A standard payment license is an authorization for the holder to provide services related to the payment systems. A typical payment license allows the financial institution to provide services such as money remittance, account issuance, and e-money issuance services.
What is a payment license?
A payment license refers to a license granted by a regulatory authority that permits an entity to provide payment services. Payment licenses are typically issued to companies or financial institutions that offer various payment-related activities, including transmitting funds, processing payments, and facilitating monetary transactions.
The specific requirements and regulations for obtaining a payment license vary across jurisdictions, as each regulatory authority establishes its own framework. However, common types of payment licenses include:
Money Transmitter License: This type of payment license allows companies to transmit funds on behalf of individuals or businesses. Money transmitters typically facilitate remittances, money transfers, and electronic funds transfers.
Payment Institution License: A payment institution license permits companies to provide various payment services, including payment initiation, execution of payment transactions, and issuance of payment instruments such as prepaid cards or e-wallets. Payment institutions may also provide services related to currency exchange or foreign exchange.
Electronic Money Institution License: An electronic money institution license allows companies to issue electronic money, which is a digital form of stored value that can be used for making payments. Electronic money institutions enable customers to store funds electronically and use them for purchases or transfers.
Payment Processor License: A payment processor license authorizes companies to process payments on behalf of merchants or other financial institutions. Payment processors handle the technical aspects of payment transactions, including authorization, settlement, and reconciliation.
What are the types of payment licenses?
The types of payment licenses can vary depending on the jurisdiction and the specific regulatory framework in place. However, here are some common types of payment licenses:
Money Transmitter License: This license allows companies to transmit funds on behalf of individuals or businesses. Money transmitters facilitate services such as remittances, money transfers, and electronic funds transfers.
Payment Institution License: A payment institution license permits companies to provide a range of payment services, including payment initiation, execution of payment transactions, and issuance of payment instruments such as prepaid cards or e-wallets. Payment institutions may also offer services related to currency exchange or foreign exchange.
Electronic Money Institution License: An electronic money institution license allows companies to issue electronic money, which is a digital form of stored value that can be used for making payments. Electronic money institutions enable customers to store funds electronically and use them for purchases or transfers.
Payment Processor License: A payment processor license authorizes companies to process payments on behalf of merchants or other financial institutions. Payment processors handle the technical aspects of payment transactions, including authorization, settlement, and reconciliation.
Mobile Money License: Some jurisdictions have specific licenses for mobile money operators. These licenses enable companies to provide mobile-based financial services, including mobile payments, money transfers, and mobile wallet services, often targeting areas with limited access to traditional banking services.
Acquiring License: Acquiring licenses are granted to companies that facilitate payment acceptance for merchants. These companies act as intermediaries between merchants and payment networks, enabling businesses to accept and process various payment methods, such as credit cards, debit cards, and alternative payment methods.
Prepaid Payment Instrument License: This license allows companies to issue prepaid payment instruments, such as prepaid cards or electronic vouchers. These instruments hold a preloaded value that can be used to make payments or purchases within specified limits.
Payment Service is a necessity in this modern age that offers services like electronic payments by using methods like direct debit, credit card, online bank transfer, etc. while acting as a mediator between banks and customers. Such emergence of new payment streams, institutions such as financial technology companies, and the general acceptance of electronic money have necessitated the licensing of such payment services. Therefore, in most jurisdictions for a firm to provide payment services needs authorization in the form of an offshore payment license.
Additionally, licensing is necessary to render qualified intermediary and payment services in the financial sector. Otherwise, the company’s activity is considered illegal and the company itself is subjected to legal prosecution, according to the local legal regulations of different provinces.
What are the advantages of obtaining a payment license?
Regulatory Compliance: Holding a payment license ensures compliance with applicable laws and regulations governing payment services. It demonstrates a commitment to operating within the legal framework of the jurisdiction, which enhances the credibility and reputation of the licensed entity.
Market Access: A payment license grants access to regulated payment markets and allows the licensed entity to offer payment services within the jurisdiction. This expands the potential customer base and enables participation in local payment ecosystems, including partnerships with banks, merchants, and other financial institutions.
Customer Trust: Holding a payment license instills confidence in customers, as it signifies that the licensed entity operates under regulatory oversight and follows established industry standards. It can attract customers who prioritize security, consumer protection, and compliance with regulatory requirements.
Expanded Service Offering: Obtaining a payment license enables companies to offer a broader range of payment services. This includes facilitating payment transactions, issuing payment instruments like prepaid cards or e-wallets, and providing value-added services such as currency exchange or remittance services. Expanding the service offering can attract new customers, increase revenue streams, and foster business growth.
Business Partnerships: Holding a payment license facilitates partnerships and collaborations with other financial institutions, merchants, and payment service providers. Licensed entities are often preferred partners for banks and other regulated entities, as they have undergone due diligence and regulatory scrutiny. These partnerships can lead to increased business opportunities, shared networks, and access to new markets.
Competitive Advantage: Obtaining a payment license can provide a competitive advantage over unlicensed payment providers in the market. It demonstrates a commitment to compliance, regulatory standards, and customer protection, which can differentiate the licensed entity and attract customers who prioritize regulated and trusted payment services.
Innovation and Flexibility: Some payment licenses encourage innovation and provide flexibility for developing new payment solutions. Regulatory sandboxes or licensing frameworks with provisions for testing and introducing new technologies allow licensed entities to explore innovative payment offerings while ensuring compliance with regulatory requirements.
The specific payments license act or legislation governing payments licenses can vary depending on the jurisdiction. Each country or region may have its own set of laws and regulations that govern the licensing and regulation of payment service providers.
For example, in the United States, the primary federal law governing money transmitter licenses is the Bank Secrecy Act (BSA) and its implementing regulations by the Financial Crimes Enforcement Network (FinCEN). Additionally, individual states have their own licensing requirements and regulations for money transmitters, often referred to as “Money Transmitter Acts” or “Money Transmission Laws.” Examples include the New York State Department of Financial Services’ BitLicense and the California Money Transmission Act.
In the European Union, the Second Payment Services Directive (PSD2) provides the regulatory framework for payment services, including licensing requirements for payment institutions and electronic money institutions. Each member state within the EU may have its own legislation and regulatory authorities responsible for issuing payments licenses.
Here is a list of some countries or regions known for offering payment licenses or licenses for payment service providers:
United Kingdom (Financial Conduct Authority – FCA)
European Union (various national regulatory authorities)
United States (Financial Crimes Enforcement Network – FinCEN, state-level authorities)
Singapore (Monetary Authority of Singapore – MAS)
Australia (Australian Securities and Investments Commission – ASIC)
Canada (Financial Transactions and Reports Analysis Centre of Canada – FINTRAC)
Hong Kong (Hong Kong Monetary Authority – HKMA)
Switzerland (Swiss Financial Market Supervisory Authority – FINMA)
Japan (Financial Services Agency – FSA)
United Arab Emirates (Central Bank of the UAE)
Malaysia (Bank Negara Malaysia)
South Africa (South African Reserve Bank)
New Zealand (Financial Markets Authority – FMA)
India (Reserve Bank of India – RBI)
Brazil (Central Bank of Brazil)
Obtaining a payment license is typically subject to regulatory requirements to ensure consumer protection, financial stability, and compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. License holders are usually required to maintain adequate capital, implement robust security measures, and adhere to reporting obligations.
By obtaining a payment license, companies can operate legally within the regulated payment ecosystem, gain credibility and trust from customers, and access partnerships with other financial institutions. It also enables them to offer a wide range of payment services, expand their customer base, and participate in the evolving digital payment landscape.
It is important to note that the specific act or legislation governing payments licenses will depend on the jurisdiction in which you plan to operate. Conducting thorough research and consulting with legal counsel specializing in payments regulation in the specific jurisdiction are essential to understanding and complying with the applicable laws and regulations.
Our services
It is crucial to consult with legal and regulatory Imishore’s lawyers who specialize in payments licensing in the specific jurisdiction where you plan to operate. We can provide tailored guidance and support throughout the application process to ensure compliance with all relevant regulatory requirements.
Imishore Consultants helps you navigate this jungle and will guide you on what types of licenses are there for payment services, what type of license you need according to your business model. Moreover, we provide a wide array of services to our international clients from the formation of the business entity to ultimately getting a payment license for its operation.
