. Instead, the PIS provider facilitates the transaction securely.

• Direct from bank account: Payments are made directly from the user’s bank account to the merchant’s account, offering a fast and secure way to transfer funds without using traditional payment methods like debit or credit cards.

In plain English, if your business provides a service that helps users make online payments directly from their bank accounts to pay for goods or services, without needing to enter payment details on the merchant’s site, then you’re offering a payment initiation service. This innovative approach is part of the broader digital transformation in financial services, aimed at simplifying and securing online transactions.

(ix) Account information services;

Account information services (AIS) refer to online services that provide users with consolidated information on one or more payment accounts. These services can be offered by banks or third-party providers (TPPs) under the regulatory framework that allows secure access to your financial data. Here’s what it involves in simpler terms:

• Consolidated account information: AIS providers can gather information from various accounts you hold across different banks or financial institutions and present it to you in a single view. This could include checking accounts, savings accounts, credit cards, and investment accounts.

• Financial management: By having access to a comprehensive overview of your finances, you can better manage your money. This includes tracking spending, setting budgets, and identifying saving opportunities. AIS platforms often offer tools and analytics to help with financial planning.

• Secure access to financial data: These services use secure digital connections to access your account information, with your permission. This means you don’t have to share your login credentials with the AIS provider. Instead, they use secure application programming interfaces (APIs) to access the information they need to provide their service.

• Regulatory compliance: AIS providers must comply with financial regulations, ensuring that they handle your data securely and maintain your privacy. In regions like the European Union, these services are regulated under the Second Payment Services Directive (PSD2), which sets strict standards for security and consumer protection.

In plain English, if a business offers a service that allows you to view and manage information from all your payment accounts in one place, helping you understand your financial situation better, then it’s providing an account information service. This type of service is designed to make it easier for you to keep track of your finances by aggregating data from multiple sources into a single, user-friendly interface.

(B) The following activities do not constitute payment services:

(i) Payment transactions executed wholly in cash and directly between the payer and the payee, without any intermediary intervention;

This point clarifies what is not considered a payment service under the regulations:

• Cash transactions without intermediaries: If a payment is made entirely in cash and directly from one person (the payer) to another (the payee), without the involvement of any third party to facilitate the transaction, it does not fall under the regulated activities of payment services.

• No intermediary role: This means no banks, online payment platforms, or financial institutions are involved in the process of the transaction. The money is handed over directly from one person to another.

In simple terms, traditional cash payments that you make face-to-face with another person, like paying a friend back with cash for dinner or buying something at a yard sale, are not considered payment services because they don’t involve any kind of financial intermediary or electronic processing. This exclusion recognizes the straightforward nature of direct cash transactions that operate outside the digital or financial service frameworks.

(ii) Payment transactions between the payer and the payee through a commercial agent authorized in an agreement to negotiate or conclude the sale or purchase of goods or services on behalf of either the payer or the payee but not both the payer and payee;

This section outlines another scenario that does not qualify as a payment service under the regulations:

• Commercial agent as intermediary: If there’s a commercial agent involved in a transaction, acting under an agreement to either negotiate or complete the purchase or sale of goods or services, and this agent represents either the person making the payment (payer) or the person receiving the payment (payee), but not both, then this type of transaction is not considered a payment service.

• Single-party representation: The key aspect here is that the commercial agent must represent only one party in the transaction, not both. This could be an agent helping a buyer find goods or services to purchase (and possibly negotiating prices or terms on their behalf) or an agent helping a seller find buyers and sell their goods or services.

In simpler terms, if you’re buying something and use an agent to help you negotiate or complete the purchase, or if you’re selling something and an agent helps you find buyers and sell your item, the payment transaction facilitated by this agent doesn’t count as a payment service. This is because the agent’s role is limited to either the buying or selling side, not handling the payment itself between both parties.

(iii) The professional physical transport of banknotes and coins, including their collection, processing, and delivery;

This part specifies another type of activity that is not considered a payment service under the regulations:

• Physical handling of cash: When a business specializes in physically moving cash (both banknotes and coins), including tasks like collecting, sorting, and delivering it, this activity is not classified as a payment service.

• Security and logistics: Often, companies that provide these services are involved in the security and logistics sector, ensuring that cash is transported safely from one location to another. This can include services like armored cash transport for banks, ATMs, or retail establishments.

In simple terms, if a company’s job is to physically handle and move money (like an armored car service doing cash pickups and deliveries for a bank), this is not seen as providing a payment service. Instead, it’s considered a logistical and security service focused on the safe and efficient transport of physical currency.

(iv) Payment transactions consisting of non-professional cash collection and delivery as part of a not-for-profit or charitable activity;

This clause identifies a specific type of activity that does not fall under the definition of a payment service:

• Non-professional cash handling for charity: When cash is collected and delivered as part of an activity that is not aimed at making a profit and is carried out for charitable purposes, it is not considered a payment service. This refers to volunteer or amateur efforts where individuals or groups collect cash donations and then deliver these funds to a charity or use them for charitable activities.

• Exemption for charity work: The key factors here are the non-professional nature of the activity (meaning it’s not conducted by a business or professional service provider) and the charitable or not-for-profit intent behind it. Activities could include fundraising events, charity collections, or other forms of volunteer work aimed at collecting money to support charitable causes.

In simple terms, if you’re involved in collecting and delivering cash donations as part of volunteer work for a charity or a not-for-profit cause, and you’re not doing this as a business or professional service, then this activity is not seen as providing a payment service. This exemption recognizes the importance and unique nature of charitable activities that involve handling cash to support good causes.

(v) Services where cash is provided by the payee to the payer as part of a payment transaction for the purchase of goods or services following an explicit request by the payer immediately before the execution of the payment transaction;

This section describes a scenario that does not qualify as a payment service under the guidelines:

• Cashback transactions: Essentially, this refers to situations where, during a purchase, the customer (payer) asks the seller (payee) to add an extra amount of cash to the transaction total and then receives that amount in cash along with their purchase. This is commonly known as a cashback service.

• Explicit request by the payer: The key aspect here is that the customer must explicitly request this service right before the payment is processed. It’s not a separate transaction but part of the purchase of goods or services.

• Not considered a payment service: Despite involving the transfer of cash, this arrangement is not classified as a payment service because it’s directly tied to a sales transaction where the primary purpose is to buy goods or services, and the cash exchange is a secondary feature requested by the customer.

In simpler terms, if a business allows customers to receive cash along with their purchase at their request (like getting cash back at a grocery store when paying with a debit card), this activity is not considered providing a payment service. It’s seen as an additional convenience offered to customers during a sale and is excluded from the regulatory definition of payment services.

(vi) Cash-to-cash currency exchange operations where the funds are not held on a payment account;

This clause explains an activity that is not considered a payment service:

• Direct currency exchange in cash: When someone exchanges one type of physical currency for another (like dollars to euros) in a cash-to-cash transaction, without involving any payment account to hold the funds, this service is not classified as a payment service.
• No payment account involved: The key factor here is that the transaction involves direct physical exchange of cash without the need for the funds to be deposited into or withdrawn from a payment account at any point in the process.

In simple terms, if you go to a currency exchange booth and swap cash in one currency for cash in another currency, without using any bank or payment account, this transaction is not seen as providing a payment service. It’s considered a straightforward currency exchange operation that doesn’t fall under the regulations governing payment services.

(vii) Payment transactions based on any of the following documents drawn on the payment service provider with a view to placing funds at the disposal of the payee:

• Traditional paper-based instruments: This section specifies that transactions using certain paper-based payment instruments are not considered payment services. These instruments include:

  (A) Paper cheques of any kind, including traveller’s cheques; traditional cheques or special cheques used by travelers to pay for goods and services or to exchange for local currency without using personal bank cheques.

  (B) Bankers’ drafts; a form of payment issued by a bank on behalf of the payer, guaranteeing the availability of funds because the amount is already paid for or blocked in the payer’s account.

  (C) Paper-based vouchers; physical vouchers that represent a certain value and can be used to purchase goods or services or redeemed for cash.

  (D) Paper postal orders; a financial instrument usually issued by a postal service that allows the sender to send money to the recipient, who can cash it at a post office.

• Exclusion from payment services: The key aspect of this exclusion is that these transactions involve traditional, physical means of payment rather than digital or electronic transfers. The use of these paper-based methods does not fall under the regulatory scope of what is defined as a payment service, primarily because they are processed in a manner that is distinct from electronic payments and often involve manual handling.

In simple terms, if a transaction is conducted using paper cheques, bankers’ drafts, paper-based vouchers, or postal orders, it is not considered a payment service. These are traditional forms of payment that, despite involving the transfer of funds, operate outside the electronic payment systems regulated under payment services laws.

(viii) Payment transactions carried out within a payment or securities settlement system between payment service providers and settlement agents, central counterparties, clearing houses, central banks or other participants in the system;

This section identifies transactions that are not considered payment services:

• Internal system transactions: This refers to payment transactions that occur within specialized financial systems, specifically those designed for settling payments or securities (like stocks or bonds). These transactions are between entities such as payment service providers (like banks or electronic payment systems), settlement agents (entities responsible for facilitating the settlement of trades), central counterparties (which stand between two parties in a financial transaction to manage risk), clearing houses (which process and settle transactions), central banks, or other participants in these systems.

• Exclusivity to financial institutions: The key point is that these transactions are exclusive to financial institutions and other specialized entities within the framework of payment and securities settlement systems. They are part of the infrastructure that supports the broader financial system, ensuring the secure and efficient transfer of funds and financial instruments among these entities.

In simple terms, if a transaction is happening between banks, clearing houses, central banks, and similar entities within the context of their roles in the financial system’s infrastructure (like settling trades or managing payment systems), it’s not considered a payment service. These are specialized transactions integral to the functioning of the financial markets and payment systems, operating under different regulations and oversight than consumer-facing payment services.

(ix) Payment transactions related to securities asset servicing, including dividends, income or other distributions, or redemption or sale, carried out by persons referred to in (viii) or by investment firms, credit institutions, collective investment undertakings, asset management companies providing investment services or by any other entities allowed to have the custody of financial instruments;

This clause details another category of transactions that do not fall under the definition of payment services:

• Transactions involving securities services: This refers to the handling of payments and transactions that are directly related to the servicing of securities (like stocks, bonds) and other financial instruments. These services can include the distribution of dividends (a share of profits given to shareholders), income from investments, other types of distributions, or the processes involved in redeeming (converting securities into cash) or selling securities.

• Conducted by financial entities: The entities that can carry out these transactions include those mentioned in the previous exclusion (like payment service providers, settlement agents, and central banks), as well as investment firms, banks, mutual funds (collective investment undertakings), asset management companies, and any other entities that are legally permitted to hold financial instruments on behalf of their clients.

• Exclusion from payment services framework: The key aspect here is that these transactions are specific to the investment and securities industry, focusing on the management and administration of financial assets rather than the broader concept of payment services. They involve specialized operations that are part of asset management and investment services, which are regulated under different standards and guidelines than payment services.

In simple terms, if a transaction is related to the management of investment assets, like paying out dividends or handling the sale of stocks, and is carried out by specialized financial institutions or firms that deal with investments, it’s not considered a payment service. These are specialized financial transactions integral to the operation of the securities and investment sector, governed by their own set of regulations.

(x) Services provided by technical service providers, which support the provision of payment services, without the provider entering at any time into possession of the funds to be transferred, excluding payment initiation services or account information services but including:

This section outlines a category of activities related to payment services that do not fall under the regulatory definition of providing a payment service:

• Support services by technical providers: It refers to the various technical and support services offered by third parties that facilitate the operation of payment services. These services are crucial for the functioning of payment systems but do not involve the handling or control of the funds being transferred.

• Exclusions and inclusions: While these services exclude direct payment initiation and account information services (which are regulated payment services), they include a range of support functions:

  (A) The processing and storage of data; managing and storing data related to payment transactions.

  (B) Trust and privacy protection services; ensuring the security and confidentiality of transaction and user data.

  (C) Data and entity authentication; verifying the identity of parties involved in transactions to prevent fraud.

  (D) Information technology; providing the IT infrastructure that supports payment services.

  (E) Communication network provision; offering the networks over which payment data is transmitted.

  (F) The provision and maintenance of terminals and devices used for payment services; supplying and servicing the physical devices, like card readers or payment terminals, used in facilitating payments.

• No possession of funds: A crucial criterion for these services is that at no point does the provider come into possession of the funds to be transferred. Their role is strictly supportive, providing the technological backbone and security that allow payment services to function efficiently and safely.

In simpler terms, if a company provides technological or support services that are essential for payment operations (like maintaining the systems that process transactions or ensuring secure data transmission) but does not actually handle the money being transferred, it’s not considered a payment service provider. These activities are seen as supportive roles that enable payment services to be delivered effectively without directly involving the movement of funds.

(xi) Services based on specific payment instruments that can be used only in a limited way and meet one of the following conditions:

This section outlines a category of payment instruments that are not considered general payment services due to their restricted use. These special cases include:

(A) Allow the holder to acquire goods or services only in the issuer’s premises;

• This refers to payment instruments that you can only use at the specific locations owned by the company that issued them. An example could be a gift card for a particular store.

(B) Are issued by a professional issuer and allow the holder to acquire goods or services only within a limited network of service providers which have direct commercial agreements with the issuer;

• This points to payment instruments that are valid only within a specified network of service providers that have agreements with the issuer. For instance, a shopping mall gift card that can be used only at stores within that mall which are part of the program.

(C) May be used only to acquire a very limited range of goods or services;

• This condition applies to payment instruments that are restricted to purchasing a specific set of goods or services. An example might be a voucher for a particular service, like a massage at a spa, or a specific product.

(D) Are valid only in the UK, are provided at the request of an undertaking or a public sector entity, and are regulated by a national or regional public authority for specific social or tax purposes to acquire specific goods or services from suppliers which have a commercial agreement with the issuer.

• This involves payment instruments issued within the UK for specific purposes, such as social benefits or tax incentives, and can only be used to purchase certain goods or services from designated providers. These are often part of government or public sector programs designed to meet particular social or economic objectives.

In simple terms, this exclusion covers payment instruments with very specific and limited uses, such as gift cards, vouchers, or benefit cards, which are not part of broader payment services because their usage is restricted by location, network, type of goods/services, or are part of targeted public programs. These instruments offer convenience or benefits in particular scenarios without functioning as general-purpose payment methods.

(xii) Payment transactions resulting from services provided by a provider of electronic communications networks or services, including transactions between persons other than that provider and a subscriber, where those services are provided in addition to electronic communications services for a subscriber to the network or service, and where the additional service is:

This section outlines specific types of transactions that are not considered payment services, focusing on those facilitated by electronic communications service providers under certain conditions:

(A) For purchase of digital content and voice-based services, regardless of the device used for the purchase or consumption of the digital content, and charged to the related bill;

• This refers to transactions for buying digital content (like apps, games, or online subscriptions) and voice-based services (such as premium call services) that a consumer can charge directly to their phone bill or other service bill related to electronic communications.

(B) Performed from or via an electronic device and charged to the related bill for the purchase of tickets or for donations to organisations which are registered or recognised as charities by public authorities, whether in the United Kingdom or elsewhere,

• This condition covers transactions made through electronic devices (like smartphones) for buying tickets (for events, transport, etc.) or making charitable donations, with the cost added to the user’s service bill.

Limitations on transaction values:

• These transactions are subject to specific financial limits: no single transaction can exceed £40, and the total of such transactions for one subscriber cannot go over £240 in a month.

In simpler terms, this exclusion is about certain microtransactions that users can make via their electronic communication services, like their mobile phone, and have those charges added directly to their service bill. These transactions are specifically for digital content, voice services, tickets, or charitable donations, and are capped at certain amounts to ensure they remain within low-value, supplementary services rather than constituting broader payment services. This setup provides convenience for consumers, allowing for easy purchases or donations without the need for separate payment methods, while ensuring these services do not fall under the same regulatory requirements as general payment services due to their specific nature and limitations.

(xiii) Payment transactions carried out between payment service providers, or their agents or branches, for their own account;

This section details transactions that are not considered payment services when they meet certain criteria:

• Internal transactions within the financial industry: It refers to payment transactions that happen between entities like banks, payment service providers, or their representatives (agents) and branches, where the transactions are conducted for the entities’ own needs or operational purposes.

• Exclusively for their own account: The key aspect here is that these transactions are carried out for the benefit or the operational requirements of the financial institutions themselves, rather than for external clients or customers. This could include transfers of funds between different branches of the same bank, or between a bank and its agents, to manage liquidity, operational funds, or for other internal financial management purposes.

In simple terms, if a bank or another payment service provider transfers money to its own branch, agent, or another provider for reasons that pertain strictly to its internal operations (like adjusting balances or moving funds for internal needs), these transactions are not seen as providing a payment service to external clients. Instead, they’re considered part of the routine financial management activities that financial institutions conduct to support their own business operations.

(xiv) Payment transactions and related services between a parent undertaking and its subsidiary or between subsidiaries of the same parent undertaking, without any intermediary intervention by a payment service provider other than an undertaking belonging to the same group;

This section details a specific type of transaction that is not considered a payment service under the regulations:

• Internal group transactions: It refers to financial transactions and any associated services occurring directly between a parent company and one of its subsidiaries, or between subsidiaries of the same parent company. These are internal transactions within a corporate group.

• No external payment service providers involved: The crucial point here is that these transactions do not involve external payment service providers. If any payment service provider is involved, it must be one that is part of the same corporate group (i.e., another subsidiary or the parent company itself if it provides such services).

In simple terms, if a parent company transfers funds to its subsidiary, or if two subsidiaries of the same parent company transfer funds between each other, and they don’t use any external financial institutions but instead use a payment service within their own corporate group, these transactions are not seen as payment services. They are considered internal financial operations within a corporate family, designed to manage or move funds within the group without engaging with the broader financial services market. This exemption recognizes the internal, administrative nature of these transactions, distinguishing them from commercial payment services provided to external customers.

(xv) Cash withdrawal services provided through automatic teller machines (ATMs) where the provider is acting on behalf of one or more card issuers, is not party to the framework contract with the customer withdrawing money from a payment account, and does not conduct any other payment service;

This section outlines a specific scenario that does not fall under the definition of a payment service:

• ATM cash withdrawal services by third parties: It refers to situations where a company operates ATMs that allow customers to withdraw cash, but this company is doing so on behalf of the banks or financial institutions that issued the customers’ cards (card issuers), not on its own behalf.

• No direct relationship with the customer: The key aspect here is that the company providing the ATM service does not have a direct contractual relationship with the customer using the service to withdraw money. Instead, their agreement is with the card issuers to facilitate these withdrawals.

• Exclusive provision of ATM services: Additionally, for this exclusion to apply, the company operating the ATMs must not be involved in any other type of payment service. Their role is strictly limited to providing the physical means (the ATM) for customers to access cash from their accounts.

In simple terms, if a company operates ATMs that let people withdraw cash using their bank cards, but this company works solely for the card-issuing banks and has no other role in the payment process (nor offers any other payment services), then its operation of these ATMs is not considered a payment service. This scenario distinguishes between entities that provide infrastructure support for cash withdrawals and those that offer broader financial services directly to consumers.