Many firms ask various forms of the same question: What is the difference between an E Money and a payment service licence?
It is the question that underpins their path to gaining permission from the FCA or European regulator. If a firm applies for the wrong licence, they can be forced by the regulator to withdraw their application. This means wasting their application fee and then re-joining the back of the queue when they eventually apply for the right licence. Here, we try to help you answer the difference between an emoney licence and a payment institution licence. It goes without saying that for our clients, we always understand your short and long-term ambitions and ensure that we apply for the right licence and permissions from the outset.
What can a payments firm do?
Payment institutions come in many shapes and sizes. You will find, however, that the vast majority are variations on a few themes:
Acquiring (Authorised Payment Institution Licence)
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 (Small Payment Institution Licence)
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, but in addition, Emoney 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.
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
|Payment Firm||E Money Firm|
|Receiving payments on behalf of client||Yes||Yes|
|Account Information Service||Yes||Yes|
|Payment Initiation Service||Yes||Yes|
|Accounts with stored value for everyday payments||No||Yes|
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|
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:
2% of Average Outstanding Electronic Money
|Safeguarding of Funds in a Designated Bank Account in the EEA?||– Electronic Money -Mandatory
– Payment services -Optional
|– Electronic Money -Mandatory
– Payment Services -Mandatory