Planning

Business planning & Establishment of corporate structure for Payment Institution

Preparation

Preparation of documentation for Payment Institution license application

Authorisation

Procurement of Payment Institution license

PSP Lab helps businesses wishing to provide payment services as a regular occupation or business activity in the UK by becoming authorised entities. There are different types of non-bank regulated entities providing payment services, and we can help you to choose the correct license. In a nutshell, you need one of the UK Payment Institution license (MSB, API, SPI, RAISP, PISP) if you want to provide one of the services listed below and you do not have another license/authorisation (e.g., bank or e-money license) or one of the exemption/exclusions apply (e.g. Limited Network Exclusion).

There is a total of eight core services which a Payment Institution (PI) can provide.

Based on the type of license, a Payment Institution can benefit from the passporting regime and provide services listed below within the whole of the EEA.

Services provided by Payment Institutions

Based on the license/authorisation a Payment Institution can provide one or all of the following services:

  • services enabling cash to be placed on a payment account and all of the operations required for operating a payment account;
  • services enabling cash withdrawals from a payment account and all of the operations required for operating a payment account;
  • the execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider—
    • execution of direct debits, including one-off direct debits;
    • execution of payment transactions through a payment card or a similar device;
    • execution of credit transfers, including standing orders;
  • the execution of payment transactions where the funds are covered by a credit line for a payment service user
    • execution of direct debits, including one-off direct debits;
    • execution of payment transactions through a payment card or a similar device;
    • execution of credit transfers, including standing orders;
  • issuing payment instruments or acquiring payment transactions;
  • money remittance;
  • payment initiation services;
  • account information services.

Additionally, a Payment Institution license allows engaging into activities which are ancillary and closely related to the payment services for which it is authorised, such as:

  • Ensuring the execution of payment transactions;
  • Foreign exchange services;
  • Safe-keeping activities;
  • The storage and processing of data;
  • The operation of payment systems.

Regulatory Framework for Payment Institutions

Payment Institutions came into existence following the Payment Services Regulations 2009, transposing Directive 2007/64/EC. In 2017, the Payment Services Regulations 2009 were updated to represent changes brought by the Directive (EU) 2015/2366 (PSD2). The current legislation is following the lines of the first Payment Service Directive and comprises the core legal framework for providing payment services in the United Kingdom. However, there are more regulations applicable to a Payment Institution. When PSP Lab helps its clients to get UK Payment Institution License, at least the following EU and UK laws and regulations are taken into consideration:

Supervision of Payment Institutions in the United Kingdom

The entity which is responsible for the authorisation and supervision of Payment Institutions in the UK is the Financial Conduct Authority (FCA). It is recognised as one of the most lenient and cooperative regulators in the world. It allows market participants to grow their business without any concerns by clearly outlining the requirements which it imposes. As such, there are usually no uncertainties concerning the actions which regulated firms should take. From all regulators in the EU, FCA has authorised or registered the highest number of Payment Institutions.

Types of PI licenses

Legal and business terminology may differ, so we decided to use the most common names for different types of Payment Institutions in the UK.

We provided you with the table comparing different types of UK Payment Institution License.

PI license types

Money Service Business

Money Service Business (MSB) is a business involved in the following activities in the UK:

  • acting as a currency exchange office (a bureau de change);
  • transmitting money or any representation of money by any means (money remittance);
  • cashing cheques payable to your customer (third party cheque cashing).

All MSBs must register and report to HMRC. Furthermore, when they are providing money remittance service, they must also register with the FCA under the Payment Services Regulations 2017 to become a Payment Institution authorised only for money remittance services. If a firm is authorised by the FCA and provides currency exchange, money transmission or cheque cashing services then they will be supervised by the FCA for all of their activities under the Regulations. However, not all activities of MSB are regulated under the PSRs regime and certain FCA regulations such as the Principles for Business may not apply to certain services. If you are interested in how the PRIN applies to hybrid business models of Payment Institutions you can read our article.

Initial Capital Requirement for Money Service Business

When a company wishes to provide money remittance only, it is required to have EUR 20,000 as initial capital.

Small Payment Institution License

There is an option to obtain a license of Small Payment Institution (SPI) if you are interested in the UK market, in such case, the activities of the company will be restricted to the home jurisdiction without the possibility of providing cross-border services within the EEA. Furthermore, this option is available only:

  • if average monthly payment transactions in the preceding 12 months did not exceed EUR 3 million;
  • or if the business has not been providing payment services or has been providing payment services for less than 12 months, and the projected average monthly payment transactions do not exceed EUR 3 million.

Small Payment Institution can provide all the same services as Authorised Payment Institutions, excluding payment initiation services and account information services. To become a Small Payment Institution, a company has to be registered by the FCA. Registration is usually faster than authorisation.

Initial Capital Requirement for Small Payment Institution

There are no initial capital requirements for SPIs unless they go above the limit presented above. If a Small Payment Institution wants to go above the limits, it must pass a procedure of authorisation and become an Authorised Payment Institution. In such a case, the initial capital requirements for APIs will apply.

Registered Account Information Service Provider

Registered account information service providers (RAISPs) are permitted to provide account information services after registration with the FCA. Registration with the FCA also allows providing the account information service in other EEA states through both service and branch passports.

Initial Capital Requirement for Registered Account Information Service Provider

There are no initial capital requirements for RAISPs. Instead, RAISPs are required to hold professional indemnity insurance or a comparable guarantee, which covers the territories in which the RAISP offers account information service.

Payment Initiation Service Provider

Payment Initiation Service Provider (PISP) is generally any company providing payment initiation service. However, the PISP license can be considered as a separate type of license since different requirements apply to a Payment Institution authorised to provide only the payment initiation service.

Initial Capital Requirement for Payment Initiation Service Provider

When a company wishes to provide only the payment initiation service, it is required to have EUR 50,000 as its initial capital. Additionally, PISPs are required to hold professional indemnity insurance or a comparable guarantee, which covers the territories in which the PISP offers the payment initiation service.

Authorised Payment Institution License

Authorised Payment Institution (API) can be authorised to provide the full range of payment services enshrined in the PSRs 2017 under Schedule 1 Part 1. APIs enjoy passporting rights into the EEA states through both service and branch passports.  Notably, during the application process, the FCA requests explanations for the reasons why authorisation for a specific service is needed and how does it fit within the business model of the company concerned. PSP Lab can help to identify payment services required for a particular business model and provide a concise explanation in lines with the relevant regulations. Additionally, PSP Lab helps already licensed API to “upgrade” its license to a UK E-money License.

Initial Capital Requirement for Authorised Payment Institution

For a company wishing to provide more than just money-remittance, account information service and payment initiation service, there is a requirement to have initial capital amounting to EUR 125,000. Additionally, if the company is willing to provide payment initiation and/or account information services, professional indemnity insurance is required.

Why is the UK one of the best choices for Payment Institution License?

The United Kingdom is the leading exporter of financial services across the world. London is rated as one of the leading global financial centres. Such facts do not surprise as there are many benefits of the UK (London) as a place for your payment FinTech business. Below we provide a non-exclusive list of reasons why you should apply for a Payment Institution license in the UK.

UK regulator FCA is one of the best

To cut a long story short, the FCA permitted more than 3500 firms to provide payment services under the PSRs (more than all other EU regulators combined). The regulator has a lot of experience with applications, and the whole process of authorisation/registration is quite fast compared to most other jurisdictions. Additionally, the FCA experts know a lot about FinTech and understand how to regulate firms after the permission to operate is granted.

Favourable tax regime

To stimulate business growth and investments, the government of the UK reduced the corporate tax rate to 17% for the financial year starting from the 1 April 2020. Additionally, there is no withholding tax on dividends paid out by UK companies to any shareholders.

Despite the Brexit, the UK is still a European FinTech Capital

The UK is the leader among European countries regarding investment in FinTech business. Moreover, London is the world leader in investments in FinTech companies. Not only did the UK government introduced a favourable tax regime, but it also created a plan on how to make the UK number one for innovative financial technology companies. Right now, we can see that the plan is showing great results.

How can PSP Lab help to procure a Payment Institution License in the UK?

The process of registration or authorisation as a Payment Institution can be tedious without proper knowledge and industry insights. While you can be a hundred per cent sure what business model you want, it may not be clear for you what kind of license and permissions are required from a regulatory perspective. PSP Lab may assist you with a timely procurement of authorisation and establishment of a solid framework for operating your business.

Typical services for obtaining a Payment Institution license in the UK, offered by PSP Lab consists of preparation and submission of all the documents required for authorisation/registration; legal support with UK company law, incorporation, registration of trademark, domain names. PSP Lab will communicate with the FCA during the whole process to ensure that all questions asked by the regulator will be answered. Additionally, we can advise you on the business model, software, banking partners, potential employees, and assist you in opening a safeguarding account. You can also understand better how we can help by reading the following explanation of our services that are provided during the authorisation process.

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