Charity online giving platforms

The effects of The Payment Services Directive

In recent years, charities have increasingly made the move to online resources as a way to raise funds for their charitable purposes and projects. One such resource has been online giving platforms.

Given that the Covid-19 pandemic prevented most in-person fundraising events, donors and charities have found other ways to raise money. The use of online giving platforms therefore grew over the course of the pandemic - online donations grew by 115% in volume and 97% in income. Giving platforms have therefore been fundamental in helping charities navigate through the difficulties presented by the pandemic.

However, with the recent decision by Virgin Money to close its own online fundraising platform, Virgin Money Giving, questions have arisen as to how suitable online giving platforms are for charities to use. This comes as a wave of private companies have launched their own online giving platforms. Some charities have even started to use their own platforms to help them with their own fundraising efforts, or the fundraising efforts of others.

This comes at a time when online giving platforms have come under further restrictions and regulations. With the introduction of the (revised) Payment Services Directive (PSD2) in 2017, there are now further regulations as to who can carry out a payment service, such as operating an online giving platform. For those charities who do run, or who are considering running, their own platform, this brings into question the legalities of doing so.

What is PSD2?

PSD2 is an EU derived regulation that regulates payment services.

It was implemented in the UK on 13th January 2018, largely through the Payment Services Regulations 2017.

PSD2 aims to further protect consumers who use online payment services. These changes have meant that those who do not satisfy one of the exemptions or fall under an exclusion, will need to seek FCA authorisation to provide these payment services.

Since then, there have been frequent questions raised as to the scope of the PSD2 regulations, and their effect on charities.

What are payment services?

 The activities which constitute payment services are listed in Schedule 1 to the PSD2. Payment services include services:

• that allow money to be paid in or out of a payment account
• that offer payment initiation
• that involve payment transactions
• involving money remittance
• regarding the execution of payment transactions. For example, direct debits, credit transfers and card payments.

Those who carry out a payment service may need to be authorised by the FCA to continue doing so unless they are exempt, or an exclusion applies to the activity in question.

Are there exemptions relevant to charities?

PSD2 does not have total scope. Some institutions, such as:

• credit unions
• municipal banks; and
• the National Savings Bank,

do fall clear of PSD2, but charities are not automatically exempted. However, is the activity of the provision of an online giving platform by a charity excluded?

Annex 3, Schedule 1 Part 2 to the PSD2 (see also the FCA’s Perimeter Guidance 15, Annex 3) sets out what activities do not constitute a payment service, for which FCA authorisation is required.

Part D of this section sets out the following activity as an exclusion to the regulations:

“Payment transactions consisting of non-professional cash collection and delivery as part of a not-for-profit or charitable activity”.

From an initial view, this would suggest that any payment transactions made in regard to charitable donations is an excluded activity. However, this exclusion clearly states that this only applies to cash collection activities of a non-professional nature.

What does non-professional mean for the purposes of a charity?

Unfortunately, there is no clear definition of non-professional activity. However, by referencing the FCA guidance on the PSD2 exclusions, question 34 offers some guidance. Question 34A of the guidance helps to clarify what non-professional means in relation to a third party online giving platform:

“For example, a group of volunteers that organises regular fundraising events to collect money for charities would fall within this exclusion. On the other hand, an online fundraising platform that derives an income stream from charging charities a percentage of the money raised for them (whether or not this is for profit) is unlikely to fall within this exclusion.”

The above guidance suggests that donations collected online by volunteers of a charity will constitute a non-professional cash collection activity. Alternatively, if a charity was to receive income from providing an online donation platform for itself, and other charities, this may be deemed to render the provision on a professional basis and therefore outside the exclusion. However, this probably depends on the nature and scale of the activity undertaken by the charity.

Where does this leave charities and recommended steps?

If you are a charity and have questioned whether you may be excluded from the remit of the PSD2 or require FCA authorisation, it is recommended you seek legal advice or contact the FCA to clarify the position.