Background
Betaal Garant Nederland CV is a limited partnership that provides guarantee and security deposit services to individuals engaged in building construction projects in the Netherlands. Its “security deposit” product operated under a tripartite agreement involving the client (buyer), the contractor, and Betaal Garant itself. A client would deposit funds (typically 6% of the contract price) with a Betaal Garant Foundation account. After the client verified that the construction work had been completed satisfactorily, the foundation would transfer the deposited funds to the contractor’s account, retaining fees (approximately 4% from the client, 2.5% from the contractor).
De Nederlandsche Bank NV (the Dutch central bank) examined Betaal Garant’s operations following a complaint and concluded that the security deposit product violated the Dutch Law on the Supervision of Financial Markets (which implements Directive 2015/2366 on Payment Services). The DNB issued an order for periodic penalties, asserting that Betaal Garant was unlawfully providing payment services without authorization as a payment service provider. After administrative appeals and district court proceedings upheld the DNB’s position, Betaal Garant appealed to the Supreme Administrative Court for Trade and Industry (College van Beroep voor het bedrijfsleven), which referred preliminary questions to the CJEU about whether the service constituted a regulated “payment service” under EU law.
The Court’s Holding
The CJEU held that the receipt and forwarding of funds by an intermediary entity does not constitute a “payment service” under Article 4(3) of Directive 2015/2366 read in conjunction with point 3(c) of Annex I, even though such transactions involve the transfer of funds. The court’s analysis rested on the statutory definition of “credit transfer” in Article 4(24), which requires that “the payment service provider which holds the payer’s payment account” execute the transfer based on the payer’s instruction. Here, neither Betaal Garant nor the Betaal Garant Foundation held payment accounts on behalf of the clients; the actual fund transfers were executed by the respective banks of the client and the foundation, which are themselves payment service providers.
The court emphasized that Betaal Garant’s core service—providing an equivalent guarantee under Article 767 of the Netherlands Civil Code—is not a payment service but an alternative to depositing security with a notary. Payment transfers were merely ancillary to this primary guarantee function. The directive’s scope is limited to entities that provide payment services as their regular occupation or business activity, with high regulatory requirements (authorization, prudential supervision, civil liability) justified by direct participation in fund transfers. Applying those requirements to ancillary payment functions incidental to non-payment services would be inconsistent with the directive’s purpose and the legislative intent to create a unified regulatory framework only for dedicated payment service providers.
Key Takeaways
- A “credit transfer” under Directive 2015/2366 requires the payment service provider itself to hold and manage the payer’s payment account; mere intermediation of funds held in accounts of third-party payment providers does not qualify.
- Services that use fund transfers as an ancillary mechanism (e.g., guarantee or security deposit services) fall outside the directive’s scope even if money moves through accounts during performance.
- Payment service regulation applies only to entities for which payment services constitute a regular occupation or primary business activity, not incidental functions supporting other services.
- Notaries, guarantee companies, and similar professionals remain unregulated as payment service providers when their services involve only ancillary fund movements executed by authorized banks.
Why It Matters
This decision clarifies the boundary between regulated and unregulated financial services in the EU. It confirms that the Payment Services Directive does not cast an expansive net over every intermediary that touches funds, but rather targets entities whose business model centers on executing payment transactions. The ruling protects non-financial professions and service providers from having to obtain payment institution licenses when payment mechanics are incidental to their primary service offerings. For national regulators, it establishes that a service-provider’s participation in fund flows is not sufficient to trigger payment services regulation if the actual execution of transfers occurs through the independent action of authorized banks.
Practically, this allows guarantee companies, escrow services, security deposit handlers, and similar intermediaries to operate under their own professional regimes (such as notarial law in the Netherlands) without the burden of payment services authorization. The decision supports legal certainty in the EU’s harmonized payment services framework by preventing regulatory creep and maintaining the distinction between primary payment services and incidental financial flows.