Marketplaces

In general, online marketplaces connect buyers and sellers. If we look at the underlying payments flow we see that many platforms manage payments themselves and act as intermediaries between buyers and sellers, even though the buyer owes a payment to the seller. When the buyer makes a payment for the product or service, the payment is often received by the marketplace and subsequently paid out to the seller by the platform from their own bank account.

Under the first Payment Services Directive (PSD1), a business only needed a license if its main activity was providing payment services. Marketplaces therefore did not need a payment license.

However, the accelerating rise of marketplaces in Europe has attracted heightened regulatory scrutiny, seeking to ensure that customer protection, anti-money laundering, and competition rules keep pace with technological innovation.

In 2018 the second Payment Services Directive, or PSD2, introduced major changes that significantly impacted marketplaces in Europe. Most of these businesses cannot rely on an exemption from licensing that they availed of previously. In a typical marketplace setup, where a platform acts as an intermediary for both buyers and sellers without itself selling the product or service, the platform cannot receive payments that are owed by buyers to sellers. If it does, it will have to obtain a payments license from a regulator and become a regulated business.

Marketplaces can only avoid becoming a licensed and regulated business if they do not possess or control funds. One of the options is to rely on a licensed payment service provider which offers a marketplace solution. Within such a marketplace solution funds that are owed by the buyer to the seller are never in the possession or control of the marketplace. Instead, these funds are settled to the PSP’s regulated client money bank account for the benefit of the seller, before being paid out to the seller by the PSP..

e-medici can advise you which payment service providers are able to offer you a PSD2 compliant marketplace solution. However, switching providers can involve a lot of work. At e-medici we can also offer you solutions that make you regulatory compliant without the need of switching payment service provider.

Because PSD2 is a European directive, all European countries have introduced PSD2. All marketplaces that have sellers from the EU on their platform must therefore comply with PSD2. So also if your business/marketplace is incorporated outside the EU.

For advise on ensuring compliance with PSD2 regulations please contact us so you can concentrate on growing your marketplace business.