European Payment Institutions

Payment21® collaborates with European Payments Institutions

Switzerland has decided to participate in the Single European Payment Area (SEPA) in anticipation of the regulation of the European payment area through EU guidelines. Thus, the participating Swiss financial institutions have to respect the level playing-field in the Euro payments area for their Euro payment processing. Beyond that, while they are bound to the European Payments Council (EPC) rulebooks, they are not subject to EU regulations and directives.

This includes, for example, both the price regulation and the Payment Service Directive (PSD), neither of which is applicable to Swiss financial institutions. In fact, participating in the SEPA scheme is voluntary. Consequently, cross-border payments of Swiss financial intermediaries are not necessarily subject to the PSD. Having said this and keeping our European merchants in mind, Payment21® is embedded into the European payments landscape by processing Euro payments through its banking partners in Switzerland and the Eurozone. We collaborate with banks, European Payments Institutions and e-money institutions and as such contribute to the success of SEPA.

Swiss cross-border payments in Euro

The currency of Switzerland is the Swiss franc (CHF). Switzerland (with Liechtenstein) is in the unusual position of being surrounded by countries which use the Euro. As a result, the Euro is de facto accepted in most places. Many cash machines issue Euros as well as Swiss francs. It is evident that participating in SEPA is commercially desirable for the Swiss financial service industry. As a Swiss financial intermediary, Payment21® is entitled to process payments in Euros as well as handling SEPA-payments from EU merchants and clients abroad similar to accepting payments in Swiss francs, any other non-restricted foreign currency or transact in alternative payment methods such as crypto coins.

Bitcoins are not e-money but are permitted to be used by banks in the Eurozone

It is worthwhile to mention that the German Federal Financial Supervisory Authority (BaFin) considers bitcoin neither as legal tender nor e-money. European banks and payments institutions, unlike Chinese financial institutions, are entitled to deal in digital money and exchange them for Euros. In 2013 the first German bank started to support bitcoin as part of its transaction infrastructure. In this respect, cryptographic payment protocols are becoming a reality in the Eurozone.

The unification of the European payments market

The introduction of the Euro triggered the unification of the European payments market, further increasing the potential of a euro-domestic market and creating real advantages for European consumers, companies and government agencies. In this Single Euro Payments Area (SEPA), individuals, businesses and other market players are able to initiate and receive payments throughout Europe at the same cost and speed, with the same quality of service. SEPA has created a harmonized market in which efficient payment systems deliver tangible benefits for the economy and public as a whole.

The Directive on Payment Services (PSD) provides the legal foundation for the creation of an EU-wide single market for payments. The PSD aims at establishing a modern and comprehensive set of rules applicable to all payment services in the European Union. The target is to make cross-border payments as easy, efficient and secure as 'national' payments within a member state. The PSD also seeks to improve competition by opening up payment markets to new entrants, thus fostering greater efficiency and cost-reduction. At the same time the directive provides the necessary legal platform for SEPA.

What are European Payment Institutions?

The term “Payment Institution” refers to a category of payment service provider which came into being as a result of the enactment of the Payment Services Directive (PSD). The five main objectives of the PSD were to:

  • Achieve a single payment market in the EU
  • Provide the regulatory framework for a single payment market
  • Create a level playing field and enhance competition
  • Ensure consistent consumer protection and improve transparency
  • Create the potential for more efficiency of EU payment systems

The Directive therefore aimed to remove legal barriers to the provision of payment services in the EU, to allow citizens and businesses to make all kinds of payments easily, safely, timely and cost efficiently, and to open the market to new entrants such as payment institutions. It established a set of specific rules for all payment service providers, including banks and payment institutions.

What are European Payment Institutions allowed to do?

The new category of payment institutions can offer their customers the following services:

  • Executing payment transactions (including credit transfers, direct debits, through payment cards or a similar device)
  • Issuing and/or acquiring of payment instruments
  • Money remittance
  • FX services
  • Ancillary services
  • Credit can be granted for a maximum of 12 months if this credit is closely linked to a payment service provided

What is the difference between a European payment institution and an e-money institution?

The main difference between the two types of payment service providers is that only e-money institutions can issue electronic money. E-money is a digital equivalent of cash stored on an electronic device or remotely at a server.

What is an e-money institution under European law?

An electronic money institution issue electronic money. Electronic money is a digital equivalent of cash, stored on an electronic device or remotely at a server. One common type of e-money is the 'electronic purse,' where users store relatively small amounts of money on their payment card or other smart card, to use for making small payments. E-money can also be stored on (and used via) mobile phones or in a payment account on the Internet. The E-Money Directive (2009/110/EC) (EMD) aims to:

  • Enable new, innovative and secure electronic money services to be designed
  • Provide market access to new companies
  • Foster real and effective competition between all market participants

This should benefit consumers, businesses and the wider European economy.

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