Why a Small Payment license is a good option to start a remittance business in the EEA?

December 6, 2023
Why a Small Payment license is a good option to start a remittance business in the EEA?

Embarking on the journey of establishing a remittance business may seem overwhelming, considering the myriad factors involved. Critical considerations include the type of remittance business you intend to start, the remittance processing methods you’ll adopt, and the regulatory landscape that governs your industry. Amidst these considerations, one aspect often overlooked is the importance of obtaining the right license for your venture. In this discussion, we delve into the advantages of the Small Payment License and why it could be the optimal choice for your business.

The European Economic Area (EEA) has long been a hub for economic activities, and with the rise of digital remittances, the region offers a fertile ground for entrepreneurs looking to venture into the remittance industry. One avenue that has gained prominence is obtaining a Small Payment License. In this article, we explore why a Small Payment License can be a strategic and advantageous choice for those looking to start a remittance business in the EEA.

Lower Entry Barriers:

One of the most compelling reasons to opt for a Small Payment License is the lower entry barriers compared to full banking licenses. Obtaining a banking license can be a complex and resource-intensive process, often requiring a significant amount of capital, infrastructure, and compliance measures. In contrast, a Small Payment License allows startups to enter the remittance industry with relatively fewer regulatory hurdles.

Targeted Market Niche:

Small Payment Licenses are well-suited for businesses targeting specific market niches or demographic segments. By tailoring services to meet the needs of a particular audience, startups can differentiate themselves and create a niche presence within the competitive remittance landscape. This targeted approach can lead to stronger customer loyalty and trust, essential factors for long-term success in the remittance industry.

Choosing a Payment Service Provider:

When contemplating a remittance business, securing a Small Payment Institution (SPI) or Small E-Money Institution (SEMI) license within the European Economic Area (EEA) emerges as a more straightforward process compared to acquiring a full-fledged Payment Institution (PI) or E-Money Institution (EMI) authorization.

The distinctive features of SPI and SEMI licenses include a lower initial capital requirement, simplified documentation, and less stringent local team prerequisites. The entire licensing process typically takes between 3 to 6 months, a significantly shorter timeframe compared to the 12 to 24 months required for an EMI or PI license.

However, it’s essential to note certain limitations, such as passport restrictions restricting service delivery to the registered location. Moreover, there’s a transfer volume capβ€”monthly remittance operations must not exceed €3 million on average over the past 12 months. While the licensing process is streamlined, it may not suit businesses with intricate situations or those dealing with cash transactions.

Financial Prospects and Business Expansion:

For entrepreneurs eyeing the Fintech realm, a quick financial assessment reveals that, after covering all expenses and corresponding accounts, businesses under this model might generate up to €35,000 per month. This licensing strategy often serves as a testing ground for local markets before contemplating European expansion.

Spain’s Unique Position:

Comparing Spain’s SPI licenses with those of other EU countries, Spain stands out for its welcoming environment. Unlike other jurisdictions, Spain does not impose remittance volume restrictions after reaching the €3 million threshold. While some limitations exist in terms of cross-border remittances, cash transactions, and anti-money laundering (AML) regulations, Spain provides an attractive intermediary solution for testing business models.

Application Process and Duration:

The application process in Spain typically takes 6 to 12 months, a relatively shorter duration compared to the 12 to 24 months required in other European countries. Spain’s regulatory sandbox, overseen by the Bank of Spain, covers various business needs related to remittance instruments, remittance cards, and diverse financial operations.

Scaling Opportunities:

While the Small Payment License serves as an excellent entry point into the remittance business, entrepreneurs should view it as a stepping stone. After establishing a foothold and understanding the market dynamics, consideration for more sophisticated remittance processing licenses becomes imperative for scaling operations.

Navigating Passport Limitations:

The restriction on actively selling services only at the location of registration, coupled with passport limitations, underscores the need for strategic planning. Businesses contemplating serving clients across different EU countries may find these constraints limiting, pushing them to explore alternative licensing strategies for broader geographical reach.

Faster Time-to-Market:

The application process for a Small Payment License is generally quicker compared to obtaining a full banking license. This faster regulatory approval allows entrepreneurs to bring their remittance services to market swiftly, capitalizing on market demand and gaining a competitive edge. For startups aiming to establish themselves as early players in the dynamic remittances landscape, a Small Payment License provides a crucial advantage in terms of speed.

In conclusion, the Small Payment License presents an enticing opportunity for entrepreneurs looking to venture into the remittance business in the EEA. While it comes with its set of limitations, the advantages, particularly in terms of a streamlined application process, lower initial capital requirements, and quicker market entry, make it a strategic choice for those looking to test the waters before diving into more complex and expansive operations. Whether you choose Spain or another EEA country, understanding the nuances of the Small Payment License can be the key to unlocking success in the dynamic world of Fintech.

If you are considering FCA licensing services, visit Eli-UK for more information.

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