top of page
Search

Payment Institutions vs. Electronic Money Institutions: Key Differences and Considerations

  • Writer: Julien Haye
    Julien Haye
  • Jan 26, 2024
  • 10 min read

Updated: Mar 24

Understanding the difference between payment institutions and electronic money institutions

Imagine pouring months into launching your payment services business with seamless access to payment accounts and digital wallets, enabling smooth customer transactions—only to realise you applied for the wrong license. Or worse, you discover mid-launch that your business model can’t scale because your license doesn’t support key features like digital wallets or stored-value accounts.

 

You could be a startup that initially choses a Payment Institution (PI) license to save costs but later faced hurdles expanding into prepaid cards and multi-currency wallets. Your only option? A costly and time-consuming upgrade to an Electronic Money Institution (EMI) license.

 

Choosing between a PI and an EMI license is more than a regulatory decision; it’s about future-proofing your business. This guide unpacks these two distinct types of financial institutions and how they shape modern payment systems, and offers a step-by-step framework to help you make the right choice the first time.

 

TABLE OF CONTENTS

 

What are Payment Institutions (PIs)?


For a detailed breakdown of Payment Institutions (PIs)—including licensing categories, compliance requirements, and operational scope—read our dedicated article: Payment Institution Licenses: Key Requirements and Best Practices.

 

In summary, PIs are financial entities authorised to provide payment services such as money remittance, payment processing, and payment initiation services. Unlike Electronic Money Institutions (EMIs), PIs do not issue e-money but instead focus on facilitating the movement of funds.

 

Key Takeaways from Our PI Guide:

 

  • Core Services: PIs operate as intermediaries within the payment system and focus on enabling payment services, such as fund transfers and remittances, without holding customer funds in stored payment accounts. PIs can provide account information services (AISPs) under PSD2, enabling them to aggregate customer data and support financial insights without storing funds.

  • Regulatory Oversight: Governed by PSD2, PIs must meet AML/CTF requirements, but their regulatory burden is generally lower than EMIs.

  • Licensing Options: Depending on size and scale, businesses can operate as either Authorised Payment Institutions (APIs) or Small Payment Institutions (SPIs), offering flexibility for startups and established firms alike.


Understanding Electronic Money Institutions (EMIs)

 

For a deeper dive into the role of Electronic Money Institutions (EMIs), including how they issue, manage, and redeem e-money, refer to our detailed article—The Role of EMIs: Issuing, Managing, and Redeeming E-Money.

 

In brief, EMIs go further by offering stored-value payment accounts and digital wallets, giving customers access to multi-currency balances and prepaid card solutions. They are an ideal choice for businesses looking to build multi-functional payment ecosystems.

 

Key Highlights from Our EMI Guide:

 

  • E-Money Services: EMIs act as flexible payment system providers. They can issue, store, and redeem e-money, acting as a bridge between consumers and modern financial systems. So, EMIs are ideal for businesses that require card issuance services, including prepaid cards and multi-currency virtual cards.

  • Additional Capabilities: While EMIs mirror some payment services offered by PIs, their ability to manage stored-value accounts and prepaid products sets them apart.

  • Compliance and Safeguarding: With higher regulatory standards under frameworks like PSD2 and EMD2, EMIs are required to implement robust safeguarding measures to protect customer funds.


Distinguishing Factors Between PIs and EMIs

 

When evaluating whether to operate as a Payment Institution (PI) or an Electronic Money Institution (EMI), businesses must look beyond surface-level similarities. While both licenses enable participation in the digital payment’s ecosystem, they cater to fundamentally different business models, compliance requirements, and scalability opportunities.


This section breaks down the key differences between PIs and EMIs, helping you assess their regulatory obligations, service capabilities, and growth potential—ensuring you make an informed decision aligned with your operational goals and long-term strategy.


Service Range: Payments vs. Stored Value Solutions

  • Payment Institutions (PIs): Focus solely on payment processing, including money remittance, direct transfers, and payment initiation services. They act as intermediaries for facilitating transactions but cannot store customer funds or issue electronic money.

  • Electronic Money Institutions (EMIs): Offer broader capabilities, including the issuance, storage, and redemption of e-money. EMIs enable stored-value accounts, digital wallets, and prepaid cards, allowing users to hold and spend funds within the platform.

 

Practical Example:

  • PI Use Case: Wise (formerly TransferWise) operates under a PI license, enabling seamless cross-border remittances without storing customer funds.

  • EMI Use Case: Revolut, using an EMI license, provides customers with prepaid cards, e-wallets, and peer-to-peer transfers, offering a more bank-like experience.

 

Regulatory Requirements: Compliance and Safeguarding

  • PIs – Lower compliance threshold: Focus on AML/CTF, KYC checks, and transaction monitoring. Suitable for for startups or companies with simpler business models.

  • EMIs – Higher compliance threshold: Must safeguard customer funds in segregated accounts, meet higher KYC/AML standards, and undergo frequent audits. Best for businesses offering stored-value accounts and wallets.

 

Capital Obligations: Barriers to Entry

  • PIs: Require lower initial capital, ranging from EUR 20,000 to EUR 125,000, depending on the services offered. This makes them more accessible to smaller businesses or startups with the option to upgrade to an EMI license later.

  • EMIs: Require minimum capital of EUR 350,000, reflecting the added responsibility of managing and safeguarding customer funds. They require demand higher investment upfront, but they offer greater scalability for businesses looking to provide multi-functional financial services.


Key Takeaways: PI vs. EMI at a Glance

  1. PIs: Low-cost, faster compliance, transaction-focused.

  2. EMIs: High-cost, scalable, ideal for wallets and lending.

  3. Compliance: EMIs need stricter KYC/AML tools than PIs.

  4. Growth Models: PIs suit startups, while EMIs drive platform-based expansion.

 

Become a licensed payment firm with our expert help! From license applications to ongoing risk and compliance support, we're here to support you. Discover Aevitium LTD Risk Management Services for FinTech and Payment firms.


Aevitium LTD Risk Management Services for FinTech and Payment firms

Growth Potential and Scalability: Trends Shaping PI and EMI Models

 

Both PIs and EMIs offer scalability, but the best option depends on your growth goals. They also leverage APIs to integrate payment systems and account information services, enhancing user experience and financial transparency.

  • PIs focus on transaction services. Suitable for businesses prioritising low-cost payment processing and remittance.

  • EMIs excel in multi-functional ecosystems. Ideal for platforms offering stored-value accounts, wallets, and prepaid cards.

 

Emerging Trends to Watch:

  • Embedded Finance & APIs: EMIs integrate financial services (e.g., virtual IBANs, prepaid cards) into platforms through APIs, enabling scalable solutions like multi-currency wallets and lending products.

  • AI and RegTech: EMIs rely heavily on AI-powered compliance tools, while PIs use automation to detect fraud and manage payments securely.

  • Blockchain and Stablecoins: EMIs leverage blockchain for programmable payments and faster cross-border settlements, making them attractive for global fintech solutions.


How to Choose Between a PI and EMI License for Your Business

 

If you’re wondering how to choose between a PI and EMI license, start by defining your business model, goals, and compliance requirements. The decision framework below breaks this process into four actionable steps to help businesses evaluate their needs and identify the most suitable license type. If the objective is to facilitate payments without handling e-money, a PI license is suitable. However, if a business plans to offer a broader range of services, including issuing e-money, then an EMI license is more appropriate.

 

Each license serves distinct business needs and operates under different regulatory frameworks. This decision-making framework is designed to help entrepreneurs, startups, and established businesses determine which license aligns best with their goals, services, and compliance obligations.

 

Step 1: Define Your Business Model and Goals

 

Ask yourself two core questions:

  • Do you process payments only (remittance, transfers)? → Choose PI.

  • Do you need wallets, prepaid cards, or stored funds? → Choose EMI.

 

And then, clarify your broader objectives:

  • Market Reach: Do you plan to operate domestically, across the EU, or globally?

  • Growth Plans: Will you expand into additional financial services in the future (e.g., lending or digital wallets)? 

Criteria

Payment Institution (PI)

Electronic Money Institution (EMI)

Primary Service Focus

Payment processing, money transfers, and remittance

Issuing, managing, and redeeming e-money

E-Money Capability

No

Yes

Customer Accounts

Transaction-only accounts

Stored-value accounts, prepaid cards, and e-wallets

Compliance Burden

Lower regulatory burden

Higher compliance requirements, including safeguarding funds

Capital Requirements

EUR 20,000–125,000 depending on services

EUR 350,000 minimum initial capital

Passporting Rights in EU

Available for Authorised Payment Institutions only

Available for all EMIs

Scalability and Growth Potential

Limited to payment services

Broader scope to add value-added services like lending

 Step 2: Analyse Regulatory and Compliance Requirements

 

  • PIs: Operate under the Payment Services Directive (PSD2) and focus on anti-money laundering (AML) and counter-terrorist financing (CTF) compliance.

  • EMIs: Governed by both PSD2 and the Electronic Money Directive (EMD2), requiring higher safeguarding standards for customer funds.

 

Key Compliance Questions:

  • Are you prepared for stricter safeguarding obligations under EMI regulations?

  • Does your business need AML-compliant processes like KYC/identity verification?

  • Will your service require secure APIs for open banking and third-party integrations?

 

Step 3: Assess Your Financial Capabilities

 

Evaluate your initial investment and financial readiness:

  • PIs have lower capital requirements, making them more accessible to startups. Ideal for businesses focused solely on payment processing.

  • EMIs need higher initial capital and additional funding to maintain operational resilience, suitable for businesses offering multi-purpose financial products.

 

Tip: Conduct a feasibility study to calculate costs for licensing, compliance tools, and ongoing audits.

 

Step 4: Consider Business Scalability

 

  • PIs: Suitable for businesses with transaction-focused models, such as remittance services or payment processing platforms.

  • EMIs: Ideal for businesses planning to build e-wallet ecosystems, offer prepaid cards, or scale into embedded finance solutions.

 

Example Use Cases:

  • PI Example: Wise (formerly TransferWise) built its cross-border payment platform on a PI license.

  • EMI Example: Revolut leveraged its EMI license to issue prepaid cards and grow into a full-fledged financial services provider.

 

Step 5: Final Checklist for Application Readiness

 

For Payment Institutions (PIs):

     Business plan outlining payment services

     AML/CTF policies and risk assessments

     Capital requirements (EUR 20,000–125,000)

     Safeguarding arrangements for funds

     FCA registration process (if UK-based)

 

For Electronic Money Institutions (EMIs):

     Business model with e-money issuance details

     Compliance framework for safeguarding customer funds

     Higher capital requirements (EUR 350,000+)

     Regulatory technology (RegTech) solutions for monitoring fraud and KYC/AML compliance

     FCA authorisation and passporting arrangements

 

Conclusion


Imagine launching your payment services business with confidence, knowing your license supports every growth ambition—from simple transactions to multi-currency wallets and embedded finance. Or picture scaling seamlessly without costly upgrades because you chose the right foundation from day one. That’s the power of making an informed decision between a Payment Institution (PI) and an Electronic Money Institution (EMI) license.


PIs offer low-cost, transaction-focused solutions—perfect for startups prioritising payments and remittances. EMIs, on the other hand, unlock scalability with stored-value accounts, prepaid cards, and lending services, ideal for fintech platforms and multi-functional ecosystems.


Choosing the wrong license can mean higher costs, regulatory setbacks, or limited growth—but choosing wisely sets you up to scale and innovate.

 

 

 

Confused About Whether You Need a PI or EMI License? We Can Help.

 

Avoid costly mistakes. Our consultants help you choose the right license based on your business model, growth plans, and compliance requirements.

 

Future-proof your strategy. Whether you need a simple payment processing solution or a scalable e-money platform, we’ll guide you through every step—from application to implementation.



 

Frequently Asked Questions (FAQs)

 

1. How do I decide whether a PI or EMI license is right for my business?

  • If you handle payments only (no wallets), a PI license is enough.

  • If you need stored-value accounts or prepaid cards, choose an EMI license.

  • Use our decision flowchart to clarify regulatory and financial needs.

 

2. Can I start with a PI license and upgrade later?

Yes—PIs provide a low-cost entry point for simple payment services. However, businesses that scale into wallets, multi-currency accounts, or lending often need to upgrade to EMI licenses. Testing market demand with a PI first can reduce upfront costs.

 

3. What are the compliance challenges for Startups associated with EMIs?

EMIs face higher compliance burdens under PSD2 and EMD2, including:

  • Segregated accounts to protect customer funds.

  • EUR 350,000+ capital requirements for safeguarding and resilience.

  • KYC/AML processes for fraud prevention and identity verification.

Startups often need RegTech tools to streamline audits and compliance monitoring, minimising manual processes.

 

4. How does passporting work for PIs and EMIs?

  • Both licenses allow passporting across the EU and EEA, enabling operations in multiple jurisdictions without requiring new licenses.

  • However, post-Brexit, businesses operating in the UK and EU must obtain separate licenses or work through subsidiaries.

  • EMIs often gain an advantage here as they can operate multi-currency accounts and cross-border payment solutions, making them ideal for global expansion.

 

5. Are there specific industries where PIs or EMIs perform better?

PIs: Best suited for:

  • Remittance businesses focusing on international transfers.

  • Payment processors enabling checkout solutions and merchant payments.

  • Open Banking startups providing Payment Initiation Services (PISPs).

EMIs: Ideal for:

  • Fintech platforms building digital wallets and prepaid card solutions.

  • Marketplaces and gig economy platforms offering stored-value features.

  • Subscription-based models requiring flexible payment and stored funds management.


6. How do EMIs and PIs support embedded finance trends?

  • EMIs lead embedded finance trends by offering API-driven solutions for multi-currency wallets, virtual IBANs, and prepaid card issuance.

  • PIs focus more on payment initiation and money movement, integrating with third-party platforms for seamless transactions.

  • Businesses targeting platform-based services or financial ecosystems often prefer EMIs due to their broader capabilities.

 

7. What role do APIs and Open Banking play for PIs and EMIs?

  • PIs: Leverage APIs under Open Banking regulations to provide payment initiation and account aggregation services.

  • EMIs: Use APIs to integrate embedded finance features, enabling advanced use cases like digital wallets, micro-loans, and currency exchange services.

  • Both licenses benefit from API connectivity, but EMIs offer greater flexibility for multi-function platforms.

 

8. What are the financial implications of choosing an EMI over a PI license?

Capital Requirements:

  • PIs: EUR 20,000–125,000—more accessible for startups.

  • EMIs: EUR 350,000 minimum—requires a stronger financial foundation.

Compliance Costs:

  • EMIs require higher investments in RegTech, KYC/AML tools, and safeguarding arrangements.

Growth Potential:

  • While PIs are cheaper upfront, EMIs offer greater revenue streams by enabling wallet services and stored-value products.

 

9. What are common pitfalls businesses face during licensing applications?

  • Unclear Business Models: Lack of clarity on target markets and operational plans can lead to delays or rejections.

  • Inadequate Compliance Frameworks: Failure to meet KYC/AML standards and data protection requirements is a common cause of application failure.

  • Capital Readiness Gaps: Companies often underestimate initial capital and operational reserves needed for compliance.

  • Solution: Work with a consultancy to ensure documentation, financial models, and compliance frameworks meet FCA expectations.

 


bottom of page