[infecto]

I think we’re actually debating a narrower point than you think.

I agree that simply calling something “interest” doesn’t magically make it a regulated financial product. My disagreement is with the idea that “can’t be redeemed for cash” is the dispositive test. Regulators generally look at the substance of the arrangement, not just the label.

Also, your £1,000 credit example isn’t really analogous to the original post. If you simply gift me £1,000 of service credits, that’s very different from me prepaying £1,000 of my own money and you then paying me a return based on how long that prepaid balance sits with you.

The original discussion wasn’t “are loyalty points regulated?” It was “why would paying a return on prepaid customer balances create more regulatory work in the EU?” To me, the answer “because regulators care about products that start looking financially deposit-like” seems entirely plausible.

[alias_neo]

> because regulators care about products that start looking financially deposit-like

I totally agree with this point, but I don't see how the topic we're discussing would be seen that way.

From a "common sense" point of view (which I know, financial regulation is absolutely not), no matter what you call this act of giving someone extra credit (let's call it "interest") for your service based on the amount they've previously paid for your service (let's call it "deposited"), you're still just giving them monopoly money that serves a single purpose and that is to use more of your service.

If they can't turn it into cash, why should any financial authority care? It's got nothing to do with them.

That said, to take your side for a moment, what's to stop me depositing boat loads of cash up front to pay for your service using the "interest" you'll give me, rather than paying it regularly out of company earnings? Now it starts to sound like something a financial authority might take interest in (pun intended).

[infecto]

I think your last paragraph is the answer.

My only point from the start was that I’m not surprised the EU imposes extra compliance here. Once you’re incentivizing customers to leave prepaid funds with you in exchange for a return, it’s reasonable that regulators would take a closer look.

Whether they ultimately regulate it as deposits, e-money, or something else is for the lawyers. I was never arguing that “credits paying interest” automatically makes you a bank. Simply put it’s not surprising you would have to go through extra hurdles for this kind of gimmick.

I think you are taking this a bit too far. I don’t think it’s shocking that even credits which have a dollar value would need to pass a smell test.

[alias_neo]

> I think you are taking this a bit too far

I just find it an interesting thought experiment.

I wonder if this has anything to do with why a lot of companies convert your money into a variety of virtual currencies, "bells", "gold, "gems" etc.

I'll leave it there but nice chatting with you about it!