Almost every payments founder we speak to arrives asking for an EMI. Some of them need one. A good number would be better served by a payment institution licence, which is cheaper, faster, and closer to what their business actually does. The two permissions overlap enough to be confused and differ enough that picking the wrong one costs you a year.
The distinction is not a technicality. It decides your capital, your safeguarding obligations, your application timeline, and whether the product you have in mind is even legal under the licence you hold.
The line between them
A payment institution moves money. It executes transfers, acquires transactions, issues payment instruments, initiates payments from a user's bank account, or aggregates account information. Funds pass through it, but they are always in transit from one party to another.
An electronic money institution does everything a payment institution does, and one thing more: it can issue electronic money. That means it can hold a customer balance as stored value, redeemable at par, sitting in a wallet or on a prepaid card until the customer decides to spend it. That balance is not a payment in flight. It is money the customer keeps with you.
If your product has a wallet, a stored balance, a prepaid card, or anything a user tops up and draws down over time, you are issuing e-money and you need an EMI. If money only ever passes through on its way somewhere else, a payment institution licence is likely enough.
What the payment institution licence covers
Under PSD2 the payment services are set out as a defined list, and you apply for the specific ones you intend to run rather than for a blanket permission. Money remittance, execution of transfers, card acquiring, issuing payment instruments, payment initiation, and account information services are all separate entries, and the regulator will authorise you for the ones you can evidence you can operate.
That granularity is useful. Initial capital scales with the services you take. Money remittance sits at the bottom, payment initiation in the middle, and the fuller execution and acquiring permissions at the top. Account information services, which only read data and never touch funds, carry no initial capital requirement at all, though professional indemnity cover is expected instead.
Several member states also run a small or registered payment institution regime for firms below a turnover threshold. It is lighter to obtain and comes with a hard ceiling on volume and no passport, so it works as a proving ground rather than a destination.
What the EMI adds, and what it costs you
The EMI permission carries a materially higher initial capital requirement, and ongoing own funds calculated against the average outstanding e-money you hold. That is the price of the balance sheet position you take when customers leave money with you.
It also sharpens the safeguarding question. A payment institution safeguards funds it happens to be holding in transit. An EMI safeguards a standing float that may sit for months, and supervisors examine that arrangement much more closely because the failure mode is customers losing balances rather than a single payment going astray. Safeguarding is where most payments firms come unstuck, and the EMI model is where the scrutiny is hardest.
Where the answer is not obvious
Two cases genuinely sit on the fence.
The first is the marketplace or platform that holds seller proceeds before payout. Whether that is a stored balance or a payment in transit turns on the contractual position and the timing, and regulators in different member states have reached different conclusions on near identical facts.
The second is anything issuing a token that customers hold and redeem. Under the EU crypto-asset regime, issuing an e-money token is reserved to authorised EMIs and credit institutions, which has pushed a number of firms that never thought of themselves as payments businesses into the EMI queue.
In both cases the answer comes from mapping the actual money flow, not from the product description.
Deciding without guessing
The practical test is simple. Draw the flow of funds, mark every point where money stops rather than moves, and ask who owns it while it is stationary. If the customer does, and can ask for it back at any time, you are looking at e-money.
Over-licensing is a real cost, not a safe default. An EMI you do not need means more capital tied up, a longer application, and a supervisor expecting a control environment built for a product you do not run. Under-licensing is worse, because it is discovered by an enforcement team rather than by you.
BrokLicense licenses both electronic money institutions and payment institutions, by new application or by acquiring an authorised entity, in the jurisdictions we cover. The right permission falls out of the flow of funds, so the place to start is to describe how money moves through your product.