Decoding EMI License and Payment Institution for Fintech Products

Smooth and secure payments are essential for any business to succeed. With the boom in online shopping and digital wallets, competition in payments has grown faster than ever. To keep things organized, the European Commission created rules to regulate Electronic Money Institutions (EMIs) and Payment Institutions (PIs)—two key players in modern payments.

In this article, we’ll cover:

• What are EMIs and PIs, and how do they help businesses handle payments?
• The key differences between these two types of licenses.
• The costs and steps to get an EMI or PI license.

If you’re curious about payment processing or thinking of starting your own fintech, this guide will explain everything in simple terms!

What is an Electronic Money Institution (EMI)?

An Electronic Money Institution (EMI) is a company or organization authorized by a specific EU Member State to issue electronic money under the Electronic Money Directive 2 (Directive 2009/110/EC).

Imagine you have a virtual wallet. This is what an Electronic Money Institution (EMI) creates for you. An EMI is like a unique company authorized by a specific European country to make virtual money. This virtual money is called electronic money, or e-money for short.

EMIs are a bit like regular banks, but they have a special focus. When you put real money into your virtual wallet with an EMI, they change it into electronic money. This e-money is just like coins in a video game—you can buy things online or make payments.

But there’s more to the EMI enchantment. With an EMI, your organization lets clients have e-money and provides payment services to send and receive money electronically.

But remember, not all EMIs can do the same things. Some might be limited in their services, depending on the rules they follow. Obtaining a license to operate as an EMI is not a uniform process. Each EMI might have particular directions that decide what services they can provide.

So, in a nutshell, an EMI is like a modern-day treasure chest for your digital money. It can help you manage your e-money and do electronic transactions, making online shopping and payments a breeze.

What Is a Payment Institution (PI)?

A Payment Institution (PI) is a type of financial institution authorized to provide various payment services under the regulatory framework established by the Payment Services Directive (PSD3) in the European Union.

PIs specialize in managing various payment services, making your financial life convenient. They process payments, offer payment options like cards, transfer money, and even provide credit services. If you need to pay someone or shop online, PIs make it happen.

But, here’s the pivotal distinction: while Electronic Money Institutions (EMIs) specialize in issuing electronic money, PIs operate using the funds from your regular bank account. PIs can direct seamless payments and transfers without literally handling your funds.

Operated under rules outlined in the Payment Services Directive (PSD2), PIs safeguard your financial operations. They ensure your money flows securely, connecting your accounts for smooth transactions. Payment institutions act as your financial bridge, guiding your funds from one place to another.

Comparative Analysis Electronic Money Institutions and Payment Institutions

Let’s delve into the comparison of EMIs and PIs by several key aspects:

#1 Scope of services

There are differences in the services they offer regarding Electronic Money Institutions (EMIs) and Payment Institutions (PIs). Let’s explore the range of services by looking at some fictional but practical examples I created for you.

• Electronic Money Institutions (EMIs). “Fintech Bank Go-Pay” is an institution authorized as an EMI that can issue electronic money that customers can use within their digital ecosystem. 

Clients hold individual accounts within the institution, much like regular bank accounts. They can load money into these accounts by exchanging their traditional currency (like EUR) for electronic money. This electronic money is then safely stored in their digital accounts, accessible for various transactions.

Customers of “Fintech Bank Go-Pay” can effortlessly pay each other using this electronic money, all within the same digital space. Additionally, regulators recognize some no-name debit cards as electronic money. It’s crucial to note that electronic money (digital currency) is distinct from virtual currencies like cryptocurrencies, which aren’t legal tender and operate outside regulatory frameworks.

• Payment Institutions (PIs). Now consider “PayLO.” This is a Payment Institution specializing in managing payment processes. Unlike EMIs, Payment Institutions don’t issue electronic money. Instead, they work with customers’ funds in their regular bank accounts. Picture your typical bank’s payment system, but it is more streamlined.

“PayLO” assists in smooth payment operations. When you make a transaction, the funds move from your bank account through “PaymentPro” to the recipient. Payment institutions ensure that your funds are transferred securely and efficiently.

Comparing the Services. EMIs have a broader scope, as they can issue electronic money and offer payment services, almost like digital banks. Payment institutions prioritize transaction management to ensure seamless payments.

In summary, EMIs create a virtual currency ecosystem, while payment institutions expertly handle the flow of existing funds. Your choice between the two depends on your business needs and objectives. Remember, no ‘better or worse’ exists since the financial world benefits from EMIs and PIs to harmonize transactions.

#2 Initial Capital requirements

Both EMIs and PIs operate within a regulated framework. They are subject to the mandates of PSD2, the Money Laundering Regulations, and Terrorist Financing Regulations. These regulations ensure financial operations are conducted transparently, securely, and aligned with international standards. Hence, let’s take a closer look at the initial capital requirements for Electronic money institutions and payment institutions to understand better what you should pay for:

Electronic Money Institutions (EMIs): EMIs, as digital banking pioneers, are required to hold a starting capital of EUR 350,000. This substantial capital is a testament to their significant role in creating and managing electronic money systems. It’s like their financial foundation, ensuring they have the resources to address customer funds securely.

Payment Institutions (PIs): On the other hand, they enjoy a spectrum of choices when it comes to initial capital. This flexibility is based on the services they plan to provide. For example:

• You may have a payment institution aiming to facilitate basic money transfers and transactions. For this level of service, they need to show they have a starting capital of EUR 20,000. 
• Or you want a payment institution that offers a broader range of financial services, including handling money remittances, payment cards, and credit services. For this extended scope, their initial capital requirement rises to EUR 125,000.

Additionally, both institutions are subject to regulatory compliance under PSD2, the Money Laundering Regulations, and Terrorist Financing Regulations.

#3 EMI License vs PI License Costs

Licensing costs for Electronic Money Institutions (EMIs) and Payment Institutions (PIs) can be quite the same and vary. This fee does not include the initial and other capital requirements I mentioned. So, let’s explore these fees for different countries:

Additionally, apart from application fees, obtaining an EMI or PI license involves case-specific legal fees that depend on the scope of work. These fees depend on the scope of work, which means they’re influenced by the services you intend to provide as an EMI or PI.

For instance, you can be a payment institution offering payment transfer services. Your case-specific legal fees might differ from those of other payment institutions that provide more extensive services like payment card issuance and credit services.

These fees are intricately woven into the fabric of your business plan, reflecting the depth of your financial ambitions. Each fee is an investment in your financial future, shaped by your aspirations and the services you plan to offer.

#4 Business Models

Wise (or TransferWise, as we used to call it earlier) is a great example of the differences between Electronic Money Institutions (EMIs) and Payment Institutions (PIs) concerning their business models and services.

In the beginning, Wise was operating as a PI. However, as Wise’s popularity surged, they encountered a hurdle. A company couldn’t issue payment cards or effectively manage customer funds without having specific payment orders for each transaction. This limitation prompted a crucial decision. Wise became an EMI, recognizing the need for a more universal framework. As an EMI, the organization gained the power to issue payment cards and operate multi-currency accounts.

This transition wasn’t just about switching labels. It was a shift in capabilities and services. Just as Wise recognized the need to evolve their model, understanding the complexities of EMIs and PIs can guide you in making the right choices for your journey.

Payment institutions can adopt various business models where they are only required to retain customer funds in payment accounts with identifiable payment orders. Typically, payment institutions focus on payment processing and money transfers, with some offering payment initiation services (PISPs).

For a more comprehensive understanding of the options available between EMIs and PIs, you can consult DashDevs specialists.

Examples of possible business models for both EMIs and PIs

Here are examples of business models that involve the usage of EMIs and PIs and the rationale behind it:

Business models for Electronic Money Institutions:

• Neobanks have the capacity to issue their payment cards and manage the processing, along with personalized IBAN codes for SEPA payments.
• Banking-as-a-service (BaaS) providers offer complete payment processes through modern API-operated drivers.
• Fintechs and neobanks embed payment services into customers’ non-financial experiences.
• International Money Transfer players manage electronic money and sub-accounts/sub-currencies for customers.

Business models for payment institutions:

• Alternative Payment methods to address omnichannel needs.
• Payment-as-a-Service (PaaS) providers with orchestrating platforms and multiple payment services (issuance, acceptance, and acquisition).
• Payment Services Providers combine payment, processing, and acquisition gateway functions.
• Payment Processors or Acquirers facilitate transaction routing between card networks and financial institutions.
• AISPs (Account Information Service Providers) or PISPs (payment initiation service provider) aggregate payment data and initiate bank transfers.

#5 Safeguarding Specifications

Both EMIs and PIs must adhere to specific safeguarding measures outlined in EMD2 and PSD2 to protect customer funds and ensure financial stability. These measures are designed to safeguard users’ money in the event of insolvency, providing an added layer of trust and confidence for clients. However, it’s important to note that safeguarding obligations do not extend to PI services such as payment initiation or account information, as these services do not involve holding client funds.

A critical aspect of EMIs is the requirement to maintain separate secured accounts for different services, such as e-money issuance and payment services. This strict fund segregation ensures that client money is not commingled with operational funds, facilitating transparent fund tracking, reducing risks of misuse, and simplifying audits for regulatory compliance. Moreover, regular monitoring and reconciliation of safeguarded accounts are mandatory, reinforcing accountability and aligning operations with evolving regulatory standards.

By implementing robust safeguarding practices, EMIs and PIs not only comply with legal obligations but also demonstrate their commitment to protecting customer assets, fostering trust, and strengthening their position in the competitive fintech ecosystem.

#6 Accounts

To simplify, let’s break down how accounts work under the regulations. According to PSD2, anticipated to being updates to PSD3, a payment account serves as a tool for making payments on behalf of one or more users of a particular payment service. It’s an account of one or more clients they use to handle payment transactions.

The difference lies in how funds are managed within the accounts:

• Electronic Money Institutions (EMIs) can hold the account holder’s funds directly within their institution. This means the EMI can safeguard and manage the account holder’s money.
• With Payment Institutions (PIs), the funds within an account are specifically designated for particular payment transactions. These funds usually come from the account holder’s source, such as their bank account. This allocation ensures that the funds are exclusively used for the intended payment transactions, allowing for a smooth and dedicated transaction flow.

EMIs and PIs serve as key pillars in modern fintech, each addressing specific business needs. EMIs enable businesses to create digital ecosystems with capabilities like issuing e-money, managing accounts, and offering card services, ideal for neobanks and fintech innovators. PIs, on the other hand, focus on streamlining payment operations and ensuring seamless transaction flows, which is perfect for businesses prioritizing payment processing efficiency.

By understanding their differences in services, capital requirements, and safeguarding practices, businesses can strategically choose the model that aligns with their goals. Whether building a comprehensive financial ecosystem or optimizing payment processes, both EMIs and PIs unlock opportunities for growth, innovation, and customer trust in today’s competitive market.

Final Take

Getting a fintech license can feel overwhelming, with complex regulations, upfront costs, and the need for ongoing compliance. Choosing the right path—whether an EMI license or a PI license—is critical. EMIs require more investment but provide broader functionality, which is ideal for businesses handling digital wallets or issuing e-money. PIs, while simpler and more cost-effective, are perfect for straightforward payment services.

Success lies in understanding your business needs and long-term goals. The right license not only ensures compliance but positions your company for growth in the competitive fintech market.

Need expert support? The DashDevs team offers 13+ years of experience, 500+ successful projects, and the expertise to guide you through licensing and beyond—ensuring your fintech venture thrives from the start.

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