Payment Services Exemptions
Introduction
Not all payment-related business models require authorisation as a payment service provider. The Payment Services Directive (PSD2), and its national implementations across the UK and EEA, include a number of exemptions that allow certain activities to fall outside the scope of regulation when applied correctly.
Two of the most commonly relied upon — and most frequently misunderstood — exemptions are the Limited Network Exemption and the Commercial Agent Exemption. While these exemptions can be legitimate, regulators expect them to be applied narrowly, supported by clear documentation, and reviewed on an ongoing basis as a business evolves.
Exemption / Exclusion Types
Limited Network Exemption
The Limited Network Exemption applies where a payment instrument can be used only in a limited way, such as within a specific retailer, a clearly defined network of service providers, or for a limited range of goods or services.
Typical examples include closed-loop gift cards, merchant-specific wallets, or instruments restricted to a defined ecosystem. The exemption is not intended for open or general-purpose payment products, even where contractual or technical restrictions exist.
Key considerations typically assessed by regulators include:
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How narrowly the network or range of goods and services is defined
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Whether the payment instrument could realistically function as a general means of payment
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The size, composition and growth of the network over time
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How the product is marketed and presented to users
Where transaction volumes exceed applicable regulatory thresholds, firms are generally required to notify the relevant national competent authority and provide supporting information to demonstrate continued reliance on the exemption. Exceeding a threshold does not automatically disapply the exemption, but it does increase supervisory scrutiny.
Commercial Agent Exemption
The Commercial Agent Exemption applies where a firm acts as an intermediary authorised to negotiate or conclude the sale or purchase of goods or services on behalf of one or both parties to the transaction.
This exemption is commonly considered by platforms and marketplaces but is applied narrowly by regulators across the UK and EEA. In practice, it will not apply where a firm:
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Handles funds without genuine authority to negotiate or conclude the underlying transaction
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Operates primarily as a payment intermediary rather than a true commercial agent
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Lacks clear and effective contractual authority on one or both sides of the transaction
Regulators place significant weight on the substance of the arrangements, including contractual terms, actual conduct, and the flow of funds. Simply labelling a firm as an “agent” is not sufficient for the exemption to apply.
Other exemptions and out-of-scope activities
In addition to the Limited Network and Commercial Agent exemptions, PSD2 recognises other situations where activities may fall outside the scope of payment services regulation.
Firms acting solely as technical service providers may be out of scope where they provide infrastructure or support services only and never hold or control client funds.
Territorial scope can also be relevant, where services are provided by firms entirely outside the UK or EEA. Such firms may not be in scope of regulation.
In limited cases, payment activity carried out only occasionally or incidentally to a non-payment business may also fall outside scope.
What regulators expect
Where firms rely on a payment services exemption, regulators expect a structured and well-documented assessment rather than informal assumptions. This typically includes a clear scope review of the business model, supported by an analysis that considers how funds move, how the product is used, and the associated contractual arrangements.
Firms are also expected to be able to evidence their position through written documentation, which will include an independent regulatory opinion that can be shared with regulators, banks, card schemes or partners.
For the Limited Network Exemption in particular, where transaction volumes exceed €1 million in any 12-month period, firms are required to notify the relevant authority and provide information supporting continued reliance on the exemption.
Exemptions should be kept under regular review, and reassessed where the business grows, products change, or contractual arrangements are amended.
Our Services
We support firms across the UK and EEA in assessing and relying on payment services exemptions, including:
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Structured scope and exemption analysis of your business model
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Funds-flow mapping and regulatory risk assessment
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Preparation of written regulatory opinions suitable for regulators, banks and commercial partners
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Support with Limited Network Exemption notifications, including preparation of the required information where transaction thresholds are exceeded
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Ongoing review as your business, products or contractual arrangements evolve
Get in touch
AuthoriPay Ltd, Milton Hall, Ely Road, Cambridge, CB24 6WZ.