Becoming a payment or e-money institution in Italy: the 3 main steps

The 2007 European PSD1 Directive opened the payment services market to new players other than banks. In 2015 came PSD2, which aims to foster integration between payment systems and thus market competition.

In fact, a real liberalization of payment services has begun in Europe, and in recent years the number of operators has multiplied, especially thanks to digital technologies. But to become an authorized payment institution (IP) or electronic money institution (IMEL) one must meet a number of regulatory, operational and financial requirements.In Italy, authorization is issued by the Bank of Italy (BoI), and more specifically by its Banking and Financial Supervision Department, Institutional Supervisory Relations Service.

What are IPs and IMELs?

An IP and an IMEL are financial intermediaries authorized to provide payment services, such as transferring money from one account to another, allowing cash deposits and withdrawals, executing direct debits and wire transfers, issuing payment instruments and granting financing within set limits.

Carrying out more limited activities than banks, these institutions are exposed to less risk and therefore have to comply with significantly more modest requirements than credit institutions.

The key difference between IPs and IMELs is that electronic money institutions can issue or distribute electronic money. One example is Treezor, now the European leader in Banking as a Service and a partner of fintechs such as Lydia, Pixpay, Swile, and Shine.

How to become an IP or IMEL in Italy

#1: Understand whether you need authorization from the Bank of Italy.

PSD1 was created to break down internal borders within the Community and create a single European market for payment services. Therefore, the first question to ask yourself in order to become an IP or IMEL authorized in Italy is whether you are an EU or non-EU intermediary. 

Banking and financial companies from one of the member states can act in our country through one of their branches, without a branch or through a network of agents/distributors; non-EU intermediaries, on the other hand, can only operate through a permanent organization, which changes depending on the type of institution chosen. 

According to the regulations, EU IPs and IMELs that want to open a branch in Italy do not need to apply for an authorization from the Bank of Italy; a notification from the home country’s competent authority is sufficient. The same procedure also applies to EU institutions wishing to operate without a branch or through a network of agents/distributors.

In contrast, non-EU IPs and IMELs cannot operate in Italy without a permanent organization. The former are obliged to set up a subsidiary company, while the latter can also operate through a branch. In both cases, operators must follow the same authorization procedure required of existing or newly established companies under Italian law.

Good to know: a subsidiary company is a legal entity separate from the parent company, while a branch is an extension of the parent company, i.e. not separate from it. 

If at this point you have discovered that to become an IP or IMEL in Italy you need authorization from the Central Bank, you will find in the next sections a summary of what you need to know to obtain it. 

#2: Meet the requirements for authorization

Most of the requirements for obtaining authorization to operate in Italy are the same for IPs and IMELs, for example: 

• the legal form must be that of a joint stock company, limited partnership, limited liability company or cooperative;
• the registered office and general management must be located in Italy, where at least some of the activities related to payment services are carried out;
• qualified shareholders, i.e., those who hold at least 10 percent of the shares or voting rights, must meet the requirements of integrity, reputation, competence and financial soundness defined in Ministerial Decree No. 144/1998;
• the members of the board of directors, the board of statutory auditors, and the general manager, if any, i.e. the corporate officers, must meet the requirements of honorability, professionalism, and independence defined in Decree of the Minister of Economy and Finance No. 169/2020;
• there must be no impediments to the effective exercise of the institution’s supervisory functions with reference to the group to which the institution belongs and any close ties between the institution, or the entities in its group to which it belongs, and other entities;

Regarding the minimum initial capital, which must be fully paid up, the requirements change depending on the type of institution.

For IMELs, it is equal to €350,000.

For IPs, on the other hand, it is equal to:

• €20,000 if they are limited to money remittance (so-called money transfer); 
• €50,000 if they arrange payment orders (Payment Initiation Service, PIS); 
• €125,000 if they provide one or more of the services provided for by the Consolidated Banking Act.

Specific documents should also be attached to the application, such as the articles of incorporation and bylaws, a program of activities, a list of persons directly and indirectly participating in the institution’s capital, and information on the source of the sums with which the capital is subscribed.

Good to know: the Bank of Italy denies authorization when verification of the requirements does not show that sound and prudent management or the smooth operation of the payment system is guaranteed.

A complete overview of the requirements needed to apply for and obtain authorization to operate as an IP or an IMEL in Italy can be found in Chapter II of the Supervisory Provisions for Payment and Electronic Money Institutions.

#3: Start the authorization process

Before formally submitting an application for authorization, it can be very useful to request a meeting with the Bank of Italy to better understand the applicable regulations and the different stages of the authorization process.

This dossier is particularly challenging to prepare, given the many financial and technical documents required. It is therefore important to make sure it is filled out correctly, as an incomplete or irregular application can cause delays or be rejected.

If all requirements are met, authorization to operate as a payment or e-money institution will be issued within 90 days of receiving the complete file.

Good to know: if the application concerns the first branch of a non-EU IMEL, the Bank of Italy requires that the consent to open the branch in Italy issued by the home state’s supervisory authority also be attached.

In general, the analyses conducted by the BoI aim to verify the soundness of the new institution’s proposed initiative, the transparency and adequacy of its ownership structure and, if it is part of a group, also the absence of impediments to the effective exercise of its supervisory functions.