Issuing payment cards seems like a straightforward business venture, but there's a whole legal labyrinth to navigate before you can even start. This article outlines the key regulations, licenses, and compliance hurdles you'll encounter when launching a card issuing program.
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The Three Pillars of Payment Operations
There are three main categories of rules that impact your ability to open accounts, issue cards, and process payments:
Legal Requirements: Every country has its own set of licensing requirements for payment activities. You'll likely need a license like EMI (Electronic Money Institution) or Payment Institution depending on your location and business model. These licenses come with operational requirements like:
Regulatory requirements in the areas of security, Know Your Customer, AML, liquidity operations, organizational structure etc.
Audits performed by regulator
Risk of penalties for both the company and sometimes persons involved in payment companies
Outsourcing activities compliance
Local laws that forbid processing customer or transaction data outside of the country
etc.
AML/KYC Requirements: AML and KYC are crucial parts of legal requirements, but deserve special mention due to their operational impact. These rules aim to prevent money laundering and terrorist financing by ensuring you thoroughly verify your customers' identities. This typically involves collecting documents like passports, selfies, and proof of address.
Payment Scheme Rules: Payment networks like Mastercard and Visa have their own set of regulations for their partners. These rules often overlap with legal requirements but can have additional specifics. Here are some key points to remember:
Geographic Restrictions: Your license might limit you to issuing cards within a specific region. Expanding beyond that might require additional approvals from the payment scheme.
Sanctions Compliance: You'll need to screen users and beneficiaries against international sanction lists like OFAC.
Technical Requirements: Payment networks may have technical specifications you need to follow for your systems to function properly.
Mandates: Be prepared to update your systems to comply with upcoming regulations from the payment network.
Common Pain Points in Card Issuing
Here are some frequently encountered challenges when dealing with regulations and licenses:
Issuing Cards for Non-EU Citizens: It's generally possible, but your business needs to be primarily EU-focused, and your users must reside or have a business presence in the EU.
User Onboarding Documentation: The minimum requirement is usually a selfie and an international passport, but additional documents might be necessary depending on the specific case.
Why Strict Payment Regualtions Exist
Following a strict set of regulations might seem like a hassle, but these rules serve a vital purpose: protecting your customers' money and minimizing the risk of illegal activities. By complying with these requirements, you contribute to a safer and more secure financial ecosystem for everyone.
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