Difference between E-money Institutions and Payment Institutions in Europe

The European Fintech industry is flourishing and has seen tremendous growth and sprout of new payment gateways and remittance companies like Transferwise, Monese, Revolut etc. This growth has made it difficult and competitive for new startups to obtain the required operational license and attract clients to their business.

Operating in the financial landscape can be daunting since it requires many trusts – which is not easy to earn, especially for new startups with zero track record of success that can be a pointer to their reliability. As such, it is essential to know the kind of operational license the business will need right from the stage of drawing its Unique Value Proposition and coming up with a clear statement that describes how the company intends to solve customer’s needs and distinguish itself from the competition.

Types of Fintech Institutions in Europe

As a firm that assists in company registration and obtaining fintech license in Europe from A-Z, we know that businesses in this niche are usually of two types:

  • Payment Institution
  • E-money Institution

This treatise will explain the difference between the two types of institutions so that you can make the right choice for your fintech startup.

Payment Institution: This institution comes under PDS2 Directive, and they are companies that offer services such as the execution of payment transactions – credit transfers and direct debits, payment remittances, FX services, issuing or acquiring financial instruments and related services. In more explicit terms, they are fintech companies whose primary operations falls between the following; credit card processing, payment remittance, foreign exchange services, payment account operation and so on. The initial startup capital required to be able to obtain a Payment Institution License is 125000€.

E-money Institution: Although almost identical to Payment Institution, this institution comes under EMI Directive. The significant difference, however, is that E-money institutions are companies that can issue electronic or digital money. An E-money Institution can perform every function of a Payment Institution and also do the following: electronic issue money, provide payment cards and e-wallets and also issue electronic money. The initial startup capital required to be able to obtain an E-money institution license is 350000€.

Difference between E-money Institutions and Payment Institutions

The major difference between the two fintech institutions is the nature of the transactions that can be carried out by them. If a customer can deposit money in his wallet or account and withdraw via ATM or send to other bank accounts and even use the fund for the purchase of everyday items, then it’s an E-money Institution account. A startup whose goal is as mentioned is required to obtain an E-money Institution License.

Payment Institution account, on the other hand, is limited in its activity than its counterpart. This is because the purpose of any fund that is deposited into such account has to be predefined. For example, you can’t use a Payment account to buy everyday items like an E-money account. As such, a startup whose goal is to offer this kind of service should apply for the right license.

It is important to note that business plans and proposals must clearly spell out the unique value proposition of the startup so that application for a license will not be declined by the issuer – the Central Bank of Cyprus.

Visit this page to learn more about Payment Institution and E-Money License for all Europe.

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Published on: 12/05/20