Payment institutions in the UK play an important role in delivering a range of financial services and safeguarding the security of transactions. Market participants have the opportunity to obtain various regulatory permits in Europe to conduct business legally.

 

Lawrange specialists will familiarize you with the key requirements of the regulator and the specifics of the Payment License UK.

 

What is a Payment Institution License UK?

The Payment Services Regulations 2009 implemented Directive 2007/64/EC into UK national law, creating what is now known as a UK Payment Institution (PI) License or Authorized Payment Institution (API).

 

In 2017, these provisions were adjusted to bear in mind the changes introduced by Directive (EU) 2015/2366 (PSD2). However, there are additional rules for companies with a payment institution license in the UK.

 

Varying Types of Payment Institution Licenses in the UK

The Financial Conduct Authority (FCA) issues several types of licenses for PIs:

 

  • The E-Money Institution (EMI) license is a permit to issue electronic money, which gives the right to create your own quasi-currency. It can be executed independent of the payment system, as well as withdrawn and converted into other currencies.
  • PI or Authorized Payment Institution (API) licenses are all-encompassing and offer the option to make transfers, deposits, exchanges, or withdrawals and issue and acquiring payment cards.
  • The Small Payment Institution (Small PI) license can be obtained by companies that plan to conduct financial transactions with a volume of no higher  than EUR 3 million per month. The required amount of the agreed-upon capital is not set.

 

If you need assistance in choosing the best license for your payment company, we recommend that you contact Lawrange experts. They will counsel you on all issues and help you resolve legal aspects.

 

E-Money Institution (EMI)

To obtain an Electronic Money Institution UK license, applicants must comply with a number of regulatory requirements that confirm their reliability and financial stability:

 

  • Financial strength with a minimum capital of €350,000 (approximately £305,000) is required.
  • The working capital rate is set at 2% of the amount of electronic money issued.
  • The institution’s management team must be reliable, and have the appropriate level of expertise and skills to perform their duties successfully.

 

Additional requirements from the FCA for obtaining an EMI Financial License include:

 

  1. The institution must be a legal entity.
  2. All payment services must be provided within the UK.
  3. Robust governance structures and a detailed business plan must be in place.
  4. Extreme measures should be in place to avoid losing the client’s funds.
  5. There should be no cases of money laundering among managers.
  6. Shareholders with a stake of 10% or more should be subject to a “fit and proper test”.
  7. Any necessary relationships with other entities should be understood for effective control by the FCA.

 

Authorized Payment Institution (API)

This is a company with a license that permits it to carry out payment services in a particular region of Europe. These may include payment accounts, transaction processing, merchant services, and money transfers. A distinctive feature of APIs from traditional banks is that the latter is authorized to accept deposits, while the former specializes exclusively in payment services.

 

The procedure for obtaining an API, PI, or PSP license involves submitting an application to the FCA.

 

Small Payment Institution (SPI)

This is a category of financial institutions that provide a limited range of payment services, such as money transfers, payments, and account management. SPIs are designed to service small transactions.

 

Their regulation is less strict compared to fully licensed payment institutions. However, SPIs are still required to register with the FCA, which ensures that they meet certain standards and requirements to ensure the sustainable functioning of the financial system.

 

They operate in accordance with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) norms in order to insure the risk-free conduct of their operations.

 

To learn more about obtaining an SPI license, contact Lawrange.

 

Why is a Payment Institution License Required in the UK?

It is crucial to guarantee compliance with regulations and to create a reliable financial platform. Each license meets specific needs and has its own regulatory obligations. Understanding and choosing the right license is critical to delivering your services legally and efficiently.

 

Services for Cash Deposits into Payment Accounts

In the UK, the following different institutions provide services for depositing cash into payment accounts for further financial transactions:

 

  • Banks. Most of them offer the possibility of depositing cash through their branches or dedicated ATMs using a debit card or account number.
  • Authorized Payment Institutions (APIs). This capacity to extend the supply is highly valuable for fintech companies that are providing innovative financial solutions.
  • Payment service providers. There is a network of payment acceptance points where clients can deposit cash into their accounts. They are often located in supermarkets, shops, and post offices, making them convenient for the public.

 

Additional services and conditions:

 

  • Each financial institution sets its own rules and tariffs for cash deposits, such as fees, deposit limits, and transaction processing times.
  • All cash-related activities are subject to strict control by the FCA. This means mandatory compliance with Anti-Money Laundering (AML) legislation, and other regulatory requirements.

 

Such conditions make financial transactions convenient and affordable for different categories of clients – from individuals to businesses.

 

Managing Payment Accounts

Payment account management in the UK includes a wide range of services provided by institutions and fintech companies. They help optimize financial processes for individuals and businesses, make payments, control expenses, and store funds.

 

The main aspects of payment account management in the UK:

 

  1. Opening and maintaining accounts: clients open payment accounts at banks, authorized payment institutions, or through fintech platforms. It can also be a digital account that is provided by online banks or mobile applications.
  2. Deposits and withdrawals: users can transfer funds into their accounts through bank branches, ATMs, or payment points. Cash withdrawals are also possible via ATMs or bank teller machines.
  3. Payment processing: Account management includes the ability to make payments, such as paying bills, transferring funds to other accounts, including international transfers, and arranging payment for items and services.
  4. Monitoring and reporting: Banks and financial institutions present clients with the option to view their balance transaction history and generate reports.
  5. Security: account management includes security measures such as multi-level authentication.
  6. Integration with open banking: for retail transactions, there is now a link to the effect of transfers from one account to another. This was made feasible by the roll-out of open banking, which allows individuals and legal entities to connect their accounts to third-party services. This approach makes for a safer and more cost-effective substitute to traditional card payment networks.
  7. Clients support: To ensure efficient account management, banks and fintech companies provide clients support through contact centers, chatbots, or personal consultations in offices.

 

Performing Payment Transactions

The act of making payments in the UK covers a wide spectrum of ways to transfer funds and pay for goods and services. Payments can be made by both individuals and businesses using a vast array of payment instruments and systems.

 

The most common methods to make payments in the UK:

 

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1. Debit and credit cards.

2. Bank transfers. The following types are available:

  • Faster Payments: permits you to make transfers between banks in a few minutes.
  • BACS: An electrically powered settlement system used for regular payments, such as salaries.
  • CHAPS: A system that provides high-speed transfers of large amounts on the same day.

3. Direct Debits: A convenient way to automatically pay bills (utilities or subscriptions) when funds are debited from the payer’s account based on a pre-arranged agreement.

4. Mobile and electronic payments and their types:

  • Apple Pay and Google Pay: mobile payment options that require you to pay for purchases through smartphones or other devices, linking them to bank accounts or cards.
  • PayPal: A popular payment platform for online payments and transfers.

5. Open Banking Payments: This is the ability to make instant, direct transfers between bank accounts without the need for payment cards in a convenient and cost-effective manner, especially for online shopping.

6. Checks: Although the use of checks has declined, they are still used for certain types of transactions, such as large amounts or official payments.

7. Cash payments: Cash payments are going to be a widely used method of payment, especially for small amounts or in retail.

8. Payment terminals: These are used in shops, restaurants, and other retail outlets to process card payments through POS terminals.

 

The FCA and other relevant authorities regulate all payment transactions in the UK.

 

A variety of payment systems and tools are available to make payment transactions convenient for users.

 

Transactions Supported by a Credit Line

They pertain to a broad range of types of financial transactions that are processed out by virtue of a loan approved by a bank or other institution.

 

The major types of transactions supported by a credit line in the UK are:

 

  • purchases in stores and online;
  • cash withdrawals;
  • balance transfers;
  • installment payments;
  • overdraft;
  • repayment of debts;
  • payment of bills.

 

All credit transactions in the UK are governed by the FCA, which sets out the regulations to ensure transparency and consumer protection. Credit institutions are required to provide full information on the terms and conditions of lending, including interest rates, commissions, and other fees.

 

Issuing and Acquiring Payment Instruments

In alignment with Regulation 2 of the Payment Services Regulations 2017 (PSRs 2017), payment instruments are a system for initiating payment orders and processing payment transactions.

 

It may revolve around the use of a personalized device or a set of features agreed between the client and the financial institution.

 

Examples of organizations that issue payment instruments include credit and debit card issuers and electronic money institutions.

 

In addition to physical payment instruments such as cards, arrangements involving the use of passwords during telephone calls, online instructions, or mobile applications to initiate payment orders, depending on the service provided, may also be considered issuing payment instruments.

 

Money Remittance Services

Money remittance services in the UK enable the transfer of funds between different entities without the need for the sender or recipient to open a payment account. They can include international or domestic transfers made through banks, specialized financial institutions, or online platforms.

 

Companies which supply these products are required to strictly comply with legal regulations, including AML and CTF rules, to ensure that transactions are safe and legal.

 

An International Money Transfer (IMT) is a financial service that simplifies the process of transferring funds for both private clients and businesses from one country to another.

 

Unlike domestic transfers made within a single country, international transfers pass over various banking systems, take into account exchange values, and are subject to international regulations.

 

Whether it’s getting reimbursed for services abroad, supporting relatives, or managing international business expenses, IMT offers a safe and secure way to complete these financial transactions.

 

Payment Initiation Services

A Payment Initiation Service Provider (PISP) helps you to pay companies directly from your bank account, eliminating the need for cards. With the introduction of open banking, these services are becoming increasingly popular, providing businesses and consumers with alternative and convenient payment methods.

 

Account Information Services

When interacting with a mobile app or web platform that provides information about your bank account or makes payments on your behalf, it is imperative to ensure that the provider is authorized or registered.

 

An Account Information Service Provider (AISP) gives you the chance to view data from all of your selected accounts in one place and analyze your spending. These providers may include budgeting apps or price comparison websites that provide product recommendations.

 

Who Regulates Payment Institutions in the UK?

The FCA is the body in charge for authorizing and supervising payment institutions in the UK. It allows market players to develop their businesses without unnecessary formalities. As a result, regulated companies usually have clarity on the necessary steps they must take. The FCA works hand in hand with the UK Treasury.

 

Banks in the UK are also supervised by the Prudential Regulation Authority (PRA) of the Bank of England. The PRA and FCA shape the face of the modern financial market.

 

The PRA is accountable for scrutinizing the business practices of banks, focusing on ensuring financial stability and the resilience of companies. Its chief task is to set capital guidelines for banks, which reduces risks by creating reserves to cover potential losses, contributing to a more robust banking system.

 

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Financial Conduct Authority (FCA)

The FCA oversees the financial industry in the UK to ensure consumer safety and prevent fraud in the market. Its major objective is to provide long-term stability in the industry and maintain fair competition among service providers.

 

The FCA is also largely accountable for overseeing the manner in which banks lend to corporate clients, ensuring fairness, transparency, and protection of businesses from unreliable financial products.

 

Payment Services Directive 2 (PSD2)

This is a key piece of European legislation relating to payments that came into force in January 2016.

 

PSD2 establishes a mutually beneficial legal framework for companies and consumers when conducting financial transactions in the European Economic Area (EEA).

 

PSD2 states that clients have the right to use Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs) if their payment accounts are clearly accessible online, and they have given their explicit consent. These innovations take into account the explosive growth of the electronic goods and services market, the expansion of the Internet and mobile payments.

 

Key areas covered by PSD2 innovations:

 

  1. Improving market efficiency and integration.
  2. Consumer protection.
  3. Increasing competition and choice.
  4. Strengthening security.

 

Specific changes include:

 

  • extension of the scope to all currencies and unilateral payment transactions;
  • changes to the rules on exceptions;
  • enhanced consumer protection;
  • introduction of new suppliers and payment services;
  • operational and private security risk management, as well as incident reporting.

 

The European Central Bank’s (ECB) policy also remains important for UK banks operating internationally or in EU countries. This policy influences banking regulation by defining how banks must operate and meet global standards.

 

Difference Between EMI and PI

Compared to a PI electronic money institution, an EMI license in the UK requires a much greater startup capital and passes through a more complex licensing process. Because of this, some banks may prefer to work with the latter, as they see more advantages.

 

The UK EMI license has the ability to issue electronic money, which distinguishes it from the API.

 

The application process for both EMI and PI licenses is almost similar, but the preparation of documents for the former may take longer as regulators analyze them more thoroughly.

 

Many regulators allow you to switch from a PI to an EMI license if you can justify the need and have a ready-made package of documents for the inspection. It is also important to comply with the main condition – the initial capital must be at least EUR 350,000.

 

Benefits of Holding a Payment Institution License in the UK

London is an ideal environment for financial technology startups. Why?

 

  • The FCA regulator is one of the best in the world. The authorization and registration process is faster than in most other jurisdictions. FCA members are well versed in FinTech and have an understanding how to effectively regulate companies after they have received a permit to operate.
  • Favorable tax conditions. British companies are exempt from tax on dividends paid to shareholders.
  • The UK is the fintech capital of Europe, even after Brexit. Whilst the UK’s payment institution license has diminished some of its enticement, the country remains a top spot in Europe in terms of investment in FinTech business. London retains its status as a world-renowned center for investment in FinTech companies. The plan developed by the government to promote the country as a leader in innovative financial technologies are yielding positive results.

 

Emoney license UK opens up wide opportunities for the company:

 

  1. Obtaining a UK SWIFT code for international transactions.
  2. Providing credit and debit card payments in a manner linked to the client accounts.
  3. Multi-currency: With the EMI License, bank transfers in more than 45 currencies around the world are available.
  4. Compliance and security: set up your own anti-money laundering (AML) department.
  5. Benefit from the UK’s VAT exemption for financial services.
  6. No restrictions on company turnover.

 

Do not hesitate to take advantage of these benefits by fulfilling the following requirements.

 

Regulatory Requirements for Obtaining a Payment Institution License in the UK

To obtain a Payment Institution License, a financial institution is required to meet a number of requirements:

 

  • the company’s headquarters must be located in the UK;
  • the management must reside in the country;
  • the institution must also have a full-fledged IT system.

 

In addition, it is necessary to:

 

  • generate documentation that describes policies and procedures that meet the key regulatory requirements for licensing;
  • guaranteed that sufficient financial resources, senior management resident in the UK, and IT systems are in place by the time the license is granted;
  • develop plans to mitigate operational and legal risks, money laundering, and other potential threats.

 

By strictly adhering to these FCA requirements, you will receive this license.

 

Required Documents for a Payment Institution License Application in the UK

To obtain an EMI license in the UK, you are obliged to prepare the following set of documents:

 

  1. Identification data of the business.
  2. Program of work.
  3. Business plan and financial forecasts.
  4. Description of the business organization.
  5. Confirmation of initial capital.
  6. Measures to protect the client’s funds.
  7. Processes for processing confidential payment data.
  8. Measures to support operations.
  9. Methods of collecting performance, transaction, and fraud data.
  10. Internal safeguards over compliance with anti-money laundering and counter-terrorist financing requirements.
  11. Information on significant shareholdings or shareholders.
  12. Details of outsourcing arrangements.

 

Prepare this package of documents and wait for a positive decision from the FCA.

 

Terms and Conditions for Obtaining a Payment Institution License in the UK

This process consists of the following stages:

 

  1. Assessment of the business structure and requirements for the EMI license.
  2. Preparation of documents and company registration.
  3. Submission of documents for obtaining a license.
  4. Compliance with local business rules and regulations and assistance in hiring local specialists.
  5. Submitting the license application to the regulatory authority and going through the interview.
  6. Providing banking services to protect clients’ accounts and access to payment systems.

 

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If necessary, contact Lawrange for support at any stage.

 

Timeline for Obtaining a Payment Institution License in the UK

After submitting the application package, you need to be patient for confirmation from the FCA within a week. After that, it is transferred to a specialist who analyses the information provided and makes an appropriate decision.

 

Consideration of the application: The FCA makes a decision on the application within 3 months of receipt (if all the necessary information and evidence is available) or 12 months (if it is incomplete).

 

Why Choose Lawrange for Licensing Services

Lawrange is your solution for obtaining an EMI, API, or PI license. Our team of experts will help you prepare documents and go through the licensing process.

 

We guarantee complete confidentiality. With us, you will save time and money and avoid unnecessary worries. The Lawrange team will deal with legal advice at various stages of work.

 

Conclusion

When choosing a jurisdiction to open a financial institution, pay attention to the UK. Its market has been a leading European center for several years and is bound to continue to be a leader in this area due to its regulatory policy that promotes innovation in financial services.

 

FAQ

What is a Payment Institution License?

A Payment Institution license is an official authorization to carry out payment transactions within the EU and EEA issued by the FCA. It is important to meet the requirements of PSD2, which include an adequate level of capitalization, the participation of qualified professionals, and a clear organizational structure.

 

Which is Better: API or SPI License?

Make a choice between them depending on your business development strategy. Engaging expert advice can help ensure that the license application process is efficient and meets the required deadlines.

 

Where to Apply for a Payment Institution License in the UK?

You will have to complete and submit in an application to the FCA.

 

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