The distinction
The Payment Services Regulations 2017 regulate eight payment services: operating a payment account, including placing cash on it and withdrawing cash from it; executing payment transactions, whether funded by the customer or by a credit line; issuing payment instruments or acquiring payment transactions; money remittance; payment initiation; and account information. A firm that provides any of them as a regular business in the UK must be authorised or registered by the FCA as a payment institution, unless it is a bank or falls within an exclusion.
The Electronic Money Regulations 2011 regulate a different thing. Electronic money is monetary value stored electronically, represented by a claim on the issuer, issued on receipt of funds for the purpose of making payment transactions and accepted by persons other than the issuer. A prepaid card, a wallet balance that the customer tops up and spends with merchants, and a multi-currency account whose balance can be paid out to third parties are all electronic money. A firm that issues it must be authorised or registered as an electronic money institution.
The practical test is whether the customer holds a balance with the firm that the customer can use, at a time of the customer's choosing, to pay other people. If the firm receives funds only to execute a specific payment, for instance a remittance to a named payee or a collection on behalf of a merchant, it provides a payment service and a payment institution authorisation is sufficient. If customers can keep money with the firm and spend it as they wish, the firm issues electronic money and needs the electronic money authorisation.
What each may do
An electronic money institution may provide any of the payment services as well as issuing electronic money, and the Regulations also allow it ancillary services such as foreign exchange, the operation of payment systems and other business activities. It may grant credit in connection with payment services on the same conditions as a payment institution, but not from safeguarded funds. A payment institution may provide the payment services in its authorisation and the same ancillary services, but it may not issue electronic money. A firm that starts as a payment institution and later wants to offer stored balances must apply for authorisation under the Electronic Money Regulations, and the FCA treats a move between registration and authorisation as a new application rather than a variation of the existing permission.
Both types of firm may operate through agents, which must be registered with the FCA before they provide payment services on the firm's behalf. An electronic money institution may also distribute and redeem electronic money through distributors. In each case the principal remains responsible for the conduct of the agent or distributor and for the safeguarding of the funds they handle.
Capital
The initial capital for an authorised payment institution depends on the services it provides: EUR 20 000 for money remittance only, EUR 50 000 for payment initiation services, and EUR 125 000 where the firm operates payment accounts, executes payment transactions, issues payment instruments or acquires transactions. Where a firm provides services in more than one band, the higher amount applies. A firm that provides only account information services needs no initial capital. Once authorised, the firm must hold own funds calculated under one of three methods that the FCA directs: a percentage of fixed overheads, a scale based on payment volume, or a scale based on income, and the FCA may adjust the result by up to 20 per cent either way.
An authorised electronic money institution must hold initial capital of at least EUR 350 000. Its ongoing own funds for the e-money business are 2 per cent of average outstanding electronic money, measured as the average daily liabilities for electronic money in issue over the preceding six months; for any payment services unrelated to the e-money it uses the payment institution methods in addition. The difference in initial capital is the first point at which the two regimes diverge in cost, and a firm whose product does not require stored value should not take on the higher requirement without reason.
Small institutions
Both regimes allow a smaller firm to register rather than apply for authorisation. A small payment institution is one whose monthly average of payment transactions over the preceding twelve months does not exceed EUR 3 million, and it may not provide payment initiation or account information services. A small electronic money institution is one whose business generates average outstanding electronic money of no more than EUR 5 million, with the same EUR 3 million limit on any unrelated payment services and the same exclusion of payment initiation and account information. A small electronic money institution whose average outstanding electronic money is EUR 500 000 or more must hold initial capital equal to 2 per cent of that amount; below that figure none is prescribed.
Registration is lighter, but it is not a permanent arrangement for a growing firm. A registered firm that exceeds its threshold must apply for authorisation, and that is a full application, assessed in the same way and on the same timetable as any other. The FCA assesses applications against the firm's projections, so a firm that expects to pass the threshold within its first years should consider applying for authorisation at the outset rather than registering and applying again. Since the UK left the EU there is no passport from a UK authorisation or registration, so the choice does not affect the firm's ability to serve customers abroad; a firm that needs an EU presence requires a separate authorisation there.
Safeguarding
An authorised payment institution, an authorised electronic money institution and a small electronic money institution must safeguard the funds they receive from customers, either by segregating them in a designated account with an authorised credit institution or by investing them in secure, liquid assets, or by holding an insurance policy or comparable guarantee. A small payment institution may choose to safeguard but is not required to. Since 7 May 2026 the FCA's rules in CASS 15 and the related chapters have applied to safeguarding firms: a reconciliation of the funds safeguarded against the funds owed at least once each reconciliation day, a resolution pack, a monthly safeguarding return and, for firms above a small-funds threshold, an annual safeguarding audit. Our note on the UK safeguarding rules sets these out, and an applicant must show in its application how it will comply from the first day of trading.
The application and the FCA's timetable
Applications are made through the FCA's Connect system with the form for the type of firm and the supporting material. The FCA expects every question on the form answered, with an explanation where a question does not apply; policies and procedures written for the firm's own business model rather than generic templates; the forms for the individuals who will manage the firm and for its controllers, with evidence of the individuals' knowledge and experience in payments or e-money; financial forecasts including a balance sheet and, where applicable, two stress-tested scenarios; and the arrangements for capital, safeguarding, wind-down and, where relevant, professional indemnity insurance. The directors and managers must be of good repute and have appropriate knowledge and experience. A fee is payable with the application and is not refunded, and an application without the correct fee is rejected without assessment.
Under both sets of Regulations the FCA must decide an application within three months of receiving a complete application and, where the application is incomplete, within twelve months of receiving it. The FCA allocates a case officer within a maximum of 20 working days and publishes its average times to determination separately. It also publishes the proportion of applications that were approved or registered: in 2025, 20 per cent of payment institution applications, including variations of permission, and between 40 and 45 per cent of electronic money institution applications. An application that is complete, consistent and written for the firm's own business is the applicant's best protection against the delays and refusals those figures reflect.
The EU
In the EU the same distinction applies today under the second Payment Services Directive and the second Electronic Money Directive, with authorisation from the competent authority of the member state in which the firm is established and a passport to the rest of the Union. The Commission's proposal of 28 June 2023 for a third Payment Services Directive and a Payment Services Regulation would bring electronic money services within the payment services framework, and the European Parliament and the Council reached political agreement on the texts on 27 November 2025. The new rules apply only after their publication and a transition period, and existing authorisations continue until then. We will publish a note on the new framework when the final texts are published.
How we can help
We advise on which authorisation the product requires and prepare the application, including the business plan, the capital and own-funds calculation, the safeguarding arrangements and the policies the FCA expects to see. See payment institution and EMI authorisation, or speak to us. A crypto business that needs fiat payment services should also read our note on e-money tokens and PSD2.
Sources
- The Payment Services Regulations 2017, Schedule 1 (payment services), Schedule 3 (capital) and regulation 14 (small payment institutions)
- The Electronic Money Regulations 2011, regulation 2 (definitions), regulation 13 (small electronic money institutions), regulation 32 (additional activities) and Schedule 2 (capital)
- Financial Conduct Authority, Apply to become an electronic money or a payment institution
- European Commission, Payment services (the June 2023 proposals and the agreement of 27 November 2025)
Checked 13 October 2026.