ECJ restricts scope of PSD2: return of the ancillary services exemption?

There is an old saying: if you think you may be providing payment services, you probably are. And if you transfer funds, you definitely are. While the point is slightly more nuanced in practice, a main reason for the wide scope of payment services legislation is that there are many services that incidentally also move funds for customers- even if it is not at the heart of the service provided.

Should this require the service provider to become a regulated PSP?

Background 

Under the first Payment Services Directive (PSD1), recital (6) PSD1 confined the application of the Directive to "payment service providers whose main activity consists in the provision of payment services to payment service users." This effectively allowed businesses that transferred funds only as an ancillary part of a broader, non-payment-service activity to operate outside the regulatory perimeter. When PSD2 replaced PSD1, however, this "main activity" language gave way to the narrower formulation of "regular occupation or business activity" in recital (24). Some national regulators seized on the change: Germany's Bafin, for instance, stated that the authorisation requirement is not waived merely because payment services are provided as a secondary activity alongside a non-financial main business. Other regulators, such as the Dutch Central Bank (DNB), took the position that a licence is required if the provision of payment services is a separately identifiable activity that is not inextricably linked to another activity unrelated to payment services. 

Against this backdrop, the question of whether services that are plainly incidental to a primary non-payment business can escape PSD2 altogether has remained one of the more longstanding perimeter issues in European payments regulation. On 16 July 2026, the European Court of Justice (ECJ) weighed in (EUR-Lex - 62025CJ0051 - EN - EUR-Lex), and its answer, in Betaal Garant (Case C-51/25), may rejuvenate the debate. 

The facts

Betaal Garant offered a security deposit product to parties to a construction works contract on the basis of a tripartite agreement concluded between the client, the contractor, and Betaal Garant. The purpose of the security deposit was to cover the risk that the client may default before it has paid the contractor, since the contract would allow payment in installments. The client would pay the deposit into an account held by Betaal Garant Foundation, a foundation linked to Betaal Garant. If the construction was performed to the satisfaction of the contractor and the client, and that had been notified to Betaal Garant in writing, the security deposit would be paid out to the contractor. That amount would then be transferred from the payment account of the Betaal Garant Foundation to that of the contractor (or, if the contractor had gone bankrupt, to a replacement contractor).

The dispute 

The Dutch Regulator, DNB, and the District Court of Rotterdam considered these activities to constitute a licensable payment service by Betaal Garant. More specifically, DNB stated that the activities amounted to the execution of payment transactions, on the basis that the two fund transfers constituted a single payment transaction carried out by Betaal Garant on behalf of the client.

The Dutch Supreme Administrative Court for Trade and Industry (College van Beroep voor het Bedrijfsleven) was less certain of DNB's conclusion and submitted a request for a preliminary ruling to the ECJ. It remarked that it appeared there were instead two separate payment transactions being executed by, respectively, the bank of the client and the bank of Betaal Garant Foundation - and not a payment transaction executed by Betaal Garant.

Advocate General Campos Sánchez-Bordona delivered an Opinion concluding that the service provided by Betaal Garant does not constitute a payment service. The AG argued that PSD2's stringent requirements for authorisation, supervision, and capital would be disproportionate if applied to purely ancillary services, and that Betaal Garant's main activity was providing real estate security deposit services, not payment services.

The ruling

The ECJ confirmed that a service of receipt and forwarding of funds provided by an entity acting as an intermediary does not constitute a "payment service" within the meaning of Article 4(3) PSD2 - and more specifically does not amount to a "credit transfer" - where, in the context of a tripartite agreement concluded with a client and a contractor, that entity receives the client's funds into the payment account of an affiliated foundation and then transfers them to the contractor from that account, with the client's consent.

The ECJ based its ruling on two key considerations:

• the existence of a payer’s payment account and the holding of that account by the PSP are characteristic elements necessary to establish that a payment transaction consists of a procedure for the ‘execution of credit transfers’ (within the meaning of point 3(c) of Annex I to PSD2). Since the payment accounts are held by the banks and not by Betaal Garant, Betaal Garant does not execute credit transfers.

• the requirements relating to the authorisation of payment institutions, prudential supervision and civil liability imposed by PSD2 are not justified if transfers of funds are made only in order to carry out another service offered as the primary service, as is the case here, namely a service for the provision of an equivalent guarantee, an activity which, in itself, does not fall under the provisions of that Directive. 

What does it mean in practice?

On the one hand, the ECJ's ruling is not surprising: The execution of credit transfers requires the holding of payment accounts on behalf of the payer. Since Betaal Garant was not holding payment accounts for its clients it did not execute credit transfers. 

Unfortunately, the ECJ's ruling is not entirely conclusive on whether Betaal Garant may have provided a payment service other than the execution of a credit transfer - notably, money remittance (point 6 of Annex I to PSD2), which does not require the holding of a payment account on behalf of the payer. In fact, regulators often qualify similar setups as “money remittance” rather than a “credit transfer”, such that the broader reading would also have broader implications. Whether the ECJ's ruling also meant to rule out the provision of other payment services depends on whether its ruling, “(…) does not constitute a ‘payment service’, within the meaning of Article 4(3), and more specifically a ‘credit transfer’, (…)”, is meant to only refer to credit transfers or also to credit transfers. In light of the ECJ's rationale and the wording in other language versions of the ruling, such as the Dutch and German versions, the broader interpretation seems to have the stronger case.

More importantly, the ECJ's rationale opens the door to more robustly argue that a transfer of funds which is made only as an ancillary service to an (unregulated) primary service should not require authorisation under the PSD2. If taken seriously, this aspect of the judgement could have a wide range of applications beyond the facts of the case.

It is not clear yet how regulators will implement the ruling in their administrative practice, in particular those regulators, like Bafin, that have explicitly ruled out any exemption for “ancillary services” in their guidance. Firms are well advised to revisit whether the ECJ ruling provides the opportunity to simplify their operational setups where more complex alternative solutions have been implemented to comply with the regulatory perimeter of PSD2.