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
|
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 | No | 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 |
Can UK firms still passport into the UK post-brexit?
Hi Mr Emoney!
Presumably you mean “Can UK firms still passport into the EU…?”
The answer is UK firms can no longer passport into the EU. Firms that are based in the EU and that registerd for the UK’s temporary permissions regime before the start of this year can continue passporting into UK, but will need to get their own licence eventually. They must inform the FCA of their plans by June of this year.
Hope that helps,
Regards
Thank you for correcting and clarifying the above question.
But what about UK EMIs which are still freely working with the EU clients? Is it allowed? Can UK EMI freely work with EU customers in 2022?
It’s a rather grey area. The FCA are concerned with the jurisdiction which they regulate. i.e the UK. Therefore firms operating in any other country ought to respect local laws. – If you were to have a website in German to target and attract German customers you risk being contacted by BaFin (the German FCA equivalent). If they determine you should have a local licence they would strongly encourage you to get one and potentially name and shame you as a firm operating there unlawfully. A lot of UK EMIs have retained their existing EU customers but have not marketed in those countries since the the UK left the EU.
So glad I found this article, I have been reading the FCA’s website – trying to get concise information is impossible, a simple question involves getting redirected to various annexes and back over and over until your head is spinning. Thanks for the summary.
can a payment institution accept emoney?
Hello Steven,
Any company can accept emoney as a means of payment. If you have ever paid someone with a balance held in Paypal, then whomever you paid received EMONEY that was previously stored on your behalf by Paypal. Normally the recipient would be any merchant who sells goods or services.
What a payment institution cannot do is ISSUE emoney. So it cannot receive money and convert it into a balance that it holds onto indefinitely.
It’s worth noting that emoney firms can do almost everything that a bank can do, with the exception of pay interest and loan out/ invest the money it holds as balances.
Another way of looking at it is that Payment Institutions must know in advance where the funds are going before they receive them.
Hope that helps and excuse the delay in replying
Edward C
AuthoriPay
Who can become an acquirer? IS it only banks?
Hi Jason,
Apologies for the snail response.
Payment Institutions and Emoney institutions can become acquirers too by obtaining principal membership of the card schemes. For ISOs or Payfacs who want added control over their onboarding and who want to keep all the fees it’s a logical step. We’ve helped many flagship Fintech companies acheive acquirer status. Indeed, until around 13 years ago it was only open to banks.
Regards
Admin.
Do I need an API and EMI licence to process payments and offer a wallet?
Hi Michael,
Good question. No you do not need separate licences. There are no companies in the UK or Europe that are authorised as both an Emoney (EMI) and payments (API) licence holder. An emoney firm has all the permissions that a payment firm has PLUS the emoney permissions. To re-iterrate, An EMI can basically offer all the services that a bank can. Do give us a call if we can help further.
The AuthoriPay Team.
Hello,
My team and I have been researching this for several months. We provide financial services for opening personal and business bank accounts in the United States remotely.
We are interested in offering our clients a dollar saving banking option that can be a virtual wallet.
Most of our clients are from LATAM, especially from Venezuela
We want to know which options, EMI, EMD, PI, SEMI can work best for us.
Hi Carlos,
The FCA is the UK Financial regulator. As you open US accounts for LATAM customers then financial regulators in the UK (or Europe or Asia or Africa for that matter) are not applicable and any licence – if it were granted – would not cover your business plans.
We hope the next few months of research are fruitful.
Thanks
AuthoriPay Team.
I love the fact that ages after this article was posted you still provide expert responses and monitor it properly – so let me see if it’s still going 🙂
Do EMoney AND Payment institutions have to have a safegaurding account?
I seem to get mixed responses on this, sometimes I’m told payment licences don’t need it???
Hello Jay,
Glad to assist you.
I think we can “account” for the mixed messages on safegaurding. In the UK there are Small Emoney licenses and Authorised Emoney licenses. There are also Small and Authorised Payment licenses. (That’s a total of 4 licenses to be clear). The only one of those licenses that is not obliged to safeguard client funds is the small payment institution licence. The other 3 must have a safegaurding account approved before the regulator will issue the licence in the first place. A company that loses its safeguarding account is obliged to inform the FCA of this fact without delay.
Feel free to contact us or post follow-up questions by reply.
Kind Regards
Team AuthoriPay