Choosing between an electronic money institution (EMI) and a payment institution (PI) licence is one of the first strategic decisions for a fintech that wants to operate in the European Union. The choice shapes your product, your capital plan, your banking relationships and the time it takes to launch.
This guide compares the two authorisations in plain language and lists the questions we ask founders before recommending a route.
What each licence allows
A payment institution is authorised under the second Payment Services Directive (PSD2) to provide payment services: for example money remittance, acquiring card payments for merchants, executing payment transactions or issuing payment instruments.
An electronic money institution is authorised under the second E-Money Directive (EMD2). On top of payment services, it may issue electronic money: stored monetary value that customers can hold in an account or wallet and use later.
In practice:
- If customers will hold balances with you, as in a wallet, prepaid card or multi-currency account, you usually need an EMI licence.
- If you move money without holding it beyond the time needed to execute a transaction, as in remittance or merchant acquiring, a PI licence is often enough.
Capital, safeguarding and ongoing requirements
| Requirement | Payment institution | Electronic money institution |
|---|---|---|
| Legal basis | PSD2 | EMD2 (plus PSD2 for payment services) |
| Minimum initial capital | €20,000 (money remittance only), €50,000 (payment initiation only) or €125,000 (other payment services) | €350,000 |
| Can hold customer balances | No, only for executing transactions | Yes, as electronic money |
| Safeguarding of client funds | Required | Required |
| Ongoing own funds | Calculated on business volume | Calculated on business volume and outstanding e-money |
Both types of institution must also keep a sound governance structure, appoint fit and proper management, run an AML/CFT framework proportionate to their risks and report to their regulator on an ongoing basis.
Electronic money must be issued at par value and be redeemable at par value at any time. You cannot pay interest on e-money balances, which matters if your product idea relies on yield.
Which licence fits your business model
A short way to test your choice:
- Do customers keep money with you between transactions? If yes, look at an EMI.
- Do you only route or settle payments? A PI may be enough and needs less initial capital.
- Will you work through partners? Both can use agents; EMIs can also use distributors to distribute and redeem e-money.
- Where are your customers? An authorisation in one member state can be passported to other EEA countries through notifications to the regulator.
If you are unsure, map your flow of funds first: who pays whom, where the money sits and for how long. Regulators and banks will ask for this diagram anyway.
Choosing a jurisdiction
The directives are harmonised, but supervisory practice is not. Before choosing a country, compare:
- the regulator’s experience with business models like yours;
- expected review times and how pre-application meetings work;
- local substance requirements: office, staff and management presence;
- access to banking and safeguarding partners;
- language, reporting and audit costs.
The directives give regulators three months to decide once an application is complete. In practice, preparing the file and answering questions often makes the overall process considerably longer.
Build from scratch or acquire a licensed company
There are two main routes to market:
- Apply for a new licence. You design the structure from day one, but you need the full application file, capital and time.
- Acquire an existing licensed company. This can shorten time to market, but a change of control still needs regulatory approval, and the target’s history, compliance record and banking relationships need careful due diligence.
You can browse current opportunities on the BP Advisory Marketplace or read more about our services for financial institutions.
A short checklist before you decide
- Describe your product and flow of funds on one page.
- List the payment services you need, using the PSD2 categories.
- Decide whether customers will hold balances.
- Shortlist two or three jurisdictions and compare them on the criteria above.
- Plan capital, safeguarding and banking partners at the same time as the licence.
The EU is also reforming its payments framework through the proposed PSD3 and Payment Services Regulation, which would bring e-money institutions under the payment institution regime. Check the current status of the reform before committing to a long-term structure.
This article is for general information only and is not legal advice. Requirements depend on the jurisdiction and your business model; contact our team to discuss your case.
