As soon as a company wants to get into the payment industry, they’ll have to decide whether or not they’ll get an Electronic Money Institution (EMI) licence or become a Payment Service Provider (PSP).
Each of these has its own set of rules that businesses need to keep in mind depending on what kind of service they want to offer to their clients. For example, the capital needs for each start out very differently. In the same way, the payment accounts that companies can offer their customers also vary.
What makes it hard is that there’s so much information out there that it can be hard to figure out where to start. Fortunately, we’re here to help, and in this post, we’ll go into more detail about the different licences, what they mean for businesses, and what they can do.
What Is a Payment Service Provider (PSP)?
They help businesses accept debit or credit cards and bank transfers so that they can get paid. A Payment Service Provider, also known as a “merchant service provider,” does this. To do this, they usually give merchants a merchant account and a payment gateway that lets businesses accept payments from people who buy things from them.
PI is a type of payment service provider that was made by Directive 2007/64/EC, which is also known as Payment Services Directive 1. PIs are regulated by this directive (PSD). This is because of the new law called PSD2 and how it is implemented by the EU Member States. The activities of payment institutions are now controlled.
People who use payment institutions can get the following things from them:
- This includes credit transfers and direct debits through payment cards or other types of devices.
- The making and selling of payment instruments
- People who help people send money. Forex is a service that helps people trade.
- Ancillary services are things that help with their main services.
- Credit is given out.
Payment institutions, on the whole, can do the same things as electronic money institutions. The main difference between the two is that payment institutions can’t make money out of electronic funds.
What Is an Electronic Money Institution (EMI)?
If a company or organisation is able to make and sell electronic money, it is called a “electronic money institution.” This is because a specific EU Member State has implemented the directive 2009/110/EC, also known as the Electronic Money Directive 2. (EMD2).
There are also electronic money institutions that can give out electronic money in addition to what traditional PSPs can do. The account holder then has a claim against the issuing institution for the money in the account. The account can be used by the account holder to make payments.
The Payment Services Directive 2 (PSD2), also known as Directive (EU) 2015/2366, says that electronic money institutions can also provide payment services that can be provided by payment institutions, like those in Annex 1 to the directive. These payment services can be provided by payment institutions, too.
Payment transactions, currency exchange and conversion, safekeeping, data storage, and processing are all examples of these services. They are all covered by Article 18 (1) (b) of the PSD2.
People need to know that not all EMIs can do all of these things because not all EMIs get a licence and are automatically allowed to do these things. People who want to become an EMI with a national regulator in the EU have to say what kind of payment service they want to be approved for in their application.
Another thing to know is which payment services are linked to the issuance of e-money and which payment services are not. This is because the rules for electronic money institutions that provide related and unrelated payment services are different.
What is Electronic Money?
There are two types of electronic money: EMIs and PIs.
To understand this difference and tell them apart, you need to know what electronic money is.
According to the European Central Bank, “electronic money” is money that is stored electronically, like on a card, phone, or the internet. People can use this money to buy things. It is a claim against the person who makes electronic money.
It also includes a magnetically stored monetary value that can be used as a form of payment and is supported by other people, not just the person who made the money. It’s because of this that people need to be able to use the devices on which the money is stored as a way to pay.
People say that electronic money is a digital version of cash, and that’s what these words mean.
People who want to make electronic money would have to get a licence from the government to do so.
The issuing of electronic money doesn’t seem to be the only difference between an electronic money company and a payment company at first glance. There are, however, a few other differences between the two as well.
In order for electronic money and payment institutions to keep their customers’ money safe, they must follow the rules in EMD2 and PSD2. There are, however, some important things to keep in mind about payment institutions that only provide payment initiation or account information services. They aren’t subject to any safety rules.
The same goes for safeguarding. Electronic money institutions can’t keep funds they get for services related to e-money issuance and other payment services in the same account.
Frequently asked questions:
Can only electronic money institutions open e-wallets?
It doesn’t say anything about what an “e-wallet” is in the law right now. It does, however, say that a payment account is a specific thing. There are both EMIs and PIs that can give customers payment accounts, but the PI’s payment account is smaller than the PI’s.
Can both EMIs and PIs make prepaid cards?
Cards will only be given out through a payment system like Visa, MasterCard, or something else. There are then “co-branded” prepaid cards that can be made by both electronic money institutions and payment institutions. They will be made by the card issuer, but they will have the name and branding of the payment or electronic money institution on them. There are some things you should know, though. Only electronic money institutions can make and store electronic money.
Is it easier to get a PI licence?
PIs and EMIs go through the same process to get permission to do what they want to do. However, as we said before, EMIs have stricter and more expensive capital requirements than PIs. Also, regulators tend to look more closely at their applications.