Payment Institution (PI)
Refers to the Financial Institution licence class
Alternative name: financial licence
Payment Institution – as the name suggests, the licence allows the provision of various financial intermediary services. This licence operates without being strictly tied to online business, as is the case with EMI. However, it can also be used in various internet projects.
Opportunities provided by a Payment Institution License
1. Providing top-up services for user accounts in other systems, including the use of all necessary tools to manage such accounts (opening/closing)
2. Providing withdrawal services from accounts of individuals and legal entities, including the use of all necessary tools to manage such accounts (opening/closing)
3. Providing payment transactions between client accounts, including the transfer of operations to third-party payment systems
A. Debit from the client’s account without his consent, including one-time operations
B. Conducting transactions using bank cards and other technical means
C. Making payments on client loans, including regular (periodic) payments
4. Execution of payment transactions in the case when the funds used are covered by the client’s credit line
A. Direct debit transactions, including one-time transactions
B. Conducting transactions using bank cards and other technical means
C. Making payments on client loans (repayment of one loan at the expense of another), including regular (periodic) payments
5. Creation of own and attraction of third-party payment instruments
6. Money transfers
7. Execution of payment transactions in cases where the payer’s consent to perform the operation is given by means of any telecommunication, digital and computer devices, while the payment itself is made in favour of a telecommunication IT system or network operator also acting as an intermediary between the payer and the supplier of goods and services.
The operating company obtaining the license must be registered in the jurisdiction issuing the Payment Institution License.
Required Capitalisation
To activate the license, the company applying for the Payment Institution License must deposit capital into a bank account opened in the same jurisdiction, which will serve as a guarantee of the future legitimacy of the payment institution.
The base capitalisation must be at least:
A. 20,000 euros – for services falling under item No. 6
B. 50,000 euros – for services falling under item No. 7
C. 125,000 euros – for services falling under any of items 1 to 5
The final amount of capitalisation is determined by the regulator based on the case factors:
– planned turnover
– planned number of clients served
– number of transactions
– characteristics of beneficial owners
– experience in managing financial companies
– other business characteristics specified in the business plan
Additional capitalisation cannot be made at the expense of working capital/client funds.
Package of Documents
The package of documents required to apply to the regulator for a Payment Institution License includes:
I. Detailed description of the actions to be taken when providing payment services
II. Business plan with a financial section for 3 years
III. Proof of funds for capital injection
IV. Description of measures aimed at ensuring the safety of client funds in accordance with the current legislation in this area
V. Descriptions and justifications for the appointments of the company’s management, mechanisms for internal control over the activities of directors, their administrative functions, as well as methods of risk management, accounting methods and organisation of company management
VI. Description of mechanisms to combat money laundering in accordance with applicable law
VII. Description of the applicant’s participation in any national or international payment systems. Descriptions of the applicant’s structural organisation, outsourcing schemes involved, as well as information about the company’s current agents and branches
VIII. Information about the persons who directly or indirectly control the company’s activities in the sense in which the term “control” is used in banking legislation. As well as information about the financial solvency of these persons, their positions, as well as other data confirming their legal capacity and suitability in terms of managing a financial company / payment institution.
IX. Information about all directors, as well as employees responsible for the areas of activity of the payment institution. Proof of an impeccable reputation, as well as confirmation of the availability of knowledge and experience necessary to provide payment services, namely: certificates of no criminal record, absence of bankruptcies, description of professional skills, academic degrees, list of previous jobs with a description of job duties.
X. Auditor Information
XI. Memorandum and Articles of Association of the applicant company
XII. Address of the head office of the applicant company
To comply with clauses IV, V and VII, the applicant must provide the results of a financial audit. As well as a description of organisational measures aimed at protecting the interests of consumers of payment services, maintaining the proper quality of services, as well as the consistency and continuity of their provision.
The number of employees of a financial company operating under a Payment Institution License must be at least 5 people.
License Requirement
It should be noted that in many jurisdictions, including prestigious ones, financial intermediation is not licensed. However, the lack of a license leads to the fact that service rates, primarily bank acquiring fees, increase by an average of 2-3%. And some functions, such as direct debiting of funds or recurring payments, become impossible to implement due to both the lack of trust in a “dummy” company and the presence of direct prohibitions on working with such organisations for credit and banking organisations that are part of the general system combating money laundering (Anti Money Laundering).
Alexey Zarin
Moscow, 2013
