E-money and payment institution licences

Most fintech businesses that move or hold customer money do not need a banking licence. In the European Union they usually need one of two narrower authorisations: a payment institution (PI) licence or an electronic money institution (EMI) licence. Both are cheaper and faster to obtain than a bank licence, but both come with hard limits on what the firm may do with customer funds.

This guide explains the difference between the three models, the capital and safeguarding rules under the current directives, how agents, distributors and passporting work, and what the coming PSD3 reform means for firms already licensed. The reform itself, and the wider payments agenda, are covered in the separate guide on PSD3 and instant payments.

Three models: bank, EMI and PI

The legal line between the three is about what happens to the customer’s money once it arrives. A bank takes deposits and may lend them out. A payment institution only executes payments, and an e-money institution issues a stored monetary value that the customer can spend or redeem.

	Credit institution (bank)	E-money institution	Payment institution
Core activity	Deposits and lending	Issuing e-money, plus payment services	Payment services only
May take deposits	Yes	No	No
May lend customer funds	Yes	No	No
Credit allowed	Full lending business	Only short-term credit linked to payments, not from customer funds	Only short-term credit linked to payments, not from customer funds
How customer money is protected	Deposit guarantee scheme and prudential capital	Safeguarding	Safeguarding
EU minimum initial capital	Set under CRD (see bank guide)	EUR 350,000	EUR 20,000 to EUR 125,000

Under EMD2 Article 6, an EMI “shall not take deposits or other repayable funds from the public”, and funds received from a customer must be exchanged for e-money without delay. Credit linked to payment services is allowed only on conditions, and it may not be granted from the funds received in exchange for e-money.

PSD2 Article 18 sets the same boundary for PIs. Funds they receive are not deposits and not e-money, and they may hold only payment accounts “used exclusively for payment transactions”.

What counts as e-money

EMD2 Article 2 defines e-money as electronically stored monetary value, represented by a claim on the issuer, issued on receipt of funds for making payment transactions, and accepted by someone other than the issuer. A prepaid card or a wallet balance that the holder can spend with third parties is the classic case.

Two further rules shape every e-money product. Under Article 11, e-money must be issued at par and redeemed at par “at any moment” on the holder’s request, with redemption fees allowed only in narrow cases. Under Article 12, the issuer may not pay interest or any other benefit linked to how long the customer holds the e-money.

If the business model depends on paying yield on balances, an EMI licence will not support it. That is one of the main reasons some firms move up to a banking licence.

What counts as a payment service

Annex I to PSD2 lists eight payment services:

1. Placing cash on a payment account and operating the account.
2. Cash withdrawals from a payment account and operating the account.
3. Executing payment transactions such as direct debits, card payments and credit transfers.
4. Executing the same transactions where funds are covered by a credit line.
5. Issuing payment instruments and acquiring payment transactions.
6. Money remittance.
7. Payment initiation services.
8. Account information services.

A PI is authorised for specific services from this list, and its capital depends on which ones. An EMI may also provide any of these services alongside issuing e-money.

Capital and own funds

The minimum initial capital is fixed in the directives. Member states transpose these figures into national law, and supervisors may expect more in practice depending on the business plan.

Licence and activity	Minimum initial capital	Legal basis
PI, payment initiation only (service 7)	EUR 50,000	PSD2 Art. 7(b)
PI, money remittance only (service 6)	EUR 20,000	PSD2 Art. 7(a)
PI, any of services 1 to 5	EUR 125,000	PSD2 Art. 7(c)
Account information only (service 8)	No initial capital; registration and professional indemnity insurance	PSD2 Art. 5(3) and 33
EMI	EUR 350,000	EMD2 Art. 4

Initial capital is only the floor. PSD2 Article 8 requires own funds at all times of at least the higher of initial capital and the amount calculated under one of three methods in Article 9, chosen by the supervisor.

For EMIs, EMD2 Article 5 adds “Method D”: own funds for e-money issuance of at least 2% of average outstanding e-money. Average outstanding e-money is measured over the preceding six months, so the requirement grows automatically as balances grow.

Small institution waivers

Both directives allow member states to register smaller firms under a lighter regime without full authorisation. PSD2 Article 32 allows this where monthly average payment volume over the preceding 12 months is no more than EUR 3 million. EMD2 Article 9 allows it where average outstanding e-money is no more than EUR 5 million.

A registered small firm has no passport. PSD2 Article 32 disapplies the passporting articles and requires the head office to be in the member state where the business is actually carried out.

Safeguarding

Safeguarding is the central protection for customers of PIs and EMIs, and the area where supervisors most often find failures. It is not insurance against fraud or loss of value; it is a legal and operational ring-fence designed to return customer money if the firm fails.

PSD2 Article 10 offers two methods:

1. Segregation. Customer funds must never be commingled with other money. If not paid out by the end of the business day after receipt, they must be placed in a separate account at a credit institution or invested in secure, liquid, low-risk assets, and insulated from other creditors in insolvency.
2. Insurance or guarantee. Funds are covered by an insurance policy or comparable guarantee from an insurer or credit institution outside the firm’s group, for the amount that would otherwise be segregated.

EMD2 Article 7 applies the same methods to funds received for e-money, and requires card-funded amounts to be safeguarded no later than five business days after the e-money is issued.

The Instant Payments Regulation amended PSD2 Article 10 to cover EMIs expressly and to allow safeguarded funds to be held at a central bank, at that central bank’s discretion. Member states had to apply the change by 9 April 2025. The same regulation amended the Settlement Finality Directive so that PIs and EMIs can participate in designated payment systems.

The tightening trend outside the EU

Other regulators have moved in the same direction. In the UK, the FCA’s PS25/12, published on 7 August 2025, introduced a supplementary safeguarding regime from 7 May 2026 for authorised PIs, authorised and small EMIs and credit unions issuing e-money.

In Hong Kong, the HKMA guideline on stored value facility licensees expects an effective trust arrangement over the float, segregated from the licensee’s own funds. A bank guarantee or insurance may be used only as an alternative or supplement where the licensee justifies it.

Applying for a licence in the EU

The application content is broadly harmonised. PSD2 Article 5 requires, among other things:

• a programme of operations and a three-year business plan with a forecast budget;
• evidence of initial capital;
• a description of safeguarding measures;
• governance, internal control, risk management and accounting arrangements;
• security incident, sensitive payment data, business continuity and security policies;
• AML and counter-terrorist financing controls;
• the identity and suitability of qualifying shareholders, and the good repute, knowledge and experience of directors and managers.

Under PSD2 Article 12, the supervisor must decide within three months of receiving a complete application. The clock does not run while the file is incomplete, which is why real timelines are usually longer than the statutory period.

A licence that is not used can be lost. Article 13 allows withdrawal if the firm does not use the authorisation within 12 months or stops business for more than six months.

Bank accounts are part of the licence

A PI or EMI cannot safeguard funds or operate without accounts at a bank. PSD2 Article 36 requires access to credit institutions’ payment account services on an “objective, non-discriminatory and proportionate basis”, and the bank must give the supervisor reasons for any refusal.

In practice, account access remains one of the hardest operational steps, so banking relationships should be planned alongside the licence application.

Agents, distributors and outsourcing

Many PIs and EMIs reach customers through third parties. The rules differ depending on what the third party does.

Third party	What it may do	Process
Agent of a PI or EMI	Provide payment services on the institution’s behalf	Registered by the home supervisor under PSD2 Art. 19
Distributor of an EMI	Distribute and redeem e-money on the EMI’s behalf	Permitted by EMD2 Art. 3(4); cannot issue e-money
Outsourced provider	Perform operational functions	Notification and outsourcing controls

For an agent, PSD2 Article 19 requires the institution to provide the agent’s details, its AML internal controls and evidence that its managers are fit and proper. The supervisor has two months to confirm registration, and the agent may start only once it appears in the register.

EMD2 Article 3(5) is explicit that EMIs “shall not issue electronic money through agents”. The EMI remains the issuer and fully responsible for its agents and distributors.

Passporting across the EEA

An authorised PI or EMI can provide services in other EEA states either cross-border or through a branch or agents. Under PSD2 Article 28, the firm notifies its home supervisor, which has one month to forward the file to the host state; the host then has one month to assess it and respond.

Passporting is a notification process, not a second licence, but it is not unconditional. Host supervisors receive information on agents and branches, and the home supervisor can refuse registration where the host raises well-founded money laundering concerns.

A passport works only within the EEA. A UK, Singapore or Hong Kong licence does not grant EU market access, and an EU licence does not grant access to those markets.

Comparable regimes outside the EU

The same distinctions exist elsewhere, but labels, thresholds and capital differ.

Jurisdiction	Regime	Headline capital
EU	PI under PSD2; EMI under EMD2	EUR 20,000 to EUR 125,000 (PI); EUR 350,000 (EMI)
Singapore	Standard or Major Payment Institution under the Payment Services Act 2019	S$100,000 (standard); S$250,000 (major), plus a security deposit for major institutions
Hong Kong	Stored value facility licence under the Payment Systems and Stored Value Facilities Ordinance	HK$25 million paid-up capital or equivalent financial resources

In Singapore, MAS uses volume thresholds rather than service types to separate the two main licences. A firm must hold a major licence once it exceeds S$3 million a month for any one service, or holds more than S$5 million of daily outstanding e-money.

Hong Kong sets a much higher entry point. The HKMA describes HK$25 million as only a minimum and says it may impose a higher requirement depending on the scale and complexity of the business.

Crypto, stablecoins and the e-money licence

Under MiCA Article 48, only a credit institution or an EMI may offer an e-money token to the public in the EU, and e-money tokens are deemed to be electronic money. Crypto firms handling such tokens may also need payment authorisation: the EBA’s February 2026 opinion covers the position after its transition period ended on 2 March 2026.

PSD3: what changes for licence holders

The EU is replacing PSD2 and EMD2 with a new directive (PSD3) and a directly applicable Payment Services Regulation. As of October 2026, the Legislative Observatory shows the files awaiting the Council’s first-reading position, with the Parliament’s plenary vote indicated for 14 December 2026. The figures below come from the April 2026 compromise text and could still change in legal finalisation.

The main licensing changes in that text:

• One licence type. E-money issuance becomes a payment service (Annex I, point 8), and EMIs become payment institutions.
• New capital levels. EUR 40,000 for money remittance only, EUR 50,000 for payment initiation, EUR 150,000 for services 1 to 5, and EUR 250,000 for e-money issuance. Amounts are added together where a firm provides several.
• Account information. Account information providers register rather than seek authorisation.
• Faster route for CASPs. A MiCA-authorised CASP offering payment services only with e-money tokens should get a decision within 60 business days of a complete file.

The text also includes transitional rules for existing licence holders. PIs and EMIs authorised under current law may continue for 27 months after entry into force, but must provide information so their supervisor can verify compliance with the new requirements by then. Firms that do not satisfy the supervisor by that date face suspension, although supervisors may re-authorise automatically where they already have evidence of compliance.

For founders choosing a licence now, the practical point is that an application made today will be assessed under PSD2 and EMD2, then reviewed again under PSD3 within a few years. Business plans, capital planning and safeguarding arrangements should be built to meet both.