This article is about choosing between a payment institution (PI) licence and an electronic money institution (EMI) licence for a startup in the EU. It covers how they differ under the PSD2 and EMD2 directives, whether you can hold a client balance, how much capital is needed, how client money is protected and how to start without a full licence. Everything is based on the texts of the directives and regulator pages.
Checked on 27 October 2026. Rules and sources are current as of this date.
The main difference: does client money stay with you
Both licences allow payment services. The difference is what happens to the money between payments, and that decides the choice.
A PI executes a payment
A payment institution provides services from Annex I to PSD2, such as transfers, acquiring, issuing payment instruments and money remittance. It may hold only payment accounts used exclusively for payment transactions (Article 18(2) PSD2), and funds it receives are not electronic money (18(3)).
An EMI issues electronic money
An electronic money institution takes funds from the client and exchanges them for electronic money without delay (Article 6(3) EMD2). The holder may redeem it at any moment at par (Article 11). That is why an EMI fits wallets and card programmes where the client holds a balance.
A shared ban on deposits
Neither a PI nor an EMI may take deposits or other repayable funds from the public (Article 18(5) PSD2 and Article 6(2) EMD2). An EMI balance is electronic money, not a deposit, and no interest may be paid on it (Article 12 EMD2).
What decides it in practice
If the client leaves money with you for a period not tied to executing a specific payment, that is an EMI scenario. If money only passes through you to the payee, a PI is enough. This is our assessment: the line depends on the product and the last word is the regulator’s.
| Startup product | Usually fits | Why |
|---|---|---|
| Accepting payments for merchants, payouts to sellers | PI | Money goes on to the payee, no balance builds up |
| Cross-border money transfers | PI with the EUR 20,000 capital level | A service under point 6 of Annex I, Article 7(a) PSD2 |
| Wallet with a balance and stored money | EMI | The client balance is electronic money |
| Prepaid card with a balance | EMI | The balance on the card is issued electronic money |
| Payment initiation only, from the client’s bank account | PI with the EUR 50,000 capital level | Point 7 of Annex I, Article 7(b) PSD2 |
| Marketplace with settlements between parties | Depends on the model | If the platform holds sellers’ money, assess whether an exclusion applies or a licence is needed |
Capital and own funds
Minimum capital is needed at the time of authorisation. Besides it the regulator requires own funds to be held at all times.
| PI (PSD2) | EMI (EMD2) | |
|---|---|---|
| Minimum capital | EUR 20,000 (money remittance only), EUR 50,000 (payment initiation only), EUR 125,000 (other services), Article 7 | EUR 350,000, Article 4 |
| Own funds | One of methods A, B or C chosen by the regulator, Article 9 | Method D for electronic money, at least 2% of average outstanding electronic money, plus methods A, B or C for payment services, Article 5 |
| Gap in the minimum | EUR 125,000 for the full set of services | EUR 225,000 higher |
The regulator looks at the financial plan. If your volumes grow, own funds are calculated from them and will exceed the minimum. We compared countries, timelines and fees in our article on PI and EMI licences in the EU, UK and Canada.
Safeguarding client money and model limits
The licence defines how you handle other people’s money and what you may not do with the product.
Safeguarding in a PI
Client funds may not be commingled with your own. If they are still held by the end of the business day after receipt, they are placed in a separate account at a credit institution or in low-risk assets, or covered by insurance or a guarantee from a party outside the group (Article 10 PSD2).
Safeguarding in an EMI
The same methods apply (Article 7 EMD2). Funds paid by a payment instrument must be safeguarded once credited to the EMI’s account, and in any event no later than five business days after the electronic money is issued.
Redemption and interest
An EMI issues electronic money at par and redeems it at par at any moment. A redemption fee is allowed only in the cases in Article 11 and must be proportionate to cost. Paying the holder for the time money is held is prohibited (Article 12).
Credit
A PI may grant credit only in connection with a payment, repayable within 12 months and not from funds held to execute payments (Article 18(4) PSD2). An EMI also may not grant credit from funds received for electronic money (Article 6(1) EMD2).
If the plan includes yield on balances or a credit product funded by client money, neither licence allows it. That product is built differently, for example through a partner bank.
We will review your situation and propose a solution for your project.
How to start without a full licence
A full licence takes months. A startup should know three ways to reach the market sooner or for less, and each has a ceiling.
Small-scale exemption
A state may exempt a PI whose monthly average of payments over 12 months does not exceed a national limit, in any event no more than EUR 3 million (Article 32 PSD2). For an EMI the ceiling is average outstanding electronic money of EUR 5 million (Article 9 EMD2). A state may set a lower limit. The directives only permit the exemption, and each country introduces it itself.
The price of the exemption
An exempt firm works under one country’s rules, its head office must be there (Article 32(2)), and the EU passport does not apply. If the limit is exceeded, a full licence must be sought within 30 calendar days (Article 32(5)).
An agent of a payment institution
A PI may work through an agent it notifies to the regulator. Within two months the regulator says whether the agent is entered in the register, and after entry the agent may start (Article 19 PSD2). The licence and responsibility stay with the PI.
A licensed partner
The startup builds the product and a licensed partner executes payments. This is our practical assessment, not a rule of the directives. Fix the partner’s terms and the risk of losing access in the contract, see our article on how banks block fintech startup accounts.
The Bank of Lithuania issues a restricted-activity licence valid only in Lithuania. For an EMI, average monthly outstanding electronic money may not exceed EUR 900,000, and for a PI average monthly payments may not exceed EUR 3 million. Other countries apply their own rules.
What the regulator checks in the application
The licence is issued by the regulator of the country where the head office is located. Requirements are similar for both licences, while timelines and fees differ by country.
Governance and control
The regulator grants the licence if the company has robust governance, a clear structure of responsibility, procedures to identify and manage risks and adequate internal control (Article 11(4) PSD2). All of it is proportionate to the scale of the services.
An office in the licensing country
The licence goes to a legal person established in an EU state. If the country requires a registered office, the head office must be in the same state and part of the payment business is carried out there (Article 11(1) and 11(3)).
The decision period
The regulator communicates the decision within three months of receiving the application or, if it is incomplete, of all the required information (Article 12 PSD2). The Bank of Lithuania cites a five working day completeness check, and the regulator’s questions lengthen the process in practice.
Fees
In Lithuania the state fee is EUR 898 for a PI licence and EUR 1,463 for an EMI licence, according to the Bank of Lithuania. The main budget is capital, lawyers, compliance and the team.
The EU passport
A granted licence is valid in all EU states and allows services throughout the Union (Article 11 PSD2), and you notify the regulator of each new country.
Typical startup mistakes
This is our experience and assessment, not a requirement of the directives.
A licence for one model, a product of another
The application is prepared for a PI while the product already has a wallet with a balance. The regulator assesses the actual model, and the gap surfaces at the questions stage.
Underestimating time
The three-month period runs from the complete file. Preparing the file, hiring responsible persons and answering questions take separate time.
A weak growth plan
A financial plan without headroom on volumes forces own funds to be recalculated and status to change earlier than planned.
When to change status
The choice at the start is not permanent, but changing it costs time and money.
You went over the limit
An exemption or a restricted licence stops applying once volume is exceeded. Apply in advance so the service is not interrupted.
A balance entered the product
If a PI decides to hold client money for future payments, check whether it is now issuing electronic money. Then an EMI licence or an existing partner is needed.
New countries
A licence from one EU country allows work in others through a notification to the regulator, but a small-scale exemption gives no such right.
The rules are changing
The EU is revising its payment services rules (PSD3 and PSR). Follow the status on the European Parliament page in the sources below and check the current text before applying.
How to choose, step by step
A sequence that suits most startups.
Describe the money flow
Where money comes from, where it sits and where it goes. Draw the diagram for each product.
Start hereAnswer whether a balance is held
If yes, you need an EMI or a partner with that licence. If not, a PI is enough.
Estimate volumes
Expected monthly average for the next 12 months. It decides whether an exemption fits.
Compare capital and safeguarding
Capital of EUR 125,000 or 350,000, own funds by method and the way client money is protected.
Choose the country and regulator
Timelines, fees and office and staffing requirements differ noticeably, and the EU passport works only with a full licence.
Decide: own licence or partner
Your own licence gives control, a partner is faster but depends on someone else’s terms.
The licence is chosen by whether client money stays with you, not by the product’s name. A payment without a balance is a PI. A wallet or a card with a balance is an EMI.
The licence is defined not by the product’s name but by what happens to the client’s money.LegalBit team
Frequently asked questions
How does a PI differ from an EMI in one sentence?
A PI executes payments and does not issue electronic money. An EMI issues electronic money that a client can hold as a balance and may also provide payment services.
How much capital is needed?
At authorisation a PI needs EUR 20,000 to 125,000 depending on the services, and an EMI at least EUR 350,000. After that own funds are calculated by the methods in the directives.
Can I start as a PI and later become an EMI?
Yes, but it is a new application. If a client balance appears in the product, you need an EMI licence or a partner that already holds one.
Can I pay clients interest on the balance?
No. Article 12 EMD2 prohibits interest and any benefit related to how long electronic money is held.
What is the small-scale exemption?
A right of the state to exempt a small firm from part of the requirements. For a PI the monthly average of payments may not exceed EUR 3 million, for an EMI average electronic money may not exceed EUR 5 million. You can work in one country only.
Do I need a licence if a partner executes the payments?
If the partner executes payments under its own licence and the startup only builds the product, your own licence may not be needed. But each side’s role must be fixed in the contract and checked against the product.
See also: Payment institution and EMI licence in the EU, UK and Canada; KYC and KYB for payment providers; Payment facilitators and sub-merchant liability; How banks block fintech startup accounts. Services: regulatory and compliance.
- EUR-Lex: Directive (EU) 2015/2366 (PSD2), Articles 7, 9, 10, 11, 18, 19 and 32
- EUR-Lex: Directive 2009/110/EC (EMD2), Articles 4, 5, 6, 7, 9, 11 and 12
- Bank of Lithuania: Authorisation of Electronic Money Institutions
- Bank of Lithuania: Authorisation of Payment Institutions
- European Parliament: Revision of EU rules on payment services (PSD3 and PSR)
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