Steps to Launch a Digital Wallet in the UK: A Legal Overview

Digital wallets are a cornerstone of the financial system of the twenties, facilitating digital transactions and the rise of online banks. Businesses must prepare legally and operationally to bring digital wallets to the UK.

Step 1: Identify Payment Service Type

Specify the services that your wallet provides (e.g., P2P transfer, stored value, etc.). This will dictate what regulatory permissions are required from the FCA. There are three kinds of digital wallet startups:

1. Electronic Money Institutions (EMIs): Issue and hold e-money.
2. Payment Institutions (PIs): Can facilitate money transfers without having to maintain funds.

Step 2: Understand Licensing Requirements

In order to legally do business in the UK, you will need the appropriate FCA Licenses (EMI/PI and small derives). You’ll also need an E-money license, which will require a full business plan, proof of compliance, and share capital (£350k minimum for EMI). The FCA process is onerous and may take months to complete.

Step 3: Write a Legal Business Plan

When you write out your business plan, make sure to include everything; even things that we've written about that are considered exhaustive such as long-term accessibility and following the law. Key elements to consider include:

1. Customer targeting and know your customer/anti-money laundering.
2. Compliance roadmap.
3. Cybersecurity strategy.
4. Data protection under UK GDPR.

Step 4: Prepare for Launch

With the legal framework established, concentrate on:

1. Structuring your team and budget.
2. Selecting tech providers.
3. Building a compliance framework (MLRO, fraud detection).
4. Bolstering cybersecurity systems for the protection of customer data and money.

Step 5: Apply for the License

When you are ready, submit the application for licensure. Leave no stone unturned in getting all documentation up to date and consistent. FCA scrutiny is a given; founders, their lawyers, and their compliance teams will need to collaborate closely.

Step 6: Take Off — and Keep It Legal

Once you have your license, you will need to maintain continual scrutiny for compliance with UK law. Key post-launch obligations include:

1. Maintaining transaction records.
2. Conducting regular audits.
3. Ensuring GDPR compliance and conducting regular risk assessments.

Non-compliance could result in revocation of the license, fines, and possible business closure.

Obtain Necessary Financial Services Licenses in the UK

It’s the foundation upon which you’re going to build your business. If you want to engage in e-wallet activities (i.e., hold or transfer money or issue digital currency), then you’ll probably need to be authorized and regulated by the FCA.

• EMI License

The EMI license a digital wallet provider would need will depend on their exact business model, but in most cases, it would be a full EMI license that permits you to issue e-money, store balances, and make payments and transfers on behalf of UK-based customers.

• How to Apply

It is not a simple application. You must become licensed, submit a business plan, prove to have the finances behind you, and have experienced personnel in the MLRO and CCO positions. Additionally, you will need to explain to supervisors your in-house policies regarding risk management, business continuity, and customer protection.

Ensure Compliance With UK Data Protection Laws

What happens to customer data in your wallet after you receive a visit from the FCA? It is subject to British Data Protection laws:

• Data Protection Assessments

You will need to conduct a Data Protection Impact Assessment (DPIA) if any of the below are part of the operation of your app: real-time tracking, behavioral analytics, or storing sensitive financial data. The more data you collect, the larger and more complex the flow of your data, increasing the likelihood that you’ll need one or more Data Protection Officers.

• User Transparency

Show your users your commitment to transparency by using straightforward privacy policies that describe what data you collect, why you do so, how long you plan to keep the data, and what your customers’ legal rights are.

• Third-Party Services

Use Standard Contractual Clauses (SCCs) and other legal mechanisms to allow for data transfers across borders when you are using third parties based outside of the UK.

Implement Strong User Authentication and Fraud Prevention

Authentication is your frontline defense. 3D Secure is required under the EU/UK’s Payment Services Directive 2 (PSD2/SCA). This typically equates to what is known as two-factor authentication, based on either something the user knows (such as a PIN), has (like a mobile phone), or is (biometrics).

But fraud prevention doesn’t end at logins. You must implement real-time monitoring, risk scoring, device fingerprinting, and anomaly detection. Regulators expect these layers to be integrated into the wallet's core functionality.

Remember: Security is Not Optional

If your platform can’t protect its users, it can’t exist: not from hackers, not from bankers (who will refuse to work with you as your revenue drains away), and not from the FCA. It also helps to apply for accreditations such as ISO 27001 or Cyber Essentials to demonstrate your commitment to security.

Offer Integration With UK Banks and Financial Institutions

Your digital wallet must interact with the broader ecosystem, ‘from the back into the bank.’

In addition to an EMI license, if your wallet is going to be linked to forwarding customer financial institutions data or facilitating a payment, you will need to ensure regulatory compliance for the Account Information Service Provider and Payment Initiation Service Provider.

Comply with OBIE guidelines and share customer data securely, handling a full legal contract with each of the third-party providers you are connected with.

Final Thoughts

You can’t simply come to the UK and launch a digital wallet business. It requires strict planning and legal compliance, as well as enforcement, certification, fraud protection, and adherence to data privacy laws. . If done right, you can build not just a product, but a fully legal and trusted service—something that stands alongside any regulated online bank. In this industry, trust isn’t optional. It’s the foundation.

If done well, you can establish a legal and trusted service. Trust is everything in this type of business.

Written by Denis Chernyshov