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Payment Service Provider (PSP):
PSPs play a pivotal role in assisting businesses in accepting debit or credit cards and bank transfers for seamless transactions. Often referred to as “merchant service providers,” they furnish merchants with merchant accounts and payment gateways, enabling the acceptance of payments from customers.
Payment Institutions (PIs), a category within PSPs, are regulated by the Payment Services Directive 1 (PSD) from Directive 2007/64/EC. With the advent of PSD2, the activities of payment institutions are closely monitored, covering credit transfers, direct debits, payment instruments, forex services, ancillary services, and credit issuance.
Notably, payment institutions can perform similar functions to electronic money institutions but cannot generate income from electronic funds.
Electronic Money Institution (EMI):
EMIs, on the other hand, are entities capable of creating and distributing electronic money. Governed by the Electronic Money Directive 2 (EMD2) from directive 2009/110/EC, they extend beyond the capabilities of traditional PSPs. EMIs can issue electronic money in addition to providing services offered by payment institutions. The account holder possesses a claim against the issuing institution for the money in the account, facilitating payments.
Under the Payment Services Directive 2 (PSD2), EMIs are authorized to deliver payment services like those offered by payment institutions, covering payment transactions, currency exchange, conversion, safekeeping, data storage, and processing.
It’s essential to note that not all EMIs are automatically authorized to provide all these services; approval depends on the specifics outlined in their application to the national regulator in the EU.
Safeguarding Requirements:
Both electronic money and payment institutions must adhere to rules in EMD2 and PSD2 to safeguard customer funds. However, payment institutions offering only payment initiation or account information services are not subject to safety rules.
Distinct safeguarding requirements dictate that electronic money institutions cannot commingle funds received for e-money issuance and other payment services in the same account.
FAQs:
Can only electronic money institutions open e-wallets? The law doesn’t specifically address “e-wallets” at present, but both EMIs and PIs can provide customers with payment accounts, with the PI’s account being smaller.
Can both EMIs and PIs make prepaid cards? Both can create co-branded prepaid cards, but only EMIs can generate and store electronic money.
Is it easier to get a PI licence? While both PIs and EMIs undergo a similar application process, EMIs face stricter capital requirements and closer scrutiny from regulators, making the process more challenging and expensive.
In conclusion, understanding the nuances between PSP and EMI licences is crucial for companies venturing into the payment industry. The choice between the two depends on the services a business aims to offer, and careful consideration of regulations and requirements is essential for a successful entry into this dynamic sector.
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