Understanding the Payment Institution License: Key to Operating in Europe’s Financial Sector

The Payment Institution License (PMI) is a crucial regulatory requirement for businesses operating within the EU's financial sector. Similarly to its counterpart - Money Service Business License in Canada, it allows companies to offer payment services and payment processing in compliance with European laws.

Obtaining this license means businesses can operate legally, access the European market, and build credibility with clients. Let’s take a deeper dive into the topic of PMI and why it is essential for success in the competitive European market!

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What Is a Payment Institution License?

A Payment Institution License (PI License) is a regulatory authorization that allows businesses to provide payment services across the European Economic Area (EEA).

Issued by the national financial authority of each EU country, this license ensures that providers operate within the legal framework of the Payment Services Directive (PSD2).

Without it, businesses cannot legally offer financial services like direct debits, credit transfers, or online payment solutions.

While similar to an Electronic Money Institution (EMI) license, a PI License does not allow a company to issue electronic money. Instead, it focuses solely on facilitating transactions using customers' existing bank funds.

Both PIs and EMIs play an important role in Europe’s financial sector, but their operational scopes differ significantly.

How Does a Payment Institution Differ from an EMI (Electronic Money Institution)?

A Payment Institution (PI) acts as a bridge between customers and financial transactions. It facilitates payments but does not store or issue electronic money. A PI processes transactions using funds already present in customers' bank accounts, enabling smooth and regulated money flows.

An Electronic Money Institution (EMI), on the other hand, goes a step further. It issues and manages electronic money, allowing users to store funds digitally. You can exchange your standard currency (EUR, CZK, GBP etc.) for the electronic money issued by EMI, such as prepaid cards or digital account balances.

Think of an EMI as a digital wallet provider - customers can load money into their accounts, store it, and use it for various transactions. EMIs can also offer payment services, but their primary function is to manage e-money rather than just processing payments.

Choosing between a PI and EMI license depends on your business model.

If your company aims to process transactions without issuing electronic money, a Payment Institution License is the right choice.
However, if you want to offer digital wallets or e-money accounts, an EMI license is necessary.

The general comparison of both types of business is as follows.

Electronic Money Institution (EMI)	Payment Institution (PI)
Issues and distributes electronic money	Processes payment transactions
Enables online payment transactions	Provides money remittance services
Manages digital wallets and prepaid cards	Offers payment initiation and account information services
Provides forex services linked to e-money accounts	Provides mobile payment solutions
Offers payment solutions for e-commerce	Provides merchant acquiring for businesses

Nevertheless, licensed EMI and PI both share certain benefits like providing cross-border services within the EEA and maintaining compliance with EU financial regulations.

Electronic Money Institution (EMI)
Issues and distributes electronic money
Enables online payment transactions
Manages digital wallets and prepaid cards
Provides forex services linked to e-money accounts
Offers payment solutions for e-commerce

Payment Institution (PI)
Processes payment transactions
Provides money remittance services
Offers payment initiation and account information services
Provides mobile payment solutions
Provides merchant acquiring for businesses

Nevertheless, licensed EMI and PI both share certain benefits like providing cross-border services within the EEA and maintaining compliance with EU financial regulations.

Benefits of Applying for a Payment Institution License in the EU

Expansion and Growth

A Payment Institution License (PI License) is a gateway to scaling your financial services business across the European Economic Area (EEA). With it, businesses can legally offer payment solutions in multiple EU countries without needing separate approvals in each jurisdiction - thanks to the EU passporting rules.
A similar situation occurs with cryptocurrency licenses, where securing a Slovakia crypto license or a crypto license in Estonia allows you to provide crypto-related services across the whole EU.
This regulatory backing not only simplifies cross-border operations but also boosts customer confidence, as they know they are dealing with a compliant and trustworthy service provider.
By meeting EU standards, your company gains a solid foundation for growth in an increasingly regulated financial landscape. By meeting EU standards, your company gains a solid foundation for growth in an increasingly regulated financial landscape.

Competitive Advantage

Compliance is a key differentiator in a market that is constantly changing. Holding a PI License sets your business apart from unregulated or non-compliant competitors, demonstrating reliability and adherence to EU financial laws.
This added credibility is a great boon for building partnerships with banks, payment networks, and fintech firms that require strict compliance before collaboration. Additionally, having a PI License reassures customers and investors that your business meets high regulatory standards, making it a trusted player in the payment services industry.

Operational Freedom

With a Payment Institution License, businesses can offer a broad range of financial services, including money remittance, issuing payment instruments, merchant payment processing, and account management.
This flexibility allows companies to cater to diverse customer needs and provide payment solutions across industries, from e-commerce to financial technology.

Strategic Partnerships and Integration

Holding a PI license opens doors to collaborations with banks, fintech companies, and other financial service providers across Europe. Businesses can integrate with digital wallets, payment gateways, and banking platforms, enhancing their service offerings and providing a more comprehensive financial ecosystem for their customers.
By leveraging these partnerships, companies can scale faster and strengthen their market position within the EU

Key Regulations Governing Payment Institutions in Europe

Operating a payment institution in the EU requires compliance with several key regulations. The most significant of these is the Second Payment Services Directive (PSD2), which sets the legal framework for payment institutions and their operations.

1. PSD2 For Enhancing Security and Competition

The PSD2 directive is designed to promote innovation, enhance competition, and increase security in the payment services market. One of its most critical requirements is Strong Customer Authentication (SCA), which mandates multi-factor authentication for online payments to reduce fraud risks.

PSD2 also introduces open banking, requiring banks to grant licensed third-party providers access to customer account data - provided they have the customer’s explicit consent. This way, payment institutions may offer advanced financial services with transparency, through clear disclosure of transaction terms, fees, and exchange rates.

2. Anti-Money Laundering (AML) Compliance

To prevent financial crime, all payment institutions must comply with strict AML and KYC regulations. This requires conducting customer due diligence (CDD), continuously monitoring transactions for suspicious activity, and reporting any potential risks to financial authorities. Failing to meet AML requirements can result in severe penalties, including fines or even the revocation of a payment institution’s license.

Seeking professional AML compliance consulting is therefore advised.

3. Digital Operational Resilience Act (DORA)

As digital transactions become the standard, payment institutions must also comply with the Digital Operational Resilience Act (DORA), which focuses on cybersecurity and IT risk management.

Among other things it means implementing strong cybersecurity frameworks, conducting regular system resilience tests, and promptly reporting any significant IT security incidents to regulators. With increasing cyber threats, digital resilience is a key requirement for maintaining operational stability.

This goes doubly for cryptocurrency companies, where compliance with the strict MiCA and DORA regulations is a necessity for all companies thinking about how to get a CASP license in the European Union.

4. Operational and Prudential Requirements

Beyond PSD2 and DORA, payment institutions must meet minimum capital requirements, which vary depending on the country and the type of services provided. They must also implement risk management strategies and submit reports to regulators detailing financial stability, compliance measures, and transaction volumes.

Additionally, protecting client funds is a legal obligation - payment institutions must either keep customer money in segregated accounts or safeguard it through insurance mechanisms

Adhering to these regulations is essential for operating legally and maintaining customer trust. Non-compliance can lead to severe consequences, including financial penalties and license suspension. On the other hand, by following these requirements, payment institutions can expand their services, build credibility, and gain a competitive edge in the financial industry

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How to Apply for a Payment Institution License in the EU

Obtaining a Payment Institution License in the EU requires meeting specific regulatory demands. Here’s a breakdown of the key criteria:

Eligibility Criteria

Business Plan and Strategy

Applicants must submit a detailed three-year business plan outlining their operational model, target markets, risk management strategies, and financial projections. This helps regulators assess the long-term viability and compliance of the institution.

Minimum Capital Requirements

The minimum capital requirement depends on the type of payment services provided and may vary by country. Typically, however, it ranges from €20,000 for businesses offering only money remittance services to €125,000 for businesses handling customer funds, issuing payment instruments, or providing payment initiation services. These capital thresholds are here so that institutions have sufficient financial backing to operate securely.

Client Fund Protection Measures

Payment institutions must demonstrate how they will protect customer funds, either through segregation of accounts or securing them with insurance or guarantees. This prevents mismanagement and ensures customers’ money remains safe.

Organizational Structure and Governance

A well-defined organizational structure is required, detailing ownership, leadership, and internal controls. Regulators will assess if the company has experienced directors and key personnel capable of managing financial operations responsibly.

Internal Risk Management and Compliance

Applicants must implement robust internal control systems to monitor transactions, detect fraud, and mitigate financial risks. This means maintaining a strong IT security, compliance frameworks, and operational resilience plans.

Anti-Money Laundering (AML) & Counter-Terrorist Financing (CTF) Compliance

Businesses must have a clear AML/CTF policy in place to prevent financial crimes. Proper customer due diligence (KYC), transaction monitoring, and suspicious activity reporting in line with EU regulations will be necessary.

Application Process for a Payment Institution License

Securing a Payment Institution License in the EU demands a structured application process overseen by national regulatory authorities, such as the FCA in the UK, BaFin in Germany, or other local regulators.

Choose the Licensing Jurisdiction

Before applying, determine where your business will operate. If your services will be EU-wide, selecting a jurisdiction with a favorable regulatory environment can make the process much easier. Once licensed in one EU country, you can use passporting rights to operate across all member states without additional licenses.

Prepare Your Application Package

Each regulator requires a comprehensive set of documents, including:
✔ Business Plan – A three-year financial projection and operational strategy.
✔ Compliance Policies – AML/CTF frameworks, risk management, and fraud prevention measures.
✔ Governance Structure – Details about company leadership, ownership, and internal controls.
✔ Financial Statements – Proof of capital sufficiency (€20,000–€125,000, depending on services provided).

Submit the Application

Once prepared, submit your application to the relevant regulatory authority. The standard processing times vary:

3–6 months for well-prepared applications.
Up to 12 months if additional documentation or compliance adjustments are required.

Keep in mind that there might be a different application processing in each country. Therefore inform yourself of the average length of the process in the country of your choosing in advance.

Regulatory Review and Compliance Assessment

During the review process, authorities evaluate your business model, risk management procedures, and operational resilience. Some regulators even conduct on-site inspections or request further clarifications before approval.

Approval and Passporting Rights

Once approved, your Payment Institution License allows you to legally operate in the licensing country. To expand across the European Economic Area (EEA), you can apply for passporting, which enables you to offer services in all EU member states without requiring additional licenses.

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Challenges and Considerations When Applying for a Payment Institution License

Residency Requirements

Applying for a Payment Institution License comes with strict regulatory requirements that can be challenging to meet.

One of the biggest obstacles is fulfilling the aforementioned minimum capital requirements, which can go up to €125,000 depending on the services offered. Businesses must also develop a robust (AML) framework and implement thorough risk management procedures to satisfy regulators.

Also the application process can be lengthy, often taking several months due to detailed reviews, additional information requests, and potential delays in regulatory approvals.

Ongoing Compliance

Obtaining the license is the first step, however, continuous compliance is essential to maintain it.

Payment institutions must adhere to annual reporting requirements, undergo regular audits, and keep up with evolving financial regulations.

Any failure to meet these obligations can have consequences ranging from fines to revocation of the license. Long-term compliance is therefore a critical factor for business sustainability.

Costs of a Payment Institution License in Europe

1. Application Costs

Obtaining a Payment Institution License in Europe involves several key expenses. One of the first costs to consider is the application fee, which varies significantly by country. For example, Lithuania offers one of the lowest application fees at €898, while in Luxembourg, this fee can reach €15,000. In addition to this, businesses must meet the already mentioned minimum capital requirements, which range from €20,000 to €125,000, depending on the services they plan to offer.
Beyond the application fee and capital requirements, companies should budget for legal support and consultancy fees to make sure their business model complies with regulatory expectations and all the documentation and risk management policies are in order.
Many regulators also require proof of operational readiness, meaning firms may need to invest in software solutions that align with security and compliance standards.

2. Ongoing Operational Costs

Once licensed, payment institutions face continuous costs to maintain compliance. Regulators require regular financial audits, IT security assessments, and detailed reporting, all of which involve additional expenses. Adhering to evolving EU regulations demands continuous investments in risk management, cybersecurity, and transaction monitoring.

3. Staffing

Another significant expense is staffing, as regulators often require companies to employ local compliance officers and risk management professionals. In some jurisdictions, this can mean hiring a team of up to eight to ten employees, significantly increasing operational costs. Other ongoing expenses include:

safeguarding account fees
office maintenance
and third-party service providers for AML compliance and fraud prevention.

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Payment Institution License – A Future-Proof Investment for Your Payment Business

Having a Payment Institution License in Europe is a necessity for businesses looking to offer reliable and compliant payment services across the EU.

While the licensing process requires a significant investment in application fees, legal support, and ongoing compliance, it provides long-term stability and access to the European financial market.

With proper planning and expert guidance, obtaining such a license will be a strategic step toward growth and regulatory security in the evolving fintech landscape.

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