What is a Payment Institution?
‘’Payment institution’’ means a legal person who has obtained and retains authorization by the Cyprus Central Bank or by the competent authorities of another Member State to provide payment services.
The term “Payment Institution” refers to a category of payment service providers which came into being as a result of the enactment of the Payment Services Directive (PSD). The five main objectives of the PSD were to:
- achieve a single payment market in the EU;
- provide the regulatory framework for a single payment market;
- create a level playing field and enhancing competition;
- ensure consistent consumer protection and improving transparency; and
Create the potential for more efficiency of EU payment systems.
- The Directive, therefore, aimed to remove legal barriers to the provision of payment services in the EU, to allow citizens and businesses to make all kinds of payment easily, safely, timely and cost-efficiently, and to open the market to new entrants such as payment institutions. It established a set of specific rules for all payment service providers, including banks and payment institutions.
What are payment institutions allowed to do?
The new category of payment institutions can offer their customers the following services:
- Executing payment transactions (including credit transfers, direct debits, through payment cards or a similar device);
- Issuing and/or acquiring of payment instruments;
- Money remittance;
- Ancillary services;
- Credit can be granted for a maximum of 12 months if this credit is closely linked to a payment service provided.
The PSD is currently being reviewed, and the list of activities the Payment Institutions can carry is expected to increase (to include for example Payment Initiation Services).
Our Tornaritis Law firm can advise you also on the introduction of the Payment Services Directive II (PSD2) will open up the payment services market by regulating the FinTech revolution currently happening on a community level. The EU-wide harmonisation of online payments is aimed at increasing the security for payment transactions and account information and creating a level playing field to enhance competition.
What is the difference between a payment institution and an e-money institution?
Both EMIs and PIs are regulated by the same authority, the Central Bank of Cyprus;
Both PIs and EMIs can provide payment services.
The main difference between the two types of payment service providers is that only e-money institutions can issue electronic money. E-money is a digital equivalent of cash stored on an electronic device or remotely at a server.
Services allowed by PIs:
- Services enabling cash to be placed on a payments account as well as all the operations required for operating a payment account.
- Services are enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account.
- Execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider:
- Execution of direct debits, including one-off direct debits.
- Execution of payment transactions through a payment card or a similar device.
- Execution of credit transfers, including standard orders.
- Execution of payment transactions where the funds are covered by a credit line for a payment service user:
- Execution of direct debits, including one-off direct debits.
- Execution of payment transactions through a payment card or a similar device.
- Execution of credit transfers, including standard orders.
- Issuing and/or acquiring of payment instruments.
- Money Remittance.
- Execution of payment transactions where the consent of the payer to execute a payment transaction is given by means of any
telecommunication, digital or IT device and the payment is made to the telecommunication, IT system or network operator, acting only as an intermediary between the payment service user and the supplier of the good and services.
Capital requirements:
- €20.000 where it intends to provide the payment service in point 6 above.
- €50.000 where it intends to provide the payment service in point 7 above.
- €125.000 where it intends to provide the payment services in point 1‐5 above.
Authorization Process:
In order for a legal person to apply for an authorization to the Central Bank of Cyprus, for operating as a Payment Institution, it must be incorporated and its head office must be in Cyprus. Also, the legal person must submit an application to the CBC with the information and documents prescribed in paragraph 3 of the Payment Institutions and Access to the Payment Systems Directive of 2009 and Payment Services Directive II (PSD2) issued by the CBC by virtue of the powers vested in it under the Law. CBC also defines, among other things the following information:The amount of the initial capital and the amount of own funds that payment institutions must maintain
- The methods for safeguarding the funds received by payment institutions
- The delegation of operational functions to third parties
- The exercise of the freedom of establishment and the freedom to provide services in another EU member State
- The criteria which an agent of a payment institution must fulfil in order to be listed in the public register maintained by the CBC
How can Tornaritis Law help?
- Assistance in the preparation and submission of the licence application to the CBC for the authorisation as a Payment Institution
- Assistance on the Manuals Preparation
- Assistance and review the questionnaires
- Assistance in the preparation of the company’s business plan, in accordance with the relevant directive.
- Assistance in the preparation of the company’s Operational Procedure Manual, in accordance with the relevant directive.
- Assistance on the Payment Services Directive II and (PSD2)
- Appointment of Cypriot tax resident directors for the licensing period, so that the company can be considered as Cyprus tax resident.
- We offer accounting and Audit
- Bank Introductions
- In general we will offer you a full turn key solution until your Payment Institution company is registered.
NOTE: References to time and cost included in this document refer to those applicable at the time of preparation of this document.
DISCLAIMER: The information available on this document is intended as a guide only and every reasonable effort shall be made to ensure the accuracy and the timeliness of the information. In no circumstances shall Tornaritis Law be legally bound by any information contained in this document, and shall accept no liability whatsoever in respect of loss caused by reliance on such information.