Small Payment Institution Licence

Small payment institution licence - what is it and how to obtain it?

The BitClude exchange was the first in Poland to obtain a Small Payment Institution Licence, but what is an MIP, what does it mean for customers, and where did the legislators get the idea to introduce this type of regulation?

Small Payment Institution, is a legal solution implemented in connection with the implementation of the EU directive PSD2 (Payment Services Directive 2). What has the new law brought to citizens?

PSD2 regulation - change in payments and increase in consumer security

On 14 September 2019, the directive regulating payment markets came into force, introducing a single payments market across the European Union, Norway, Liechtenstein and Iceland. One of the advantages of the solution, was to simplify and unify the introduction of advanced electronic payment solutions by startups and smaller businesses.

With the advent of PSD2, one-time passwords are no longer an acceptable form of authentication for online banking - instead, banks and financial institutions have been pushed to implement two-step login methods (using 2FA, or an SMS code), increasingly also using consumer biometrics - a fingerprint, or iris scan.

There are, of course, exceptions to the strong rule of secure login - cyclic payments and purchases made in high-trust shops, i.e. in shops which we use regularly, are exempt from each verification.

In practice, verification of payment with PIN is reset every sixth transaction with purchases exceeding established thresholds (usually 50 and 100 PLN), which means that smaller transactions do not need to be verified.

New entities introduced by PSD2

The directive has allowed the creation of completely new entities, i.e:

  • AIS (Account Information Service) - services that give the user the ability to check their finances collectively from different platforms;
  • PIS (Payment Initiation Service) - services that allow payments to be made on behalf of the user (from their bank account). In practice, PIS made it possible to pay for city tickets or small services through non-bank institutions.

Small Payment Institution Licence - Polish amendment in connection with PSD2

In response to legal progress initiated by the EU, Poland introduced the MIP, i.e. an entity that is a natural person, a legal person or an organisational unit that is not a legal person, has legal capacity according to the law and is entered in the register of payment service providers and electronic money issuers, which conducts the activity of payment services, but other than the initiation of payments or access to bank account information.

MIP became an opportunity for entrepreneurs who wanted to operate in a broader - national perspective (with a National Payment Institution licence), but were unsure if they could cope with the requirements imposed by the regulator.

Testing its capabilities as a MIP, creates a sandbox for all kinds of Fin-Tech start-ups for which the KIP licence is too big an undertaking and who would like to base their business on the scope of payment services.

How to obtain a Small Payment Institution licence?

The commencement of operations with a MIP Licence requires entry in the register of payment service providers and electronic money issuers kept by the PFSA, which does not require authorisation from the PFSA. Legalization of the MIP Licence is deemed to be the date of entry in the register of the Financial Supervision Authority.

The MIP authorises a company to carry out activities limited to the territory of the Republic of Poland. The average amount of transactions carried out in a 12-month period may not exceed EUR 1 500 000 per month.

What are the competences of a Small Payment Institution?

MIPs are allowed to provide almost all payment services, except those based on access to bank accounts, i.e. the mentioned PIS and AIS. What can Small Payment Institutions do?

  • Operation of payment accounts, safekeeping of funds accepted from and for users, in the context of the execution of payment transactions;
  • Execution of money transfers, i.e. transfers and direct debits;
  • Accepting payments - not only by card but also by pay-by-link (PBL) based payment gateways;
  • Crediting of payment transactions;
  • Execution of remittances;
  • Performing currency exchange for the purpose of the transactions being carried out.