When do you need a small-scale payment service provider registration in Czechia?

If you're launching a fintech business or payment service in the Czech Republic, you need to understand exactly when the Czech National Bank (CNB) requires you to obtain a small-scale payment service provider registration. This article provides specific answers to the key questions every entrepreneur faces regarding business activities, thresholds, and risks.

Understanding payment services regulation in the Czech Republic

The Czech financial sector operates under a tightly regulated framework designed to protect consumers and maintain market stability. At the center of this system stands the Czech National Bank (CNB), which serves as the sole supervisory authority for all payment service providers. The regulatory foundation rests on Act No. 370/2017 Coll., on Payment Systems, which defines which activities require licensing.

When you decide to provide payment services as a business activity in the Czech Republic, you cannot simply launch your operations. The law is explicit on this point: only persons holding the appropriate registration or authorization from the CNB may legally provide payment services. This fundamental principle shapes every strategic decision you'll make about your business structure and services.

Many entrepreneurs underestimate the complexity of this requirement, assuming they can start small and worry about licensing later. In reality, the licensing obligation is triggered much earlier than most expect, often before you've processed your first customer payment.

ARROWS Law Firm regularly advises foreign and domestic companies on payment service licensing. The lawyers at ARROWS Law Firm have guided dozens of fintech startups through this process. Understanding precisely when you need a registration requires careful analysis of your specific business model against the statutory definitions.

What activities trigger the need for a small-scale payment service provider registration?

The Czech legal framework distinguishes between different categories of payment service providers based on the nature of their activities and transaction volumes. If you're considering launching a payment service business, the first critical step is determining whether your planned activities constitute "payment services" under the law.

Under the Payment System Act, payment services encompass several primary categories of activities suitable for small-scale providers. The first includes enabling cash to be deposited into or withdrawn from a payment account that you maintain.

The second category covers the transfer of funds from a payment account initiated by a customer's payment order. This essentially covers any payment transaction you facilitate between parties.

Third, payment services include issuing and managing payment instruments such as payment cards or similar devices that customers use to initiate transactions. Fourth, money remittance services fall squarely within this definition, covering situations where neither the payer nor the payee holds an account with you.

It is crucial to note that certain specialized services are explicitly excluded from the small-scale regime. Indirect payment order services (Payment Initiation Services or PIS) and account information services (AIS) require a full Payment Institution license regardless of volume. A small-scale provider is not legally permitted to offer PIS or AIS.

The practical implication of these broad definitions is that virtually any fintech platform involving money movement triggers licensing requirements. This includes digital wallets, payment gateways, B2B payment solutions, and payment applications facilitating peer-to-peer transfers.

What makes this genuinely complex in practice is that borderline cases exist. Some business models don't obviously fit into any single category, or they combine elements that fall under different licensing regimes.

A platform that currently handles only small transaction volumes might not need licensing today but will exceed thresholds within a year or two. ARROWS Law Firm's lawyers regularly encounter situations where entrepreneurs have designed their business incorrectly. This often leads to discovering violations of the Payment System Act when approaching investors.

MicroFAQ

1. Does my peer-to-peer payment app require a license?
Yes, if your app enables users to transfer funds to each other and your company holds those funds in any form—even temporarily—this qualifies as money remittance or payment account management. Both activities require either a small-scale payment service provider registration or a full payment institution license, depending on your transaction volumes.

2. What if I use a third-party processor and never touch customer funds directly?
The fact that a third-party bank or payment processor holds the actual funds does not exempt you from licensing in all cases. If you are the entity customers interact with—the entity they authorize to initiate transactions or whose platform they use to transfer value—you may be functionally providing payment services and require authorization.

3. Can I provide currency exchange services without a license?
Currency exchange services fall within the definition of payment services under Czech law if they involve payment transactions. If your platform enables customers to exchange one currency for another and you're involved in executing that transaction, you likely need licensing.

The critical threshold: understanding transaction volume limits

The most important distinction between a Small-Scale Payment Service Provider (PPSMR) and a Payment Institution (PI) is the transaction volume threshold. Understanding this boundary is crucial because it determines not only which license type you need but also whether licensing is required at all.

For small-scale payment service providers, the law imposes a strict upper limit on the volume of payment transactions you may handle. Specifically, the monthly average of your payment transaction amounts over any rolling twelve-month period cannot exceed €3,000,000. This translates to a maximum of approximately €36 million in total transaction volume per year.

This volume calculation requires careful attention because the CNB measures it on a rolling basis. You don't simply look at calendar years; instead, regulators examine the average of your monthly transaction volumes over the immediately preceding twelve consecutive months.

For newly established companies without a historical operating record, the CNB applies these thresholds differently. The regulator bases its assessment on the financial projections and transaction volume forecasts you provide in your business plan. This is why the business plan constitutes perhaps the most critical document in your licensing application.

If your projections overestimate your transaction volumes, you may find yourself licensed as a small-scale provider when your actual growth trajectory puts you over the threshold within your first operating year. Conversely, if you underestimate volumes, you'll need to apply for license amendments sooner than anticipated.

What complicates this further in practice is that the threshold encompasses all payment transactions you execute. All transaction volumes aggregate toward the single €36 million annual ceiling, regardless of whether they involve electronic money or traditional transfers.

Additionally, if you are also a Small-Scale Electronic Money Issuer, you face separate volume caps. The average outstanding electronic money in circulation cannot exceed €5 million at any time. These are distinct limits that apply simultaneously, requiring careful monitoring of both metrics.

MicroFAQ

1. How do I calculate whether my transaction volumes exceed the threshold?
The CNB measures the average monthly transaction volume over the preceding twelve months. Take all payment transactions you've executed in the past twelve months, divide by twelve, and if the monthly average exceeds €3 million, you either require a full payment institution license or cannot continue operating under the small-scale regime.

2. What happens if I exceed the threshold?
Exceeding the €36 million annual limit without holding a full payment institution license constitutes a violation of the Payment System Act. The CNB can impose substantial administrative fines and require you to cease operations immediately. You cannot simply continue operating and apply for a full license retroactively without addressing the breach.

3. If I exceed the threshold, must I immediately obtain a full license?
Yes, technically you must cease operating in the small-scale regime once you exceed the threshold or apply for a full license without undue delay. In practice, you should apply for a full payment institution license before you anticipate reaching the threshold, as full license applications take nine to twelve months to process.

Which business models require small-scale payment service provider registration?

To determine definitively whether you need a small-scale payment service provider registration, you must examine your specific business model against the statutory framework. Several categories of payment service providers regularly require this authorization, though the analysis is not always straightforward.

If your business enables customers to deposit cash into payment accounts that you maintain, you require licensing. This applies whether you're operating a traditional merchant acquiring operation or a newer digital wallet where customers can load funds via bank transfers.

Similarly, if you provide cash withdrawal services—allowing customers to withdraw money they've stored with you—licensing is mandatory. These two services form the backbone of traditional payment processor operations and are universally subject to licensing.

Money remittance services constitute another category triggering licensing requirements. Money remittance occurs when a customer gives you funds to transfer to a third party who does not hold an account with you. This covers traditional wire transfer operations and modern international remittance platforms.

The fact that you're connecting individuals without requiring them to hold accounts with your entity does not exempt you from licensing. Even in-country peer-to-peer transfer services often require authorization if they facilitate the movement of funds between parties.

Payment gateway operators and payment processors require licensing if they perform certain functions. If you process payments on behalf of merchants, handling the authorization and settlement of transactions, you're providing payment services subject to licensing.

However, if you operate purely as a technical facilitator without handling funds or the payment authorization process itself, the analysis becomes more complex. ARROWS Law Firm's lawyers frequently advise companies on whether their particular processing infrastructure triggers licensing.

Business-to-business (B2B) and peer-to-peer (P2P) payment applications typically require licensing if you hold any portion of customer funds. If you act as an intermediary—collecting funds from payers before transmitting them to payees—you require authorization.

Providers of mobile payment solutions require licensing if they hold customer funds or execute payment transactions. A mobile payment service where customers store funds or initiate transfers typically requires either a small-scale registration or full payment institution licensing.

Marketplace platforms and crowdfunding services warrant careful examination. If your marketplace holds customer funds in escrow before releasing them to sellers, you're engaging in payment intermediation requiring licensing.

The complexity arises because some business models incorporate elements of multiple categories. A fintech platform might combine money remittance, payment account management, and payment card issuance. Each component is separately subject to licensing.

Operating without proper authorization: legal consequences and enforcement

The penalties for operating payment services without the required licensing are severe and multifaceted. Understanding the consequences of non-compliance is essential, not only to motivate compliance but to grasp why regulators take this issue extraordinarily seriously.

The Czech National Bank possesses broad enforcement authority under the Payment System Act. If the CNB discovers that your company is providing payment services without proper licensing, it can impose substantial administrative fines. For providing payment services without a license, the maximum fine under the Payment System Act is CZK 10,000,000.

Beyond administrative fines, operating payment services without authorization can constitute criminal conduct under the Czech Criminal Code. Section 251 addresses "unauthorized business activity," applying when a person provides services without required authorization.

The basic offense carries imprisonment for up to two years or disqualification from business activities. If the unauthorized business causes significant damage or generates significant benefit for the perpetrator, imprisonment increases to six months to five years.

What makes this criminal exposure particularly significant is that it applies to company officers and responsible individuals. If your company is operating payment services illegally and you directed this conduct, you face personal criminal liability.

The CNB also possesses extraordinary administrative powers beyond fine-imposition. The regulator can issue orders requiring your company to cease specified activities immediately. Failure to comply with a CNB order constitutes an independent violation subject to additional fines.

Enforcement actions don't occur in isolation. When the CNB initiates proceedings against an unlicensed payment services provider, it simultaneously notifies your banking partners and potentially your customers.

Your company's bank accounts may be frozen pending investigation. Payment processors typically terminate their relationships with you immediately upon receiving regulatory notification. Customer notification creates reputational damage that persists long after penalties are resolved.

Additionally, anti-money laundering (AML) violations frequently accompany unlicensed payment services operations. If you're handling customer funds without proper authorization, you're almost certainly not implementing the required AML/CFT compliance procedures.

Risks and sanctions	How ARROWS helps (office@arws.cz)
Operating payment services without licensing: CNB administrative fines up to CZK 10,000,000 for unauthorized business, plus potential AML fines.	ARROWS Law Firm evaluates your business model, determines applicable licensing requirements, and prepares comprehensive applications.
Criminal liability under Section 251 of the Criminal Code: Personal imprisonment of business officers up to two to eight years and criminal records.	The lawyers at ARROWS provide representation in criminal proceedings related to unauthorized payment services.
AML/CFT violations through Financial Analytical Office: Separate fines up to millions of CZK and mandatory suspicious activity reporting obligations.	ARROWS designs and implements mandatory anti-money laundering procedures and customer due diligence systems.
Banking relationship termination and account freezing: Payment processors and banks terminate relationships with unlicensed providers, freezing accounts.	ARROWS Law Firm prepares documentation demonstrating compliance and manages communication with financial institutions.
Reputational damage and customer loss: Regulatory enforcement actions become public through CNB registers and news media.	ARROWS Law Firm manages CNB communications, handles regulatory inquiries, and coordinates responses.

What documentation and capital requirements apply to small-scale payment service provider registration?

Once you've determined that your business model requires a small-scale payment service provider registration, you must prepare a comprehensive application package. The documentation requirements are extensive, and the CNB reviews applications with extraordinary scrutiny.

Critically, small-scale payment service providers are not subject to the high statutory minimum capital requirements imposed on full payment institutions. Small-scale payment service providers, by contrast, face no statutory minimum capital requirement under the Payment System Act.

However, the absence of a statutory minimum capital requirement does not mean you can launch with no capital. The CNB evaluates whether your financial resources are adequate for your planned operations.

Your business plan must include realistic financial projections demonstrating that you possess sufficient capital to absorb startup losses. Demonstrating capital adequacy requires providing bank statements proving the legal origin of those funds.

The business plan constitutes the centerpiece of your licensing application. This document must comprehensively describe your business model, target market, anticipated transaction volumes, and operational strategy.

Many applications fail at the business plan stage because entrepreneurs underestimate the document's importance. The CNB wants to understand strictly how you will generate revenue and what customer acquisition costs you anticipate. If your business plan cannot survive critical examination, the CNB will reject your application.

Beyond the business plan, you must provide organizational documentation establishing your company as a legal entity. Small-scale payment service providers must be legal entities incorporated in the Czech Republic, and the CNB expects substantive business operations from Czech territory.

You must provide detailed internal regulations covering multiple compliance areas. These include a management and control system describing your governance structure and comprehensive Anti-Money Laundering (AML) policies.

Personal documentation for all management and beneficial ownership requires substantial information. For each director and manager, you must provide current passports, proof of address, and criminal record extracts from both the Czech Republic and their country of residence.

This personal documentation requirement creates genuine practical complexity, particularly if your company has international shareholders. ARROWS Law Firm's lawyers regularly coordinate this documentation process with international clients, managing the logistics of obtaining foreign records.

You must also provide proof of funds demonstrating the legal origin of any capital you're depositing with the company. The CNB operates under AML obligations requiring verification that capital sources are legitimate.

MicroFAQ 

1. Can I submit my business plan in English, or must everything be in Czech?
The CNB requires all application documentation in Czech. While some documents can be submitted in English if they're official documents like passports, your business plan, internal policies, and compliance procedures must be in Czech. This requires professional translation or Czech legal drafting, both time-consuming processes that you should budget for accordingly.

2. How far back must criminal record extracts reach?
The CNB requires criminal record extracts typically covering the preceding ten years from all jurisdictions where individuals have resided. Extracts must be certified and official documents; informal "statements of non-conviction" do not satisfy requirements. If you've moved frequently, you'll need extracts from multiple jurisdictions.

3. Can I use template policies from the internet for my AML/CFT compliance procedures?
Template policies exist online, but they create serious problems. Generic policies do not address your specific business model, cannot explain how your particular operations create money laundering risks, and demonstrate to the CNB that you haven't conducted genuine compliance analysis. 

The application process and timeline: understanding CNB procedures

Once you've prepared your documentation, you must navigate the formal licensing application process with the CNB. Understanding the procedural timeline and requirements helps you manage realistic expectations and avoid common mistakes that derail applications.

Applications must be submitted electronically via either the CNB's secure data box or by email with a recognized electronic signature. The CNB's website provides templates specifically designed for small-scale payment service provider applications, and using these forms is mandatory.

At the time of submission, you must pay an administrative fee. For small-scale payment service provider applications, the fee is CZK 10,000, which is non-refundable regardless of whether the CNB approves or rejects your application.

The statutory deadline for the CNB to issue a decision is one month from the date of receiving a complete application. In practice, however, the application is rarely deemed "complete" upon first submission. If the CNB requires additional information, your submission deadline pauses until you resubmit requested materials.

In practice, the total timeline from initial submission to final approval frequently extends beyond the statutory one-month period. Applications requiring multiple CNB information requests or modifications typically extend to three to six months.

The CNB may conduct on-site inspections of your proposed operations before granting approval. If the regulator decides to visit, expect a detailed examination of your office space, IT infrastructure, and compliance systems.

Throughout the application process, communication with the CNB must be professional and responsive. The lawyers at ARROWS Law Firm manage all CNB communication for their clients, drafting responses and gathering requested materials. This professional coordination significantly accelerates the process while reducing miscommunication risks.

Once the CNB issues an approval decision, your company is entered into the public register of payment service providers. Only from the moment of entry in this register are you legally authorized to commence providing payment services.

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Limitations and restrictions affecting small-scale payment service provider operations

Small-scale payment service provider registration grants important authorization to provide payment services, but this status comes with critical restrictions. These limitations may profoundly affect your business strategy and expansion plans.

The first and most significant restriction is geographical scope. A small-scale payment service provider registration is valid exclusively for operations within the Czech Republic. You cannot use this license to offer services to customers in other EU member states.

The practical implication is that your business model must be designed around a Czech-focused market. If your long-term strategy involves expanding into other EU markets, the small-scale license is only a transitional step.

The second major restriction concerns the transaction volume threshold discussed earlier. You cannot exceed the €36 million annual transaction volume ceiling without violating your license conditions. Exceeding it without holding a full payment institution license constitutes a violation subject to fines.

Third, as mentioned, some payment services are entirely prohibited for small-scale providers. You cannot provide indirect payment order services (PIS) or account information services (AIS) under a small-scale registration.

Fourth, small-scale providers must comply with all ongoing regulatory obligations despite their smaller scale. You must maintain the same AML/CFT compliance procedures and risk management systems required of full payment institutions.

Fifth, you must maintain a physical office with substantive operations in the Czech Republic. The CNB expects that at least part of your business is genuinely managed from Czech territory.

Finally, the CNB retains broad supervisory authority over your operations. The regulator can conduct inspections, demand information, and revoke your registration if you materially breach licensing conditions.

Executive summary for management

Payment services licensing in the Czech Republic is not voluntary—it is triggered by the nature of your business activities. If you enable customers to deposit or withdraw funds, initiate payments, or transfer value, licensing is required. The CNB enforces this requirement actively, and operating without proper authorization results in severe penalties.

The €36 million annual transaction volume ceiling separates small-scale providers from full payment institutions. Exceeding this threshold without proper licensing is a material violation. Understanding whether your business will exceed this threshold within your first 24 months is essential to selecting the correct licensing path.

Preparing a CNB application typically requires 1-2 months of intensive work, and the review period frequently extends to 3-6 months. Complete failure to secure funding or licensing delays creates severe business timeline disruption.

Obtaining a registration is the beginning, not the end, of regulatory obligations. Small-scale providers must maintain AML/CFT compliance systems, file reports, and submit to CNB inspections. Material compliance breaches trigger fines and potential license revocation.

The rules governing payment services licensing appear straightforward on paper but contain numerous exceptions. The lawyers at ARROWS Law Firm handle this licensing regularly and understand the CNB's expectations and approval criteria. Engaging professional representation reduces application timeline risk and prevents compliance failures.

Conclusion of the article

Determining whether you need a small-scale payment service provider registration in the Czech Republic requires precise analysis of your specific business model. The CNB takes licensing requirements seriously, and the consequences of operating without authorization are severe.

The good news is that Czech licensing frameworks are clear and predictable when properly understood. Small-scale payment service provider registration provides an accessible pathway for entrepreneurs to enter the Czech payments market with minimal capital requirements.

The lawyers at ARROWS Law Firm regularly advise companies on payment services licensing, representing clients throughout Czech Republic applications. ARROWS Law Firm's lawyers combine in-depth understanding of Czech payment regulation with experience handling cross-border cases.

If you're planning to launch payment services in the Czech Republic and need clarity on licensing, contact office@arws.cz for an initial consultation. The investment in professional guidance at the outset pays substantial dividends through accelerated approval timelines and reduced regulatory risk.

FAQ 

1. Can I operate a payment service while my license application is pending with the CNB?
No. Providing regulated payment services without a valid license or registration is a serious violation of the Payment System Act, subject to substantial fines and criminal prosecution. You must wait for final CNB approval and entry into the official register before accepting customers or processing payments. 

2. My company has received investment from a foreign investor. Does this affect my licensing application?
Foreign investment creates additional CNB scrutiny. The CNB conducts "fit and proper" assessments of all beneficial owners—individuals or entities holding qualifying ownership stakes (typically 10% or more). If your foreign investor is a legal entity, the CNB will want to understand who ultimately controls that entity. 

3. What happens if my actual transaction volumes exceed the small-scale threshold shortly after I receive my license?
You must immediately notify the CNB and apply for a full payment institution license. Continuing to operate under a small-scale registration while exceeding the €36 million annual threshold constitutes a violation. The CNB will not prosecute retroactively for the period before you exceed the threshold, provided you acted in good faith, but you cannot knowingly continue small-scale operations once you've exceeded volume limits. 

4. If my small-scale payment service provider registration is approved, am I allowed to expand to other EU countries later?
No, not under the small-scale registration. This authorization is restricted to Czech Republic operations exclusively. If you want to expand to other EU markets, you must obtain a full payment institution license, which provides EU-wide passporting rights.

5. Must all my shareholders and managers be based in the Czech Republic?
No. Your shareholders and management can be based anywhere globally. However, the CNB conducts fit-and-proper assessments of all beneficial owners and directors regardless of where they are located. They must provide criminal record extracts from their home countries, evidence of professional experience, and documentation supporting their integrity.

6. What if the CNB rejects my application? Can I appeal or reapply?
Yes, you can appeal a CNB rejection decision through administrative procedures ("rozklad") and subsequently through administrative courts, or you can submit a new application addressing the reasons for rejection. 

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy in the content, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS Law Firm directly (office@arws.cz). We accept no responsibility for any damage or complications arising from the independent use of the information in this article without our prior individual legal consultation and expert assessment. Each case requires a tailor-made solution, so please do not hesitate to contact us.