Publication date: October 2, 2024
Last updated: December 19, 2025
The following fictional case scenarios illustrate the Bank’s approach to online marketplaces, and show examples of payment functions that are, and are not, incidental to a marketplace. These include the provision and maintenance of an account; the holding of funds on behalf of an end user; the initiation of an electronic funds transfer (EFT); authorization of an EFT and the transmission, facilitation or reception of an instruction in relation to an EFT; and the provision of clearing or settlement services.
The examples provided are not a replacement for the Criteria for registering payment service providers supervisory policy, but rather they are meant to complement the policy. They should be read in conjunction with the policy.
These examples build off each other. We recommend reading them in the order they appear.
Case scenario: Marketplace that relies on both buyers and sellers having a wallet account at a payment service provider (PSP)
Marketplace A is an online marketplace where individuals and businesses can buy or sell second-hand goods. Marketplace A charges third-party sellers a percentage fee on all sales made through its platform and in exchange for the fee, the marketplace provides services and supports, such as exposure to a broader customer base, a dispute resolution mechanism and embedded payment processing through PSP X.
To make transactions on Marketplace A, both the buyers and the third-party sellers (or, collectively, the “end users”) must have a wallet account with PSP X. End users can open a wallet account with PSP X directly by providing PSP X with the necessary personal and financial information, which includes linking a bank account or credit card. Once the buyers have created their wallet account, they can then either load funds using the linked payment method, or they can directly make a payment at the time of a purchase using a payment method they have associated with their PSP X wallet account, in which case the linked payment method will be debited for the sale amount by PSP X. Similarly, once third-party sellers have created their wallet account with PSP X, they can receive funds from sales made through PSP X, including on Marketplace A, and withdraw funds from PSP X to their bank account as desired.
When buyers wish to purchase items from Marketplace A and proceed to the checkout process on Marketplace A’s website, they are redirected to a payment page where PSP X’s solution is embedded. They are then prompted to log in to their PSP X wallet account and make the payment. Once the marketplace confirms to PSP X that the transaction was legitimate and is complete, PSP X settles the transaction to the seller wallet account by crediting them the amount of the sale minus a commission fee owed by the seller to Marketplace A for its marketplace services.
While Marketplace A stores some personal information of its end users, it does not store this information for the purpose of future payments. Rather, PSP X has all the information required to process transactions on behalf of Marketplace A’s end users. Funds owed to sellers remain under the control of PSP X, which receives the funds from the buyer side and splits them between Marketplace A in respect of its fees and the third-party sellers for the proceeds of their sales. As such, Marketplace A does not hold funds on behalf of sellers and, more generally, does not perform any payment functions within the scope of the Retail Payment Activities Act (RPAA).
Assuming that Marketplace A does not offer any other payment-related services, it is not a PSP and does not need to register with the Bank of Canada. However, PSP X is a PSP under the RPAA and needs to register with the Bank of Canada, assuming it meets the other registration criteria.
Case scenario: Marketplace that relies on merchant accounts with PSPs to take in and pay out funds
Marketplace B is a retailer whose e-commerce channel also features a marketplace for third-party sellers to sell their products alongside those of Marketplace B. Marketplace B charges third-party sellers a percentage fee on all sales made through its platform as compensation for providing the marketplace service.
Marketplace B has an agreement with PSP Y for acquiring and merchant-account services when payments by cards are made to purchase goods either sold directly by Marketplace B or by third-party sellers. To do so, PSP Y provides Marketplace B with a merchant account that tracks proceeds of sales made through Marketplace B’s e-commerce channel via various payment methods. In addition, Marketplace B works with another PSP—PSP Z—to later facilitate the remittance of payouts to the marketplace’s third-party sellers. To receive payouts, sellers must open a wallet account with PSP Z that is linked to their bank account. PSP Z also maintains a wallet account for Marketplace B.
To coordinate the payment flow, Marketplace B has put in place a tripartite agreement that establishes that PSP Y is to send funds related to marketplace payments to PSP Z. Within 48 hours of a transaction involving a third-party seller, funds are settled from the buyer to PSP Y, and PSP Y forwards the funds to a bank account controlled by PSP Z. PSP Z then credits the wallet account of Marketplace B with the commission amount due for the marketplace service. It also credits the wallet accounts of the third-party sellers for their sales minus the commission fee. Sellers can withdraw their sale proceeds from their PSP Z wallet to their linked bank account as desired.
As a result of the configuration established by Marketplace B, funds owed to the third-party sellers never enter into Marketplace B’s custody. Funds are forwarded as soon as possible from PSP Y to PSP Z, which then holds the funds on behalf of the sellers. As a result, Marketplace B does not hold funds on behalf of end users. Rather, Marketplace B’s role is limited to making sales-related information available on a timely basis to PSP Z to permit it to calculate and split the funds received from buyers between Marketplace B and the third-party sellers. In this case, the performance of payment functions by Marketplace B is incidental to the operation of the marketplace. To operate the platform, Marketplace B tracks data regarding the status of purchases made on its platform, the commissions it is owed by sellers, and must have a certain visibility in the payment process.
Using a merchant account does not automatically make a marketplace a PSP if proceeds from a seller never enter the marketplace’s custody. In other words, Marketplace B has structured its activities such that it does not take custody of funds owed to the third-party sellers and limits its involvement in the payment process to what is strictly necessary to support its marketplace service.
Assuming that Marketplace B does not offer any other payment-related services, it is not a PSP and does not need to register with the Bank of Canada. However, PSP Y and PSP Z are PSPs under the RPAA and need to register with the Bank of Canada, assuming they meet the other registration criteria.
Case scenario: Marketplace that directly remits payout sales to third-party sellers
Marketplace C is an online platform that sells its own selection of products but also allows third-party sellers to list goods on its platform. Marketplace C charges third-party sellers a percentage fee on all sales made through its platform in exchange for its services. Marketplace C has an agreement with PSP Y for acquiring and merchant-account services to be able to accept card payments from buyers. In addition, PSP Y acts as the payment gateway and processor for Marketplace C. Once PSP Y has processed a batch of transactions and receives the funds paid by the buyers, it transfers the funds to Marketplace C’s bank account.
Once it receives the funds, Marketplace C is responsible for making payouts to its third-party sellers. To facilitate this, it sorts transactions by destination and calculates final amounts due (i.e., to third-party sellers vs to Marketplace C either as a commission or for the sale of its own goods). It also tracks each seller’s sales and makes a dashboard available for sellers to view their sales history, balance and upcoming disbursements of funds. According to a fixed weekly schedule agreed with the seller, Marketplace C then transfers payout funds for all sales amounts made during that period minus the commission fee, from their bank account to the third-party seller’s bank account.
By receiving proceeds of sales and managing payouts to third-party sellers, Marketplace C performs the following payment functions: provision and maintenance of an account; holding of funds on behalf of an end user; initiation of an EFT; transmission, facilitation or reception of an instruction in relation to an EFT; and the provision of clearing or settlement services. Though these payment functions are performed in relation to transactions that arise from the marketplace, they result in the marketplace providing a payment service that, if it was not performed by the platform, would need to be provided by a PSP. As a result, the payment functions performed by Marketplace C are not incidental to its marketplace service.
As a result, Marketplace C is a PSP under the RPAA and needs to register with the Bank of Canada, assuming it meets the other registration criteria. PSP Y continues to be a PSP under the RPAA.
Case scenario: Marketplace that does not directly remit payout sales to third-party sellers but still facilitates flow of funds
Marketplace C implements a change to its payment flow and contracts with PSP Z to issue payouts to third-party sellers. PSP Z now also has direct agreements with the third-party sellers and stores the necessary financial and personal information to remit their payouts. PSP Y, which provides acquiring and merchant-account services to Marketplace C, processes buyer payments and obtains the funds paid for purchases on the platform. At the end of each day, PSP Y sends the funds received from sales on the platform to Marketplace C’s bank account. On a fixed day each week, Marketplace C calculates the total sales amounts of each third-party seller and moves the funds from its bank account to the account of PSP Z so they can be remitted to third-party sellers.
By being in the flow of funds, Marketplace C has integrated payments into its operational model, giving it control over how funds flow between buyers and sellers, and a greater role in the purchase process, including to approve, decline and reverse transactions. Marketplace C is also able to efficiently manage the payment of fees by third-party sellers directly by deducting them when funds are received from PSP Y. Participation in the payment flow also benefits Marketplace C, as it is able to generate interest income from the funds it keeps at rest in its bank account before it remits them to PSP Z to send onward to the sellers.
Although Marketplace C has contracted with PSP Y and PSP Z to handle parts of the payment process, it is still performing the following payment functions: provision or maintenance of an account; holding of funds on behalf of an end user; transmission, facilitation or reception of an instruction in relation to an EFT; and the provision of clearing or settlement services.
When Marketplace C participates in the movement of funds across its platform, it does not perform payment functions only as a necessary by-product of operating the marketplace—rather, it does so as a specific service for its customers on one or both sides of the platform. Although these payment functions are performed in relation to transactions taking place on the marketplace and may to some degree be supportive of the marketplace’s operations, they also result in the marketplace providing a payment service that, if it was not embedded in the platform, would need to be provided by a PSP. Further, being in the flow of funds generates direct commercial advantages for Marketplace C. Consequently, the payment functions performed are not incidental to Marketplace C’s marketplace activities. They result in Marketplace C playing an intermediating role in the payment flow and providing a payment service that could otherwise be performed by third parties. These payment functions are not strictly necessary to operating an online marketplace and are consequently not considered incidental to the marketplace service.
Therefore, Marketplace C remains a PSP under the RPAA despite its new arrangement and still needs to register with the Bank of Canada, assuming it meets the other registration criteria. In addition, PSP Y and PSP Z continue to be PSPs under the RPAA and still need to register with the Bank, assuming they meet the other registration criteria.
Disclaimer
The case scenarios are illustrative examples reflecting the Bank of Canada’s interpretation of certain requirements set out in the Retail Payment Activities Act (RPAA). All names, facts and descriptions in these scenarios are entirely fictitious and do not reflect any real or actual individuals or entities.
Additionally, they do not represent legal advice and should not be used as a replacement for seeking such advice if an individual or entity is unsure about whether they are required to register with the Bank of Canada as a payment service provider. The nature of the products and services offered by each individual or entity will vary, as will the circumstances around offering these products and services. Therefore, any individual or entity that may be subject to the RPAA should assess their own situation on a case-by-case basis according to their own facts and circumstances. Any entity or individual that may be subject to the RPAA is ultimately responsible for determining whether they are required to register with the Bank.
The examples provided are not a replacement for the Criteria for registering payment service providers supervisory policy, but rather they are meant to complement the policy. They should be read in conjunction with the policy.