Enabling you to offer payment services to the UK market, including, payment accounts, payment processing, merchant acquiring and money transfer services.
Authorised Payment Institution (API) United Kingdom
If you wish to become an authorised payment institution in the UK, then you will need to apply to the FCA for authorisation as an authorised payment institution. Below you will find key information and requirements to become an authorised payment institution in the UK.
Payments regulation is changing in Europe. With this change, it is creating new opportunities for payment service providers. The second payment service directive (PSD2) responds to the evolving demands of customers.
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Services provided by an Authorised Payment Institution License in the UK
An Authorised Payment Institution license enables the license holder to offer the following:
- services enabling cash to be placed on a payment account and all of the operations required for operating a payment account;
- services enabling cash withdrawals from a payment account and all of the operations required for operating a payment account;
- the execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider, including, execution of direct debits, including one-off direct debits; execution of payment transactions through a payment card or a similar device; execution of credit transfers, including standing orders;
- the execution of payment transactions where the funds are covered by a credit line for a payment service user, including, execution of direct debits, including one-off direct debits; execution of payment transactions through a payment card or a similar device; (iii)execution of credit transfers, including standing orders;
- issuing payment instruments or acquiring payment transactions;
- money remittance;
- payment initiation services;
- account information services.
Definition of a payment service provider
In accordance with regulation 2(1) of the Payment Services Regulations any of the following persons when they carry out a payment service:
(a) an authorised payment institution;
(b) a small payment institution;
(ba) a registered account information service provider;
(c) an EEA authorised payment institution;
(ca) an EEA registered account information service provider,
(d) a credit institution;
(e) an electronic money issuer;
(f) the Post Office Limited;
(g) the Bank of England, the European Central Bank and the national central banks of the 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;
(h) government departments and local authorities, other than when carrying out functions of a public nature.
The UK regulator for Authorised Payment Institutions
The Financial Conduct Authority is the UK’s regulator for financial services, including, consumer credit, payment services, e-money, lending, insurance and investment services. The Financial Conduct Authority is the regulator for 59,000 financial services firms and financial markets in the UK.
If you wish to provide payment services in the UK, you will require a Payment Institution license from the Financial Conduct Authority.
The FCA’s strategic objective is to ensure that the financial market is functioning effectively and efficiently.
Its objectives are:
- To protect consumers
- To protect the financial markets
- To promote effective competition and in the best interest of the consumer
The regulations for Authorised Payment Institutions
The Payment Service Directive 2 or PSD2 for short, is an EU Directive (Directive 2015/2366) which sets requirements for businesses wishing to provide payment services. It applies to banks, building societies, payment institutions, e-money institutions and their customers.
The PSD2 directive aims to promote innovation within the payments sector and improve protection for consumers, whilst making payments both safer and more secure. The PSD2 directive came into force on 13 January 2018.
The key objectives of the PSD2 directive are to:
- Contribute to a more integrated and efficient European payments market
- Improve the level playing field for payment service providers (including new players)
- Make payments safer and more secure
- Protect consumers
PSD2, or the Payment Service Directive 2, is an EU Directive (Directive 2015/2366) which sets requirements, including for UK payment institutions that provide payment services. It applies to banks, building societies, payment institutions, e-money institutions and their customers.
PSD aims to promote innovation within the payments sector. Furthermore, it aims to improve protection for consumers and make payments both safer and more secure.
The PSD2 directive came into force on 13 January 2018.
The following regulations are also applicable for payment institutions:
Reasons for choosing the UK
- World’s fifth-largest economy
- Low corporation tax
- Low business costs
- Business tax relief of up to 230% on research and development
- Access to a highly-skilled workforce
- Strong fintech growth and investment
- Strong reputation in financial services
Key requirements to become an Authorised Payment Institution in the UK
- A minimum capital requirement from €20,000 to establish an Authorised Payment Institution license.
- The requirement to safeguard client funds either with a segregated client bank account or with an insurance policy.
- The management body of the payment institution must be of good repute and possess the relevant qualifications and experience to perform their duties.
Applying to Become an Authorised Payment Institution in the UK
As part of an Authorised Payment Institution license application, the following information must be prepared and provided to the regulator:
- company identification details
- programme of operations
- business plan and financial forecasts
- a description of your business’s organisation structure
- evidence of your initial capital
- measures to safeguard funds of your users
- compliance & governance arrangements and internal controls
- procedure for monitoring, handling, and following up on security incidents and security-related customer complaints
- processes for filing, monitoring, tracking and restricting access to sensitive payment data
- business continuity measures
- the principles and definitions applicable to the collection of statistical data on performance, transaction and fraud
- security policy
- internal control mechanisms to comply with obligations in relation to money laundering and terrorist financing (AML/CTF obligations)
Choosing the right consulting partner
1. Expertise and Specialism within Banking, Payments and E-money
Payments is a specialist field, requiring prior expertise, knowledge and a specialist focus. You should ensure that your consultant specialises in this area as opposed to generalising in it. They should be comfortable explaining the technical aspects of this field, such as providing technical and regulatory requirements for license authorisation. The financial regulator will have conditions and expectations regarding different aspects of the application. For example, shareholders and management should be fit & proper, of good repute and have relevant experience and knowledge. A good consultant should be able to advise you on the regulatory requirements early on in order to manage your time effectively and minimise any delays or wrong decisions. It should your consultant’s role to guide and advise you on best practices and the regulatory requirements. For example, we spend time advising clients from an early stage, in fact during the initial meeting and prior to taking on their application, of such requirements so that they are able to make an informed decision before investing their time.
2. Ability to access banking products and services
Setting up a payment institution fintech goes beyond the scope of obtaining a license. You will require specialist banking facilities, such as, client safeguarding accounts, and access to payment systems, such as SEPA and Swift. Furthermore, you will require systems and software to manage your business. It is therefore important that your consulting partner has a strong network of connections with banks, technology partners and regulators. For example, by working closely with partners, such as Visa, Mastercard, Wirecard, and central banks, we are able to help clients by arranging banking facilities, such as safeguarding accounts, issuing cards, and access to payment infrastructures, such as SWIFT and SEPA.
Communication between a consultant and their client is extremely important. They should be open to meet with you if required or to discuss your project during an initial meeting and thereafter have regular conversations with their clients. For example, we have at least a weekly telephone or conference call with our clients to discuss the progress of their license authorisation application or related project. This helps the client to understand the progress on their application and being able to report key information and developments to their management team or board. At the same time, it enables us to understand how the client is coming along in developing the operational aspect of their business.
4. International approach
Payments are international in their very nature. As our clients grow internationally their needs change. Firms, therefore, require licenses, banking facilities, infrastructure and partners in international markets. We often find firms working with multiple legal, accounting and related firms. This can be challenging for such firms and often slows down their international growth. Furthermore, firms then must work with multiple partners within each country to manage different requirements e.g. company formation, accounting, legal, systems & IT, banks, and software vendors. This is further problematic when entering new markets. To manage these problems, our services are offered on an international level with offices strategically located in key jurisdictions across Europe and Asia. Our clients enjoy one point of contact for all their national and international requirements. This helps to remove any language barriers which they would otherwise face. Our services include accounting, legal, administrative and banking, which means that our clients can centralise their requirements with us.
5. Prior authorisation applications experience and success rate
Firms should ensure that their consulting partner has good knowledge and experience within banking, e-money and payment services. They should be able to demonstrate strong knowledge and experience within this area and be comfortable with explaining the legal and regulatory framework concerning banking, payment services, and electronic money. Your consulting partner should be able to share a client reference or provide client testimonials for similar past successful projects. For example, our website provides details of our recent work as well as the names of some of our clients.
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What our clients say
"Buckingham Capital Consulting has been a reliable and trusted partner. They spent time understanding our business, people and processes and worked closely with us throughout the process. They completed our licensing application to a high standard and in a timely and efficient manner. We were delighted with how smooth the entire process was from the application preparation and submission but also with the case officer at the FCA. Buckingham Capital Consulting ensured that our licence was obtained in an efficient and smooth manner. The value and expertise they provide became obvious early on in the process. We highly recommend Buckingham Capital Consulting."