“Buy-Sell” Model (Reseller) Activity Exempt from Payment Services Licensing

The Israel Securities Authority recently published a staff legal position addressing the licensing requirements for businesses operating in the “Buy and Sell” or “Reseller” model in online marketplaces. The position clarifies the circumstances under which companies operating as “Reseller” will not be required to obtain a license under the Payment Services and Payment Initiation Regulation Law.

This is the first ISA staff legal position dealing with the interpretation of the term “payment services” and the boundaries of the license requirement.

Regulatory Framework

The Payment Services Law came into effect in June 2024 aiming to open Israel’s payment services market to competition while protecting consumers. The law requires businesses providing payment services including classic payment services (payment instrument issuance, payment transaction clearing, payment account management) and advanced technological services (advanced and basic initiation services) to obtain a license from the ISA. The term “payment services” is broadly defined in the law, encompassing activities of intermediaries and platforms.

Following submissions to the ISA, the staff was required to examine the nature of service providers’ activities on a Marketplace-type online platform – a platform connecting buyers and sellers. The “Marketplace” term contains various types of activities, some of which require an Authority license – such as processing or payment means issuance – and some of which do not.

When operating on an online platform, it can be challenging to classify and distinguish between activities requiring a license and those that do not. Therefore, the ISA staff position is intended to outline the criteria used to characterize a Reseller business model operating on an online platform that is not subject to licensing under the Payment Services Regulation Law.

The Reseller Model

The staff position provides a framework for identifying companies operating in the “Buy and Sell” model in an online market that do not need a payment services license. The emphasis is on the Reseller’s independence in transactions with the supplier and the end customer, as well as the Reseller’s responsibility for financial risk and product and/or service delivery.

A “Reseller” is defined as an entity that:

• Acts as an independent entity purchasing goods or services from suppliers and sells them to end customers;
• Bears the financial risk of transactions;
• Serves as the direct payment beneficiary;
• Engages in two separate contractual relationships, one with the supplier and the other with the customer.

1. Supplier-Reseller Relations:

• There exists a distinct contractual agreement whereby the Reseller purchases goods or services from the supplier at defined terms and at a specified price.
• Ownership transfers to the Reseller or the Reseller gains the right to receive the service.
• The Reseller’s payment obligation to the supplier is independent of payment collection from the end customer.

2. Reseller-Customer Relations:

• A distinct contractual agreement exists whereby the end customer purchases a product or service from the Reseller under defined terms and for a detailed consideration. In other words, it is clear to the end customer that they are engaging with the Reseller;
• The Reseller receives payments directly from end customers;
• The Reseller is responsible for product or service delivery, including compensating the customer in case of failure or damage. To meet this obligation, the Reseller must provide the customer with service at an acceptable standard and serve the end customer by responding to inquiries, complaints, and clarifications.

Activity meeting the guidelines outlined in the ISA staff position is not subject to payment for a service provider license. Companies operating as a Marketplace are required to examine their business model against the ISA staff position to determine whether they require a license or not.

The staff position emphasizes that even if a business meets the Reseller definition, it will still be required to obtain a license if it also provides payment services under a different model.

Timeline

Following the publication of the staff position, an extension was granted to entities that may fall under the Reseller definition and that are required to examine their activities according to the detailed characteristics and criteria. Accordingly, the ISA determined that Marketplace operators are granted an extension to submit a license application until 31.3.2025 and continue to enjoy the transitional provisions.

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Adv. Anat Even-Chen, a partner and head of the firm’s regulatory practice, and Adv. Ori Rodriguez, are at your service to answer any questions about these issues.