The Bootstrapper's Guide to Authorised Payment Institution or Electronic Money Institution Licence in Europe.
Updated on 15th November 2018
Working as CEO of Astorts Group, my team and I have received many inquiries about a cost effective way to license authorised payment institution (API) or electronic money institution (EMI), so I decide to write this bootstrapper's guide that can be useful for many of you.
If you are looking for the easiest possible entry point in European Union for authorised payment institution (API) or electronic money institution (EMI), probably you should consider United Kingdom, Ireland, Czech Republic, Malta and Lithuania .
From my experience the very first questions that come in mind when you decide to enter the business of payments services provider are:
What is the difference between an authorised payment institution (API) and an electronic money institution (EMI)?
Can I apply for a Small Payment Institution or Small Electronic Money Institution first and after upgrade later on?
Which jurisdiction is the best for me and my business?
What about the investment required and the capital requirement?
What is a Payment Services Provider?
A Payment Service Provider is any of the following persons when they carry out payment services:
authorised payment institutions;
small payment institutions;
EEA authorised payment institutions;
electronic money institutions;
the Post Office Limited (in UK);
the Bank of England, the European Central Bank and the national central banks of EEA States other than the United Kingdom, other than when acting in their capacity as a monetary authority or carrying out other functions of a public nature; and
government departments and local authorities, other than when carrying out functions of a public nature;
What Authorised Payment Institutions are allowed to do?
Once you are licensed by any European Financial Authority you can offer the following services:
services enabling cash to be placed on a payment account and all of the operations required for operating a payment account; [capital requirement 125.000 euro]
services enabling cash withdrawals from a payment account and all of the operations required for operating a payment account; [capital requirement 125.000 euro]
the execution of the following types of payment transaction: direct debits, including one-off direct debits; payment transactions executed through a payment card or a similar device; credit transfers, including standing orders; [capital requirement 125.000 euro]
the execution of the following types of payment transaction where the funds are covered by a credit line for the payment service user: direct debits, including one-off direct debits; payment transactions executed through a payment card or a similar device; credit transfers, including standing orders; [capital requirement 125.000 euro]
issuing payment instruments or acquiring payment transactions; [capital requirement 125.000 euro]
money remittance; [capital requirement 20.000 euro]
the execution of payment transactions where the consent of the payer to execute the payment transaction is given by means of any telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator acting only as an intermediary between the payment service user and the supplier of the goods or services. [capital requirement 50.000 euro]
What is the difference between an authorised payment institution (API) and an electronic money institution (EMI)?
The main difference between the two types of Payment Service Providers is that only Electronic Money Institutions can issue electronic money or digital currency such as a money balance recorded electronically on a stored-value card (pre-paid card) or account (e-wallet) or other device. Electronic Money Institution can offer all the services an Authorised Payment Institution can offer. Capital requirement starts from 350.000 euro.
Can we consider a Cryptocurrency such as the Bitcoin as Electronic Money?
There are few similarities between Bitcoin and e-money other than both being in digital format, according to the report. While e-money is a mechanism for interacting with government-issued and regulated currencies such as dollars and euros, Bitcoin is a virtual currency that has no fiat currency counterpart. Bitcoin is based on a decentralized peer-to-peer network that can be transferred somewhat anonymously and can be highly volatile in terms of value. These characteristics of Bitcoin, while having some potential benefits, can pose considerable risks to consumers and make it a challenge for regulators. If you wish to offer crypto currency exchange and crypto e-wallets to your clients you may consider to apply for a proper licence in Estonia.
If you wish to know more about cryptocurrency and bitcoin, please read my article "What is Cryptocurrency and how to use it?"
Can you apply for a Small Payment Institution?
You can apply to become a Small Payment Institution (SPI), if you meet the following conditions:
average monthly payment transactions in the preceding 12 months must not exceed €3 m
if you have not been providing payment services, or have been providing payment services for less than 12 months, projected average monthly payment transactions must not exceed €3m
managers must not have been convicted of money laundering, terrorist financing or other financial crimes
your head office and registered office (or place of residence for natural persons) must be in the country you are applying for
if the applicant is a partnership, an unincorporated association or a corporation, anyone having a qualifying holding must be fit and proper for the sound and prudent conduct of a small PI, and
if the applicant is a corporation with close links to another person, the links mustn’t be likely to prevent our effective supervision of the business (if the link’s outside of the European Economic Area (EEA), foreign laws mustn’t prevent our effective supervision of the business)
API or SPI licence?
he regulator has a two tier structure for payment businesses, namely, small payment institutions and authorised payment institutions. The way to determine which option your firm falls under is to determine your average monthly turnover in transactions.
If your monthly turnover transactions are under 3m EUR you can become an small payment institution (SPI). If your monthly transaction amount exceeds this then you will have to apply as an authorised payment institution (API).
Furthermore, in the UK, you will be required to register with HMRC for money laundering and fit and proper purposes.
Small Payment Institution have no any specific capital requirement, but generally speaking, smaller firms tend to struggle in getting a bank account opened.
Can you apply for a Small Electronic Money Institution?
You can apply to become a Small Electronic Money Institution, if you meet the following conditions:
evidence that when you start trading, your e-money business will generate a monthly average outstanding electronic money of less than €5m
evidence that, in the 12 months preceding the application, the monthly average of payment services transactions did not exceed €3m (this assessment can be based on projections if a firm have never traded before), and
a description of how you will safeguard the funds of e-money holders
evidence that you meet your initial capital requirements
To be considered a small EMI, the maximum storage amount on the payment instrument of the customer where the electronic money is stored cannot exceed €250. A small EMI is required to hold initial capital at the time of authorisation. When the business activities of the EMI generate average outstanding electronic money less than €1,000,000, it shall hold initial capital equal to €50,000. When the business activities of the EMI generate average outstanding electronic money between €1,000,000 and €2,000,000, it shall hold initial capital of €100,000. Small EMIs must maintain at all times own funds, equal to or in excess of the applicable initial capital requirement. This parameters can change from jurisdictions to jurisdictions since are decided by local Financial Authorities.
EMI or small EMI licence?
he regulator has a two tier structure for payment businesses, namely, small electronic money institutions and electronic money institutions. The way to determine which option your firm falls under is to determine your average monthly turnover in transactions.
If your monthly turnover transactions are under 3m EUR you can become an small electronic money institution. If your monthly transaction amount exceeds this then you will have to apply as an electronic money institution.
Small Electronic Money Institution have a specific capital requirement (usually from 50.000 euro), but generally speaking, smaller firms tend to struggle in getting a bank account opened.
What is "Passporting"?
Passporting is the exercise of the right for a firm registered in the European Economic Area (EEA) to do business in any other EEA state without needing further authorization in each country. Often companies based outside of the EEA will get authorized in one EEA state and use its passporting rights to either open an establishment elsewhere in the EEA or providing cross-border services. This is valuable to multi-national companies because it eliminates a lot of red tape associated with gaining authorization from each individual country, a process that can be lengthy and costly for a business. If you hold the API or EMI Licence you can apply for "passaporting" and start to do business in any other EEA state without needing further authorization in each country. SPI and SEMI do not qualify for passporting.
How to pick the right jurisdiction for your business?
Well, it's a good question! My best 5 countries to apply in the EEA are: UK, Czech Republic, Ireland, Malta and Lithuania. My best 2 countries as per November 2018 are the UK and the Czech Republic. You should consider where you currently live and if you wish to move somewhere or not. In the UK or in Malta, you need to have a leased office and UK or Malta resident directors while in Czech Republic you may be director of your business even if you do not live in Czech Republic. So if you decide to apply in the UK or Malta you need to hire local staff or move to live there. The cost involved are different too. To rent an office or hire a manager in the UK or Malta can be more expensive than rent an office or hire a manager in Lithuania or Czech Republic. You may consider Malta if your core business is payments gateways since there are more than 250 gaming companies established in Malta. You may consider UK for the financial prestige that the kingdom offers. You may consider Ireland since is home to some of the world’s leading payments companies, attracted in part by Ireland’s thriving financial services and growing FinTech sector. You may consider Czech Republic if you are looking for a good compromise between services offered and prestigious jurisdiction. It's really up to your business idea and budget.
Usually the full package to acquire your licence includes:
Formation of Company;
First year company registered address;
One set of original corporate documents and rubber seal;
Due Diligence file for Directors and Shareholders of the company
Completing a License Application;
Collecting supporting license application documents from the client;
Submitting the application to the Financial Authority and following it up until finalised;
Bookkeeping and Accounting
The cost involved for SPI or SEMI starts at $15.000, while the cost involved for an API or EMI starts at $25.000
Extra Services you may consider:
Connection to card acquiring;
Registration for issuing own cards (Card acquiring can bring at least $100.000 extra turnover in very short time); READ MORE
Connection to SEPA (it can be via the National Bank of Third Country, not the country where you applied for licence);
Connection to Centrolink (clearing system provided for own clearing) giving the opportunity to open accounts for customers and provide each customer with an IBAN;
Registration with SWIFT.
You may consider to purchase an existing company already licensed as well, we do have few ready to sell, contact me for more info.
Do you need my team help?
Please write me an email with your specific case or book a Skype Presentation, my team and I will be more than happy to help you to choose the best solution for your API or EMI Licence.