A payment institution (PI) is a legal entity authorized to offer payment services, similar to banks and other financial institutions. Payment services encompass a range of financial intermediation services and payment operations.
In the European Union, the regulation of the financial sector, including payment institutions, is governed by the PSD2 Directive (Directive (EU) 2015/2366).
PI licence
To carry out its operations, a payment institution must secure approval from the regulatory authority in the jurisdiction where it intends to offer services. The company applying for a licence needs to be registered in the country that issues the licence and adhere to specific mandatory requirements. These licences, known as PI licences, are granted by financial market regulators such as the Central Bank, Financial Supervision Authority, or other authorized bodies.
Unlike the EMI licence (electronic money institutions — learn more on the link), the PI licence is not exclusively tied to online businesses. Nevertheless, payment institutions are not restricted from participating in various online projects.
In the majority of jurisdictions, a payment institution licence gives the right to offer a range of financial services, including:
- account opening/closing;
- withdrawing and replenishing account funds;
- conducting operations between client accounts;
- facilitating loan payments;
- direct debit operations;
- bank card transactions, and more.
Payment institutions may opt to involve third parties or develop their own payment instruments to deliver these services. It’s crucial to highlight that, unlike EMI, payment institutions lack the authority to issue electronic money.
