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This article looks at obtaining an Electronic Money Institution EMI/E-money and Payment Institution license in Estonia. If you are planning upon offering payment services such as issuing debit cards, money transfer services, merchant services or electronic wallets and prepaid cards, you will need to apply with the Estonian regulator, Finantsinspektsioon, before you can offer such services.
1. The Regulatory framework for EMI/E-money Electronic Money Institutions and Payment Institutions
PSD2, or the Payment Service Directive 2, is an EU Directive (Directive 2015/2366) that sets requirements for businesses that provide e-money and payment services in Estonia. 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.
2. The Estonian regulator for EMI/E-money Electronic Money Institutions and Payment Institutions
Finantsinspektsioon (Estonian Financial Supervision and Resolution Authority), is Estonia's regulator for EMI/E-money Electronic Money Institutions and Payment Institutions. It is responsible for financial services businesses and financial markets. Finantsinspektsioon (Estonian Financial Supervision and Resolution Authority) regulates firms that provide regulated services, including, consumer credit, payment services, e-money, lending, insurance and investment services.
If you wish to issue electronic money or payment services in Estonia, such as prepaid cards, debit cards, electronic wallets or merchant services, you will require an Authorised Electronic Money Institution (e-money) or an Authorised Payment Institution license from Finantsinspektsioon (Estonian Financial Supervision and Resolution Authority).
3. The Payment Institution license in Estonia
A payment institution license enables a business to provide payment services across the European Economic Area. Some countries, including the UK, provide the option of an additional license with less stringent conditions and requirements. In the UK this license is known as a small payment institution.
4. Payment Institution license activities in Estonia
Let’s look at the payment services a payment institution license holder is able to provide to its users.
1. Payment accounts. Examples of payment account include debit cards and payment cards. The user is able to place and withdraw cash on such accounts as well as use the account card to make a payment transaction, using the card to buy goods and services. Users are also able to set up direct debits standing orders as well as transferring funds.
2. Merchant services. Holders of the payment institution license are able to provide merchant services. This can include acting as a master merchant and offering merchants the ability to accept card payments.
3. Money remittance. Money remittance or transfer is another service payment institutions are able to offer. This service enables the payment service provider to enable users to make cross border payments, internationally.
4. Payment initiation services. Under this model, an initiator I.e. as a payment service provider under the payment institution license, subject to the user's consent, is able to initiate payment directly from the user's bank account and transfer the amount directly to the merchant retailer’s bank account, removing the Visa and Mastercard networks from the payment process.
5. Account information services. Under this permission, subject to the user's consent, a payment service provider is able to provide access to a user’s accounts and enable them to view consolidated account information in one place.
5. Definition of electronic money in Estonia
As per Article 2(2) of Directive 2009/110/EC, “electronic money” or e-money means “electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transaction, and which is accepted by a natural or legal person other than the electronic money issuer”. Prepaid cards and electronic wallets are examples of electronic money.
6. EMI/E-money Electronic Money Institutions license application preparation for Estonia
As part of your e-money license application, you will be required to submit a number of documents, policies and procedures, including, a business plan, your safeguarding measures (how you will keep your client money separated and ring-fenced), your governance arrangements and risk management, your procedures for managing and handling security incidents and customer complaints, your security policy and your measures against financial crime, including AML. These policy and procedural documents must be specific to your firm and adequately address key aspects as set out by the regulator. Submitting templated documents will not be accepted and will cause delay, and potential rejection of your application. This is why it is important to prepare policies and procedures that are well thought-through and adequately address the regulator’s requirements and what it expects to see.
An important part of your EMI/E-money Electronic Money Institution or Payment Institution license application is to ensure you meet the regulator’s basic conditions. Think of the basic condition as the basic requirements you must have in place. For example, your employees must be located in the country of the license application. You will need to demonstrate through your application that you have appropriate resources to operate your business. This includes having sufficient financial, management, staff, and systems to manage your business. Your team should be suitable and competent in their roles.
As part of your EMI/E-money Electronic Money Institutions or Payment Institution license application, you will need to provide details of your IT and systems, including both core systems and any support systems. The regulator will expect to see that you have these in place before it issues your license.
7. Documents required for the EMI/E-money Electronic Money Institution or Payment Institution license application in Estonia
As part of your EMI/E-money Electronic Money Institution or Payment Institution license application, you will be required to provide the following documents:
company identification details
programme of operations
business plan and financial forecasts
a description of your business’s organisation structure
evidence of your initial capital
your measures to safeguard funds of your users
your compliance & governance arrangements and internal controls
your procedure for monitoring, handling, and following up on security incidents and security-related customer complaints
your processes for filing, monitoring, tracking and restricting access to sensitive payment data
your business continuity measures
the principles and definitions applicable to the collection of statistical data on performance, transaction and fraud
your internal control mechanisms to comply with obligations in relation to money laundering and terrorist financing (AML/CTF obligations)
8. How to prepare a strong EMI/E-money Electronic Money Institution and Payment Institution license application for Estonia
You will need to demonstrate that you have your mind and management as well as operational setup in the country of the license application. This means establishing a physical base, including a physical office.
Furthermore, you must have adequate resources in place. This includes financial resources, i.e. possessing sufficient funds to manage and operate the business. You will be required to demonstrate that you have suitable and experienced management and employees to manage the business. Firms must also demonstrate that they adequate IT systems and internal controls to ensure the safety of payments and manage fraud adequately and effectively.
You must ensure that their business plan describes your payment activities and market plan and its execution. Your firm’s financial statements must adequately address your business lines of income, calculations of initial and ongoing capital requirements and provide financial forecasts for the first three years.
You must provide policies and procedural documents that clearly demonstrate that you understand your business risks. Firms should prepare a risk framework and address how they will mitigate their risks, including operational, security and money laundering risks.
9. Passporting with an EMI/E-money Electronic Money Institution and Payment Institution license in Estonia
If you are authorised as a regulated financial service firm within a country inside the European Economic Area, you can provide your regulated services, as a payment service provider or electronic money provider across the rest of the countries within the European Economic Area without requiring additional licenses in those countries.
The EEA states are Austria, Belgium, Bulgaria, Croatia, Cyprus (Republic of), Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.
Accordingly, if you were regulated in the UK, you would be able to provide regulated services within the above countries without requiring additional licenses in those countries. To achieve this, you would need to apply for a ‘passport’ to do so.
With passporting, you are able to set up a branch in an EEA state and/or provide cross-border services or advice.
Passporting is only available to authorised firms i.e. authorised payment institutions and electronic money institutions. It is not available to local-level or small firms such as small electronic money institutions or small payment institutions.
10. How long does it take to obtain the EMI/E-money Electronic Money Institution and Payment Institution license in Estonia?
From the point of submitting your license application, you should expect the process to take 6 months for the regulator to assess and determine your application.
11. Initial capital requirements for EMI/E-money Electronic Money Institutions and Payment Institutions in Estonia
The following will apply with regards to the initial capital:
Electronic Money Institution (e-money): €350,000
Payment accounts i.e. debit cards - €125,000
Merchant acquiring/payment processing - €125,000
Money remittance - €20,000
How we can help
Buckingham Capital Consulting is a leading international consulting firm, specialising in payment services, electronic money, banking and investment services. We are able to advise you on the best course of action and strategy based upon your business plan and financial product or service. We can help you with licencing, compliance, operational setup and related services, including, obtaining banking facilities. For more information, visit our website on www.buckinghamcapitalconsulting.com
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