Do I Need a Licence to Launch a Prepaid Card Company in the EU?

Prepaid Card businesses in the European Union follow the regulatory framework established under the E-Money Directive 2009/110/EC and Payment Services Directive 2 (PSD2). These directives set the standards for companies that want to issue electronic money (e.g., prepaid cards) and provide related payment services. To launch a prepaid card business, you will need an Electronic Money Institution (EMI) Licence or use a white-label card issuer who is regulated to skip the process of applying for your licence.

How to obtain an Electronic Money Institution (EMI) licence in the European Union (EU) for a prepaid card company? Here’s a step-by-step guide to obtaining an EMI licence in the EU:

Choose the Jurisdiction (EU Country)

The first step is to choose the country where you will establish your company and apply for an EMI licence. It is important to note that every EU country has its regulatory authority responsible for issuing EMI licences. You must apply in one EU member state, and once granted, the licence can be passported to operate in other EU countries.

Popular jurisdictions for obtaining an EMI licence include:

• Lithuania: A fast-growing hub for fintech and EMI licences due to lower regulatory costs and faster processing times.
• Malta: A well-established financial center with an experienced regulator.
• Luxembourg: Known for financial services, especially for larger institutions.
• Ireland: A strong reputation for financial services with access to a broad EU market.

Incorporate a company in the country where you are applying for the EMI licence. This involves:

• Registering the company with the relevant authorities.
• Defining your company’s shareholding structure, including information on the owners and controllers.
• Appointing key personnel such as directors and compliance officers.

Prepare the Business Plan and Application Documents

An EMI licence can be approved by the authorities if the business has a clear plan, and all the documents requested during the application process. Authorities will request:

A. Business Plan

Your business plan must include:

• A detailed description of your business model (e.g., issuing prepaid cards).
• The types of services/products you plan to offer.
• Your target market and projected growth.
• A financial forecast for at least 3 years.

B. Program of Operations

The program of operations should explain how you will manage your electronic money and prepaid card services, including:

• The issuing, redeeming, and management of e-money.
• A description of the technology infrastructure you will use.
• Your distribution and marketing strategy.

C. Organizational Structure

You must provide an organizational chart that outlines the roles of key personnel, especially those responsible for compliance and anti-money laundering (AML).

Key individuals must demonstrate they are “fit and proper” by having relevant experience and qualifications.

D. AML and Compliance Policies

Regulatory authorities will require robust Anti-Money Laundering (AML) and Know Your Customer (KYC) policies. This includes:

• Customer onboarding processes.
• Continuous monitoring for suspicious activities.
• Reporting procedures for suspicious transactions.

E. Risk Management Framework

You need to provide a risk management framework detailing how your company will handle operational risks, fraud, cybersecurity, and other financial risks. This ensures you can safeguard customer funds and maintain business continuity.

F. Safeguarding Arrangements

Your company must demonstrate how it will safeguard customer funds. This typically means holding customer money in separate accounts from the company’s funds or obtaining insurance/guarantees.

Meet Capital Requirements

You must meet minimum capital requirements to apply for an EMI licence in the EU. The amount of capital required depends on the size and scope of your operations:

• Initial Capital: A minimum of €350,000 in initial capital is required for most EMI applicants.
• Ongoing Capital: Your ongoing capital requirements are determined based on the volume of e-money issued and managed (typically, 2% of the average outstanding e-money).

This capital is necessary to protect customers in case of business failure and ensure financial stability.

Submit the Application to the Regulator

Submit your application, including all the required documentation, to the regulatory authority in the chosen EU country. Examples of such authorities include:

• Bank of Lithuania (for Lithuania).
• Malta Financial Services Authority (MFSA) (for Malta).
• Commission de Surveillance du Secteur Financier (CSSF) (for Luxembourg).
• Central Bank of Ireland (for Ireland).

Please note that there are other countries where you can apply. Those about are just examples.

The regulator will review the application to ensure you meet the requirements under the E-Money Directive and PSD2.

Regulatory Review and Approval

The regulatory review process can take 6 to 12 months, depending on the country and complexity of the application. During the review, the regulator may ask for clarifications or additional information.

Key areas the regulator will evaluate include:

• The adequacy of your business plan.
• The competency of your directors and key personnel.
• The strength of your AML/KYC framework.
• Your ability to safeguard customer funds.

If the regulator is satisfied that you meet all requirements, they will grant the EMI licence.

Passporting the EMI Licence (Optional)

Once you obtain the EMI licence in one EU country, you can passport it to other EU/European Economic Area (EEA) countries without having to apply for separate licences in each jurisdiction. This allows you to operate across the entire EU with a single licence.

To passport your licence:

• Notify the regulatory authority in your home country (where the licence was issued).
• The home regulator will notify the authorities in the target EU countries where you wish to operate.

Ongoing Compliance and Reporting Obligations

After obtaining the EMI licence, you must comply with ongoing regulatory obligations. These include:

• Regular reporting to the regulator (financial reporting, transaction volumes, AML reports).
• Maintaining capital adequacy as your business grows.
• Periodic audits to ensure compliance with local and EU regulations.
• Continuous monitoring and updating of your AML and risk management frameworks.