Many firms ask various forms of the same question: What is the difference between an E Money and a payment service licence or firm?

It is the question that underpins their path to gaining permission from the regulator. If a firm applies for the wrong licence, they can be forced by the FCA or other regulator to withdraw their application, wasting their application fee and then re-joining the back of the queue. Here, we try to help you answer the difference between emoney and payment licences.

What can a payments firm do?

Payments firms come in many shapes and sizes. You will find, however, that the vast majority are variations on a few themes:

Acquiring

Example – WorldPay
These firms help their clients (often businesses) get paid by their own customers. One obvious example is where a retailer may wish to accept card payments. Acquirers will often work as the middleman to receive funds from the customer and then pass on to their clients immediately or at regular intervals. Even if you are not dealing with the end customers, you may be an acquirer if you are in a ‘chain’ that results in the above activity. Independent Sales Organisations (ISOs) will use acquirers and not touch the funds, but when they want to become a Payment Facilitator and be involved in the funds flow; they then must get a Payments licence.

Remittance

Example – Western Union
These firms help a customer move funds from A to B. This can be seen in many forms such as high street money transfer bureaus and online-only funds transfer websites. Some Remitters may also engage in Foreign Exchange activities and while this is not strictly a payment service, it often goes hand-in-hand with remittance.

Account Information Service Provider (AISP)

Example – Intuit aka Quickbooks
These firms act as an aggregator for a customer’s payment accounts. They will gather relevant information from the customer’s bank account(s) and display it back to the customer and to another party (with customer’s consent). Some of these firms use AIS to support other activities such as credit broking and money management.

Payment Initiation Service Provider (PISP)

Example – Trustly
These firms are similar to Acquirers in that they assist in customers making payments to merchants and other service providers. These firms however do not arrange to receive funds and pass them on but rather to provide appropriate information and platform for a customer to make a direct transfer to the merchant/service provider. This is the least common of the models listed here.

What can an E Money firm do?

The first point to make clear is that an Emoney firm can use all the permissions that a Payment Institution has, plus some more. They can do acquiring and remittance, butIn addition E Money firms can hold customer balances indefinitely. Therefore, they are offering an account, often referred to as an ewallet. For this reason, theyare often described as the ‘next best thing to a bank’. Another way of putting it is that an emoney firm is like a Sharia Bank because there are just two things a bank can do that an emoney firm cannot.

1 – Pay interest on balances
2 – Lend out and earn interest on the money they hold.
Emoney or ewallet accounts can be connected to a card to allow for payments to be made at point of sale or online (The card may be issued by an e money firm or in rare circumstances by a payment service firm).

To ensure it meets requirements, a firm will need to make sure that the electronic money is

  • electronically stored (including magnetically) monetary value
  • Is accepted by a third party (This is where a connected card comes in very handy)
  • Not excepted by any related regulation
Below is a simple table that should help you determine what you are able to do as an E Money or payment service firm:

Activity

Payment Firm E Money Firm
Receiving payments on behalf of client Yes Yes
Money remittance Yes Yes
Account Information Service Yes Yes
Payment Initiation Service Yes Yes
Card Issuing Yes Yes
Accounts with stored value for everyday payments No Yes
Once you have decided what type of firm you will be, you will need to determine what licence is appropriate for you. You must become either registered or authorised. The tables below will help you determine which may be appropriate (all amounts may be held as equivalent funds):

Payment Service Firms:

Registered (Small Payment Institution) Authorised (Authorised Payment Institution)
Average Monthly Payment Volume Up to €3,000,000 In excess of €3,000,000
Initial Capital Requirement Nil – Money Remittance Only -€20,000
-PIS only – €50,000
-Any other payment service – €125,000
Ongoing Capital Requirement Nil The greater of:
Initial capital requirement; or
as calculated based on payment volume
AIS? AIS only AIS with any other payment service
Safeguarding? Optional Requirement

Electronic Money Firms:

Registered (Small Electronic Money Institution) Authorised (Authorised Electronic Money Institution)
Average Outstanding Electronic Money Up to €5,000,000 Unlimited
Average Monthly Payment Volume (Not Electronic Money Related) Up to €3,000,000 Unlimited
Initial Capital Requirement Nil €350,000
Ongoing Capital Requirement – Outstanding Electronic Money up to €500,000 – Nil
– Average Outstanding Electronic Money over €500,000 – 2% of Average Outstanding Electronic Money
The greater of:
€350,000; or
2% of Average Outstanding Electronic Money
AISP? Not permitted Permitted
Safeguarding of Funds in a Designated Bank Account in the EEA? – Electronic Money -Mandatory
– Payment services -Optional
– Electronic Money -Mandatory
– Payment Services -Mandatory