Payment services

FinTechs belonging to this category offer alternative payment services which are supposed to provide a faster and cheaper way for national, European, and international payments for private and business customers by using new technologies.

For example, payment service providers hereby offer solutions to easily integrate several payment services in online shops.

Some FinTechs furthermore provide real cash register systems and online-reservation solutions for restaurants and shops providing their own payment services or making use of the payment services of FinTechs described above.

Introduction

Attitude of the country towards modern payment services

The Czech Republic (“Czechia”) has always been a “FinTech-friendly” country, especially when it comes to payment services. 

One example of the Czechs’ inclination towards new technologies could be retail payments. Based on the published statistical data, already in 2020, more than half (54%) of the retail transactions were cashless, with a presumed further decrease in cash payments in 2021 (also due to the corona pandemic). Furthermore, contactless payments have always been very popular in Czechia, and 2021 was no different. According to information published by Mastercard, in 2021, approx. (i) 98% of payment cards distributed in Czechia allowed contactless payments, and (ii) 96% of retail payments were contactless (initiated either by card, smartphone, or wearable). This trend also affects the acquirers' side, as 93% of retailers already accept contactless payments. The corona pandemic has also led to an increased usage of 'Buy Now, Pay Later' payment solutions in e-commerce (in Czechia offered e.g. by Twisto or Equa bank) or QR code payments in restaurants (Qerko).

The described approach of Czechia somewhat resembles that of the Czech National Bank (‘CNB’) – i.e. the Czech regulator overseeing the provision of financial services – which e.g. pro-actively decided to create a new communication channel explicitly dedicated to financial innovations to receive inquiries from all financial market participants.

Legal affairs

Obligations and requirements to provide payment services or ancillary services described above

In the Czech Republic, payment services are regulated in the Payment Services Act (Zákon o platebních službách – “ZPS"). In addition to the ZPS, anti-money laundering and data protection regulations must also be complied with.

According to the ZPS, a license is required to provide payment services as a business activity, unless any of the exclusions applies. These exclusions correspond with those laid down by the Second Payment Services Directive.

The ZPS presumes five types of licenses, each of them covering different types or different scope of payment services, i.e.:

• payment institution license – depending on the scope of the license, the payment institution may provide all types of payment services without any limitations, however, it cannot issue electronic money;
• e-money institution license – depending on the scope of the license, the e-money institution may provide all types of payment services without any limitations and it may also issue electronic money;
• small-scale payment services provider license – depending on the scope of the license, small-scale payment services provider may provide all types of payment services except for payment account information service or payment initiation service and there is also a limit imposed on the average amount of payment transactions made in one month (EUR 3 mil.);
• small-scale electronic money issu

er license – depending on the scope of the license, the small-scale electronic money issuer may provide all types of payment services except for payment account information service or payment initiation service and it may also issue electronic money, however, there is also a limit imposed on the average amount of electronic money issued (EUR 5 mil.) and on the average amount of payment transactions not related to electronic money made in one month (EUR 3 mil.);

payment account information administrator license – the payment account information administrator may only provide payment account information service.

The costs of a licensing procedure include the administrative fee (up to CZK 50,000, i.e. approx. EUR 2,000) and additional legal and other associated costs of up to dozens of thousands of euros, depending on the license type and on which and how many types of payment services the license is supposed to cover.

To get a license, among other things, the applicant must have a business model setting out, in particular, the type of the envisaged payment services and evidence must be shown that the payment institution has the amount of initial capital of up to EUR 125,000.00 depending on the exact payment service to be offered; for e-money institutions, similar requirements apply with the difference, that an e-money institution needs initial capital of at least EUR 350,000.00.

Additional comments regarding the legal situation for payment services or what FinTech’s must be aware of in this business area

Most of the Czech regulatory requirements are based on EU law or are influenced by EU-wide developments, which allows foreign countries to set up their businesses in Czechia without the need for significant changes in their business models. Also, the approach adopted by the Czech regulatory authorities could be described as friendly (i.e. they do not hamper innovations) but strict (i.e. they do care about a safe and sound financial system, incl. payment services).

Economic conditions

Market size for payment services and biggest payment service providers

Payment Services probably make up the largest FinTech market segment in Czechia, with a continuous increase in cashless payment solutions. Based on the data published by the CNB in accordance with the EU Regulation 1409/2013, the following can be concluded for 2020:

• The number of payment cards issued by the banks only was almost 14 million (the population in Czechia is less than 11 million), while on the other hand, the number of ATMs has slightly decreased;
• An increase in the number of payment transactions can be witnessed, with approx. 911 mil. payment orders initiated through internet banking (i.e. approx. 15 mil. more than in 2019) and 1,5 billion transactions initiated with payment cards (i.e. approx. 200 mil. more than in 2019). On the other hand, the number of cash withdrawals from ATMs decreased to approx. 140 mil. transactions (more than 30 mil. transactions less than in 2019);
• A similar trend can be seen regarding the amounts of the payment transactions initiated. In 2020, credit transfers initiated through internet banking amounted to approx. 154 billion CZK (i.e. approx. 5 billion CZK more than in 2019), however, there was a decrease in direct debits to approx. 168 billion CZK (i.e. approx. 23 billion CZK less than in 2019). As for the payment card transactions, there was a significant increase to approx. 926 billion CZK (i.e. approx. 120 billion CZK more than in 2019).

The biggest payment services providers in Czechia are banks – e.g. Ceská sporitelna (ERSTE), CSOB (KBC), Komercní banka (SG), MONETA.

Additional comments regarding the economic situation for payment services or what FinTech’s must be a

ware of in this business area Dominant challenges for FinTech companies lie in the field of data security, protection of personal data, and anti-money laundering. Creating a user-friendly onboarding system compliant with anti-money laundering regulations can sometimes be a challenge.