The Regulation of Payment and Payment Initiation Services Law is Approved by the Knesset in the Second and Third Readings

Media Centre

The Regulation of Payment and Payment Initiation Services Law is Approved by the Knesset in the Second and Third Readings

30 May 2023

Dear clients and colleagues,


We would like to bring to your attention that on May 22, 2023, the Economic Plan (Legislation Amendments for the Implementation of the Economic Policy for the Budget Years 2023 and 2024) Law, 2023 Bill (the “Economic Plan Bill“), was approved by the Knesset in the second and third (and final) readings.


As part of the Economic Plan Bill, the Regulation of Payment and Payment Initiation Services Law, 2023 (the “Law“), aimed to encompass the licensing and supervision of payment services by non-banking entities and of payment initiation services, was also approved. The Law shall come into effect one year from the date of its formal publication in the Official Gazette, which is expected in the coming days.


The services regulated under the Law include the following: management of a payment account; issuance of a mean of payment; acquiring of a payment transaction; and payment initiation (in broad terms – the initiation of a payment related order, in a payment account managed by a payment account manager, at the request of the customer) (the “Payment and Payment Initiation Services“).


Please see below a very high-level summary of some of the main provisions of the Law:




  • A licensing or approval requirement. As a general rule, entities providing Payment or Payment Initiation Services will be supervised by the Israel Securities Authority (the “ISA“) and will be required to obtain a Payment Company License or a Basic Initiation License/Approval (as applicable) for the provision of the services.

Certain types of Israeli licensed financial entities, who wish to engage in Basic or Advanced Initiation Services (as these terms are defined under the Law), will be required to obtain an approval from their relevant financial regulator and will be supervised in accordance with the provisions of the Law by their relevant financial regulator (“Approval Holders“).


  • Exemptions. In general, the licensing requirement, does not apply to a list of specific types of entities. These, inter-alia, include Banking Corporations as well as holders of a “Payment Company with Stability Importance” License under the Banking (Licensing) Law, 1981 (the “Banking Law“). This last category de-facto includes the three major Israeli Credit Card Companies (Isracard, Max and ICC) that shall remain under the supervision of the Bank of Israel (the “BOI“) under a new “Payment Company with Stability Importance” license that shall replace their existing Merchant Acquirer license.


Additionally, the Minister of Finance (the “Minister“) is authorized to determine, with the approval of the Economic Committee, other types of entities that the licensing or approval requirements shall not apply to them.


  • Control permit. Controlling a holder of a Payment Company License (“Payment Company” or “Licensee“) will require a Control permit from the ISA.


Activity of a Licensee and Approval Holders from the ISA


  • Additional activities of a Payment Company. A Payment Company will be allowed to provide ATM services, currency exchange services incidental to a Payment Service or credit incidental to a payment transaction, as well as additional payment services included in an Addendum to the Law, without the need to obtain an additional Provision of Credit or Financial Asset Services Provision license (as applicable) under the Supervision of Financial Services (Regulated Financial Services) Law, 2016 (the “RFS Law“). The provision of credit incidental to a payment transaction shall be subject to certain conditions as set out in the Law.


Notwithstanding the above, if a Payment Company holds a Provision of Credit License under the RFS Law, the provisions of the RFS Law shall apply also in respect of the provision of credit ancillary to a payment transaction.


  • Mechanisms required to be established. The Law requires Licensees and Approval Holders from the ISA, to establish and to ensure the existence of adequate and advanced mechanisms for information security, risk management and cyber protection, and in respect of a Payment Company – also business continuity.


  • Safeguarding of funds. Generally speaking, a Payment Company will be required to hold the funds received from its customers or for them in a segregated account, for the benefit of its customers.


  • Requirements regarding Capital. The Law determines that a Licensee or Approval Holder from the ISA, will be required to meet capital requirements as will be determined by the ISA; as well as other requirements regarding insurance or other form of guarantee, if the ISA determines such additional requirements.


  • Instructions and rules by the ISA. The ISA is authorized to determine, in regulatory orders, provisions that shall apply to a Licensee or Approval Holder by the ISA, for implementing their obligations under the Law, including regarding customer complaints care and its documentation; document retention; conflict of interests; and in relation to a Payment Company – provisions relating to the board of directors.


Additionally, the ISA is authorized to determine rules regarding the collecting of commissions by a Payment Company or a Basic Initiation license holder, including with regard to their types, rates as well as their fair and understandable presentation.


The ISA is authorized to set different requirements regarding its instructions, depending on the type of license or permit, the type of payment service, the scope of activity and its characteristics, as well as the “type of entity”. The latter is an addition to the Law, not included in its previous drafts, aimed to allow the ISA to provide leniencies to foreign license holders (this was clarified in the protocols of the Knesset committee).


We note that a similar addition was made in respect of the Minister’s general authority to set Regulations pursuant to the Law, allowing the Minister to set different provisions to “different types” of Payment Companies or Payment Initiators.


Provisions regarding engagement between acquirers and issuers


  • The adoption of existing provisions that apply to acquirers and issuers under the banking legislation. The Law adopts various provisions that currently apply to acquirers and issuers of charge cards, pursuant to the banking legislation, such that they would apply to Large Acquirers of Charge Cards or Acquirers or Issuers with a Wide-Scope of Activity (as appliable and as these terms are defined under the Law). Additionally, the Minister is authorized to determine similar provisions in relation to other means of payment (that are not charge cards).


  • P2P Service. Providers of P2P Services with a Wide-Scope of Activity (as this term is defined in the Law) are required to allow their customers to receive funds from a payer that is a customer of another P2P Service provider; and to transfer funds to a beneficiary that is a customer of another P2P Service provide; all, based on an identifying detail. The list of Providers of P2P Services with a Wide-Scope of Activity will be published by each relevant financial regulator in relation to the entities under its supervision.


Initiation Services and Open Banking


  • Obligation to allow access to a payment account to payment initiators. The Law determines that, in general, a manager of a payment account for a payer, is required to allow a Payment Initiator access to the payment account of the payer, for the purpose of the initiation service. This is, via an Interface System for the Provision of Payment Orders, that is characteristics will be determined by the regulator of the manager of the payment account.


  • Financial Information Service. The Law includes indirect amendments to the Financial Information Service Law, 2021 (the “FIS Law“). Such amendments include the addition of a Payment Company to the definition of “information source”. Under the FIS Law an “information source” is generally required to provide a holder of a Financial Information Service Provision license, access to certain financial information it obtains regarding its client (in accordance with an access authorization given by the client), through a Financial Information Interface System (all in accordance with the FIS Law).


Additionally, the relevant financial information “baskets” for Payment Companies, that in respect of which such access must be granted, are determined in the FIS Law. These include certain information regarding a payment account, charge cards and their acquiring, as well as credit extended by a Payment Company, as applicable.

The above obligation to allow access to client’s financial information, will apply to a Payment Company, starting from 1 June 2026.


Additional Provisions


  • Foreign companies. The Law allows for foreign entities to apply for a Payment Services or Basic Initiation Licenses (and does not require the establishment of an Israeli subsidiary). Additionally, in general, the ISA is authorized to grant a license to a foreign payment service provider even if it does not meet the conditions for receiving a license; and to exempt a controlling shareholder from the control permit obligation, if it is convinced that the foreign law regulating the activities of the foreign service provider and the supervision of its activities provides sufficient protection in relation to certain matters regulated under relevant provisions of the Law.


The Law also authorizes the ISA to exempt a license holder from the following requirements as set out in the Law: permission for the payment service provider to engage in additional activities, other than the provision of payment or payment initiation services; the ISA’s provisions, as shall be determined, with regard risk management, cyber protection, business continuity and the board of directors; exemption from submitting certain reports to the regulator; exemption from submitting certain reports to the ISA; and exemption from requirements regarding insurance, minimum equity or other collateral, etc.

The ISA may exempt the foreign applicant from all of the requirements mentioned above or part of them, and must condition such exemption on conditions specified in the Licensee’s license. Such exemptions will be granted if the ISA is convinced that the foreign law regulation it is right to do so due to the applicability of the relevant foreign law provisions, and while maintaining the interests of customers and considering the public’s best interest.


  • Commencement day. In general, the commencement of the law is one year from the date of its publication (“Commencement Day“). However, in respect of Basic Initiation services, the relevant law provisions shall apply starting from the end of 6 months from the Commencement Day; and in respect of the obligation to grant access to a payment account for a payer, the relevant law provisions shall apply (inter-alia and as applicable) in respect of a manager of a payment account that is a Payment Company – starting from the end of 24 months from the Commencement Day.


It should be noted that there is an obligation to publish exemption regulations (from the Payment Company licensing requirement), that shall apply to entities engaging in payment services in a narrow scope, limited sums, to a small number of clients or in a small number of transactions, as determined by the Minister of Finance (in consultation as detailed in the Law), no later than 10 months from the Law’s publication day.


  • Transitional provisions. It is proposed to establish a transitional provision for existing service providers that will allow them to apply for a license within 3 months from Commencement Day and to continue their activity as long as the ISA’s decision on their application has not been made.


Existing service providers who, as of the eve of the Commencement Day, held a Provider of Credit License or a Financial Asset Service Provider License under the RFS Law or a Merchant Acquirer License under the Banking Law, will be allowed to continue their activity for 24 months from the Commencement Day, provided they have notified the ISA in the format, manner, and dates prescribed by it, and apply for a license under the proposed law up to 18 months from the Commencement Day. The continuation of such activity is conditional on receiving the authority’s approval of the application.

The license may also be submitted by the Licensee’s controlling shareholder or by whoever is controlled by such controlling shareholder. This, de-facto, allows a foreign payment service provider to benefit from this leniency, if another local group entity has already obtained a license under the RFS Law.

We further note that the transitional provisions also determine that starting from 1 January 2024 and until the Commencement Day, the Financial Asset Service Provision license obligation and the Provision of Credit license obligation, under the RFS Law, shall not apply to a foreign entity that holds a license to engage in payment services in a foreign country and was exempted from such obligation, until 1 January 2024.

This, de-facto, extends a current exemption from such obligations (under Exemption Regulations to the RFS Law), extended to EU, US and British payment service providers, under certain conditions.


  • Virtual Currencies. The Law only deals with payment services performed in FIAT (both New Israeli Shekel and foreign currencies) and not in virtual currencies to which the emerging legislation is expected not to apply. In this regard, we note that certain financial services performed in virtual currencies may require a Financial Asset Services Provision License under the RFS Law.


⇒ To read our March 2023 client update, regarding a draft of the Law >> click here


⇒ For a version of the Economic Plan Bill (in Hebrew) for Second and Third readings in the Knesset plenum (not the official final version), in which the Law is included (in page 229) >> click here


Our firm has extensive expertise and vast experience in the fields of financial regulation and payment services. We are closely involved in all aspects of the regulatory developments in this field and advise the leading international and Israeli entities in its context. Our firm has also participated in the discussions held by the Public Projects Knesset Committee that prepared the Law for the Second and Third readings in the Knesset plenum. We will be delighted to assist you in any issue relating to this field.

Search by +