A payment institution (PI) is a legal entity authorized to offer payment services, similar to banks and other financial institutions. Payment services encompass various financial operations and intermediary services related to the transfer of funds.
In the European Union, the activities of payment institutions are regulated by the PSD2 Directive (Directive (EU) 2015/2366), which establishes uniform rules for the financial sector across the EU.
PI licence
To commence its operations, a payment institution must obtain the relevant authorisation (licence) from the regulatory authority in the jurisdiction where it intends to provide its services. The company applying for a licence needs to be registered in the country that issues the licence and adhere to specific mandatory requirements. PI licences are issued by financial regulators, such as central banks or financial conduct authorities.
Unlike the EMI licence (electronic money institutions — learn more in the corresponding article), the PI licence is not exclusively tied to online businesses, although payment institutions can actively participate in 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 is important to note that, unlike EMIs, payment institutions do not have the right to issue electronic money.
