From Tap to Transfer – Making Sense of Banks and Payment Service Providers
Every time you pay for your groceries, book a ride, or shop online, you’re using a financial service – either a bank or a financial institution, even if you don’t realise it. The world of payments is a fast-paced environment where new methods of payment are constantly being developed.
The payment sector is a core component of the financial system which enables modern economies to function smoothly, where consumers and merchants need to have effective and convenient means of making and receiving payments.
Traditional Banks are the principal providers of payment accounts, payment instruments and general payment services to payment services users, however it is increasingly visible that more and more financial institutions, are now also entering the market to provide services at various stages of the payments value chain. In fact, they play a central role in the initiation and processing of electronic payments.
X’inhuma l-Istituzzjonijiet Finanzjarji?
From Tap to Transfer: Making Sense of Banks and Payment Service Providers
What is a Payment Service Provider?
1. What is a Financial Institution?
Financial Institutions may be broadly categorised into two categories:
- Electronic Money Institutions (EMIs): EMIs issue electronic money, also known as e-money, which is stored digitally on a payment device in the possession of the electronic money holder (i.e. a physical device) or stored remotely at a server and managed by the electronic money holder through a specific account for electronic money (i.e. a non-physical device). The electronic money may then be used to pay for goods and services.
- Payment Institutions (PIs): PIs provide a range of payment services (as further detailed in the reply to question 4. For example, a consumer may use a PI whenever they require to send money abroad.
2. What Services Do Payment Service Providers (PSPs) Offer?
PSPs offer a variety of payment services such as enabling businesses to accept credit and debit card transactions as well as to accept various payment methods by working with banks and acting as a bridge to the rest of the financial system. PSPs may also offer additional related services such as currency exchange, transaction reconciliations and fraud management.
3. Which Activities Fall into Scope of a Payment Service?
The most common types of payment services include:
- Cash Deposit and Withdrawal onto a Payment Account: This involves the opening of a payment account, where money may be deposited and withdrawn.
- Offering Customers to Make or Receive Payments into their Payment Accounts: This involves carrying out payments on behalf of customers, including the transfer of funds, from the customer’s payment account opened with the PSP to another account held by a third party. The payment transactions may be made through the usage of credit cards, debit cards, prepaid cards and similar payment instruments.
- Money Remittance: Sending or receiving money locally or abroad without needing a payment account
- POS Service: Merchants typically install a Point of Sale systems (POS) to allow customers to pay for goods using their cards. In this scenario, the PSP mediates the acceptance of the card and the transfer of funds in terms of the sales made through a credit or debit card. PSPs typically offer their own POS to merchants to install at their sales outlets and enter into an agreement with a bank (acquirer) which would be connected to the card schemes (such as Visa or Mastercard) in order to accept and process the card transactions made by consumers.
4. What is the Difference between a Bank (Credit Institution) and a Financial Institution?
Banks/Credit institutions take money from customers as deposits and lend it to others or invest it– this is referred to as the ‘business of banking’. On the other hand, a financial institution is an institution whose main activity consists of (although not limited to) providing payment services and, or of issuing electronic money.
One of the main distinctions between a financial institution and a bank is that a financial institution may only accept funds for the exclusive purpose of providing a payment service and may not use the money which has been received from customers to finance its activities. Contrarily, a bank may accept funds as deposits and use those same funds to fund its own activities (such as for granting loans or investing).
5. How Can One Check Whether a Financial Institution is Authorised and What Services is it Permitted to Provide?
Check if your financial provider is licensed on the MFSA Financial Services Register.
It is possible for an EU regulated PSP to provide services in Malta on the basis of an EU passport. The names of such entities are also included in the MFSA Register.
If the name of the institution appears in the register, you can find more details about the institution, including what services it is allowed to provide.
If no result turns up it means the institution is not authorised to provide services in Malta.
Since trade names are not listed on the register, you should always look up the name of the institution which operates the trade name not the trading name itself. You can normally find this at the bottom of your provider’s website, or in its terms and conditions.
6. How Are You Protected If Your Financial Institution Fails?
Like banks, financial institutions must follow strict requirements to protect customer funds. In cases where a financial institution fails, your money is protected through safeguarding measures, which are specifically designed to ensure customer funds are kept secure and separate from the institution’s own assets.
Banks participate in the Depositor Compensation Scheme, a rescue fund that compensates eligible depositors if a licensed bank is unable to meet its obligations up to EUR 100,000 per depositor per bank. Financial institutions, on the other hand, must comply with safeguarding requirements that ensure client funds are either held in segregated accounts or otherwise protected through insurance or similar guarantees.
While the protection mechanisms are different, both are designed to protect customers in the event of institutional failure.
7. How to Make a Complaint
Any complaints should first be sent in writing to the relevant financial institution explaining what the problem is and how you deem that it can be resolved. This is required in order to give the opportunity to the financial institution to look into your complaint first. In those instances where the reply of the financial institution is not to your satisfaction or you have not received any feedback within 15 working days you may then submit a complaint to the Arbiter for Financial Services.
