Payment institution
A payment institution is a firm authorised to provide payment services, such as money remittance or executing credit transfers, without being a bank or an e-money issuer. The category exists in EU law under PSD2 and in UK law under the Payment Services Regulations 2017.
This page explains the rules in general terms and is not legal or regulatory advice. Check the primary source and take advice on how the rules apply to your firm.
Jurisdiction: European Union: Directive (EU) 2015/2366 (PSD2), Articles 4, 7, 8 and 10 and Annex I. United Kingdom: Payment Services Regulations 2017, with authorisation by the FCA.
How it works
PSD2 (Directive (EU) 2015/2366) defines a payment institution as "a legal person that has been granted authorisation in accordance with Article 11 to provide and execute payment services throughout the Union". Annex I lists eight payment services, including money remittance, payment initiation and account information. Payment institutions cannot accept deposits and can use customer funds only for payment services.
Initial capital depends on the services. It is at least €20,000 for money remittance only, €50,000 for payment initiation and €125,000 for any of services 1 to 5 in Annex I, such as operating payment accounts and executing payment transactions. Ongoing own funds follow one of three methods; Method A sets at least 10% of the previous year's fixed overheads.
Customer funds must be safeguarded. Under PSD2 Article 10, as amended by Regulation (EU) 2024/886, funds still held at the end of the business day after receipt go into a separate account at a credit institution or, where the central bank allows it, at a central bank, or into secure, liquid, low-risk assets. In the UK the FCA authorises payment institutions; firms whose average monthly payment transactions exceed €3 million over 12 months need full authorisation rather than small payment institution registration. UK initial capital is set in euros at the same three levels.
Example
A remittance start-up plans to offer money remittance only, so under PSD2 it needs initial capital of at least €20,000. If it later adds payment accounts and card acquiring, which fall within services 1 to 5, the minimum rises to €125,000. Its own funds must also meet whichever method its regulator applies.
Frequently asked questions
Can a payment institution hold customer money overnight?
Yes, but it must safeguard it. Funds still held at the end of the business day after receipt must be segregated or invested in approved assets, and in the UK, CASS 15 adds daily reconciliations from 7 May 2026.
Is a balance at a payment institution a bank deposit?
No. Payment institutions cannot accept deposits. Customers are protected by safeguarding, which keeps their funds apart from the firm's own money.
Where Polynopsis fits
Polynopsis gives no regulatory advice. It shows a payment institution where its money is across banks, partners and wallets, in one read-only position.
Compared with
Related terms
Sources
- Directive (EU) 2015/2366 on payment services in the internal market (PSD2) · EUR-Lex, Publications Office of the European Union
- Apply to become a payment institution · Financial Conduct Authority
- The Payment Services Regulations 2017, Schedule 3 (Capital requirements) · legislation.gov.uk (The National Archives)
Know where all your money is.
Polynopsis gives cross-border payment teams one live position across every bank, payout partner, exchange and wallet, including money in flight, and warns before a corridor runs dry.
About Polynopsis
Polynopsis is liquidity management software for cross-border payment companies. The name joins poly, many, and synopsis, a seeing together: one live view of money spread across many banks, payout partners, exchanges and stablecoin wallets, including money in flight, with a warning before any corridor runs dry.
Why it is called Polynopsis · About Polynopsis · Glossary · Corridor runway calculator