Germany: Reverse cash payments in gambling hall- judgement of the Higher Administrative Court Kassel

Judgements on payment services supervision law are rare in Germany. Mostly, market participants follow the guidance of the German Federal Financial Supervisory Authority (BaFin) in order to choose the easiest way not to come into conflict with the law (or rather the regulator). The clarification of the VGH Kassel (judgement of 23 September 2020, ref. 6 A 1931/15), which confirmed the previous judgement of the Administrative Court (VG) Frankfurt (judgement of 9 September 2015, ref. 7 K 3025/14.F) in the essential points, is all the more pleasing.

Background and BaFin guidance

In the case at hand, a gambing hall had offered his customers to receive cash if they paid for smaller goods (e.g. food, drinks, pens) with their debit card. The price for the food ranged from €2 to €3.

Based on the Second Payment Services Directive (PSD2), the German legislator had included an exemption from regulation as a payment service in the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz - ZAG):

"Payment services do not include [...] services where the payee hands over cash to the payer in the course of a payment transaction after being specifically requested to do so by the payment service user just before the execution of a payment transaction for the purchase of goods or services; "

This exception is used by many supermarkets. Most of them require a minimum purchase of goods (e.g. € 10) and then offer to take cash at the supermarket checkout.

In its guidance notes to the ZAG of 22 December 2011, amended on 29 November 2017, BaFin states that gambling halls that only sell small goods cannot rely on this exception. There, the focus is not on the purchase of the goods, but on the provision of the cash, which is then to be used in the gambling hall. The purchase transaction is thus only a pretext for the offer of a payment service. At this point in the guidance notes, BaFin adopts the official legal justification of the legislator (BT-Drs. 18/11495, p. 114).

Judgment of the VGH Kassel

The ruling of the VGH Kassel now confirms that the activity of the gambling hall is initially a payment service under the ZAG as a withdrawal business (i.e. a service that enables cash payments from a payment account). However, it falls under the exception for reverse cash payments.

The VGH Kassel refers to the explanatory memorandum to the law, which did not want to include gambling halls that sell small goods in order to provide cash. However, the court recognises the full harmonisation sought by PSD2. Reverse exceptions to exemptions are not possible here, especially because the German legislator only wanted to implement the PSD2.

Consequences of the ruling

The ruling now provides a basis on which gambling halls can offer reverse cash payments. BaFin has not yet reflected the ruling in its ZAG guidance. Gambling hall operators should therefore weigh up any activity in the area of reverse cash payments carefully before taking action.