Obtaining the Payment or E-Money license in Germany

This article looks at obtaining an Authorised Electronic Money Institution (e-money) or Authorised Payment Institution license in Germany. If you are planning on 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 German regulator, namely, the Federal Financial Supervisory Authority (BaFin), before you can offer such services.

In this article, we will look at:

  1. The second Payment Service Directive (PSD2) and its significance to payment services and electronic money.

  2. The German regulator

  3. The Authorised Payment Institution license

  4. Authorised Payment Institution permissions

  5. What is electronic money?

  6. Authorised Electronic Money license application

  7. Authorised Electronic Money Institution

  8. How to prepare a strong license application

  9. Passporting

  10. Apply to become an authorised payment institution or electronic money

  11. Initial capital requirements

  12. Next steps

1. The second Payment Service Directive (PSD2) and its significance to payment services and electronic money firms

PSD2, or the Payment Service Directive 2, is an EU Directive (Directive 2015/2366) that sets requirements for businesses 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.

Its main objectives 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

2. The German regulator

BaFin regulates firms that provide regulated services, including, consumer credit, payment services, e-money, lending, insurance and investment services.

The Payment Services Supervision Act (ZAG) regulates the supervision of payment services in Germany.

If you wish to issue electronic money services in Germany, such as prepaid cards or electronic wallets, you will require an Authorised Electronic Money Institution license from BaFin.

Another important thing you must do before making an application is to ensure you meet the regulator's conditions. For example, you will need to ensure that your management and people such as directors, must be located in Germany. 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.

The German regulator BaFin expects firms to meet a range of requirements before it allows them to provide regulated financial services. When an applicant firm submits an application seeking authorisation, BaFin will review their business plans, risks, budget, resources, systems, controls and people.

3. The Authorised Payment Institution license in Germany

An authorised payment institution license enables a business to provide payment services across the European Economic Area. Some countries, including Germany, provide the option of an additional license with less stringent conditions and requirements.

4. Authorised Payment Institution permissions

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. What is electronic money?

As per Article 2(2) of Directive 2009/110/EC, “e-money” means “electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on recei