This article covers the requirements and peculiarities of PI license
Fintech development is a disruptive factor for traditional banking. Yet the recent tendency shows more and more alternative payment companies applying to obtain a banking license. Why do they need that? Having a banking license for a fintech company means that it doesn’t need to rely on partnerships with incumbent banks anymore. It becomes an independent industry player.
What are financial licenses for?
Despite a lengthy and tedious application process and a lot of paperwork, a banking license can offer many advantages for fintechs:
- broader scale and a larger customer base;
- retail depositors trust granted by secure deposit guarantee schemes;
- efficient long-term capital base;
- competitive advantage over unlicensed fintech startups;
- validation of the business model to the entire financial ecosystem;
- passporting benefits in the EU’s single market;
- preparation for new opportunities and a level playing field for PSD2;
- omnichannel presence of their business;
- extended range of banking products;
- broader acknowledgment and legitimacy;
- the trust of potential business partners;
- reduction of their regulatory costs.
Except for the banking license, there are several different licenses dealing with the payment sector. Each of them gives various rights to a legal entity. We will cover each of them separately for your convenience and in-depth comprehension.
PI (Payment Institution) license is an authorization type issued under the PSD2 regulation. It enables organizations to provide “offline” financial and intermediary services.
This license allows to:
- open and close accounts;
- top up accounts;
- cash-in account funds;
- enable transactions between client accounts;
- remit money;
- create or use third-party payment instruments;
- execute direct debits, including one-off direct debits;
- provide credit transfers, including standing orders;
- act as an intermediary between a user and a supplier.
The requirements for PI may slightly vary within the EU, not to mention the rest of the world. The company’s jurisdiction usually must coincide with the country of license application. The general rules are:
The business should comply with the legislation policies of the regulator regarding:
- Sufficient capital;
- Proper controls;
- Governance with adequate technological systems;
- Business conduct;
- Reporting and Notifications;
- Handling customer complaints and suggestions, etc.
The regulator must also be satisfied with the applicant’s:
Communication of its identity, points of contact, and the services it offers;
- Diligence for its clients;
- Safety measures to protect its clients´ funds;
- Customer identification procedures;
- Risk mitigation measures covering fraud and money laundering.
The needed capital for a prospective PI company is €125,000. However, the supervisory authority can increase the requirement if the sum is not enough for the planned business activity.
Different countries of the EU may have a range of minimum initial capital requirements depending on the type of payment services. For instance, in Cyprus the regulating authorities demand the following amounts being deposited to a business bank account:
- € 20 000 (money remitters);
- € 50 000 (mobile payments);
- € 125 000 (full-range payment services providers).
In the UK, you can also become a small payment institution (SPI) if your business’ average turnover does not exceed €3 million per month. In that case, you’ll require only registration instead of authorization. Registration is cheaper and simpler than authorization, but SPIs are unable to provide payment services to other European Economic Area (EEA) member states.
To become an SPI, you must meet the following conditions:
- directors and managers must be reputable and possess proper professional skills to provide payment services;
- managers must not have ever been sentenced for money laundering, terrorist financing, or other financial crimes;
- your head office and registered office must be in the UK;
- you must not provide AIS or PIS.
The applicants wishing to register for SPI must send:
- the application form;
- “core details” and declaration forms;
- PSD individual forms to register each person who will manage the SPI;
- qualifying holdings forms, if applicable;
- agent forms for anyone who will act on your behalf, if applicable;
- the £500 application fee (non-refundable).
Some companies that received PI license
Recently, a subsidiary of the London-based firm, Earthport was granted a PI license by the Bank of Lithuania. This public company has over 200 employees worldwide and has regional offices in New York, Miami, San Francisco, Singapore, and now Lithuania.
Earthport’s global payments network powers transactions for large financial institutions, e-commerce companies, money transfer organizations, and payment aggregators. The company provides clients with access to the world’s largest independent cross-border payments network, maintaining local banking partnerships to help businesses settle payments directly via local clearing in 88 countries. Now it can also benefit from having direct access to the Single Euro Payments Area (SEPA) via the Bank’s proprietary CENTROlink payment system.
Another great example of a foreign company benefitting from the fintech-friendly regulatory environment Lithuania provides is Nayax, a global fintech company, specializing in payments and M2M communication, and the leading provider of cashless payment devices, telemetry, remote management, and BI solutions.
Nayax enables contact, swipe, and contactless payments including credit and debit cards, prepaid or postpaid cards, mobile app payment, and QR codes, serving operators of vending machines, laundromats, car washes, kiosks, office coffee services, kiddie and amusement rides, restrooms, photo booths, and other automated machines that want to implement cashless payments into their businesses.
The PI license from the Bank of Lithuania gives Nayax an opportunity to cater to more than 23 million related enterprises in the EU.