feedback

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
  • Customer Agent Exemption
  • PSD2
  • Compliance
  • Regulation
  • Financial crime
  • + 4 more
30th Jul 2018
By Anna Tsyupko

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!

Twitter  LinkedIn

  • Customer Agent Exemption
  • PSD2
  • Compliance
  • Regulation

Related Posts

Financial crime + 4 more
The potential for financial crime within marketplaces and how to avoid it

Preventing financial crime is something all e-commerce firms need to be mindful of in today’s world. However, due to the way marketplaces operate, certain financial crime is particularly applicable to them. In this article, we discuss what can happen...

Read More
Paybase workshop + 3 more
Paybase Collaborative Workshop 3: In Photos

Earlier this month saw Paybase host its third collaborative workshop - a big thank you to all our attendees who made it the biggest one to date! This workshop had an entirely new format. Alexander Ross of Illuminate Financial kicked us off with the ...

Read More
Online marketplace + 6 more
How do payments work for online marketplaces / gig / sharing economy platforms?

Choosing the right payments option can be the best early decision your business makes If you are currently setting up your platform and are starting to think about payments, bear in mind, platform payments work differently than payments for more tra...

Read More
Read All

Get our newsletter

Join our mailing list for product launches, industry hosted events and company updates.

Top 50 most disruptive uk companies in 2017: the future 50