If you have a gig/sharing economy business or online marketplace, there has been a big change in legislation that you need to know about

If you have a gig/sharing economy business or online marketplace, there has been a big change in legislation that you need to know about

Anna Tsyupko

CEO at Paybase

Views 2386

If you have a gig/sharing economy business or online marketplace, there has been a big change in legislation that you need to know about

14.08.2018 01:00 pm

Changes to the commercial agent exemption require action, but they will bring benefits to all involved

You may not have heard of the ‘commercial agent exemption', but if you have an online marketplace or gig/sharing economy business, you may have benefitted from it. Business such as these, known as ‘platform businesses’, connect buyers and sellers and pass payments between them, usually charging a commission.

What is changing?

Previously, platform businesses were able to act in this way without needing to become a licensed provider of regulated financial services. This was due to the commercial agent exemption, which enabled platform businesses to accept payments on behalf of sellers as their ‘commercial agent’ and later transfer them to their bank accounts.

However, the Second Payment Services Directive (PSD2) introduced in January 2018 changed this, though many firms are still unaware. Regulators found that in the platform business example, the platform is acting as not only the commercial agent of the seller, but also of the buyer, as they are receiving and processing orders on the buyers behalf. By being the commercial agent of both and taking all funds centrally, additional risk falls upon both buyers and sellers. Consumers run the risk that their money will be taken and be processed incorrectly, preventing them from receiving their good/service. As for merchants, they risk providing goods/services and their payments being delayed, mismanaged, incorrect or not received at all due to the problems with the platform.

One of the aims of PSD2 was to address this risk. PSD2 states that the exemption can be applied to a firm clearly acting on behalf of a seller or a buyer, but not both. Firms that do act on behalf of both, as with all platform businesses, must become licenced as a Payments Institution, or partner with a firm that is.

How to get licensed

Becoming licensed as a provider of regulated financial services is no small feat. You will need to obtain a licence from your country’s payment service regulator - with application processes often taking months or even years. In order to ensure you are meeting the requirements of your licence you will need to establish a compliance framework, which will necessitate dedicated staff. Due Diligence will need to be performed on all merchants/suppliers on your platform and a notoriously difficult to obtain client safeguarded funds account will be required for any of this to happen. Not only will all of this and more need to be delivered, but in a UX friendly way as to not deter customers and merchants from using your platform.

The alternative

The simpler, faster, cheaper alternative is to partner with a regulated payments provider. Whilst it is easy to interpret the change to the commercial agent exemption as a new obstacle for platform businesses, it can also be viewed as a blessing. Partnering with a payments provider not only allows you to meet the new regulatory requirements, but it passes the responsibility of managing customer funds to the payments provider. This is the reason Paybase was created - to allow firms to get on with doing what they do best, instead of being bogged down in payment reconciliation, compliance, KYC and everything else.

Partnering with Paybase will offer security to your consumers, merchants and yourself as a platform, all whilst alleviating the part of your business you don’t like dealing with. Embrace PSD2 - it’s there for a reason!

This article originally released on​ paybase.io

Latest blogs

Andrew Hayden Winshuttle

Could Covid-19 help close the financial automation gap?

Many businesses moving their finance functions to shared service centre environments say that automation is critical to success. So why is it that so many have yet to implement automation successfully? When Winshuttle recently interviewed over Read more »

Tal Daskal EasySend

Speeding Up Digital Transformation in Financial Services with a No-Code Development Platform

2020 has changed the digital transformation discussion from when to how. A recent survey found that for the first time, 30% of employees are working from home and 20% have experienced remote learning. That does not include the people who are Read more »

Andrew Stevens Quadient

Monzo Outage Impacts Payments, Bank Transfers and Chat Services - Expert Comment from Quadient

At a time when consumers are already faced with such uncertainty, being unable to pay bills, access their wages or even view their balance can be stressful, especially if they are not adequately informed of the severity and likely duration of the Read more »

Béla Vér ApPello

The survival of banks is at the mercy of their technology vendors

Governments around the world have responded on a scale not previously witnessed to protect people around the world from becoming a victim of COVID-19. With many lockdowns still in place and now coordinated on a local level to respond to second Read more »

Nóra Bézi Bitrise

The future of finance and banking apps: balancing security and innovation

The fintech revolution in the mobile space Fintech mobile applications are rapidly becoming the norm when it comes to handling our personal finances. As these apps grow in popularity and continue to define our relationship with money, the number Read more »

Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel