In an era marked by rapid digital transformation and the evolution of financial services, the French payment landscape has witnessed significant changes and the emergence of diverse actors.
In this article I’d like to uncover the intricacies of the French payment ecosystem and the actors shaping its future.
The Legal Framework
In order to remove barriers to an efficient payment services market in Europe, ensuring consistent rules throughout the EU and a wide range of payment services, the European Union adopted two key directives in the late 2000s: Directive/2009/110/EC on electronic money (EMD2, replacing the previous directive 2000/46/EC known as “EMD1”) and Directive 2007/64/EC on payment services (PSD1).
These directives allowed for the emergence of two new types of payment service providers alongside traditional banks: electronic money institutions and payment institutions. These measures aimed to foster competition in the payment market, keeping up with the rapid growth of e-commerce and the digitization of services.
The legal framework governing payment services was further supplemented by Directive (EU) 2015/2366 (PSD2), which aimed to better address technological innovations and risks associated with these activities. PSD2 strengthened payment security in the era of electronic payments and regulated two new payment services related to “open banking.”
Two Main Financial Actors Categories
We can differentiate two categories of actors in the french payment landscape, supervised and non-supervised actors.
Supervised actors are entities that operate within the financial industry and are subject to regulatory oversight and supervision by the regulatory authority, the ACPR (Autorité de Contrôle Prudentiel et de Résolution).
In the other hand, Non-supervised actors are entities that operate outside the scope of regulatory oversight and supervision. These actors are not subject to the same level of regulatory scrutiny and may not be bound by the same rules and requirements as supervised actors.
Supervised Actors
In the supervised actors category, we first have credit institutions (banks), which can provide banking services, manage electronic money, and offer payment services. These actors, who also provide credit and collect repayable funds from the public, are subject to the most stringent prudential framework in terms of capital and control.
In the broader context of e-commerce evolution and to eliminate legal barriers to market entry, the European legislator has introduced a regulatory framework that allows new actors to provide payment services without collecting repayable funds from the public or providing credit, unless strictly linked to payment operations. These actors include:
- Electronic money institutions (EMIs) introduced by Directive/2009/110/EC on electronic money (“EMD2”), which can issue and manage electronic money and provide payment services.
- Payment institutions (PIs) introduced by PSD1 in 2007, which can only provide payment services.
- Account information service providers (AISPs) introduced by PSD2 in 2018, which can only provide the service of collecting information related to one or more payment accounts (e.g., aggregating payment accounts to analyze a company’s cash flow).
Different requirements apply based on the status of the actors and the risks associated with the operations they can undertake. There is a common set of requirements concerning the security of the services they are authorized to provide and the protection of customer funds.
Payment services provided by new actors are supervised by the Banque de France, which assesses their security measures during the authorization process. Electronic money institutions and payment institutions must implement safeguards for the funds they receive by segregating funds in a credit institution or obtaining insurance coverage or a comparable guarantee.
The rise of new payment statuses (e.g AISPs, PISPs) and online commerce has opened doors for Fintech companies to capitalize on their competitive advantages. which also accentuated the rapid transformation of the payment landscape led by the increasing demand for innovative payment services introduced by PSD2, particularly in “open banking.”
Non-supervised actors
Actors responsible for commercializing Payment Services
Supervised by the ACPR (or the ECB in some cases), various payment service providers (PSPs) have the ability to appoint agents to offer payment services on their behalf and under their authorization. These agents are not directly supervised by the ACPR but fall within the scope of internal control by their principal, as the principal ultimately holds responsibility for the services provided through these agents. To ensure public awareness, the ACPR registers these agents, who must be declared by their principals, in the public register of financial agents (REGAFI).
The status of a payment service provider agent allows for the offering of payment services exclusively within the limits of the assigned mandate and the principal’s authorization. For instance, an agent of a payment institution is not authorized, within their agent role, to market products offered by banks, such as savings contracts, as the payment institution itself is not authorized for such products.
Actors responsible for Distributing Electronic Money
ACPR-supervised electronic money institutions have the authority to appoint entities to distribute electronic money on their behalf. These appointed distributors can circulate and refund electronic money, excluding its issuance. They fall under the regulatory provisions for outsourcing and internal control of the principal institution.
Unlike the previously mentioned agents, these electronic money distributors are not registered with the ACPR and do not appear in the public register of financial agents (REGAFI).
Exempted Actors
Outside the activities supervised by the ACPR, companies have the ability to offer payment services and issue electronic money without obtaining authorization, within a limited framework provided by the law and explained by the ACPR. These exempted companies can provide payment services for the purchase of goods or services in France, either restricted to their premises or within a limited network of accepting parties, or limited to a specific range of goods or services. For example, a carpooling company can operate under this exemption for collecting payments from drivers.
Furthermore, subject to certain thresholds, a provider of electronic communication networks or services (telecom operator) can offer payment services and issue electronic money for purchasing digital content, collecting donations, and buying electronic tickets (e.g., parking tickets) under an exemption from authorization.
Non French actors benefiting from the EU passport agreement
foreign-licensed payment institutions that declared providing services in the territory.
Pursuant to the principle of mutual recognition of licences, these actors are authorized to do business in the territory of one or more Member States of the European Union or of States party to the European Economic Area (EEA) Agreement other than their initial country. given they successfully completed all the formalities and procedures and authorized to operate in France.
From Non-supervised to supervised entities
The various mentioned statuses are increasingly used by new actors as a “path to compliance”.
Exemptions and, increasingly, the agent status are utilized as preparatory phases towards obtaining authorization as a payment institution or electronic money institution.
These new paths serve as valuable opportunities for emerging actors to gauge the viability and acceptance of their offerings in the market. By leveraging the framework provided by authorized institutions, these actors can assess the reception of their innovative solutions and validate their business models.
This approach enables them to gain valuable insights, refine their strategies, and build a track record of success, all while operating within the boundaries of established regulations and under the guidance of authorized entities.
Risks related to mandated agents
The agent status allows institutions to expand their distribution through large physical networks outside of traditional banking branches. It enables services like account opening through tobacco shops, bookstores, and lottery agencies.
Inverted agents, who develop their own products, pose unique risks, such as anti-money laundering concerns. Multi-mandated agents further complicate supervision as they represent different institutions.
Clear identification of mandating institutions and framework agreements are required.
The ACPR ensures that the mandating institution incorporates the agent’s payment activities within its internal control scope and conducts inspections to verify the effectiveness of anti-money laundering measures. Recent inspections have revealed instances where these measures were inadequate, leading to uncontrolled risks and necessitating the mandating institution to suspend or restrict operations for existing clients.
Final note
The opening of the market to fintechs and new actors has significantly energized and modernized the payment landscape in France. These diverse actors, including payment institutions, electronic money institutions, agents, and exempted entities, have played a crucial role in introducing innovative offerings to both consumers and organizations. Their contributions have spurred dynamism and propelled the evolution of payment services, creating a more vibrant and customer-centric financial ecosystem in the country.
Alongside the positive developments in the payment landscape, there are also challenges that arise with the emergence of new actors. As the industry continues to evolve, it becomes increasingly important for regulatory bodies, such as the ACPR, to tighten their regulatory framework. The ACPR must ensure that these new actors adhere to regulations and rules to maintain the integrity and stability of the financial system.
Additionally, the ACPR should enhance its regulatory framework to keep pace with the evolving nature of payment services. It should proactively monitor market developments, new technologies, and emerging business models to anticipate potential risks and adapt regulations accordingly. Striking the right balance between innovation and regulation is essential to foster a competitive and secure environment for all participants.
Moreover, fostering collaboration between regulatory authorities, industry stakeholders, and consumer representatives is crucial. Regular dialogue and cooperation can help address emerging challenges effectively and ensure that regulations are comprehensive, up-to-date, and relevant.
