Payment Institution (PI)
A payment institution is a firm authorized in the United Kingdom or a European Union member state to provide payment services — transfers, acquiring, remittance, payment initiation — but not to issue electronic money. It may hold customer funds in payment accounts used only for payment transactions; those funds are neither deposits nor e-money.
Also called: authorised payment institution · API
A payment institution holds a license from its national regulator — the Financial Conduct Authority in the UK, the competent authority of the member state in the EU — permitting a defined list of payment services. Those typically include executing transfers, acquiring payment transactions, money remittance and, under PSD2, account information and payment initiation services.
What a payment institution may not do is issue electronic money — create a stored monetary value that is a claim on the firm itself and can be spent with third parties. That takes an Electronic Money Institution license, and an EMI may provide payment services as well. A payment institution can and routinely does hold customer money: it may operate payment accounts, used exclusively for payment transactions, and the funds in them are neither deposits nor electronic money, so they carry no deposit protection.
The status is one of three. A firm whose payment transactions average no more than EUR 3 million a month may instead register as a small payment institution, with lighter requirements but no account information or payment initiation services; a firm doing only account information work registers as an account information service provider. In the UK, initial capital for an authorized payment institution is EUR 20,000 for money remittance alone, EUR 50,000 for payment initiation, and EUR 125,000 for the other payment services.
In practice
The difference between a payment institution and an EMI is not whether the firm can hold customer money — a PI can, in payment accounts used only for payment transactions. It is that only an EMI can issue electronic money: a stored balance that is a claim on the issuer and can be spent with third parties. On the abbreviation, UK licensing documents often use “API” for Authorised Payment Institution, but the FCA’s own approach document writes payment institutions as PIs and keeps APIs for software, so say which you mean the first time.
Example
A UK firm collects euros from a corporate client, converts them and pays a supplier in Poland the same day. That is money remittance and execution of payment transactions, both inside a payment institution’s permissions, and the firm may hold the euros in a payment account while the transfer is arranged. If instead it gave the client a spendable balance — value stored on the firm, usable to pay whoever the client later chooses — it would be issuing electronic money, and that needs an EMI license.
Commonly confused with
| Term | How it differs |
|---|---|
| Electronic Money Institution | An EMI may issue electronic money and hold a stored customer balance; a payment institution may only execute payment services. |
| Small Payment Institution | An SPI is registered rather than authorized, is capped by a volume limit and cannot passport. |
| Application Programming Interface | Both are shortened to API; in UK payments licensing an API is an Authorised Payment Institution, not a software interface. |
See also
- Electronic Money InstitutionA firm authorized in the United Kingdom or in an EU member state to issue electronic money and to provide payment services. The e-money it issues is a claim its holders have against the institution, redeemable at par and expressly not a deposit, which is why the funds behind it must be safeguarded.
- Small Payment InstitutionA small payment institution is a UK registration for a payment firm whose payment transactions average no more than EUR 3 million a month. It is registered rather than authorized, carries no ongoing capital requirement, and cannot be used to provide account information or payment initiation services, or to issue electronic money.
- Payment Service ProviderA payment service provider, or PSP, is a firm that moves payments for merchants or consumers. In UK and EU payment services law it is also a defined umbrella term covering several kinds of regulated provider, and Canada defines it separately again under the Retail Payment Activities Act.
- SafeguardingSafeguarding is the statutory requirement that an authorized payment or e-money firm keep customer funds apart from its own money, by a method the rules prescribe, so the funds are identifiable and returnable to customers if the firm fails. It is a licensing condition, not best practice.