From Tap To Transfer: How Banks And Payment Providers Drive The Payments System
Every time you tap your card at the supermarket, pay for a taxi through an app or shop online, you’re using a financial service, often without realising it. These services are made possible by banks or financial institutions, which help make payments fast, safe and easy.
Financial institutions are companies that help move money. Two of the most common types are:
Electronic money institutions (EMIs) – These issue digital money (called e-money), that is stored either on a physical payment device (e.g. a prepaid card) or stored remotely on a server, which you may then use or access to pay for goods and/or services.
Payment institutions (PIs) – These provide a range of payment services which allow you, amongst others, to send and receive money or make payments online or with cards.
These companies are also known as Payment Service Providers (PSPs). They are widely used by both individuals and businesses which require payment services. Some of these work with banks, while others work independently using their own infrastructure.
PSPs help businesses accept card payments and ensure that the business get paid after a successful transaction. Some also allow individuals to send money locally or overseas without the need to open an account. They act as a bridge between consumers, businesses and the rest of the financial system.
Activities provided by payment institutions are covered by the Payment Services Directive (Directive (EU) 2015/2366). These include for example enabling cash deposits or withdrawals to be made from payment accounts, executing payment transactions from and to payment accounts, money remittance services, issuing payment instruments and providing acquiring services.
There is an important difference between banks and financial institutions. Banks (also called credit institutions) accept deposits from customers and use that money to grant loans or invest it – it’s their main business! Financial institutions, however, are not allowed to use customer money for such purposes. They can only use the funds for providing a payment service or to issue e-money in exchange. This means that their clients’ money must be kept separate from the company’s own funds.
Money held with banks is protected by the Depositor Compensation Scheme. This doesn’t apply to financial institutions. Instead, these companies must follow strict safeguarding rules. This means that financial institutions must keep customer funds a separate and segregated account or else they must take out an insurance policy or obtain a guarantee to cover client’s funds. These safeguards help ensure that the money is returned to customers if the company fails.
To check if a financial institution is authorised, visit the Malta Financial Services Authority’s (MFSA) online register. Search using the official name of the company, not just the brand or trading name. You can usually find the correct name in the small print on the company’s website or in its terms and conditions.
If you have a problem, start by contacting the financial institution in writing. If the response is unsatisfactory or you have not received any feedback within 15 working days, you may then submit your complaint to the Arbiter for Financial Services.