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Buckingham Capital Consulting Ltd  |   One Kingdom Street, London, W2 6BD  |  Telephone: 0800 689 0501  |   Email: Info@buckinghamcapitalconsulting.co.uk

Registered in England and Wales registration number: 08744241

 

Copyright 2013 - 2020 Buckingham Capital Consulting Ltd

    How to obtain the Payment Institution license in the UK


    This article looks at obtaining an Authorised Payment Institution license. If you are planning upon offering payment services such as issuing debit cards, money transfer services or merchant services, you will need to apply with the UK regulator, the Financial Conduct Authority in the UK.

    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 Authorised Payment Institution license

    3. Authorised Payment Institution permissions

    4. How to prepare a strong license application

    5. Passporting

    6. Apply to become an authorised payment institution

    7. Initial capital requirements

    8. 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) which 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 Authorised Payment Institution license

    An authorised payment institution license enables a business to provide payment services across the European Economic Area.

    By obtaining the Authorised Payment Institution license, a license holder is able to provide the following payment services:

    (a) services enabling cash to be placed on a payment account and all of the operations required for operating a payment account;

    (b) services enabling cash withdrawals from a payment account and all of the operations required for operating a payment account;

    (c) 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—

    (i) execution of direct debits, including one-off direct debits;

    (ii) execution of payment transactions through a payment card or a similar device;

    (iii) execution of credit transfers, including standing orders;

    (d) the execution of payment transactions where the funds are covered by a credit line for a payment service user—

    (i) execution of direct debits, including one-off direct debits;

    (ii) execution of payment transactions through a payment card or a similar device;

    (iii) execution of credit transfers, including standing orders;

    (e) issuing payment instruments or acquiring payment transactions;

    (f) money remittance;

    (g) payment initiation services;

    (h) account information services.

    3. Authorised Payment Institution permissions

    Let’s look at the payment services a payment institution license holder is able to provide to its users in more details.

    1. Payment accounts. Examples of a 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 a 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.

    4. How to prepare a strong license application

    You will need to demonstrate that you have your mind and management as well as operational setup and presence in the European country in which you are applying for the license, such as the UK. 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 on-going 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.

    5. Passporting

    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 Lithuania, 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.

    6. How long does it take to obtain the license?

    European regulators such as BaFin and the FCA must make a decision within three months of receiving a complete application. In reality, it takes around 4 months to obtain the license.



    7. Initial capital requirement

    The following will apply with regards to the initial capital.

    Authorised Payment institution –

    • Payment accounts i.e. debit cards - €125,000

    • Merchant acquiring/payment processing - €125,000

    • Money remittance - €20,000

    8. Next steps

    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 you with licencing, compliance, operational setup and related services, including, obtaining banking facilities. For more information, visit our website on www.buckinghamcapitalconsulting.com

    Call us today on 02078662512 or 442078662512 if you are calling from abroad. Alternatively, please send an email to info@buckinghamcapitalconsulting.co.uk to arrange a telephone call or to discuss your requirements and plan. We are also able to arrange calls or conference calls using Skype. Our Skype ID is BCC54321. If you wish, we can arrange a meeting at one of our offices.

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