AMENDMENT TO THE PAYMENT SERVICES REGULATIONS 2017 TO ENABLE CASHBACK WITHOUT PURCHASE

The Payment Services Regulations 2017 (PSRs) are being amended. There is a simple purpose at the heart of the amendment – that’s to enable cashback without a purchase. Currently, cashback without purchase is not explicitly excluded from the definition of a payment service under PSD2 or the PSRs (whereas cashback with purchase is). Without legislative change, the provision of cashback without a purchase would require that either merchants are registered or authorised to provide the regulated service or merchants act as an agent of a PSP.

HOW IS THE AMENDMENT BEING INTRODUCED?

A new exclusion is being implemented via section 44 of the Financial Services Act 2021. Section 44 inserts a new paragraph 3 into Part 2 of Schedule 1 of the Payment Services Regulations 2017. This is the part of the PSRs that deals with activities which do NOT constitute a payment service.

WHEN WILL THE AMENDMENT COME INTO FORCE?

The amendment to the PSRs comes into force on 29th June 2021.

WHAT DOES THE NEW EXCLUSION SAY?

The new para 3 reads as follows:

“3 (1) The provision of cash otherwise than through an automatic teller machine does not constitute a payment service where—

(a) there is a transfer of a corresponding amount from a payment account held by the recipient of the cash to a relevant person, and

(b) the payment account is not provided by a relevant person.

(2) In sub-paragraph (1), “relevant person” means—

(a) where the cash is provided by a person (“P1”) through one or more persons acting on P1’s behalf, P1 and each person acting (directly or indirectly) on P1’s behalf;

(b) where the cash is provided by a person (“P2”) otherwise than on behalf of another person or through one or more persons acting on P2’s behalf, P2.

(3) The execution of the transfer referred to in sub-paragraph (1)(a), and other services enabling that transfer, are not excluded from the meaning of payment services by this paragraph.”

CONDITIONS TO BE FULFILLED TO FALL WITHIN THE NEW EXCLUSION

The person requesting cashback must hold a payment account from which the corresponding amount can be transferred. For example, a customer walks into a shop and requests £20 cashback. There is a transfer of the £20 from the customer’s current account or credit card to a relevant person (essentially the provider of the cash, e.g. the merchant). So long as the merchant doesn’t also provide the payment account, the provision of cash by that merchant is not a payment service.

Note that the act of transferring the funds from the payment account to the relevant person is not exempt. So the activities of for example, the account provider and acquirer, remain regulated.

We’ll see cashback without purchase provided via the card scheme rails. Perhaps we’ll also see merchants and customers make arrangements with a payment initiation service provider to enable the merchant to arrange for the funds to be transferred to it directly (i.e. without the card scheme rails). Banks could also operate via third party entity “cash hubs” under the exclusion. Lord Holmes who proposed the amendment to the  PSRs has commented that, “The amendment is drawn in a deliberately permissive way to enable innovation. For example, if a fintech wanted to offer a service across a number of locations on behalf of those locations, the amendment would enable it to. Similarly, if a rural café wanted to offer cashback without a purchase on its own behalf, the amendment would enable it to”.