Lifting the ‘Veil’ on Payment Services and the Law.

Payment Services Law and Practice: A Neglected Area of Financial Services

Everyone seems to be familiar with the term ‘financial services’. But whenever I mention ‘payments’ or ‘payment services’, I usually get a blank stare. Not many people know or understand what it entails. This extends to many legal practitioners and law firms. This is because payment services law it has traditionally been neglected or underserviced as an area of the law and as a subset of more general banking and financial services. In recent years, payments have quickly evolved to become a hotspot of commercial and FinTech activity. There is an increasing demand for lawyers to focus on payment services law. However, there aren’t many dedicated practitioners specialising in payment services law. This is out of step with how payments has rapidly grown into a specialist space in commercial and FinTech recently.

In addition to some of the more traditional players such as the high street banks and credit card companies such as MasterCard and Visa, global remittance players such as Western Union, MoneyGram International, PayPal, among others, new players are constantly emerging. These include Wirex, Monzo, AirWallex, TransferWise, WorldRemit, Remitly, TransferGo, Ozzie Forex, Paybase, Azimo… the list goes on. They are all researching payment services regulations and putting a huge effort into payment services law and practice. The amount and level of innovation in this space continues to amaze me and hundreds of millions of dollars are being poured into these companies by astute investors.

Like any other financial services company, Payment Services Providers (PSPs) operate within a highly complex and challenging legal and regulatory environment. Requirements and expectations of regulators continue to heighten, as well as the need for lawyers specialising in payment services law – this has only accelerated since the GFC. Prior to the GFC, payments companies could fly under the radar of the regulators; not anymore. Today, payments services are a core area of focus for many regulators around the world. They include central banks and other financial services regulators, such as the FCA in the UK, the FSC in Japan, AUSTRAC in Australia. They expect participants to not only have robust compliance, other governance frameworks and controls, but to also take active steps to enforce these requirements(payment services law and practice).

Understanding payment services law and the role of payment service providers

So, what do we mean by ‘payments’? At its simplest, a payment service is any service provided by a financial institution to allow a person or an organisation (e.g. a business) to pay another for a product or service. In turn, a PSP offers merchants online services for accepting electronic payments by a variety of payment methods including credit card, bank-based payments such as direct debit, bank transfer, and real-time bank transfer based on online banking. Typically, they use a Software as a Service model (SAAS) and form a single payment gateway for their clients (i.e. merchants) to multiple payment methods.

More broadly, payments also cover money transfer and remittance services, cross-border payment services (including C2c, B2B, C2B, and B2C), and credit cards/debit cards, stored- value cards, among others.

Needless to say, PSPs need to understand and comply with many complex payment service laws and payment service regulations which may differ significantly from one jurisdiction to the next, and from one region to another. These include AML/CTF laws (the rules for which are tightening all the time), consumer protection laws, remittance and e-payments laws, licensing requirements, privacy and data protection laws, tax treatment, the list goes on. Regulator expectations and the regulatory approaches also differ.

Because of this, it’s all the more important that PSPs and recipients of payments services work with legal service providers that understand the unique complexities and challenges of payment service law in this market. Staying competitive in this dynamic space requires partnering with those who specialised in payment services law and have solid experience in the payments services, technology and FinTech sectors and who can help you navigate these complexities, as well as to determine when and how to approach a specific regulator.

Payment services have evolved quickly in recent years, there are more and more players entering this field, leading to a higher standard in payment service law and payment service regulations. If you’d like to learn more about how you or your company can stay competitive in the fast changing payments space, contact KorumLegal.

Danh Nguyen