Payment Initiation Services as a Regulated Activity Under the ZAG

Since the implementation of the provisions of the second Payment Services Directive (EU) 2015/2366 (PSD2) in the German Payment Services Supervision Act (ZAG), so-called payment initiation services are also activities subject to authorization for which companies must obtain a BaFin license in accordance with Section 10 (1) ZAG. With the introduction of payment initiation services, the European legislator wanted to subject newly created payment services on the internet to supervision where the service provider is authorized by its customer to initiate a payment from the customer’s payment account without itself coming into possession of the funds involved in the transaction. Section 1 (33) ZAG defines payment initiation services as a service to initiate a payment order at the request of the payment service user with respect to a payment account held at another payment service provider. The regulated activity is the transmission of payment orders to account-holding payment service providers on behalf of the customer. In this respect, it is necessary that the payment initiation service provider has access to the customer’s payment account to the extent that it can issue a final payment order on his behalf to the account-holding institution, which is then executed by the payment institution on whose behalf the order was given. Purely technical service providers that merely transmit an authorization request together with a data record containing transaction details to their customer’s account-holding institution are not considered payment initiation service providers. In these cases, the payment transaction is not initiated by the service provider, but merely requested for execution; the service provider does not have the access to the payment account required for the service to be considered a payment initiation service. Accordingly, payment initiation services are not usually provided when using the E-BICS procedure or the SEPA direct debit procedure.

Liability Protection and Own Funds Requirements for Payment Initiation Service Providers

Pure payment initiation service providers that do not provide any other supervised payment services in addition to payment initiation services have certain advantages over other payment institutions with regard to the minimum capital and financial resources they must maintain, as they have a different risk profile. Since pure payment initiation service providers do not accept customer funds but merely transmit payment orders to account-holding payment institutions, they are only required to have a regulatory minimum capital of EUR 50,000, which must be available at all times. With regard to the capital requirements applicable to payment institutions under the ZIEV, there is a special feature in that pure payment initiation service providers do not have to demonstrate any capital requirements to BaFin beyond the regulatory minimum capital of EUR 50,000. The ZIEV recognizes this amount as adequate capital for them. However, as a practical substitute for the exemption from additional requirements under the ZIEV, pure payment initiation service providers are required to take out professional liability insurance or an equivalent guarantee against liability arising from the provision of payment initiation services. The insurer must be an insurance company authorized to conduct business in Germany, so that foreign insurers operating, for example, through cross-border services within the meaning of Sections 61 et seq. of the Insurance Supervision Act (VAG) are also eligible.

Banks must enable the use of payment initiation services

Since the implementation of PSD2 in the ZAG, it has been clear that banks must enable their customers to use payment initiation service providers. Under Section 48 ZAG, account-holding institutions are required to execute payment orders issued via payment initiation service providers. They are required to communicate securely with the payment initiation service provider, provide it with all necessary information regarding the execution, and not treat such payment orders differently from traditional payment orders in terms of timing, prioritization, and fees. Section 48(2) ZAG clarifies that account-holding banks cannot refuse to execute payment orders issued via payment initiation service providers on the grounds that there is no contract between them and the payment initiation service provider. Such a contract is not required by law. Pursuant to Section 52 ZAG, an account-holding bank may only refuse access to a customer account if there is objective and proven suspicion that the payment initiation service provider is acting without the customer’s proper authorization. In such cases, the account-holding institution is obliged to report the incident immediately to BaFin, which in turn must then decide on the adoption of supervisory measures and the notification of other authorities, in particular the law enforcement authorities.

The lawyer responsible for advising on obtaining a license under the ZAG for the provision of payment initiation services and on all contractual and regulatory matters in payment services law at our law firm is Attorney Dr. Lutz Auffenberg, LL.M. (London).