Executive Summary
- What’s new: In a recent ruling, the European Court of Justice held that a financial service consisting of the receipt and forwarding of funds by an intermediary does not constitute a payment service within the meaning of the EU’s Second Payment Services Directive.
- Why it matters: The judgment narrows national supervisors’ broad interpretations of payment services and provides clarity for entities that provide payment transactions that are ancillary to primary services falling outside the scope of the directive.
- What to do next: Entities whose business activities have been classified as payment services by national supervisors should consider whether this judgment supports a reclassification of their activities as ancillary services that lie beyond the directive’s scope.
__________
On 16 July 2026, the European Court of Justice (ECJ) held that a service consisting of the receipt and forwarding of funds by an intermediary does not constitute a payment service within the meaning of Article 4 no. 3 of Directive 2015/2366 (the Second Payment Services Directive, or PSD2).
The judgment places important limits on broad interpretations of payment services by national supervisors and provides greater legal certainty for entities whose business models involve payment transactions that are ancillary to primary services falling outside the scope of PSD2.
Entities whose business activities have been classified as payment services by national supervisors — particularly BaFin — in the past should consider whether this judgment supports a reclassification of their activities as ancillary services falling outside the scope of PSD2.
Background
The ECJ was asked whether the business activities of Betaal Garant Nederland CV (Betaal Garant) fall within the definition of payment services — specifically, the execution of credit transfers.
Betaal Garant inter alia provides security deposits for private individuals in construction projects. Under the relevant arrangement, the client’s funds are transferred from the client’s payment account to the payment account of a foundation linked to Betaal Garant (Betaal Garant Foundation). The funds are held on that account as security until the contractual conditions for release to the contractor are satisfied.
The Dutch supervisory authority, De Nederlandsche Bank NV (DNB), took the view that the receipt of the client’s funds and their subsequent transfer to the contractor’s account constituted a payment service under Article 4 no. 3, read in conjunction with Point 3 of Annex I PSD2 (i.e., execution of credit transfers), for which Betaal Garant lacked the requisite license.
The ECJ’s Reasoning
The ECJ ruled that services which use payment services offered by other (licensed) providers (such as credit institutions or e-money institutions) in a merely ancillary manner do not themselves fall within the scope of PSD2.
The ruling is based on the following considerations:
- Betaal Garant does not execute a credit transfer. A credit transfer under Article 4 no. 24 PSD2 requires a payment order from the payer and execution by the payment service provider that holds the payer’s payment account. Here, the court identified two separate payment transactions. First, the client instructed its bank to transfer funds from the client’s account to the foundation’s account. Second, once the release conditions were satisfied, the foundation instructed its bank to transfer funds to the contractor. In each case, the respective bank held the payer’s account and executed the transfer. Betaal Garant’s security deposit service did not itself become a payment service merely because it depended on payment services provided by those banks.
- PSD2 applies only to defined payment service providers. The court emphasized that PSD2 is designed to apply to entities falling within one of the six categories of payment service provider enumerated in Article 1(1) PSD2, including credit institutions, electronic money institutions and payment institutions. Recital 24 reinforces this by confining the legal framework to providers that supply payment services “as a regular occupation or business activity.” The court held that the demanding regulatory regime is justified by a provider’s direct participation in the transfer of funds, but that these requirements are not justified where the transfer of funds is merely instrumental to another primary service that itself falls outside PSD2. Betaal Garant’s security deposit service constitutes a statutory alternative to a notarial deposit, and PSD2 is not intended to cover comparable services performed by notaries.
Scope of Application
The court’s reasoning should not be read as establishing a general exemption for all payment-adjacent activities. The ruling rests on a narrow factual basis, with the decisive factors being that the intermediary:
- Does not itself execute the credit transfers.
- Does not hold payment accounts on behalf of clients.
- Offers a primary service that is independent of and not governed by PSD2.
Money Remittance
In addition to the DNB, the Czech, Dutch, Italian and Norwegian governments as well as the European Commission submitted written observations.
The Norwegian government argued that the relevant question should be whether Betaal Garant offered money remittance services. The ECJ did not address this point, unlike the Advocate General, who rejected the money remittance classification on the following grounds:
- Betaal Garant’s arrangement lacks the immediacy and unconditionality characteristic of a simple money remittance.
- For a standard money remittance service, the payee receives the amount unconditionally, whereas here the contractor may never receive the funds if the client objects.
- Even if the fund movements were characterized as money remittance, they would remain instrumentally ancillary to Betaal Garant’s security deposit service and would not qualify as a payment service.
Practical Implications
The ECJ’s judgment has important implications for the payments sector across the EU. The court has articulated clear limits on the classification of services as payment services under PSD2, constraining the ability of national supervisors to apply expansive interpretations.
In Germany, BaFin has historically adopted a broad reading of payment services, particularly with regard to money remittance. Following the Lieferheld ruling, the predecessor directive (PSD1) was interpreted as not requiring payment services to constitute an entity’s main professional activity.
The ECJ’s express recognition that PSD2 excludes providers who use payment services in a merely ancillary manner may prompt supervisors — including BaFin — to reconsider established classifications, in particular relating to escrow and platform models.
However, several open questions remain. The court’s silence on money remittance, which the Advocate General addressed at length, leaves uncertainty for business models that involve money remittance rather than credit transfers. In addition, the court did not articulate a precise threshold for when a credit transfer ceases to be ancillary and becomes a regulated primary activity.
Looking ahead, the EU is in the process of finalizing the Third Payment Services Directive (PSD3) and the accompanying Payment Services Regulation. The Betaal Garant judgment establishes an important judicial baseline that may inform future legislative developments.
It remains to be seen whether the legislature will codify, refine or narrow the ancillary services boundary.
Research assistant Laura Wagner contributed to this article.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.