Israel: Regulation of Payment Services Law Comes into Effect

Approximately a month ago, the Regulation of Payment Services and Payment Initiation Law came into effect. Relevant entities may now submit license applications for providing payment and payment initiation services.

Accordingly, such entities may no longer offer payment services without an appropriate license under the law or within the framework of the defined transitional provisions.

In parallel, the Knesset Economic Affairs Committee approved several important exemptions.

The Approved Exemptions

1. Issuer/acquirer with a low volume of activity

Issuers of means of payment and acquirers whose average monthly volume of funds received or transferred does not exceed ILS 5 million are exempt from the licensing requirements. The calculation will be carried out based on a three-month average.

2. Manager of a payment account with a low volume of activity

The committee granted an exemption to managers of payment accounts in which the maximum daily accrued balance is ILS 1,500 for an unidentified customer, or ILS 3,000 for an identified customer where the maximum total daily balance does not exceed ILS 5 million.

The exemption regulations also prescribe a transitional provision enabling those eligible for an exemption to submit a license application within maximum of 3 months of exceeding the exemption thresholds and to increase their volume of activity to ILS 7 million during the application review period.

3. Payment services in a closed system

The issuance of means of payment (gift cards) for use in a group of companies controlled by a single entity is exempt from the licensing obligation, provided the maximum accrued sum is ILS 1,500 in an anonymous gift card and ILS 3,000 if a particular payer designates the payment account for use.

As for gift cards redeemable other than in a closed system, the committee granted an exemption from the licensing requirement until June 6, 2027, during which time there is an intention by the regulator to examine the correct legal arrangement for these types of means of payments.

4. Welfare cards

The committee granted an exemption for welfare cards issued by a governmental body or non-profit organization, provided the cards cannot be recharged and the maximum amount is ILS 1,500.

Timetables

Below are the main deadlines for actors in the sectors have to be aware of in order to continue and offer their services:

1. August 6, 2024

Payment services providers offering services pursuant to an exemption have to include a disclosure that the ISA does not supervise them and that they act pursuant to an exemption in any place of business, website, application and any customer solicitation, and as of December 31, 2024 and the extent possible on any means of payment issued.

2. September 6, 2024

Any entity providing payment services without a license, such as foreign entities or financial institutions that were exempt from the licensing requirement until now, may continue providing its services until a decision is made, only if submitted a license application to the Israel Securities Authority and received the ISA’s acknowledgement of receipt of its application by September 6, 2024.

3. December 6, 2024

By this date,  any entity holding an acquirer license issued by the Bank of Israel until now and not providing prudential payment services must issue notice to and receive approval from the ISA by this deadline.

4. December 6, 2024

Any entity engaging in a basic payment initiation service must obtain an approval from its current regulator after submitting a license application for the provision of basic payment initiation services.

5. December 31, 2024

E-commerce sites that broker between sellers and buyers and provide incidental payment services must apply for a license, in accordance with the exemption regulations.

6. December 31, 2024

Any entity managing payment accounts for customer loyalty clubs will receive an exemption until this date, after which it must submit a license application in accordance with the exemption regulations.

7. December 6, 2025

Licensed financial asset service providers and licensed credit service providers also engaging in payment services must issue notice to the ISA by this date in order to continue their activities until 24 months after the law’s inception date, i.e., June 6, 2026.

We stress that the law’s definitions are very broad. Thus, any entity handling money for a third party should ascertain if it is subject to a licensing obligation and in what category as soon as possible, in order to understand what actions it must take.

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Barnea Jaffa Lande’s regulatory practice stands ready to help those engaging in payment and payment initiation services prepare for the enforcement stage of this law, and to assist with any other issues.

Adv. Anat Even-Chen heads our firm’s regulatory practice.