EMI vs PI: e-money and payment-institution licensing in the EEA

Payment institutions are authorised and supervised under PSD2, Directive (EU) 2015/2366, the second Payment Services Directive. Electronic money institutions are authorised under the second E-Money Directive, EMD2, Directive 2009/110/EC, which cross-refers to PSD2 for the payment-services parts. Because both are Directives, the detailed rules sit in each member state's transposing law and are applied by that state's national competent authority.

For a founder, the practical question is not which directive is more elegant but which licence fits the business model at the lowest sufficient cost. That decision turns on one issue above all others: whether the firm holds customer money as a stored balance.

A payment institution may execute payment services such as transfers, acquiring, remittance, payment initiation and account information, but it cannot issue electronic money or hold stored monetary value as e-money. An electronic money institution can do everything a PI can do plus issue e-money, which means holding customer funds as a stored-value balance.

That distinction maps cleanly onto product types. Wallets, prepaid cards and neobank accounts that store a spendable balance are e-money and require an EMI. A business that only moves, initiates or reports on payments, without ever holding a stored balance, can usually operate as a PI, which is cheaper and lighter to authorise and run.

An EMI requires EUR 350,000 in minimum initial paid-up capital. The figure is fixed because of the e-money issuance permission and the obligation to back stored value. A PI's initial capital is tiered according to the services it provides, so a narrow remittance business is treated very differently from a full-service acquirer.

Account information service providers that offer only account information are registered rather than fully authorised. They have no minimum initial capital but must hold professional indemnity insurance, which is why AISP-only models are often the lightest regulatory entry point.

Safeguarding is the obligation to protect customer money so that it is insulated from the firm's own insolvency. Both EMIs and PIs must safeguard the funds they receive from clients, and it is one of the obligations supervisors and clients ask about most.

There are two principal methods. The first is segregation: client funds are held in a separate, ring-fenced account at a credit institution, kept apart from the firm's own money and made insolvency-remote. The second is insurance: the funds are covered by an insurance policy or a comparable guarantee. EMIs face an additional, stricter requirement to back 100% of the e-money they issue with safeguarded funds at all times.

Because safeguarding usually depends on a segregated account at a bank, opening that account is a hard prerequisite for both licences, and one of the practical bottlenecks in any authorisation timeline.

Initial capital is only the entry ticket. After authorisation, firms must hold continuing own funds that, as a rule, must not fall below the initial-capital amount. EMIs additionally hold own funds calculated, as a rule, as 2% of average outstanding e-money under what is known as Method D. PIs use one of the PSD2 calculation methods, based on transaction volume or overheads. The point for planning is that capital is an ongoing commitment, not a one-off deposit.

The reward for clearing these requirements is reach. Once authorised in one EEA member state, both EMIs and PIs can passport across the entire EEA. A firm can use an establishment passport, through a branch or agent in the host state, or a services passport for cross-border activity with no physical presence, in each case through a home-to-host notification rather than a fresh authorisation. This single-market access is the main commercial reason to license in the EEA, and a strong argument for an Estonian seat.

It is also common for an EMI authorisation to cover the PSD2 payment services as well, so many EMIs provide remittance and initiation alongside e-money. A pure PI remains the right choice when no stored value is held, and choosing the minimum sufficient licence keeps both cost and supervisory burden down.

The EU is reforming its payments framework. PSD2 is expected to be replaced by PSD3, a Directive, alongside a directly-applicable Payment Services Regulation (PSR). Under the proposed reform, the EMI regime is expected to be merged into a single payment-institution framework, with tighter safeguarding and fraud rules and a compliance horizon around 2027.

This is proposed legislation in progress rather than settled law, so the prudent approach is to design for it without betting on final dates. A firm choosing between EMI and PI today should make the choice that fits its model now and remains defensible as the single framework takes shape, which is exactly the kind of forward-looking judgement worth taking advice on.