EU EMI vs. PI Licensing: Capital and Safeguarding Rules Explained

• by Crystal Jedynak
• 0 Comments

Choosing between an Electronic Money Institution (EMI) and a Payment Institution (PI) license in the EU isn’t just about paperwork-it’s about what your business can actually do, how much money you need upfront, and how much risk you’re willing to manage. If you’re building a fintech product that handles money, this decision shapes your entire roadmap. Get it wrong, and you’ll hit a wall when you try to scale. Get it right, and you unlock real growth. Most startups think they can start small with a PI license and upgrade later. That’s true-until they realize they can’t issue wallets, prepaid cards, or stored-value accounts without an EMI. And once you’re in the market, switching licenses isn’t a simple upgrade. It’s a full reapplication, new capital, and months of delays. Let’s cut through the noise. Here’s what actually matters when comparing EMI and PI licenses under EU law.

What’s the Core Difference?

The biggest distinction isn’t in the fine print-it’s in what you’re allowed to hold. A Payment Institution (PI) is a facilitator. It moves money from point A to point B. Think of it like a digital post office: it processes transfers, direct debits, card payments, and payment initiation services. But it can’t store money on behalf of customers. If you’re building a B2B invoicing tool or a marketplace that collects payments before disbursing to sellers, a PI license is enough. An Electronic Money Institution (EMI) is a digital bank. It can do everything a PI can-but it can also issue electronic money. That means holding customer funds as a balance on a digital wallet, prepaid card, or app account. Revolut, N26, and Wise all operate as EMIs because they let users store money in their apps-not just send it. If your product needs customers to keep money in their account for later use-like a travel card, loyalty wallet, or gig economy payout account-you need an EMI. No exceptions.

Capital Requirements: The Real Barrier to Entry

PIs have low entry costs. EMIs don’t. Under PSD2, a PI needs only:

• €20,000 if you only do money remittance
• €50,000 if you only offer payment initiation services
• €125,000 if you offer the full suite: account services, card payments, transfers, and more

That’s it. You don’t need to keep more than that on hand as long as your transaction volume doesn’t spike unexpectedly. The rules let you calculate ongoing capital based on overheads or risk, but the €125,000 cap is the max most startups will ever need. Now compare that to an EMI. Under EMD2, you need:

• €350,000 in initial capital-no exceptions
• Plus, ongoing own funds equal to 2% of your average outstanding electronic money

So if you issue €10 million in e-money, you need €350,000 + €200,000 = €550,000 in capital. If you scale to €100 million in e-money, you need €2.35 million. That’s not a startup budget. That’s institutional funding territory. This isn’t a typo. The EU treats electronic money like a quasi-currency. If your wallet goes down, customers expect their money back-so regulators demand you have enough to cover every euro you’ve issued.

Safeguarding Rules: It’s Not Just About Separation

Both PIs and EMIs must keep customer money separate from their own. That’s non-negotiable. But how they do it differs drastically. For PIs, safeguarding under PSD2 Article 11 means:

• Client funds must be held in segregated accounts
• They can’t be used for lending, investing, or operational expenses
• Regular audits are required, but no percentage-based calculations

Simple. Clean. Effective. For EMIs, safeguarding under EMD2 Article 7 is far more complex:

• 100% of electronic money issued must be safeguarded
• On top of that, you must hold own funds equal to 2% of outstanding e-money
• Safeguarded funds must be held with credit institutions (banks) or invested in low-risk, liquid assets like government bonds
• Starting July 2024 (under EMD3), you must reconcile safeguarded assets daily
• Weekly independent audits are now mandatory

This isn’t just compliance-it’s operational overhead. You need banking relationships, treasury management systems, and audit teams just to keep the money safe. That’s why 4.3% of EMI licenses in the UK have been revoked since 2021 for safeguarding failures-compared to just 0.8% for PIs.

Who Gets Which License? Real-World Examples

Let’s say you’re building a product: - You run a SaaS platform that lets freelancers invoice clients and get paid via bank transfer. You collect payments, hold them briefly, then pay out to the freelancer. You never let users store money in your system. → PI license. - You build a mobile app where users load money to pay for rides, meals, or subscriptions. They can top up, check balances, and use a virtual card. You’re not just moving money-you’re holding it. → EMI license. Mollie, a Dutch fintech, operates as a PI. It processes payments for 200,000+ merchants but doesn’t offer wallets. Revolut and N26 are EMIs. They let users store euros, buy crypto, and spend from balances-all because they hold electronic money. The difference isn’t just technical. It’s business model. EMIs generate 2.7x more revenue per customer than PIs, according to McKinsey, because they can offer interest on balances, foreign exchange, credit products, and loyalty programs. But they also carry 37% higher compliance costs.

Which Jurisdiction Should You Apply In?

Not all EU countries are equal when it comes to licensing. Lithuania’s Bank of Lithuania is the fastest. Applications take 5.2 months on average for PIs and 6.8 months for EMIs. Estonia and Malta are also popular for their streamlined processes. Germany and France are slower-up to 9.7 months-and more cautious. The UK, while no longer in the EU, remains a top jurisdiction for EMI licenses due to its mature regulatory framework. Costs vary too:

• UK: EMI application fee ~£5,000; PI fee £1,500-£5,000
• Germany: EMI fee €11,900; PI fee €6,150-€8,515

But don’t pick based on cost alone. If you’re targeting the Nordics, applying in Sweden or Finland might give you better market access than choosing a cheaper jurisdiction.

What Happens If You Choose Wrong?

Aevitium’s 2023 survey found that 41% of companies that started with a PI license had to reapply for an EMI within two years because they added wallet functionality. That means:

• Repaying application fees
• Scraping your compliance system
• Scrambling to raise €350,000+
• Starting the 6-9 month review process all over again

It’s expensive. It’s disruptive. And it’s completely avoidable. Ask yourself:

1. Do I need customers to store money in my app or on a card? → EMI
2. Do I only move money between accounts without holding balances? → PI

If you’re unsure, talk to a compliance advisor before you write a single line of code.

What’s Changing in 2025?

Regulators are tightening the screws. The upcoming EMD3 (effective July 2024) adds:

• Daily reconciliation of safeguarded assets
• Higher liquidity coverage ratios
• Stricter governance requirements

PSD3, expected in 2025, will standardize PI capital requirements across the EU, removing the €20,000 and €50,000 tiers. That means even small payment processors will need €125,000-closing the gap slightly. Meanwhile, stablecoins are blurring the lines. The ECB warns that some crypto-backed wallets may need both an EMI license and a MiCA license. If you’re planning to integrate crypto, prepare for layered regulation.

Final Decision Framework

You don’t need to guess. Use this:

• Choose PI if: You’re a payment processor, marketplace, or SaaS tool that moves money but never holds it. You’re bootstrapped or testing the market. You want speed and low cost.
• Choose EMI if: You’re building a digital wallet, prepaid card system, neobank, or embedded finance product. You want to earn interest, offer credit, or scale into lending. You have investor backing or a clear path to €1M+ in e-money issuance.

The EU doesn’t make it easy-but it makes it clear. Pick the license that matches your product, not your budget. Because if your product needs electronic money, no amount of PI paperwork will get you there.

Can I start as a PI and upgrade later?

Yes, but it’s costly. You’ll need to reapply for a full EMI license, raise €350,000+ in capital, rebuild your safeguarding infrastructure, and go through another 6-9 month review. Most companies that do this spend an extra €200,000-€400,000 in delays and compliance rebuilds. Plan ahead.

Do I need a physical office in the EU to get a license?

Yes. You must have a registered office in the EU member state where you apply. Remote applications aren’t accepted. Many fintechs set up virtual offices in Lithuania or Estonia for cost efficiency, but they still need a legal address, local director, and local compliance officer.

Can a PI issue prepaid cards?

Yes, but only if they don’t store value. A PI can issue a card that pulls directly from a bank account or credit line. But if the card holds a balance you load onto it-like a gift card or travel card-that’s electronic money. Only an EMI can do that.

What happens if my EMI fails?

Customer funds are protected by safeguarding rules. Your assets must be held separately and returned to users before creditors get paid. That’s why EMIs are required to hold 100% of e-money in safeguarded accounts. But if you mismanage those funds, regulators will revoke your license-and you may face criminal liability.

How long does it take to get approved?

6-9 months on average. Lithuania is fastest (5-7 months). France and Germany take longer (8-10 months). Preparation is key: 68% of applicants fail their first submission due to weak governance plans or incomplete AML systems.