Payment institutions are a cornerstone of modern Europe’s economy. They facilitate the transfer of money between people and businesses, in particular the receipt of card payments, operation of online wallets, and delivery of digital financial services without necessarily engaging the services of a full-fledged bank. On the other hand, a common set of rules does exist at the European Union level regarding payment institutions. What such regulation means in practice looks very different in each country, though.
What was in the article was setting out to describe how payment establishments are controlled in the EU, why there are variations across countries, and what the consequences of that are for businesses when applying for a license.
What Is a Payment Institution?
A payment institution is a company engaged in the provision of payment services other than business conducted in the normal course of a banking activity. These include:
- Cash transfer services
- Card services
- Online and mobile payments
- Electronic wallets
- Acquiring services of payment institutions—again, set at an EU level but which generally, in practice, have significantly less rigorous requirements than those to which banks must adhere.
One Set of Rules for the Entire EU: Many Readings
At the EU level, one of the key administrators of payment institutions is the Payment Services Directive, or PSD2. A common set of rules is established in the PSD2 on:
- Licensing requirements
- Protection of the consumer
- Transparency with regard to fees
- Security standards
- Access to remittance systems
Once applied, it should result in a single market for payment services across the EU. In practice, though, it is each of the 28 that applies these rules at country level through their national regulator.
Licensing Requirements: Not the Same Everywhere
Capital Requirements
PSD2 sets minimum capital levels depending on the type of services offered. However, some countries require:
- Higher starting capital
- Additional financial buffers
- Stronger proof of funding sources
Countries like Germany and France are known for stricter financial expectations, while Lithuania and Estonia tend to apply the minimum PSD2 thresholds more flexibly.
Application Process and Timeline
The time it takes to obtain a payment institution license differs widely:
- In some countries, the process can take 6-9 months
- In others, it may last 12–18 months or longer
For example:
- Lithuania and Latvia are often seen as faster and more startup-friendly
- In Germany and Italy, review periods and the process of scrutiny are far longer.
- Such communication, again, varies in quality from case to case.
- Friendly Regulation in Fintech: Supportive vs Conservative
Regulatory Attitude: Supportive vs Conservative
Fintech-Friendly Jurisdictions
There are other jurisdictions, and countries within the EU, that have really worked to promote the development of Fintech, with their regulators typically doing the same:
And very clear where guidance has been issued.
Regulators in those countries would often work very much in an open relationship with the applicants.
And they understand modern digital models of business.
Country-regulators seen as generally friendly to Fintech are:
- Lithuania
- Estonia
- Ireland
- Malta
They are trying to attract international payment businesses into their jurisdictions.
Additional, More Conservative Regulatory Environments
Other countries will remain extremely risk-averse. In these cases, the regulators would:
- Demand very detailed documentation
- Require extensive risk analysis
- Impose stringent compliance checks
Germany, France, and Spain are states where the controllers will be more conservative, oriented very firmly toward stability and consumer protection.
AML and Conformity: Same Rules, Different Depth
All revenue institutions within the EU are, however, subjected to AML and KYC regulations. But enforcement may vary from the other.
- Some regulators will ask for:
- Very detailed AML policies
- Sophisticated transaction monitoring systems
- Local compliance officers
Others will take a much lighter touch on the compliance framework, particularly for smaller or low-risk businesses. This is a key point for both cost and internal process.
Management and Substance Requirements
Local Presence
Many EU countries require payment institutions to have:
- A local office
- Resident directors or managers
- Local compliance staff
However, how strictly these rules are enforced varies. Some countries accept remote management, while others expect strong local substance.
Fit and Proper Checks
All regulators assess whether directors and shareholders are “fit and proper.” This includes checks on:
- Professional experience
- Reputation
- Financial history
In stricter jurisdictions, even small issues in background checks can delay or block licensing.
Passporting Rights: A Major Advantage of the EU
Once licensed in one EU country, a payment institution can use passporting rights to offer services across the EU without obtaining separate licenses in each country.
However, the initial licensing country still matters because:
- The home regulator remains the main supervisor
- Other countries may monitor activities more closely depending on the reputation of the home regulator
This is why businesses carefully choose where to apply first.
Supervisory Style After Licensing
Regulation does not end once the license is granted. Ongoing supervision differs across countries.
Some regulators:
- Conduct frequent audits
- Request regular reports
- Actively monitor daily operations
Others focus mainly on annual reporting and react only when issues arise.
The supervisory style affects long-term operational flexibility and compliance costs.
Costs of Regulation: More Than Just Fees
The total cost of regulation includes:
- Licensing fees
- Legal and advisory costs
- Compliance staff salaries
- Reporting and audit expenses
Countries with strict oversight tend to have higher ongoing costs, while fintech-oriented jurisdictions usually allow more cost-efficient operations.
Choosing Country: What Businesses Should Consider
When selecting an EU country for a payment institution license, businesses should think about:
- Speed of licensing
- Regulatory attitude
- Conformity burden
- Reputation of the regulator
- Long-term operational costs
- Target markets and clients
There is no “best” country for everyone. The right choice depends on the business model, risk profile, and growth plans.
Conclusion
Although remittance institutions in the EU are regulated under a shared lawful substructure, country-by-country differences remain significant. These differences affect licensing speed, compliance costs, operational freedom, and long-term scalability.
Understanding how each EU country applies payment regulation is essential for any firm entering the European payments market. A well-chosen jurisdiction can support growth and innovation, while a poor choice can lead to delays, high costs, and regulatory challenges.
