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E-money, payment institutions, payment systems, online payment system providers – at a first glimpse all these terms look similar, but in fact they refer to different issues regulated by:
- Bulgarian Law on Payment Services and Payment Systems,
- Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market (amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC),
- Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions (amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC) and
- Latest PSD2 Directive 2015/2366/EU of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC.
The above documents regulate the requirements to the payment service providers which, apart from banks, inclusive European Central Bank and the national central banks of the member states, can be two types:
- Payment institutions
- Electronic money institutions
From 13 January 2018 all EU member states are obliged to apply the rules of PSD2. In October 2017 Bulgarian government proposed amendments to payment service legislation which are expected to be adopted by Parliament by the end of the year. Since new procedure and requirements have not been announced yet, the article below gives only basic guidelines on the matter based on current laws.
Payment Institutions in turn are divided into three types and they are allowed to offer any or all of the services specified below:
1. Services related to placement of cash on a payment account, as well as the related operations of servicing of a payment account;
2. Services related to cash withdrawals from a payment account, as well as the operations of servicing of a payment account;
3. Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider:
a) execution of direct debits, including one-off direct debits;
b) execution of payment transactions through a payment card or other similar instruments;
c) execution of credit transfers, including standing orders;
4. Execution of payment transactions where the funds are covered by a credit line for a payment service user:
a) execution of direct debits, including one-off direct debits;
b) execution of payment transactions through a payment card or a similar device;
c) execution of credit transfers, including standing orders.
5. Issuing and/or acquiring of payment instruments;
6. Money remittance;
7. Execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the goods or services.
Obtaining an EU payment service provider licence in Bulgaria is cheapest and easiest for payment institutions providing only the services under item 6 above – the minimum required initial capital in such case is only BGN 40 000; while in case the EU payment institution will provide only the payment services under item 7 – the minimum required capital is BGN 100 000. Providing any of the payment services under item 1-5 requires BGN 250 000 initial capital (approx. EUR 125 000). Apart from the minimum initial capital, there is a further requirement for the service providers to hold own funds at all times in amount that is proportional to the volume of the payment transactions and is calculated by a special formula.
Payment institutions in EU are subject to licensing but once a licence is obtained in any member state (e.g. in Bulgaria) – then the payment institution can provide services on the territory of the entire EU without further licensing. Informing the relevant Central Bank of the respective member state is the only obligation in this relation. In Bulgaria this is the Bulgarian National Bank (BNB).
If a payment service provider (PSP) has a Bulgarian licence granted for only one of the services but decides to offer additional services afterwards, there is an opportunity to apply for supplementing the licence with other payment services.
Payment institutions registered in Bulgaria are also entitled to offer some ancillary services that are related to payment services, such as foreign exchange services, activity of payment service operator and other business activities. However, in case the Bulgarian payment institution engages in other business activities, BNB can interfere in its activities at any time and restrict its activities if BNB rates that these ancillary activities jeopardize the stability of the payment institution. BNB is also entitled to request, at its own discretion, extraordinary audit at the expense of the payment institution, in case BNB doubts its reliability. Payment institutions in Bulgaria can operate not only directly but also through a branch, a representation or agent but in any case they must be registered with the official Public Register of BNB of licensed payment institutions.
Electronic money institutions are the second type of PSP that are also subject of registration in Bulgaria. They are entitled to issue and buy back electronic money. Requirements towards these institutions are higher as compared to those referring to payment institutions. There are same common requirements, but minimum initial capital here is BGN 700 000 and BNB charges BGN 10 000 fee for the issuance of the licence (as compared to BGN 4 000 for a Bulgarian payment institution licence). That is probably the reason why by 2014 there are only two electronic money institutions licensed in Bulgaria against a couple of dozens payment institutions.
The Bulgarian e-money institutions are not allowed to accept deposits and to accrue interest, but similarly to payment institutions they can provide ancillary services, such as granting credits and operation of payment systems. The issuance of e-money in Bulgaria cannot happen through an agent but after the issuance the electronic money can be spread and redeemed through business agents. This method has been chosen by one of the two electronic money institutions licensed in Bulgaria.