Becoming a payment institution in France: the 3 main steps

On November 13, 2007, the European directive DSP1 allowed new players to offer payment services, a possibility previously reserved for banking institutions.

Since that day, the number of payment institutions has multiplied, driven in particular by digital and new technologies. Nevertheless, the creation of a payment institution imposes several regulatory, operational and financial considerations that must be complied with.

What is a payment institution?

A payment institution refers to any legal entity (other than a credit institution) that has obtained authorization to provide payment services. In France, this authorization (or license) is issued by the Autorité de Contrôle Prudentiel et de Résolution (ACPR), the banking and insurance supervisory body attached to the Banque de France.

Four types of institutions exist (the scope of authorized services for each of them being more or less extended):

• Credit institutions: these are simply banks. New players or traditional banks, they are subject to stricter regulation, and offer a wide range of services. Credit institutions are, for example, the only ones able to offer credit lines (such as loans or overdrafts) or savings and investment products.

• Payment institutions. Their services mainly include deposits and withdrawals of money into accounts (including cash operations), as well as account management operations, the provision of payment means such as bank cards, fund transfers, and of course, the execution of payment operations (by card, transfer, or direct debit).

• Electronic money institutions. Very similar to payment institutions, they cannot, however, carry out cash transactions since they are exclusively allowed to carry out electronic money transactions.

• Payment service providers act as intermediaries for the above institutions and are under their responsibility. They indeed provide final customers with the payment services on behalf of the institutions that have mandated them. Responsibility is therefore shared between the payment service provider agent and the mandating institution. Due to this intermediary role, payment services providers do not need to be licensed, but they must be registered with the supervisory body in the country where they operate (ACPR for France). It is under this status that Pixpay, Swile or Shine operate, mandated by Treezor for the management of cards or bank accounts.

How to become a payment institution?

#1 Identify the type of license needed

The choice of activities of your institution will determine the type of license to apply to the regulator (whether it is the ACPR or one of its foreign counterparts).

• If you want to offer your own payment services, then obtaining a payment or electronic money institution’s license will be necessary, as the management of the payment services will be under the responsibility of your institution. However, if your activity consists of commercializing the payment services of another institution, you can then be registered as a service provider agent as part of your partnership with the institution in question.

• Do you know what will be your institution’s average monthly payment volume?For a volume of less than 3 million euros for payment institutions and 5 million euros for electronic money institutions, you can apply to the ACPR for a simplified authorization. In this case, the prudential requirements in terms of capital, own funds or internal control will be simplified, but your institution will be more limited in terms of services offered.

• What will be the geographical scope of your activity?If you want your institution to offer its services in other European Union (EU) or European Economic Area (EEA) countries, the principle of mutual recognition of authorizations will allow you to benefit from the European passport. Thus, if you have an authorization in one of these countries, you will be authorized to carry out your activities in any other EU or EEA country.

Note: You cannot benefit from the European passport procedure if you have a simplified license.

• Can you benefit from a license exemption?The ACPR can grant it under very specific conditions. In that case, you can benefit from a license exemption procedure if the payment means offered by your company are accepted only in your premises, in a limited network accepting these payment means, or for a limited range of goods or services.

#2 Meet all licensing requirements

Payment institutions are subject to strict regulations defined by the French Monetary and Financial Code.

The licensing file specifies all the requirements verified by the regulator:

• Business requirements. The application must include a business plan detailing your company’s business model and strategy. This business plan should include a market study and a three-year business plan presenting financial forecasts and demonstrating your ability to implement all the resources and procedures necessary for the proper operation of your company.

• Financial requirements. Depending on the services provided by your company, a minimum level of initial capital is required. In addition, payment institutions must meet prudential capital requirements to demonstrate their solvency. You will have to demonstrate in your projections that these capital and solvency requirements will be met during the first three years of your business. Finally, your institution must demonstrate a method of safeguarding the funds received from your users.

• Organizational requirements. The institution must have a clear and transparent organizational structure and a solid internal control system including effective procedures for detecting and managing risks, as well as a system for anti-money laundering and counter-terrorist financing. The means implemented to ensure the security of payments must also be presented.

For the status of payment service provider agent, which does not require authorization, the criteria are generally less demanding, but particular attention is paid to the internal control systems and procedures.

#3 Initiate the licensing or registration procedure with the regulator

Before formally submitting an initial application for approval or registration, it is strongly recommended that you contact the organization that will grant your license in order to organize a meeting to present your project and to examine the projected schedule for its completion. You will then be able to fill in the application for the approval you wish to obtain.

The preparation of this application is particularly demanding given the numerous financial and technical documents that must be attached. It is nevertheless important to ensure it is properly completed, as any incomplete application could delay the processing.

Note : If you operate as an agent, it will be your partner credit, payment or electronic money institution to complete and send the registration application.

If all the conditions are met, a license as a payment or electronic money institution will be issued by the ACPR within a 3 months  period from the receipt of a complete application!

Depending on the type of licenses, the criteria to be met to become a payment institution can vary greatly. In particular, compared to the status of payment service provider agent, any status requiring a license will involve significant prudential and organizational requirements. Whatever your project is, a clear definition of your business model and the implementation of sound risk control procedures will be essential.