Publication date: December 12, 2023
The following fictional case scenarios illustrate the types of activities exempted under paragraph 6(a) of the Retail Payment Activities Act.
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.
Case scenario: Single merchant (coffee store gift card)
Coffee Shop A issues a reloadable card that customers can use to purchase goods by electronic or physical means at any of the merchant’s shops across Canada. The terms and conditions of the card state that cardholders can use the physical or digital card only to purchase goods from Coffee Shop A.
Subsection 6 (a) of the Retail Payment Activities Act (RPAA) establishes that the Act does not apply:
- when retail payment activities are performed using an instrument directly issued by a merchant only to purchase goods or services from that merchant; and
- when an issuer that is not a payment service provider has an agreement with a group of merchants to issue an instrument allowing to purchase goods or services only from this group of merchants.
In this case, Coffee Shop A’s reloadable card is excluded from the RPAA under the first exclusion above for instruments issued directly by a merchant. While Coffee Shop A performs a payment function in relation to an electronic funds transfer (EFT) that is made with an instrument it has issued, the cardholder’s use of the instrument is completely restricted to Coffee Shop A’s locations.
Case scenario: Group of merchants (transit card)
The transport operator Commute issues reloadable cards that allow card holders to pre-load funds to pay for transit fares. Commute enters into agreements with numerous local transit agencies that have decided to adopt this card system. In this specific case, the underlying assumption is that Commute is not a payment service provider (PSP), even when considering the other activities it conducts.
Subsection 6 (a) of the RPAA establishes that the Act does not apply:
- when retail payment activities are performed using an instrument directly issued by a merchant only to purchase goods or services from that issuing merchant; and
- when an issuer that is not a payment service provider has an agreement with a group of merchants to issue an instrument allowing to purchase goods or services only from this group of merchants.
In this case, the cards have been issued by an entity that is not a PSP, and they can be used only at a limited number of transit facilities whose operators have entered into an agreement with the issuer. Therefore, the payment functions performed in relation to the EFTs made with these cards are excluded under the second exclusion above related group of merchants’ instruments.
Case scenario: Company C’s prepaid rewards card
Company C issues a prepaid card using a payment network processor called Rails ABC. In doing so, it performs payment functions such as:
- maintaining an account
- holding funds
- authorization, reception, facilitation of an instruction in relation to an EFT
Most retailers accept payments initiated through the Rails ABC payment network. Customers can use this card at any retailer that accepts payments with the Rails ABC payment network. Additionally, some specific partnered retailers offer rewards for the use of the prepaid card.
Paragraph 6(a) of the RPAA establishes that the Act does not apply to retail payment activities conducted using a merchant-issued instrument in two types of situations:
- when retail payments activities are performed using an instrument directly issued by a merchant only to purchase goods or services from that merchant
- when an issuer that is not a payment service provider has an agreement with a group of merchants to issue an instrument allowing the purchase of goods and services only from this group of merchants
While customers can earn rewards at specific partnered retailers, the card is not restricted to a specific group of merchants under an agreement. Therefore, the exclusion does not apply. Company C meets the definition of a PSP and would need to assess whether it meets the other registration criteria and therefore must register with the Bank of Canada.
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.