The regulatory perimeter applicable to businesses handling client funds has always presented a difficult question.
A company may receive money from a customer, hold those funds for a period of time and subsequently transfer them to another party. On the surface, this may look very similar to a payment service.
But is it necessarily one?
On 16 July 2026, the CJEU delivered its judgment in Betaal Garant Nederland CV v De Nederlandsche Bank NV (Case C-51/25), providing important clarification on the circumstances in which the receipt, holding and subsequent transfer of funds by an intermediary constitutes a regulated payment service under Directive (EU) 2015/2366 on payment services in the internal market, Payment Services Directive 2 (“PSD2”).
The judgment is particularly relevant for businesses operating escrow arrangements, security mechanisms, marketplaces and other commercial structures in which money moves through an intermediary but the intermediary’s principal business is not itself the provision of payment services.
The judgment does not establish that every business receiving and transferring client funds falls outside PSD2.
Rather, it provides a more precise framework for determining when the movement of funds amounts to the execution of a regulated payment transaction and when it is merely ancillary to another commercial service.
The Background to the Case
The proceedings arose in the Netherlands and concerned Betaal Garant, a business providing a security deposit arrangement in connection with construction contracts.
The contractual structure involved three parties:
- a client engaging a contractor;
- the contractor; and
- Betaal Garant acting as an intermediary under a tripartite agreement.
The client transferred the final instalment of the construction price to a separate foundation associated with Betaal Garant (the “Foundation”).
The funds were held in a bank account maintained in the Foundation’s own name.
Once the client confirmed that the relevant construction works had been satisfactorily completed, the Foundation instructed its bank to transfer the funds to the contractor.
The Dutch central bank, De Nederlandsche Bank (“DNB”), considered that this arrangement involved the provision of a regulated payment service and that the relevant activity required authorisation under PSD2.
The Dutch referring court therefore asked the CJEU to determine whether the relevant activity constituted the execution of credit transfers within the meaning of PSD2. The question referred specifically concerned a situation in which an intermediary receives a client’s funds into its own payment account and, following the client’s consent, transfers those funds to the contractor.
The CJEU’s Decision
The CJEU concluded that the arrangement at issue did not constitute a payment service within the meaning of PSD2.
The key point was the distinction between instructing a bank to make a transfer and executing the transfer as a regulated payment service provider.
The Court’s reasoning focused on the structure of the accounts and the legal role played by the intermediary.
The relevant funds were not held in a payment account maintained by Betaal Garant or the Foundation on behalf of the client or the contractor.
Instead, the Foundation held the funds in a bank account in its own name.
The movement of money therefore involved two separate banking transactions:
- the transfer of the client’s funds from the client’s bank account to the Foundation’s bank account; and
- the subsequent transfer from the Foundation’s bank account to the contractor’s bank account.
The actual execution of both transfers was carried out by the banks maintaining those respective accounts.
The Foundation did not itself execute the bank transfer as a payment service provider. It acted as the holder of its own account and instructed its bank to release funds which it held.
This distinction was decisive.
The Importance of the Payment Account
One of the most useful aspects of the judgment is the attention given to the identity of the holder of the relevant payment account.
The analysis cannot begin and end with the fact that money belonging economically to a client has passed through an intermediary.
The legal and operational structure of the accounts must be examined.
The relevant questions include:
- who holds the payment account;
- in whose name the account is maintained;
- whether the intermediary maintains a payment account for the client;
- who gives the payment instruction;
- which entity actually executes the transfer; and
- which entity has the legal relationship with the bank executing the payment.
In Betaal Garant, the intermediary did not maintain a payment account in the client’s name.
The funds were held in an account belonging to the intermediary entity itself, and the intermediary subsequently instructed its own bank to transfer the funds.
That was fundamentally different, for the purposes of the question before the Court, from providing a payment service whereby an intermediary executes a transfer from a customer’s payment account.
PSD2 and the Concept of a Payment Service
PSD2 defines a payment service by reference to the activities listed in Annex I to the Directive.
The relevant provisions include the execution of payment transactions and, within that framework, credit transfers.
The issue in Betaal Garant was therefore not whether money had moved.
It plainly had.
The issue was whether the intermediary’s activity constituted the regulated execution of a credit transfer.
This distinction is important because PSD2 does not regulate every commercial activity involving money.
Its regulatory framework is directed at specified payment services carried out within the scope of the Directive.
The CJEU therefore approached the arrangement by examining the legal and economic substance of the activity rather than simply the physical movement of funds.
The “By Way of Business” Requirement
Another important element of the judgment concerns the requirement that the relevant payment service be provided as a business activity.
PSD2 defines payment services by reference to the activities listed in Annex I and the Directive’s regulatory framework is directed towards providers professionally and regularly carrying out payment services. The Court also considered the broader context reflected in recital 24 of PSD2.
This is relevant because an entity may handle money repeatedly without necessarily becoming a payment institution merely because money is transferred as part of its business operations.
The critical question is what the business is actually providing.
If the primary commercial service is, for example, a security mechanism, escrow arrangement, guarantee or another non-payment service, the movement of funds may be ancillary to that principal service.
That does not automatically remove the activity from PSD2.
It does, however, mean that the regulatory analysis must identify the actual service being provided rather than treating every transfer of funds as a regulated payment service.
The Commercial Purpose of the Arrangement
The contractual framework was therefore highly relevant.
Betaal Garant was not offering customers a standalone money-transfer service.
Its function was to provide a security arrangement connected with the performance of a construction contract.
The transfer of funds was conditional upon the occurrence of a contractual event: the client’s confirmation that the construction works had been satisfactorily completed.
The movement of money was consequently part of a wider contractual mechanism.
This is an important distinction for businesses developing similar structures.
A payment flow cannot necessarily be assessed in isolation from the commercial agreement in which it operates.
The contractual purpose, allocation of rights and obligations, ownership or control of the funds and the role of the intermediary may all be relevant to determining whether the activity falls within the regulatory perimeter.
Escrow and Security Arrangements
The judgment is particularly interesting for businesses providing escrow-type arrangements.
Escrow structures frequently involve:
- receipt of funds from one party;
- holding of those funds pending satisfaction of specified conditions;
- verification or confirmation of a contractual event; and
- release of the funds to another party.
That structure can look very similar to a payment service.
The Betaal Garant judgment indicates that the mere fact that an intermediary receives and subsequently releases funds does not, by itself, establish that the intermediary is executing a regulated credit transfer.
The precise contractual and operational architecture remains critical.
An escrow provider should therefore not ask simply:
“Do we receive client money?”
It should ask:
“What exactly is the service we provide, how are the funds legally held, whose account are they held in, who executes the payment, and what is our role within the underlying commercial transaction?”
The EBA Q&A and the Wider Regulatory Context
The judgment also sits within a broader regulatory discussion concerning the receipt and forwarding of funds.
The European Banking Authority (“EBA”), in Q&A 2020/5216 published on 18 March 2022, had considered circumstances in which receiving and forwarding funds could constitute a payment service, including money remittance or the execution of payment transactions under Annex I to PSD2.
That regulatory material illustrates why the distinction cannot be reduced to a simple rule that “holding client money is not regulated”.
The same economic activity can potentially produce different regulatory consequences depending upon how the service is structured and what the intermediary actually does.
The Betaal Garant judgment therefore provides clarification, but not a blanket safe harbour.
What the Judgment Does Not Mean
The judgment should not be interpreted as establishing that an intermediary can avoid PSD2 simply by placing customer funds into an account held in its own name.
That would be an overly broad reading of the decision.
The Court’s conclusion depended upon the specific circumstances referred to it and, importantly, upon the distinction between the intermediary’s role and the role of the banks actually executing the transfers.
Businesses should therefore be cautious before relying on Betaal Garant as a general exemption.
A different result may arise where an intermediary:
- maintains payment accounts for customers;
- executes payment transactions on behalf of customers;
- provides money remittance services;
- initiates payment orders;
- exercises broader control over payment execution;
- offers payment functionality as a standalone commercial service; or
- otherwise performs one of the activities falling within Annex I to PSD2.
The judgment is therefore best understood as a functional and structural analysis, rather than a categorical exemption.
The Six Questions Businesses Should Ask
Following Betaal Garant, businesses handling client funds should consider at least six questions when assessing their regulatory position.
- Who owns or holds the relevant account?
Is the account maintained in the client’s name, the beneficiary’s name or the intermediary’s own name?
- Who executes the transfer?
Does the intermediary itself execute the payment transaction, or does it merely instruct the bank maintaining its own account?
- Does the intermediary maintain payment accounts for customers?
This may be a particularly important indicator of whether the activity falls within the PSD2 framework.
- What is the intermediary’s principal service?
Is the business genuinely providing a payment service, or is payment merely ancillary to another commercial service?
- Is the payment activity carried out as a business activity?
The regulatory analysis should consider the nature and regularity of the activity and whether payment services form part of the intermediary’s professional business.
- Why are the funds being transferred?
Is the transfer itself the commercial service purchased by the customer, or is it simply a mechanism supporting another contractual arrangement?
These questions should be considered together.
No single factual element should necessarily be treated as determinative in isolation.
Implications for Marketplaces and Digital Platforms
The judgment may also be relevant to online marketplaces and digital platforms.
Many platforms operate models in which:
- a customer pays before receiving goods or services;
- funds are temporarily held;
- certain contractual or platform conditions must be satisfied; and
- funds are subsequently released to a seller or service provider.
Such structures can create difficult regulatory questions.
The fact that the platform does not describe itself as a payment provider is irrelevant if, in substance, it performs a regulated payment service.
Conversely, Betaal Garant demonstrates why the existence of a payment flow does not automatically determine the regulatory classification.
The precise architecture of the platform, its contractual documentation, the accounts involved and the role of the banks must all be examined.
Implications for Fintech and Corporate Structures
The judgment is particularly relevant when designing new fintech and financial technology business models.
A business intending to create an escrow, conditional-payment or client-money solution should determine its regulatory perimeter before developing the operational architecture.
The legal analysis should precede the technology, rather than the other way around.
This means analysing:
- the contractual relationships;
- account ownership;
- flow of funds;
- payment instructions;
- role of banks and financial institutions;
- custody arrangements;
- customer terms;
- revenue model; and
- the precise service being marketed.
Small differences in structure can potentially produce materially different regulatory consequences.
Why Contractual Drafting Matters
The Betaal Garant judgment also demonstrates the importance of contractual drafting.
The parties’ agreement helped establish the commercial purpose of the arrangement and the respective roles of the participants.
For businesses seeking to operate outside the scope of PSD2, where legally possible, it is therefore important that the contractual documentation accurately reflects the actual commercial structure.
This does not mean drafting a contract to disguise a regulated payment service.
A contractual label cannot override the substance of an arrangement.
It means that the legal documentation, operational model and movement of funds should all be aligned.
Where the business model says one thing and the contractual documentation says another, regulatory risk increases.
Regulatory Assessment Should Begin Before Launch
For businesses developing new payment-adjacent products, regulatory classification should form part of the initial product design process.
A business should not wait until the product is operational before asking whether its activities require authorisation.
The assessment should identify:
- whether the activity constitutes a payment service;
- whether any exclusion or limitation applies;
- whether the business requires authorisation or registration;
- whether customer funds are being held in an appropriate structure;
- which entity should enter into the relevant contracts;
- which entity should interact with the banking infrastructure; and
- whether the contractual and operational model remain consistent with the intended regulatory position.
This is particularly important for cross-border businesses operating across several European jurisdictions.
A European Judgment with Practical Maltese Relevance
Although Betaal Garant arose from proceedings in the Netherlands, its interpretation of PSD2 is relevant across the EU.
For businesses operating in Malta, the judgment may therefore be relevant when assessing business models involving client funds, escrow arrangements, marketplaces and other payment-adjacent services.
The fact that a business is established in Malta does not alter the need to assess the activity against the applicable European regulatory framework.
Where a Maltese business provides services across borders, the analysis may also need to consider the interaction between the Maltese regulatory framework, PSD2 and the rules applicable in the jurisdictions into which the services are provided.
The judgment is therefore particularly useful as a reminder that regulatory classification follows the substance and structure of the service, not simply the fact that money passes through an intermediary.
A Practical Compliance Checklist
Before launching or restructuring a business model involving client funds, an operator should consider whether it has properly documented:
- the contractual purpose of the arrangement;
- ownership and control of the funds;
- the identity of the account holder;
- the legal relationship between the intermediary and the customer;
- the role of the bank;
- the mechanism by which funds are released;
- the conditions triggering payment;
- whether payment execution is performed by the intermediary or its bank;
- whether the intermediary maintains customer payment accounts;
- whether payment services constitute a standalone commercial activity; and
- whether the overall structure requires regulatory authorisation.
This analysis should be documented rather than left as an informal internal conclusion.
A regulatory perimeter assessment is most useful when it can be demonstrated through the business model, contracts, account structure and operational procedures.
The Importance of Professional Advice
The Betaal Garant judgment provides useful clarification, but it does not remove the need for a case-by-case regulatory analysis.
Businesses handling client funds should not assume that the absence of a conventional payment service label means that PSD2 is irrelevant.
Equally, businesses should not assume that every structure involving the receipt and transfer of funds automatically requires payment institution authorisation.
The distinction lies in the precise legal and commercial structure of the service.
Professional advice may therefore be required to:
- assess whether a business model constitutes a payment service;
- analyse the application of PSD2;
- review escrow and client-money arrangements;
- structure contractual relationships between customers, intermediaries and beneficiaries;
- assess account and fund-flow structures;
- review fintech and marketplace models;
- identify potential licensing or registration requirements;
- assess cross-border regulatory implications; and
- coordinate the legal analysis with the operational and technological architecture of the business.
The most effective time to undertake this analysis is before the business model is launched or materially changed.
How Promethean Can Assist You
Promethean advises businesses, entrepreneurs, fintech operators and international clients on Maltese regulatory, commercial and contractual matters.
Our services include:
- assessing whether business models fall within the regulatory perimeter applicable to payment services;
- advising on PSD2 and payment services regulation;
- reviewing escrow, security deposit and client-money arrangements;
- structuring contractual relationships involving the receipt and release of funds;
- advising marketplaces and digital platforms on payment-related structures;
- reviewing fintech business models and operational arrangements;
- drafting and reviewing commercial agreements governing the movement of funds;
- assessing licensing and regulatory requirements;
- advising on cross-border regulatory considerations; and
- coordinating legal, regulatory and contractual considerations when implementing new financial or technology-driven business models.
Promethean assists clients in navigating the increasingly complex boundary between regulated financial services and ancillary commercial activities, with a particular focus on ensuring that the contractual documentation, operational structure and regulatory position of the business are properly aligned.
For further information regarding the implications of the Betaal Garant judgment, PSD2, escrow arrangements, client funds or payment-related business models in Malta, please contact us.
