How to Get a Payment Institution License: A Step-by-Step Guide for Fintech Founders
What Does a Payment Institution Do?
A Payment Institution (PI) is a regulated entity authorized to provide payment services — including executing payment transactions, issuing payment instruments, providing money remittance, and offering payment initiation or account information services — to consumers and businesses. The legal framework governing PIs in the European Union is the Payment Services Directive 2 (PSD2). A PI license is mandatory for any company that wants to offer these services commercially, regardless of size or technology platform.
The Fintech Relevance
Most modern fintech applications involve some form of payment activity. Whether you are building a neobank, a cross-border remittance app, a marketplace with embedded payments, or an open banking platform, you almost certainly need — or need to partner with — a licensed PI. The PI license is the enabling credential that allows you to handle customer funds, execute transactions, and connect to payment systems across the EU.
Types of Payment Institution License
PSD2 creates two tiers of PI authorization. The full Authorized Payment Institution (API) license covers the complete range of payment services and grants EU passporting rights. The Small Payment Institution (SPI) registration applies where monthly transaction volumes do not exceed €3 million and is subject to a lighter-touch process, but crucially does not include passporting rights. Firms with pan-European ambitions must pursue API authorization.
Choosing Your Jurisdiction
The choice of home member state significantly affects the authorization timeline, cost, and supervisory relationship. Lithuania, regulated by the Bank of Lithuania, has become the leading PI licensing hub in the EU, processing applications efficiently and offering English-language engagement. Ireland, the Netherlands, and Luxembourg offer stable regulatory environments with strong reputations. Malta is another popular choice for smaller fintechs, though supervisory capacity is more limited.
The Application: Key Components
A PI application requires a detailed program of operations describing the intended services, target markets, and business model; governance documentation including organizational charts and job descriptions for key functions; an AML/CFT programme meeting the Financial Action Task Force (FATF) standards; IT and cybersecurity policies meeting PSD2’s strong customer authentication (SCA) requirements; a business continuity and disaster recovery plan; and a capital adequacy assessment. The initial capital requirement ranges from €20,000 (money remittance) to €125,000 (broad payment services). Fit-and-proper assessments of key management are required.
Safeguarding Client Funds
Perhaps the most operationally critical requirement is the safeguarding obligation. PI firms must segregate client funds from their own operational funds at all times — either by holding them in a segregated account at a credit institution or through equivalent insurance/guarantee mechanisms. Supervisors treat safeguarding failures as serious compliance breaches that can result in license suspension.
Open Banking and Future Regulation
PSD3 and a new Payment Services Regulation (PSR) are advancing through EU legislative processes, with implementation expected in 2026–2027. These reforms will strengthen consumer protection, improve fraud liability frameworks, and enhance open banking access rights. Existing PIs should begin assessing the compliance implications of PSD3 now to avoid last-minute transition challenges.
Conclusion
Obtaining a PI license requires significant preparation but is achievable for well-organized fintech teams. The regulatory credibility, EU passporting access, and customer trust that a PI license provides make the investment in compliance well worthwhile. Engage specialist regulatory counsel early — the application process rewards thoroughness and penalizes shortcuts.
