Digital Wallet and Electronic Money – CESOP in the New Era of Finance

Digital wallet is a modern solution that significantly changes the way we make payments. With it, the payment service provider enables the payer to complete transactions in a simple and convenient way.

Importantly, the same provider also offers digital wallet services to the payee. The condition, however, is that both parties – both payer and payee – must be registered with the same system or platform. This means that e-money transactions (whereas e-money in this context is defined in line with the PSD2 glossary) are fully managed by a one payment service provider, ensuring consistency and security of operations.

Location in Electronic Transactions – What Rules Apply?

The issue of location in electronic transactions is no less important. Electronic money issuing institutions and trading platforms are free to choose identifiers that allow them to determine the residence or domicile of the payer and the payee. The most common are IBAN numbers, BIN numbers of payment cards, individual provider identifiers or addresses indicated during user registration.

However, there is some risk associated with the misperception of the location of the transaction. A so-called “ location fiction” may arise, suggesting that all payments take place at the location of the payment service provider, which could lead to the false conclusion that the transaction is domestic.

In reality, the cross-border nature of the transaction is determined by the address details of the payer and payee provided during registration or other identifiers, not the location of the payment service provider. This is a key point to consider in order to correctly assess the scope and nature of a transaction.

How do Cross-Border Transactions with E-Portfolio work?

Imagine a situation in which a payment service provider from Poland offers its e-money services to clients from across the European Union. In such a case, we have a cross-border transaction when a payer from Denmark orders a transfer of funds to an e-wallet of a recipient located in Germany.

This is why the payment service provider classifies this payment as cross-border – the money is transferred between an e-wallet in Denmark and an e-wallet in Germany.

However, there is an important condition to keep in mind – the reporting obligation under CESOP only arises when a German recipient receives more than 25 cross-border payments in a calendar quarter. This means that the supplier must monitor the number of such transactions to meet the reporting requirements.

E-Wallet Deposits and Withdrawals – What Should You Know?

Depositing funds to a digital wallet using a payment card will be subject to separate reporting under the rules set forth for card payments. For those who want to learn more about this topic, we recommend the article on CESOP: Card Payments.

Similarly, funding an e-wallet via bank transfer involves the movement of funds from the payer’s bank account to the digital wallet provider’s bank account. These rules also apply to e-wallet withdrawals.

Importantly, both deposits and withdrawals are treated as different types of transactions and will be subject to the appropriate reporting rules – depending on whether they are card or bank transfer transactions.

Key CESOP Reporting Rules – What Should You Remember?

CESOP reporting requires meticulousness and knowledge of the basic rules, which are crucial for payment service providers. It’s worth reviewing the guidelines described in our previous articles:

• CESOP – New Responsibilities for Payment Service Providers
• CESOP: Which transactions must be reported

to make sure all of your obligations are properly met.

Want to make sure your CESOP reporting is fully compliant? Contact our specialists who can help you thoroughly understand all the intricacies of payment services and their reporting.