How to register a payment company in Europe: basic regulation

How to register a payment company in Europe: basic regulation

Establishing a payments company in Europe offers significant opportunities, underpinned by a robust regulatory framework, large addressable market, business-friendly environment, and global connectivity.

The European Union sets strict standards for financial services firms, including payment providers, ensuring high levels of consumer and business protection. Individual Member States transpose these regulations into national law, whilst maintaining consistent approaches across the Single Market. Compliance requirements may vary depending on licensing and operational models.

Europe continues to strengthen its payments' governance, updating the original Payment Services Directive (PSD) with PSD2 rules in 2018. PSD2 extends the regulatory perimeter to new market entrants, whilst promoting greater competition and innovation. It also enables secure customer authentication and open banking through standardised access to accounts.

Overall, the maturity, size and regulatory support for the European payments' industry creates a fertile environment for launching new ventures. Firms should carefully analyse licensing regimes, target markets and product priorities when developing their growth strategies.

Launching a payment institution in Europe: procedures and conditions

A payment institution acts as an intermediary to facilitate secure and efficient funds transfers between transacting parties. Firms must register on national financial services registers under respective licensing regimes to operate.

1. Developing a business plan outlining the target operating model, including service offerings, customer segments, projected transaction volumes and financials.
2. Selecting an EU jurisdiction for incorporation, factoring legal/regulatory conditions, licensing processes and tax considerations.
3. Preparing incorporation documents, including Articles of Association, management credentials and governance protocols.
4. Formally registering the legal entity consistent with national commercial law and regulations.
5. Filing licence application to the relevant national regulator (typically the Central Bank or Financial Authority).
6. Undertaking due diligence procedures with regulators, potentially covering audits of financials, security mechanisms and compliance controls.

Upon satisfying registration and licensing requirements, regulators will issue formal Certificates of Incorporation alongside permissions to provide outlined payment activities.

Firms should secure specialised legal counsel when navigating individual Member State conditions. While common payment governance exists, local intricacies apply across European markets.

Registration documentation for a European payment institution

The licensing process mandates submitting extensive documentation to demonstrate operational and financial viability. Whilst specific requirements differ across jurisdictions, common materials include:

• Constitutional documents — Articles of Association, Memorandum of Understanding, defining corporate structure and shareholder rights.
• Proof of identity — Credentials of owners, directors, and key executive management personnel.
• Evidence of financial resources — Audited financial statements, capital adequacy ratios, projections verifying sufficient funding.
• Business plan — Description of target market segments, product propositions, transaction volumes, fees, and charges.
• Operational policies — Payment processing rules, risk management protocols, fraud/AML procedures, complaint handling, disaster recovery.
• Data protection — Privacy notices, lawful processing statements, access/deletion policies.
• Outsourcing agreements — Contracts with critical infrastructure/service providers.

Firms must adhere to overarching regulations, including financial crime, consumer protection, competition, outsourcing, and data governance laws. Navigating individual Member State licensing processes can prove complex. Obtaining specialist legal support can help expedite submissions and achieve compliance.

Navigating European payment services regulation

Launching a payments firm in Europe necessitates understanding key directives shaping the regulatory environment. Whilst specific requirements vary across jurisdictions, common standards apply for EU members and the UK.

• The AML Directive sets guidelines to mitigate illicit financial activity risks, centred on customer due diligence. Firms must verify account holder identities and monitor for suspicious transactions.
• PSD2 provides oversight to modernise the payments market, boost competition and enhance security. Rules also enable regulated access to customer data and payment accounts by authorized third parties.
• GDPR governs data protection and privacy for EU citizens. Stringent standards exist around collecting, storing, processing and sharing personal information. User consent and breach reporting are also mandated.

• PSD3 outlines licensing and ongoing supervision of payment and e-money institutions in an integrated regime.
• PSR details transparency, information, and security requirements for all payment firms and user rights protections. Replaces existing PSD2 and E-Money directives.
• FDAR creates a framework for accessing/sharing customer data beyond just payment accounts, covering savings, loans, insurance etc. Introduces mandatory open banking and new data provider categories.

• Boosting consistency of rules implementation across Member States
• Enhancing user protection and fraud prevention
• Promoting competition by reducing barriers for non-bank payments firms
• Improving access to payment infrastructure for non-bank providers

Despite Brexit, the UK enshrined many EU financial services laws into domestic legislation. The EU also aims to maintain data flows between the territories.

Those looking to establish a payments company in the EU should assess the impact of these upcoming changes on their operating model and target business lines to ensure readiness for the 2025 deadline.

For new market entrants, embracing privacy and security by design principles from inception enables efficient compliance management later on. Still, specialised legal counsel is advisable given Europe’s complex, fragmented regulatory fabric across member states. Understanding obligations in target geographies is critical when crafting market entry strategies.

Registration of a payment company in Liechtenstein

Liechtenstein provides a conducive environment for overseas payments firms to obtain regulatory approvals, with two key licence categories available:

• EMI governed under the EMA, 2011 and EMO.
• PI regulated by the PSA, 2019 and PSO.

The FMA oversees licensing and ongoing supervision.

Min. capital thresholds apply: €350,000 for EMIs and CHF 20,000 to CHF 125,000 for PIs based on services. Applicants must also demonstrate robust governance, with at least two directors, an internal auditor, compliance lead, risk manager and IT specialist. Relevant professional credentials are required.

In terms of tax treatment, the standard 12.5% CIT applies to payments firms, with potential exemptions for entities headquartered overseas without domestic operating income. Passive investment returns and certain cross-border revenues may also qualify for reduced rates or exclusions.

In summary, Liechtenstein provides an attractive licensing jurisdiction to access European markets. The regulatory environment balances appropriate oversight with business-friendly tax policies. Specialist counsel can assist navigating setup complexities.

Securing a fintech licence in Switzerland

In Switzerland, the FinfraG provides oversight of payment services firms, with the FINMA responsible for licensing and supervision. Applicants must also adhere to banking, AML and supplementary regulations.

All entities supplying payment solutions in Switzerland require authorization from FINMA based on available capital resources, expertise, and the proposed business model. Reporting obligations additionally apply above defined transaction thresholds.

Complementary “Fintech Licences” exist for innovative startups focused on deposit-taking activities below CHF 100 million. This so-called “light” banking regime eases barriers to market entry under a customized regulatory approach.

• Min. capital investment of €300,000
• Comprehensive business plans
• Qualified management team
• Risk management framework
• Annual financial audit
• AML controls

In terms of tax treatment, federal level CIT is 8.5% of profits. Effective rates vary significantly at the municipal level between 11.9% to 21% or higher depending on company location.

In summary, Switzerland offers accessible pathways for fintech licensing, but still demands substantive scrutiny of applicant capabilities and credibility. The simplified “light” banking track calibrates oversight for early-stage innovation.

Navigating payment services licensing in the UK

Since Brexit, the UK has established its own payment governance regime. The PSR, 2017 now implements domestic oversight, still encompassing prior EU standards regarding conduct and security. The FCA is the competent authority. However, data protection alignment remains under the GDPR.

1. Small PI licence UK for firms with under €3 million monthly transactions, unable to provide account aggregation or payment initiation. Simplified capital rules apply. MLRO is a UK resident.
2. PISP licence UK enables initiating transactions on behalf of clients. Min. €50,000 capital required alongside liability coverage.
3. API licence UK full scope of payment activities allowed. Rigorous reviews of target operations, with circa €125,000 capital needed.
4. Separately, EMI licence UK permits enable issuance and redemption of e-money alongside payment services. Two tiers exist:
   • Authorized EMI – fully operational in the UK/EEA.
   • Small EMI – capped UK-only activities below €3 million monthly turnover.

EMIs can provide IBAN accounts, international transfers, card solutions, currency exchange and cryptocurrency activities. Partnerships with banks and fintechs facilitate market reach.

Qualifying criteria for UK EMI licensing

Both domestic and international firms can pursue authorization as an EMI in the UK. Originally under EU membership, common standards applied under e-money frameworks, now retained under Financial Services regulation.

Existing EU Directive 2009/110/EC affords core principles adopted by the FCA for governing issuance, redemption, and circulation of e-currency. Supplementary conduct codes also mandate requirements beyond basic European policy.

For tax obligations, standard CIT rates apply to UK EMIs based on company profit bands, similar to conventional firms:

• 19% for annual earnings up to £50,000
• 25% for annual earnings above £250,000

In summary, the PSR and EMR (UK e-money regulations) provide solid foundations for payments licensing in one of the world's top financial hubs whilst ensuring high standards. Applicants should still expect probing scrutiny of their business models and capabilities.

The FCA licensing process ensures substantive scrutiny of e-money business models under both retained EU and British financial regulations. Meeting ongoing capital and liquidity metrics is also imperative for maintaining permissions.

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Obtaining payment services licencing in Malta

Malta provides an attractive payment's jurisdiction within the EU regulatory perimeter. The Financial Institutions Act transposes European e-money/payments policy locally under the oversight of the Malta FSA.

• Payment processing and transfers
• Card issuance and e-money provisioning
• E-wallet and payment gateway solutions
• Currency exchange and cryptocurrency activities

Applicants undergo rigorous vetting of their business models. Min. capital requirements range from €50,000 to €125,000 depending on licence type. Proposed directors and shareholders must also meet fitness standards.

Passporting rights enable licensed firms to mobilise across the EU/EEA, either through branches or cross-border provisioning. This stimulates interest alongside other benefits like the island’s robust digital infrastructure.

Specifically for e-money, the MFSA makes physical local offices mandatory. Three tiers exist:

• Malta full-scope EMI (€350,000 capital)
• Malta small-scale EMI for limited activities (€50,000)
• Malta “lite” EMI with restrictions around e-money issuance (€50,000)

At least two Malta-based directors must be appointed, alongside auditors and other compliance personnel. Rigorous checks consider qualifications, expertise and reputational standing.

Tax treatment sees the standard 35% income tax applied on profits, reduced to circa 5% rate after shareholder dividend distributions and credits.

In summary, Malta blends bespoke payments licensing options with strong supervisory practices for reputable applicants to access the wider EU payments economy.

Licensing a payment services firm in Ireland

Ireland has cultivated a thriving financial services hub, attracting payments companies to leverage its fintech workforce and EU access. Core regulations include domestic payments statutes, data protection and anti-money laundering laws.

• Ireland API licence enables full-scope payments activities, with €20,000 to €125,000 capital based on operating model.
• Ireland EMI licence for e-money issuance and redemption alongside payment services. Requires min. capital of €350,000.
• Ireland small EMI licence, a pared-back EMI regime without initial capital demands for firms below thresholds.

Applicants undergo rigorous evaluation across governance, risk management and control environments. At least two Ireland-based directors must be appointed to fulfil residency requirements.

The 12.5% corporate tax rate provides significant incentives, as do R&D-related schemes that support payments innovation. Attractive double tax and passporting arrangements also apply.

In summary, Ireland blends specialist talent availability, EU access and targeted industry schemes to facilitate payments licensing. However, substantive scrutiny comes with accessing this environment via CBI approvals.

Obtaining payment services licensing in Latvia

As an EU and Eurozone member, Latvia provides a robust yet innovative environment for payments firms seeking regional access. Its advanced technological infrastructure and engineering talent support the development of new financial solutions.

The FCMC regulatory body oversees the licensing and supervision of PI and EMI in Latvia under domestic regulations implementing EU directives.

For small-scale e-money issuance below €2 million yearly turnover, registration without a Latvia EMI licence is permitted initially. Beyond this threshold, the Latvia full EMI licence applies with a €350,000 capital requirement.

PI capital standards range from €20,000 to €125,000 based on the scope of proposed activities:

• €20,000 – money transfers
• €50,000 – payment initiation services
• €125,000 – other payment services

The 20% Latvian corporate tax rate compares favourably regionally. Exemptions on dividend distributions also apply. Once licensed locally, passporting rights enable operating across the wider EU single market.

In summary, Latvia blends payments innovation drivers, like skills and infrastructure, with EU regulatory alignment into an attractive market entry destination for global payments entities.

Navigating payment services licensing in Lithuania

With supportive government policies and technology infrastructure, Lithuania provides an attractive EU jurisdiction to access the regional payments' economy. Firms require authorization from the Central Bank to operate.

• Lithuania API licence provides full scope of digital payment activities.
• Lithuania EMI licence enables issuance and redemption of e-money alongside ancillary functions.
• Lithuania small PI/small EMI licence reduced regulatory requirements for firms operating below specific activity thresholds.

Applicants must demonstrate sufficient capital reserves between €20,000 to €350,000 depending on licence type. Small PIs and EMIs are exempt from initial capital demands to promote competition.

Governance requirements also apply around board composition (minimum three directors plus a CEO) and maintaining 'fit and proper' status. Ongoing monitoring ensures continuity of resources.

With a competitive 15% CIT rate, Lithuania also provides favourable treatment compared to regional alternatives. Passporting rights facilitate market expansion across the EU once locally licensed.

In summary, Lithuania offers accessibility for new payments entrants with stringent oversight around sustainable operating models. Specialist counsel can guide licensing strategies.

Corporate taxation of PSPs across select European jurisdictions

While rates vary, European payment licensing jurisdictions tend to offer favourable tax incentives relative to international averages to attract investment. Most levy direct corporate income or profit taxes, with some applying tiered bands based on earnings.

Malta allows significant effective reductions through its dividend refund scheme. Meanwhile, Switzerland sets federal charges lower but enables higher cantonal taxes. Assessing tax liabilities represents an important consideration when plotting European market entry or expansion strategies in the payments sector.

Conclusion

In recent years, innovation, changing consumer behaviours and regulatory reforms have profoundly transformed Europe's payments sector. The original PSD first harmonised oversight across the Single Market. As technology advanced, PSD2 updated standards to enhance security, transparency, and access — mandating strict customer authentication while expanding third-party providers.

We briefly analysed key European licensing jurisdictions that balance financial stability with support for payments modernisation. Switzerland offers a tailored "light" banking regime, while Lithuania and Latvia implement bespoke national regimes under common EU principles. The UK retains alignments, but operate independent governance after leaving the Union.

In summary, Europe's dynamic policy environment provides a regulated environment conducive for payments firms to expand within the continent's integrated financial system and beyond.

Specialist legal counsel can provide further guidance on regulatory nuances across target markets to inform strategic decisions and licensing processes. Thorough analysis is key to navigating today's complex, ever-evolving payments landscape.

Consultation on regulation and licensing of activities for the provision of payment services in Europe from YB Case specialists will allow you to learn more information.