Payment management: Marketplace regulation

Payment management: Marketplace regulation

In the world of e-commerce, the success of marketplaces is clear for all to see. The figures speak for themselves: the value of sales made via marketplaces increased by 53% in 2014 to over 2 billion euros, according to the e-commerce.com website.

Marketplaces bring together not only customers, but also numerous purchasing processes, including acquisition and payment management tools for online sellers. Regulatory aspects therefore become highly significant.
The position of the regulator is that the management of transactions should be in the hands of licensed professionals in order that a high standard of control and protection is provided for customers.
To be up to standard, marketplaces can apply for a license to become a payment institution. This option demands prior strategic reflection and a clear approach in front of the prudential supervision and resolution authority (ex: ACPR in France), which requires demonstration of certain competencies for the establishment of the supervisory processes recommended by the regulator. The second possible solution for marketplaces is to entrust the management of payments to an authorized payment institution. This option is easier to implement, and can be advantageous in terms of costs and time.

Marketplaces must either become authorized payment agents or outsource to technical service providers.

The French authorities have stated their intention to impose additional local restrictions on Internet retailers. At the end of 2014, ACPR presented the conditions for obtaining and maintaining a license in France. Internal governance and regulation, minimum capital levels, customer protection, accounting systems allowing for movements relating to each transaction to be traced… These obligations are legitimate but quite significant with regards to organization and finances.

An European Directive entitled 2007/64/EC has strengthened competition by introducing the concept of a single market for payment services. By application of a principle of mutual recognition of regulatory authorities, this directive allows an authorized payment institution, regulated by the authority of its country of origin, to do business within the territory of another Member State. In other words, marketplaces can benefit from this procedure by using a payment institution authorised in another EU member state. It works in both directions.

Marketplaces are well advised to investigate the possibility of gaining the status of an authorised payment institution in whichever Member State which will give them the most suitable degree of autonomy with respect to their business. It is the UK which is home to the most financial services establishments in Europe. There are no fewer than 323 payment institutions accredited compared with forty in France and a total of 568 across the entire European Economic Area.