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Fintech class solutions have always been part of the e-commerce infrastructure. After all, running an online shop requires digital payment solutions. The merging of these two worlds has accelerated during the period of the pandemic, which has significantly contributed to the growth of the entire online shopping market. This acceleration is creating new business opportunities but, as with any regulated activity, it requires a good understanding of the legal environment.
What is going on in the market?
Today, some of the biggest eCommerce companies, such as Amazon, Shopify and Allegro, are starting to introduce their own Fintech services. Amazon, for example, offers its sellers attractive financing for goods. Shopify has launched a new "Shop Pay" service that allows users to confirm purchases and make payments ("check-out" process) with a single click. Allegro, on the other hand, launched a new service "Allegro Pay", in which, in addition to quick payment, it is possible to use the so-called "Buy now, pay later" service, i.e. defer payment for 30 days or divide it into smaller parts. These different examples of services have the same goal - to improve e-commerce operations in at least one of three ways:
- Increase the number of customers of a shop or platform and allow them to spend more money.
- Increase the number of sellers on the platform (for example, in the case of Amazon) and allow them to sell more
- Speed up the buying/selling process and increase its conversion (for example, Shopify claims that their Shop Pay process is 70% faster and has a 1.7 times higher conversion rate than other solutions of this type on the market).
Services mentioned in the context of Allegro "Buy now pay later" after gaining popularity in Western Europe (in Sweden, the country of origin, Klarna controls about 25% of the eCommerce market) are now gaining popularity both in the further west, in the United States and in Eastern Europe, including Poland. A key differentiator for many solutions of this type is integration with the eCommerce infrastructure. This means that by choosing this service, a given shop not only obtains a financing option for its customers, but also receives a solution for improving the shopping process and optimising in-store conversion.
From a consumer perspective, BNPL services position themselves as a more flexible and transparent alternative to credit cards. They allow you to pay for purchases in instalments, often completely interest-free (the business model is then based on merchant fees and late repayment charges). They are particularly attractive for young consumers from the Millenials and Generation Z, who do not want to get into debt and are looking for alternative, simple solutions.
The growing popularity of BNPL is not without a response from banks. At the beginning of 2022, one of the largest European players, Santander, released a proprietary BNPL application called Zania, which is expected to threaten the position of current leaders, primarily Klarna. Many other banks have fintechs offering similar solutions in their accelerators or portfolios - such as Twisto operating together with ING or Credi2 joining forces with Raiffeisen Bank International (under the brand Cashpresso). In the coming years, we can probably expect further decisive moves on the part of traditional banks in this area.
Are your own payments your own licence?
More and more businesses are choosing to engage in some sort of in-house payment processing mechanism. This applies to both the e-commerce industry and large-format shops. From the legal point of view, it should be noted that the issues related to payment mechanisms are comprehensively regulated in Poland by the Payment Services Act, which provides for the obligation to hold relevant licences or registrations in the case of providing so-called payment services.
It should be borne in mind that if some payment business ideas (even those that have been around for a long time) are not properly structured, they may be classified as regulated. Good examples of such activities may be, for example, an online platform where customer funds are retained (holding a balance of funds) or the issuance of so-called gift cards allowing deposits and withdrawals of funds. These examples respectively carry the risk of qualification as payment services for account maintenance or issuance of a payment instrument. At the same time, each of them can theoretically be designed in such a way that the company in question can take advantage of the relevant exemptions under the Act.
Insurance to complement in-house services
For many entrepreneurs, insurance sales are a perfect complement to their own product or service offerings. If you are interested in this area, you need to remember that insurance distribution is regulated in the Act on Insurance Distribution. The bill defines insurance distribution activities relatively broadly, thus extending the potential obligation to register a given entity as an insurance agent. It should be noted that even an inept exchange of "leads" for the purpose of selling insurance or an advertisement or affiliate link to a website selling insurance may lead to the classification of a given activity as an insurance agent. This qualification may also be valid in cases involving innovative online or telephone sales channels. It is also worth remembering that if, from the entrepreneur's point of view, there is any interaction with the customer in the context of insurance, this relationship should be considered in terms of the obligations under the Insurance Distribution Act.
Buy Now Pay Later and deferred payments
In recent years, a special attention of entrepreneurs in the area of e-commerce has been attracted by the Buy Now Pay Later (BNPL) solution, which allows consumers to use an alternative method of financing online purchases, compared to the already known and widely used in the market consumer loans. Due to the specific conditions accompanying this service (e.g. frequent lack of obligation for the consumer to pay any fees or interest if the terms of the agreement are met, i.e. timely repayment), traditional financial institutions have struggled with the proper interpretation of this financial service. Although there is no dedicated regulation in the Polish legal system relating to the BNPL solution, the provisions on granting consumer credit, e.g. the Consumer Credit Act, will very often apply to such a mechanism. This, in turn, involves the obligation to properly implement the responsibilities provided for in this act, i.e. obtaining by the entity an entry in the register of lending institutions, or applying a number of requirements related to offering products to customers, e.g. developing information documents or preparing a methodology for testing consumer creditworthiness.
Crowdfunding as a regulated activity
While expanding the area of their activity or looking for new sources of capital, entities from the e-commerce sector may be tempted to use one of the most dynamically developing alternative methods of financing on the Polish and European financial market, i.e. crowdfunding. Due to the growing interest in this issue by entities that are not controlled by the financial market supervision authorities, the European Union authorities have started the process of systematising this issue at the EU level. The new regulation aims to increase investor protection and ensure market stability, while entities operating in the crowdfunding sector will be subject to new obligations similar to those imposed on regulated entities. Importantly, the new regulation is to apply to the two most popular models of alternative funding in Poland, i.e. the investment model (assuming investments in stakes of a given company) and the loan model (the so-called debt crowdfunding, based on a loan within the meaning of the Civil Code), which will practically exclude the possibility to construct a crowdfunding model not covered by relevant regulations at the same time (with the exception of donation crowdfunding).
Anti-money laundering and counter-terrorist financing obligations
Involvement of e-commerce entities in regulated activities may also entail the need to apply the provisions of the Act on the prevention of money laundering and terrorist financing, the so-called AML Act. Such a qualification may apply in particular to the performance of activities specific to lending institutions, insurance agents or investment companies, as well as in the case of a large cash intensive business. The implementation of the AML Act obligations in an organisation requires the preparation of appropriate procedures, the appointment of persons responsible for performing the obligations under the Act, the training of employees and the implementation of financial security measures with respect to customers. Failure to properly implement these obligations may lead to financial penalties for the entity and members of its bodies.
This article identifies only selected legal issues that require a broader analysis while trying to use fintech solutions in your own business. As practitioners, we could multiply examples of excellent business projects or models that have not been sufficiently analysed from a legal perspective. It therefore seems that a regulatory feasibility analysis should be a permanent element of the work for such arrangements.
What next?
An increase in the integration of financial services in eCommerce is to be expected. This is due to two main factors. On the one hand, today's consumers are demanding an increasingly personalised, seamless and fast shopping experience which naturally pushes eCommerce companies to optimise all stages of the customer process, including payments and financing. On the other hand, the development of new "Bank as a service" solutions make access to banking licences and functionalities operationally increasingly simple for players previously unconnected to financial services. The most important thing, however, remains that the winner of these changes and market trends is first and foremost the consumer, who will gain new attractive opportunities to make purchases and to finance them.
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