Small-scale payment services providers

Companies intending to provide payment services must either be entered in the register of small-scale payment service providers or obtain authorization to operate as a payment institution.

Typical payment service providers include companies such as American Express Payment Services, PayPal and PayU, as well as providers of other types of financial services, such as Zonky and P2P finance CZ.

Registration or authorization is granted by the Czech National Bank (the “CNB”) and entitles the entity concerned to provide the payment services specified in Act No. 284/2009 Coll., on Payment Services (the “Payment Services Act”).

This article provides basic information on what constitutes a payment service, who qualifies as a small-scale payment service provider and, in particular, the basic requirements for registration with the CNB.

What are payment services under the Payment Services Act?

Section 3(1) of the Payment Services Act defines payment services as:

1. service enabling cash deposit on a payment account held by provider,
2. service enabling cash withdrawal from a payment account held by provider,
3. transfer of funds from a payment account, ordered by the payer, payee or payer through the payee, where the provider does not provide the transferred funds to the user as credit,
4. transfer of financial means from a payment account, ordered by the payer, beneficiary or payer through beneficiary, if the provider provides the transferred financial means as credit to the user,
5. issuing and administering payment instruments and devices designed to accept payment instruments,
6. transfer of financial means during which both payer and beneficiary do not use payment account held by provider (money remittance),
7. execution of a payment transaction by a provider of electronic communications services, where the payer gives consent to the transaction through an electronic communications device.

Who are small-scale payment providers?

A small-scale payment service provider (the “Provider”) is defined in Section 36 of the Payment Services Act as a person entitled to provide payment services by virtue of its entry in the register of small-scale payment service providers.

The Provider may provide payment services only if the monthly average value of payment transactions executed in the Czech Republic, including those executed through its commercial agents, during the preceding 12 months does not exceed EUR 3,000,000.

As of March 30, 2016, the CNB had registered 123 such Providers.

What activities may a small-scale payment service provider perform?

The Provider may perform the activities specified in Section 8 of the Payment Services Act:

• provide payment services stated in his registration of small-service payment provider,
• perform activities related to the payment services specified in the authorization to operate as a payment institution, including granting credit subject to further conditions,
• operate a payment system, except for a payment system with settlement finality.

What are the requirements for registration as a small-scale payment service provider?

Registration of the Provider is governed by the Payment Services Act and implementing Decree No. 141/2011 Coll.¹

To be registered successfully, the applicant must apply for entry in the register of small-scale payment service providers and satisfy the following requirements under Section 37 of the Payment Services Act and the implementing decree,² as amended by Decree No. 233/2014 Coll.³ with effect from December 1, 2014:

• have his registered seat or principal place of business in a member country, in which he really carries on his business and a branch in the Czech Republic,
• submit his business plan⁴, which is in accordance with the conditions stipulated by law in § 36 paragraph 2 of ZoPS,
• secure financial means, which were entrusted to him by the users to perform the payment transaction,
• he has not been condemned for a criminal offence against property, an economic criminal offence or a criminal offence in connection with financing of terrorism; this applies also for senior officers of the applicant,
• there are no facts which would consist an impediment to engage in trade in accordance with the law regulating the business in trade,
• if the applicant is a natural person, he has to meet general conditions for engaging in trade in accordance with the law regulating the business in trade,
• submit evidence of authorization to conduct business,
• submit his certificate of no criminal records issued by foreign country of the applicant and also certificates of no criminal records and questionnaires for every senior officer,
• enclose a description of the method of performing individual payment services and all activities associated, the selected method of protecting funds entrusted for the purpose of conducting a payment transaction and rules for the investments of funds.

If the applicant into the register of small-scale service providers is registered in the Register of Trades, it is deemed that there are no facts which would consist of an impediment to engage in trade in accordance with the law regulating the business in trade. If he is also a natural person, it is deemed that he meets general conditions for engaging in trade in accordance with the law regulating the business in trade.

If the applicant meets all the above requirements, the CNB will enter it in the register of small-scale payment service providers within one month after receiving the application and will issue a certificate within the same period. The register entry will specify which payment services the Provider is authorized to provide.

If the applicant does not demonstrate that it meets the registration requirements, or if there are doubts about the accuracy or completeness of the information in the application, the CNB will reject the application.

In a case when the Provider decides to extend the scope of the payment services provided to which his registration applies, he has to submit his business plan, which has to be based on real economic calculations and in accordance with the conditions stipulated by law in § 36 paragraph 2 of ZoPS in the same manner as new applicants.

¹ Decree No. 141/2011 Coll., on the pursuit of business of payment institutions, electronic money institutions, small-scale payment service providers and small-scale electronic money issuers.

² Decree No. 141/2011 Coll., on the pursuit of business of payment institutions, electronic money institutions, small-scale payment service providers and small-scale electronic money issuers.

³ Decree 233/2014 Sb., which amends decree No. 141/2011 Coll., on the pursuit of business of payment institutions, electronic money institutions, small-scale payment service providers and small-scale electronic money issuers, as amended by decree No. 31/2014 Coll.

⁴ In accordance with Decree No. 141/2011 Coll., on the pursuit of business of payment institutions, electronic money institutions, small-scale payment service providers and small-scale electronic money issuers, a business plan means the applicant’s genuinely intended business plan for the first three accounting periods, prepared in the format of financial statements under accounting law, supported by realistic economic calculations and accompanied by commentary containing:

1. intentions of the applicant regarding the scope and volume of provided payment services or issued electronic money and other activities based on the law and description of planned method how to achieve them, including characteristic of target group of clients and commercial network of the applicant,
2. baselines and preconditions upon which the business plan is based along with justification of interconnectedness of the quantitative data of the plan and feasibility of the results of the planned activities.

⁵ § 36
(2) A small-scale payment service provider may provide payment services only if the monthly average value of payment transactions it has executed in the Czech Republic, including transactions executed through its commercial agents, during the preceding 12 months does not exceed EUR 3,000,000. If the provider has provided payment services for less than 12 months, the value of its payment transactions is determined on the basis of its business plan.