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This article looks at obtaining a PI/ Payment Institution license successfully and in the quickest time possible. If your business is planning on offering payment services, such as issuing cards, money transfer services and merchant services, you will need to apply to the financial regulator and become a PI/Payment Institution.
1. Regulatory framework for PI/Payment Institutions
PSD2, or the Payment Service Directive 2, is an EU Directive (Directive 2015/2366) that sets requirements for PI/Payment Institutions that provide payment services.
The PSD2 directive came into force on 13 January 2018.
The following regulations are also applicable for payment institutions:
2. Payment Services under the PI/Payment Institution license
By obtaining the 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.
2.a PI/Payment Institution license payment service examples
A Payment Institution/PI is able to offer the following payment services.
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 payments 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.
3. How to prepare a strong Payment Institution/PI 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 Lithuania. 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 show that you have suitable and experienced management and employees to operate 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.
4. How long it takes to obtain a PI/Payment Institution license
The financial regulator must make a decision within three months of receiving a complete application. In reality, it takes closer to 4-5 months for an application to be assessed and completed.
5. Initial capital requirement for the PI/Payment Institution license
The following will apply with regards to the initial capital for a European PI/Payment Institution license.
- 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 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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