Payment Institution License Explained

In order to provide financial services legally and safely, it is necessary to obtain a payment institution license. It is a legal necessity for anyone who is going to be engaged in regulated financial services, including money transfers, payment processing, merchant engagement, or account opening and management.

Our guide will be useful to everyone in the financial sector, regardless of the scale of your enterprise and the specifics of the financial services that you plan to provide.

What Is A Payment Institution License?

A payment institution license is a documented permission issued by the regulatory authority to payment service providers (individuals or entities) that plan to provide banking services and issue e-money. This license is issued by the national regulatory authority of the country where the PSP is established.

This licensing document is a basic requirement for any PSP firm, e-money institution, e-wallet provider, money transfer platform, currency exchange service, etc. It approves all activities of these providers, including payment transactions, direct debit/credit transfers, etc., if the provider follows the rules and regulations.

Services Provided With Payment Institution License

With a PI license, a company can provide:

• Payment account management;
• Deposits and withdrawals (bank transfers, checks, cash deposits, etc.);
• Payment transactions executing (direct debits, credit transfers, etc.);
• Remittances;
• Payment initiation services (online shopping, bill payments, etc.);
• Account reporting service.

Consider that we have listed the services that can be produced with a standard payment institution license. If you are interested in a small payment institution license, check the list of services that you can offer with it on the official website of the authority that issues licenses in your country.

Payment Institution License Vs E-money Vs Payment Service Provider License

	PI License	E-money License	Payment Service Provider License
Payment services under PSD2 (Payment Services Directive)	+	+	-
E-money issuing	-	+	-
EU passport for cross border services	+	+	+
Payment initiation service	+	+	+
Account information service	+	+	-
Safeguarding requirement	+	+	-

As you can see, the choice of license type depends entirely on the type of activity you plan to engage in. The main difference between EMI and the other two licenses is that it allows the issuance of electronic money, such as prepaid cards or digital account balances. In contrast, PI/PSP companies primarily focus on payment processing and facilitating transactions.

Key Requirements To Obtain The Payment Institution Licence

Here are a number of requirements that must be met in order to obtain the status of a payment institution:

• A three-year business plan describing your business model, strategy, resources, etc.
• A minimum capital (the amount is determined by each authority separately) and financial statements about solvency.
• Proof of your ability to protect clients' money.
• Clear and precise organizational structure.
• Reliable internal control and regulation system.
• Anti-money laundering and counter-terrorist financing system.

Benefits Of Obtaining A Payment Institution License

Obtaining a payment institution license brings the following benefits:

• Regulatory compliance. Working in accordance with the law not only secures you but also makes work easier, as you can seek answers and help from current legislation and relevant authorities.
• Enhanced credibility and reputation. Obtaining a license helps to increase trust among clients who know that licensed enterprises operate according to certain standards.
• Easier access to banking services. With a license, you get access to many instruments (digital banking, real-time payment solutions, etc.) that simplify banking services provision, including funds remittance, wealth management, etc.
• Competitive advantage. It's much easier to stay in the market when your business fully complies with state standards, as this attracts customers who are looking for security for their finances.

Common Challenges Faced In Obtaining Pi Licenses

The main challenges of obtaining a PI license are as follows:

• Stringent capital requirements. As we have already mentioned, to obtain a license, you need to provide the authorized body with a certificate of start-up capital.
• Complex application process. When obtaining a license, you cannot avoid the bureaucratic system. Although the procedure itself is not complicated, it still takes time and effort to prepare all the documents.
• Varying regulatory interpretations. The body authorized to issue licenses in each country is different, which sometimes complicates the task if you register a business in different regions.
• Localization requirements. Being tied to the place where you received your license may introduce some restrictions on your work.
• Competition and market dynamics. Obtaining a license takes time and prevents you from quickly entering a highly competitive market, especially if the licensing process is delayed for some reason.

How To Apply For A Pi License?

The process for obtaining a license in most countries is well structured and regulated, so if you follow the instructions and complete all requests on time, you can quickly get your license. Here is a step-by-step guide that explains how to obtain a payment institution license.

Choose The Licensing Jurisdiction

A PI license can only be issued by an authorized body, but in order to know which body to contact, you need to decide on the jurisdiction. Everything becomes simpler if you plan to conduct business in one specific region. If your company is international, determine which countries are the main ones for your business and apply for licensing there.

Prepare The Application Package

Once you have decided on the jurisdiction, you can submit your application. You must attach the documentation required by the authority to which you are submitting it. Usually, the required documents include those confirming your financial capability, business plan, AML procedures, etc.

Submit The Application

Once you submit your application, the review process begins. Usually, the regulatory authority considers the request within 6 months from the date of application in case you are an FSMA (Financial Services and Markets Authority) firm. If you present a payments or e-money company, the application review will take up to 3 months. The process will take longer (up to 12 months) if your application is not fully completed.

Engage With The Regulatory Authority

While your application is being assessed, the authority may make requests for additional information. Also, if necessary, the regulatory authority conducts on-site inspections to assess your compliance with the rules and determine the quality of your business operations.

Obtain Approval And Maintain Compliance

If you fulfill all the requirements of the authority and provide all the documents, you will receive approval and get a PI license. When starting work, follow all instructions and comply with the regulations to avoid license revocation.

Payment Services Market Trends In Europe

Demand for payment services in Europe is growing. This is shown by the Mordor Intelligence forecast, according to which, in the period from 2022 to 2027, a compound annual growth rate (CAGR) on the European market will be 15,83%. The most significant European payment services market trends are as follows:

• Introduction of digital technologies into the work of payment institutions in order to optimize services, improve customer experience, and increase efficiency.
• Banking-as-a-service providers plan to give access to their payment ecosystems to third-party companies while guaranteeing customer authentication and data security.
• Popularization of real-time payment solutions such as SEPA Instant Credit Transfer.
• Offering alternative payment methods such as Buy Now, Pay Later (BNPL) to meet the changing preferences of the audience.
• Focusing on sustainable development by designing environmentally friendly financial products.

Final Thoughts

What is most beneficial about the payment institution license is that you can engage in a very wide range of activities by receiving it. This license gives the right to provide various types of financial services, including remittances, payment account management, e-money issuing, etc. Thus, a PI license is not only a legal necessity but also a mandatory condition for those who do not want to be limited in their activities and plan to develop their financial business.

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