E-money License Europe. Top 4 important questions answered.
Electronic Money License Europe or E-money License Europe is a license issued by national financial regulators (supervisory authorities) of the European Union (EU) Member States to entities known as Electronic Money Institutions (EMIs). This license is a prerequisite for the issuance of electronic money, subject to the situation when an entity has a full-fledged banking license. E-money License Europe can be considered as an alternative to a banking license in the EU because it allows providing most of the day-to-day banking services. While it is much easier to become an Electronic Money Institution in the EU than to become a fully licensed EU bank, Electronic Money Institutions cannot provide all the services that banks are allowed to provide (see our article explaining the difference between e-money license vs banking license).
This article answers most questions you may have about E-money License Europe. It also provides links to our other articles that can explain to you various subtleties relating to E-money License, Electronic Money Institutions and licensing/authorisation process.
P.S., this article relevant to you if you want to get information about e-money license in the EU and UK. If you need information about other examples of E-money License Europe (e.g., Georgian E-money license) let us know and we may create a specific article to answer your questions. As well, feel free to reach out for a consultation by contacting us.
What are business models requiring E-money License Europe?
Most likely you are reading this article because you either want to expand your existing payment business to Europe or to start a new business and you are wondering whether your chosen business model requires an e-money license. While the answer is always “it depends” and each business model needs individual assessment, we can still provide some examples of businesses that are usually are authorised as Electronic Money Institutions.
The most popular business model is a so-called “neobank” business model which implies a B2B and/or B2C Payment Service Provider (PSP) that offers its payment services online and does not have any physical presence (i.e., branch). The goal of neobank is to minimise the need of its clients to go to a bank, wait in a long queue and waste their valuable time. An online presence allows many neobanks to have much lower overhead costs than traditional banks have. While neobanks can have networks of branches, currently, no well-known EMI has a branch with ATMs and staff. You should note that if a neobank offers services other than prepaid debit cards and/or electronic payment account (e.g., it offer an online-only lending service) it may need either a banking license or additional license (e.g., a consumer credit license). The most well-known neobanks without a banking license are Wise, Monese, Tide, Paysera.
Another popular business model is called the e-wallet business model. The e-wallet business model implies the creation of a digital wallet for transferring money digitally and its usage to pay for goods and services. Generally, an e-wallet is a prepaid account or an account linked to a card or payment account that allows users to securely store money without going to a physical branch, and make payments to merchants and other individuals. The most popular e-wallet PayPal that issues e-money but has a banking license. However, there are such companies as Skrill and FasterPay who provide e-wallet service only with an electronic money license.
Moreover, e-money institutions often provide merchant acquiring services. It is a different business model from those above (which involve mostly transactional banking) under which e-money institutions are facilitating payments for the merchants. Examples of such are Square, Stripe, Credorax, Paymentwall, etc. They are underwriting the merchants and opening what is known as a merchant account while offering a possibility to accept the payments via cards and other e-wallets in online stores.
While the above are three of the most popular examples there are other business models. For example, there is a business model that can be called Payments-as-a-Service (you should look at such companies as Modulr and Contis to get an understanding of this business model). What they generally do, is allow other companies to tap into the payments market by reselling their services. Some companies do not need a license themselves and it may be sufficient for them to operate through another EMI. Read the following article to understand whether this solution is for you “Payment Sub-license and EMI distributor 4 Myths Debunked.”
What is E-money License Europe and how is it regulated?
As it was said E-money License Europe allows a licensed company to issue electronic money. Additionally, it allows an EMI to carry out payment transactions and provide payment services to consumers and businesses, and to other payment service providers.
The concept of European electronic money license was established the first Electronic Money Directive that was enacted by the EU legislative bodies in September 2000. Currently, the issuance of electronic money and guarantees for the persons who use it, and licensing process are regulated by the Electronic Money Directive 2009/110/EC (EMD). You should understand the EMD is not an EU Regulation that has binding legal force throughout every Member State and enters on a set date in all the Member States but is a Directive that lays down certain results that must be achieved and each Member State has a certain discretion with regards to its implementation into national laws (e.g., Electronic Money Regulations 2011 is the UK’s national implementation of the EMD). It means that each European Union Member State and the UK has its own version of the EMD and these versions may slightly differ from each other. For instance, while most member states allow registering as a limited scope electronic money institution (sometimes known as small EMI- discussed in detail below) there is no national equivalent in Germany.
Provision of payment services by EMIs is regulated by the Payment Services Directive or PSD2 that stipulates 8 payment services that may be provided by EMIs upon getting an authorisation. You should note that PSD2 is also a Directive and to understand rules and procedures applicable in a specific jurisdiction you must read national laws or contact a specialised consultancy firm.
Are there different types of e-money license?
There are 2 types of E-money License Europe: the so-called small/limited E-money License full/unlimited E-money License. The difference is that entities with full/unlimited E-money License do not have limitations in relation to the amount of e-money they can issue and the volume of payment services. Moreover, EMIs with a full license from one of the EU MS can provide services within the whole EU without additional authorisation. Finally, small EMIs cannot provide payment initiation and account information services (you can read our article about open banking to better understand these services).
When we say full license it doesn’t mean that an EMI can provide all 8 payment services stipulated in the EMD and PSD2. Rather it means that there are no restrictions as to the member states in which it can operate while having a single establishment and there are no limits on the value of issued e-money and transaction turnover. When an application to get a license is made, an applicant must specify which payment services it wants to provide and justify why permission to provide a particular payment service is needed.
How to obtain E-money License Europe?
There are two options for you to obtain the license. The first option is to apply for a license in one of the EU MS or UK. Before you make an application for a license, you will need to make sure that your company meets regulatory requirements in the country of application. These requirements vary slightly, depending on the country in which the application will be made.
It should be noted that prudential and conduct requirements applicable to a company with full E-money License Europe are not as strict as those applicable to European banks. However, getting E-money License Europe is not an easy process. You must do the financial calculations to show the e-money institution will be solvent and can guarantee compliance with capital requirements. You also must show how you are going to protect customers funds, show how you manage various risk including inter alia liquidity risk, market risk, IT security risk. To get a license you must have robust AML/CTF procedures and have an experienced Money Laundering Officer (MLRO). Moreover, your directors and senior management must be fit and proper. We can assure you that the process may become quite expensive, time-consuming, and simply not feasible without the support of experienced consultants. To get more details to check our article explaining various Non-bank PSP licenses, authorisation process and documents you will need to provide during the application. You can also read our explanations of authorisation requirements specific dedicated to E-money License in the UK and E-money License in Lithuania.
The second option is to buy a company that has already undergone the authorisation process. However, buying a company with E-money License Europe is not as easy as it may seem. We have written a comprehensive article explaining all the pitfalls of such a decision and invite you to read our article called “EMI License for Sale” that reveals the truth about buying an EMI.
How PSP can help you?
If you want to start your own e-money business, you should consider contacting PSP Lab since we are a niche consultancy firm that helps companies in getting e-money licenses in the European Union and the UK. Our knowledge of the different e-money regimes in the European Union and the UK will help you to chose the best jurisdiction for you. We can help you complete all the information required for the e-money license application and prepare all policies and procedures required to be compliant with the relevant regulatory requirements. We’re here to help you not only navigate the complex EMI licensing landscape but also to help you understand how you can develop your e-money business.
Additionally, we provide an ongoing support service. At PSP Lab we take a proactive approach to help our customers stay up to date with their regulatory requirements and assist in developing their business.
Contact us for a free consultation and we will identify and analyse your possibilities of obtaining the license in Europe as well as help you to understand the regulatory requirements related to the electronic money licensing process in the most suitable jurisdiction for you.