There is a moment in the life of a growing marketplace, SaaS product or booking platform when someone in finance asks an uncomfortable question. Money from customers lands in the company’s account, sits there for a while, and then goes out to sellers, drivers, hosts or freelancers. Is that allowed?
In most of Europe, Singapore, the UK and a long list of other markets, the honest answer is often no, not without authorisation. Handling other people’s money on their behalf is a regulated activity, and the threshold for needing a payment institution or EMI licence is far lower than founders expect. Plenty of platforms cross it by accident while building what they think of as a purely technical feature.
Payment processing is not the same as payment technology
The confusion usually starts with a reasonable assumption: we use Stripe, so payments are handled. That is true for card acceptance. It is not always true for what happens next.
Regulators draw the line at possession and control. A company that simply redirects a customer to a licensed provider, and never touches the funds, is providing technology. A company that receives customer money into its own account, holds it, decides when it is released and then pays a third party is executing payment transactions. The second version needs a licence in most developed markets, regardless of how the code is written or which processor sits underneath.
This is where a lot of platforms drift across the line. Escrow-style holding periods, split payouts, wallet balances, in-app credits, weekly settlement runs to vendors, refunds processed from a pooled account. Each feature is added for good product reasons. Together they turn a software business into an unlicensed payment operator.
The exemption everyone quotes and few actually qualify for
Ask a marketplace founder about this and you will often hear about the commercial agent exemption. Under the EU’s Payment Services Directive, transactions from a payer to a payee through a commercial agent fall outside the rules, which sounds like it covers exactly what a marketplace does.
Read the wording and the exemption narrows fast. It applies where the agent is authorised to negotiate or conclude the sale or purchase of goods or services on behalf of only the payer or only the payee. Most marketplaces act for both sides. They set the terms, take a commission from the seller, handle the buyer’s dispute and control the payout schedule. European regulators have said clearly that platforms acting for both parties do not fall within the exclusion, and several have had to obtain licences after being told exactly that.
The limited network exclusion has the same problem. It genuinely covers closed-loop instruments such as a gift card usable only in one chain of shops. It does not cover a general-purpose wallet balance that users can spend across many independent sellers, even if the platform calls it credit rather than money.
What the licensed route actually costs
Founders often assume authorisation means bank-level capital. It usually does not. In the EU, initial capital for a payment institution depends on the services provided, starting at €20,000 for money remittance and rising to €125,000 for broader payment services. Issuing e-money, which is what a stored wallet balance generally amounts to, requires €350,000. The UK offers a small payment institution registration with no capital requirement for firms whose average monthly payment volume stays under €3 million, which suits early-stage businesses testing a model.
The recurring costs matter more than the capital. Safeguarding client funds in segregated accounts, a compliance officer, anti-money laundering procedures, transaction monitoring, audit and regulatory reporting all become permanent line items. Approval timelines of six to twelve months are normal, and the regulator will read the business plan and the technology description closely.
There is also a live reason not to wait. The EU is replacing the current framework with PSD3 and the Payment Services Regulation, which will merge e-money and payment institution authorisations into a single regime. Firms authorised under the existing rules expect transitional treatment. Firms that are still unlicensed when the new regime lands will be applying under a stricter standard.
Three options when the answer is uncomfortable
A platform that discovers it is in the wrong place has three realistic paths.
The first is to restructure the flow so the money never touches the company. Licensed processors offer split payment and connected account products designed precisely for this, and for many marketplaces it is the cheapest fix.
The second is to operate as an agent or distributor of an authorised institution. The platform keeps its product experience, the licensed partner carries the regulatory responsibility, and the arrangement is registered with the regulator. It is faster than a licence and better suited to businesses where payments support the product rather than being the product.
The third is to get authorised. That makes sense when payment margin is part of the business model, when the platform wants to issue wallets or cards, or when investors and enterprise customers expect it. It is slower and more expensive, and it also turns a compliance problem into a defensible asset.
The one option that does not work is hoping nobody asks. Banks ask during onboarding, acquirers ask during underwriting, and acquirers of the business ask during due diligence. It is a far better conversation to have while the answer is still cheap to fix.