Most of the advice you’ll find online about PayFac is written from a US perspective. In the US, the path involves registering with card networks through a sponsoring bank. It’s a large project, but the regulatory burden is relatively straightforward compared to Europe.
In Europe, platforms offering PayFac-like experiences often operate either under their own PI/EMI licence, through a licensed payments partner, or via sponsorship/acquiring relationships with regulated providers. This means you are applying for authorisation from a national regulator, such as the Dutch Central Bank (DNB), or BaFin in Germany.
This is an ambitious undertaking for a software company. Here’s what you’re actually signing up for:
Regulatory requirements
In Europe, the regulatory landscape is different and more demanding:
EU payment services regulation, currently under PSD2 and evolving through PSD3 and the proposed Payment Services Regulation, governs payment services across the EU.
EMD2 applies if you’re issuing or storing electronic money, such as wallet balances or stored-value accounts.
Passporting lets you extend a licence obtained in one EU country across the bloc, but it’s not automatic and comes with additional requirements.
Local payment method complexity means you’re not just processing cards. iDEAL in the Netherlands, Bancontact in Belgium, SEPA Direct Debit, Klarna, and dozens of others all need to be supported if you want to serve European merchants properly.
SCA (Strong Customer Authentication) requirements add technical complexity to every transaction flow.
Legal costs
You’ll need specialised legal counsel to navigate the application. We’ve seen platforms spend between €200,000 and €500,000 just to get through the door. Then there are the capital requirements. An EMI licence typically requires a minimum initial capital of €350,000, and you’ll need to maintain ongoing capital levels tied to your transaction volume.
The 12-24 month timeline
In most European jurisdictions, the timeline from starting an application to receiving approval is 12 to 24 months. During this time, your payment strategy is essentially on ice. You may not be able to launch your intended operating model until regulatory approvals and partner arrangements are in place.
Compliance and operations
You become a regulated financial entity. This means you need a dedicated compliance officer, robust anti-money laundering (AML) programmes, and transaction monitoring systems. You have to handle suspicious activity reporting and ensure you meet the strict requirements of Strong Customer Authentication (SCA).
Opportunity cost
This is the hidden killer. Every engineer you have building a proprietary settlement engine or a KYC dashboard is an engineer who isn’t building your core product. For a scaling SaaS company, the biggest risk is that your competitors will out-innovate your core features while you’re busy learning the nuances of regulatory reporting.
The regulatory bar in Europe is high, the landscape is fragmented, and the local payment method ecosystem is complex. For most European platforms, the smarter move is finding an experienced payments partner who has already solved these problems.
