Does the recent decision in Betaal Garant clarify the regulatory perimeter of payment services?

Overview

On 16 July 2026, the Court of Justice of the European Union (CJEU) delivered its judgment in Betaal Garant Nederland CV v De Nederlandsche Bank NV (Case C-51/25).

The CJEU was asked to determine whether the business activities of the plaintiff, Betaal Garant Nederland CV (Betaal), which offers (among other services) a security deposit service for real estate construction contracts (as an intermediary party), constitutes a "payment service" within the meaning of Article 4(3) of Directive 2015/2366 (PSD2), and more specifically a “credit transfer” as referred to in in point 3(c) of Annex I to PSD2.

The CJEU held that, based on the specific facts and circumstances, the receipt and forwarding of client funds as part of Betaal’s security deposit service, pursuant to a tripartite agreement, does not fall within the definition of "payment service", and more specifically, within the meaning of “credit transfer” under PSD2. While the CJEU reached the same conclusion as Advocate General Manuel Campos Sánchez-Bordona (AG), it did not address all of the AG’s arguments and did not specifically refer to money remittance, which would typically also be considered in an escrow type analysis.

See our previous client insight on the AG’s Opinion.

The CJEU’s decision has the potential to push EU national competent authorities to reconsider how they interpret the definition of "payment services" and the meaning of execution of credit transfers.

The significance of the case is underscored by the range of parties that submitted observations to the CJEU. The Dutch government supported the position of its supervisory authority, arguing that the services should be regarded as a payment service. The Italian government and the European Commission disagreed, submitting that Betaal's business model did not constitute a payment service. The Czech government considered the activities to constitute a payment service only under certain conditions, and the Norwegian government argued that the service constituted money remittance.

This article sets out the circumstances that gave rise to the underlying dispute, which originated in the Netherlands, the reasoning behind the CJEU's determination, and the potential implications for regulated firms and businesses operating escrow-type or intermediary fund-holding arrangements.

Facts leading to the preliminary reference to the CJEU

Betaal offers a security deposit service relating to real estate construction contracts. Under this service, the final instalment of the construction costs payable by an individual (Client) to a building contractor (Contractor) is held by an intermediary pending satisfactory completion of the construction works. The arrangement is designed to protect the Contractor against the risk of the Client defaulting on the final instalment notwithstanding satisfactory completion of the works.

Pursuant to a tripartite agreement between Betaal, a Contractor and a Client:

• The Client transfers the final instalment to the Betaal Foundation (a foundation affiliated with but separate to Betaal), which retains the funds in a payment account in its own name.
• Upon notification by the Contractor and the Client that the construction project has been satisfactorily completed, the funds are transferred to the Contractor.

It is important to note that under this contractual arrangement:

• Betaal and the Betaal Foundation do not have payment accounts in the name of a Client
• the transfer of funds to the Contractor is made from the payment account of the Betaal Foundation, and not from a Client's payment account
• Betaal and the Betaal Foundation cannot manage or trade with the funds that make up the security deposit
• Betaal deducts a commission before the funds are transferred to the Contractor

Betaal's security deposit service came under the scrutiny of the Dutch supervisory authority, De Nederlandsche Bank (DNB). The DNB formed the view that Betaal was conducting a "payment service" in the form of the execution of a payment transaction (more specifically, the execution of a credit transfer) under Article 4(3) of PSD2 and point 3(c) of Annex I of PSD2, for which it did not have the necessary authorisation under Dutch transposing legislation. The DNB ordered Betaal to cease offering the security deposit service and imposed a penalty payment.

The referring court sought a preliminary ruling from the CJEU regarding the interpretation of the definition of "payment services" under PSD2 for it to determine the legality of the DNB's order for Betaal to cease offering the service until the necessary authorisation is granted.

The CJEU’s ruling

The CJEU ultimately determined that, based on the specific facts and circumstances, the security deposit service offered by Betaal should not be classified as a "payment service" as defined in Article 4(3) of PSD2, when read in conjunction with point 3(c) of Annex I of PSD2.

The Court concluded that:

• Article 4(3), read in conjunction with point 3(c) of Annex I, must be interpreted as meaning 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), and more specifically 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 a foundation which is linked to it and then transfers them to the Contractor from that account, with the Client’s consent
• providers of security deposit services which use, in an ancillary manner, payment services offered by other providers providing such services as a primary service in the exercise of their regular occupation or business activity fall outside the scope of the definition of “credit transfer” in PSD2

In coming to its conclusion, the CJEU made a number of points, as summarised below.

Payment service provider must hold payer’s payment account

Based on a literal interpretation of the definitions of “credit transfer” and “payer” (which is referenced in the aforementioned definition) in PSD2, the CJEU concluded that the execution of a credit transfer requires the payment service provider (PSP) to hold the payer’s payment account. As the payment accounts in question are held by banks, and not by Betaal, the CJEU concluded that Betaal does not execute credit transfers.

The CJEU stated that the execution of payment transactions and credit transfers falls under the responsibility of the respective PSPs of the client and the Betaal Garant Foundation, without the underlying contractual relationship between the Client, Betaal Garant and the Contractor having any bearing or relevance. Rather, the payment service contract each party has with its respective PSP governs the provision of the payment services.

The CJEU determined that the actual service Betaal offers is a personal guarantee which is provided as an alternative to the service of depositing a security deposit with a notary in accordance with Article 767 of Book 7 of the Netherlands Civil Code. The provision of such guarantee is “neither defined nor governed” by PSD2 and therefore falls outside its scope.

Provision of a payment service as a “regular occupation or business activity”

The CJEU appears to conclude that a payment service must be carried out as a regular occupation or business activity for it to fall within the scope of PSD2. However, the CJEU’s comments are somewhat ambiguous in this regard.

The CJEU referred to recital 24 of PSD2, which states that the application of the PSD2 framework should be “confined to service providers who provide payment services as a regular occupation or business activity in accordance with this Directive”. It also referred to the definition of “payment service", which says a payment service is a “business activity”. On this basis, the CJEU concluded that the authorisation, prudential and liability requirements under 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”.

This aspect of the judgment revives a longstanding debate about the boundary between regulated and ancillary payment activity. Recital 6 of the first Payment Services Directive confined the regulatory perimeter to providers “whose main activity consists in the provision of payment services”, language that arguably let businesses move funds incidentally to a broader activity without becoming a regulated PSP. PSD2 replaced this with the narrower “regular occupation or business activity” formulation. Since then, national regulators have taken divergent approaches, varying between no authorisation being required where payment services form a separately identifiable activity that is not inextricably linked to another activity, and stricter views which state that authorisation is not waived merely because payment services are provided as a secondary activity alongside a non-financial main business. The CJEU’s judgment lends support to the more permissive end of this spectrum without expressly resolving the divergence between national regulators. The practical effect of the ruling may vary across EU Member States, with some regulators needing to revisit escrow and platform classifications, although it remains to be seen how quickly national guidance will be updated to reflect the CJEU’s reasoning. The Central Bank of Ireland does not have guidance on this topic.

Consumer protection objective cannot alter the scope of PSD2

The DNB had proposed a broad interpretation of PSD2 taking into account its consumer protection objective and cited Recital 6. However, the CJEU determined that PSD2’s consumer protection objective cannot, by itself, alter or extend the scope of the Directive or its key concepts and definitions beyond their wording. Furthermore, such an interpretation would run counter to the objective of ensuring legal clarity in the area of payment services.

Key takeaways and practical implications

The CJEU’s judgment is significant and could have material implications for businesses that hold or transfer funds as part of a broader commercial service:

• Businesses operating escrow-type or intermediary fund-holding arrangements, including online platforms, facilities agents, and paying agents, should assess whether their activities might fall outside the scope of regulated payment services under the CJEU’s reasoning.
• The CJEU’s endorsement of a de facto ancillary activity privilege could provide relief for entities that currently obtain (or are required to obtain) payment services authorisation solely because of fund transfers that are incidental to their main business. However, the boundary between a "main" and "ancillary" payment service activity is inherently fact specific. For regulated firms operating in Ireland, the ruling could prompt a review of how the Central Bank of Ireland approaches the perimeter of regulated payment services. Firms operating business models that involve holding or transferring funds on an ancillary basis should consider the CJEU's judgment and how it may affect their regulatory obligations.

Conclusion

The judgment provides helpful clarification on the limits of PSD2, but its application will remain highly fact specific. It also remains unclear how far the ruling’s practical consequences will extend where potential payment services are provided only on an ancillary basis and without the provider holding a payment account for the payer and whether the same reasoning applies to money remittance and other payment services beyond credit transfer. That question may ultimately be resolved through more CJEU litigation or through the forthcoming Payment Services Regulation reforms.

Firms whose business models involve holding or transferring client funds as part of a wider commercial service should review their arrangements carefully and consider whether the ruling affects their regulatory analysis or authorisation position.

For further information on this case and its potential impact for financial institutions operating in Ireland, please contact Eimear O'Brien, Partner, Louise Hogan, Partner, Eoin O Connor, Partner, Patrick Brandt, Partner, Sarah Lee, Senior Practice Development Lawyer or your usual ALG contact.

Date published: 28 July 2026