E-money Institution vs Payment Institution: Which Do You Need?

What electronic money actually is

The Electronic Money Regulations 2011 define electronic money as electronically stored monetary value, represented by a claim on the issuer, that is issued on receipt of funds for the purpose of making payment transactions and is accepted by a person other than the issuer. In plain terms, a customer prepays your firm, you record a stored balance for them, and they can later spend that balance with third parties.

The two features that matter are storage and third-party acceptance. If your firm holds a balance for a customer that persists over time and can be drawn down across multiple payments to different merchants, you are almost certainly issuing electronic money. A prepaid card, a digital wallet with a spendable balance, and a stored-value app account are classic examples.

Because e-money is a claim on your firm, you carry the obligation to redeem it at any time at par value. That obligation is the reason the regime imposes higher capital and stricter safeguarding on e-money issuers than on firms that only pass funds through. When you issue e-money you are, in effect, holding stored funds on trust that must always be backed.

It is worth being precise about what is not e-money. If a customer's balance can only ever be spent back with your own firm, or funds are simply passing through in transit as part of a payment you are executing, you are not issuing electronic money. The stored value must be redeemable and accepted more widely for the e-money definition to bite. Firms sometimes assume any prepaid or wallet feature triggers the e-money regime, but the test is specific, so it pays to check your product against the definition rather than the label you have given it.

What payment services are and how they differ

Payment services, set out in Schedule 1 to the Payment Services Regulations 2017, cover activities such as enabling cash to be placed on or withdrawn from a payment account, executing payment transactions including direct debits, card payments and credit transfers, issuing payment instruments or acquiring payment transactions, money remittance, payment initiation services and account information services. These are the mechanics of moving money, not storing it.

A payment institution carries out one or more of these services without issuing electronic money. When it executes a transaction, it moves funds the customer controls, from one account to another, on instruction. It may hold funds fleetingly while a payment settles, but it does not create a persistent stored balance that the customer treats as spendable value in its own right.

This is the crux of the EMI versus PI question. The FCA frames it as the difference between issuing electronic money and providing payment services. If your product needs a customer to load and hold a balance that can be spent later, you are issuing e-money and need an EMI. If your product simply executes payments on funds held elsewhere, a PI permission is the right fit. Note that an EMI can also provide payment services connected to its e-money, so an EMI is effectively a superset in permission terms.

Comparing the two permissions side by side

The clearest way to see the choice is to line up what each permission lets you do, what it costs in capital, and the kind of firm it suits. The table below sets out the core differences drawn from the two sets of regulations.

An authorised EMI can issue electronic money and provide the payment services linked to that e-money. An authorised payment institution can provide payment services only. That single difference cascades through capital, safeguarding and the shape of the application.

Initial capital: what each permission costs

Initial capital is the money you must hold before the FCA will authorise you, and it differs sharply between the two regimes. Under Schedule 2 to the Electronic Money Regulations 2011, an authorised electronic money institution must hold initial capital of at least 350,000 euro. That single figure applies regardless of the mix of e-money and payment services you plan to offer.

Payment institutions are tiered by the services they provide, under Schedule 3 to the Payment Services Regulations 2017. A firm providing only money remittance needs 20,000 euro. A firm providing only payment initiation services needs 50,000 euro. A firm providing the other core payment services, such as executing transactions, issuing payment instruments or acquiring, needs 125,000 euro. Where a firm provides several services, the highest applicable figure applies.

The gap is deliberate. Because an EMI issues stored value it must always be able to back, the regime sets a higher entry bar than for a firm that only moves money on instruction. If your capital planning is tight, this difference alone can steer the decision, so map your intended services to the right threshold early.

Ongoing own funds after you are authorised

Initial capital gets you through the door, but you must also hold ongoing own funds, which scale with your activity. For the e-money side of an EMI, Schedule 2 to the Electronic Money Regulations 2011 uses Method D: own funds equal to at least 2% of the average outstanding electronic money you have in issue. As your stored balances grow, so does the capital you must hold behind them.

For payment services, both regimes use one of three methods. Method A is based on fixed overheads, requiring 10% of the previous year's fixed overheads. Method B is a tiered percentage of payment volume. Method C is an income-based calculation using interest, fees and other operating income. The FCA directs which method applies and can adjust the figure to reflect the firm's risk profile.

The practical point is that own funds are a moving target. An EMI must plan for capital that rises with its e-money float, while a payment institution's requirement tracks its transaction volume, overheads or income. Build this into your financial model rather than treating the initial capital figure as the whole story.

A common planning mistake is to raise exactly the initial capital figure and no more. Your own funds requirement can quickly exceed the initial capital once the business is trading, particularly for an EMI whose e-money in issue climbs faster than expected. Model your capital under a realistic growth scenario and a stressed one, so you know the headroom you need and can raise it before the requirement binds rather than after. Regulators expect capital to keep pace with the business, and running close to the floor leaves no margin for a bad month.

Small EMI and small PI: the lighter options

Both regimes offer a registration route for smaller firms, with lower barriers than full authorisation. A small electronic money institution can register if its average outstanding electronic money does not exceed 5 million euro. A small payment institution can register if the monthly average of the total payment transactions it executes, taken over the preceding 12 months, does not exceed 3 million euro.

The trade-offs are real. Small firms operate under caps on volume and cannot passport their permissions. Registered account information service providers are a separate, narrower category for firms whose only payment service is account information services. A small EMI cannot provide account information services or payment initiation services, so if you need those alongside e-money you will need full authorisation as an EMI or PI.

These routes suit firms testing a proposition or serving a niche within the thresholds. If you expect to grow past the caps, it is often cleaner to apply for full authorisation from the outset rather than register small and re-apply later. Weigh the lower entry cost against the ceiling on your growth.

How to choose the right permission

Work through the decision in order. Start with the product: does a customer load and hold a spendable balance with you? If yes, you are issuing e-money and need an EMI. If the customer's funds sit elsewhere and you only move them on instruction, a payment institution is the fit. From there, check the services you provide, then the capital you can raise, then whether your projected volumes stay within the small-firm caps.

Getting the mapping right at the planning stage is the single biggest time-saver in an authorisation project. If you are unsure whether your model issues e-money, our team can help you scope the right permission and prepare the application. Learn more about our FCA authorisation support and how it fits the way you plan to grow.

A worked example helps. A remittance app that lets a user send money abroad from their existing bank card is moving funds on instruction, so it maps to a payment institution with 20,000 euro of initial capital. Add a feature that lets the user hold a topped-up balance in the app to spend across merchants, and you have crossed into e-money, which pushes you to an EMI and 350,000 euro. The same product idea can sit either side of the line depending on one design choice, which is exactly why the permission question belongs at the start of the build, not the end.

Conclusion

The EMI versus payment institution question resolves to one distinction: an e-money institution stores value that customers can spend later, while a payment institution moves funds that customers already control. That difference drives everything downstream, from the 350,000 euro initial capital an authorised EMI must hold, to the 20,000, 50,000 or 125,000 euro tiers a payment institution faces, to the ongoing own funds each must maintain as it grows.

Map your product to the right regime before you draft a single application document. If your projected volumes are modest, the small EMI and small PI routes offer a lighter start, though they cap your growth and cannot be passported. When you are ready to scope the correct permission and build the application, review our pricing to see how we support the process from first scoping call to authorisation.

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