Small payment institutions and international transactions – KNF interpretation after 2 years

In September 2020 KNF (Polish regulator) commenced mass control on the small payment institutions (MIP) market, obliging the supervised entities to submit numerous documents and representations. The communication dispatched to market participants there is a novelty – first KNF statement on the interpretation of permissible territorial scope of MIP’s operations – even though those entities operate on the market since 2018.

The doubts concern interpretation of Art. 117f section 2 of the Payment Services Act (PSA), according to which MIP activities may be performed only on the territory of the Republic of Poland. In the opinion of KNF, this provision means that all transactions performed by MIP must be entirely carried out on the territory of the Republic of Poland.

Until now, the aforementioned PSA provision was understood in such a fashion that MIP entities cannot operate as a payment service provider outside Poland – whether in the form of a branch, agent, cross-border, or even through active sale (websites, social media, advertising addressed to recipients from outside Poland etc.) outside Poland. In other words, it was understood that MIP (taking into account the limitations specific to the MIP in terms of the value of transactions and the value of funds held for customers) could provide such services that – if provided by a domestic national payment institution (KIP) – would not require a passport notification or authorization from a foreign regulator.

Currently, more than 2 years after the MIP regulation was introduced, the above interpretation seems to be repealed by KNF, according to which transactions performed by MIP must be carried out entirely on the territory of Poland, which should be understood as meaning that the payment service provider of the other party to the transaction must also operate in Poland.

The interpretation of KNF leads to far reaching consequences – as it among others:

1. prevents MIP from accepting payments made with payment instruments (e.g. cards) issued by a non-Polish issuer,
2. prevents the execution of payments with payment instruments (e.g. cards) issued by MIP towards non-Polish merchants,
3. prevents the execution of any foreign transfers (including – it seems – also SEPA transfers between the payer and the recipient having their registered office / place of residence in Poland),
4. leads to significant problems in the case of transactions with foreign payment service providers who have passported their operations into Poland (problem with assigning transactions to a specific territory).

We encourage you to contact our Law Firm – we provide, among others services related to:

1. payment services,
2. designing and adapting systems and internal regulations to the requirements of EBA and KNF.