Your money is not insured with a payment institution. It is ring-fenced, which is a different thing and, in some ways, a stronger one.
That is the short answer, and it needs a second sentence: ring-fencing is a real legal protection with a real and measurable limit, and almost nobody writing about it will tell you the size of that limit. This article does. The regulator has published what happened to customer money at the payment firms that actually failed, and there is one UK failure documented well enough to show you the whole process end to end.
Read those two things and you can stop asking whether payment institutions are safe in the abstract, which is not a useful question, and start asking whether a specific one is, which is.
Safe at a bank and safe at a payment institution are two different words
At a bank, safe means insured. Deposits at a PRA-authorised bank, building society or credit union are covered by the Financial Services Compensation Scheme, and for firms failing from 1 December 2025 the limit is 120,000 GBP per eligible person per authorised firm, up from 85,000 GBP before that date. Above the limit you are an unsecured creditor. Below it, a state-backed scheme writes you a cheque.
At a payment institution, safe means segregated. There is no compensation scheme at all. The FSCS does not cover electronic money institutions, authorised payment institutions or small payment institutions; EMIs and APIs must instead safeguard your money, small payment institutions are not required to safeguard at all, and all four provider types can be complained about to the Financial Ombudsman.
The trade sits inside that. Safeguarding carries no monetary cap, because it protects the actual customer funds the institution is holding, however large the balance. A 3m GBP balance is fully safeguarded and only 120,000 GBP of it would have been FSCS covered at a bank. But safeguarding guarantees a pool, not an amount. It is a promise about where your money is kept, not a promise that you get it back.
If you want the licence categories themselves rather than the protection they carry, what the authorised payment institution status actually permits covers that ground, and an EMI and a payment institution are not the same licence covers the distinction people most often get wrong.
What actually happens on the day a payment institution fails
Nothing automatic. That is the first thing to understand, because the FSCS trains people to expect a process that starts without them.
When a non-bank payment provider goes out of business you contact the administrator or liquidator of the firm yourself. They act on behalf of the failed firm and are responsible for distributing money to customers. The FCA's own framing is that you should get most of your money back, but that it may take some time and may not be the full amount, because some costs are taken by the administrator out of the pool being distributed.
Then there is the question of what happens if the firm did not safeguard properly, which is the question that matters, because a firm that safeguarded properly rarely collapses in a way that costs you anything. UK law settled this in 2022. In the Ipagoo appeal, the Court of Appeal held that relevant funds are not held on statutory trust, but that the asset pool must be treated as including a sum equal to the funds that should have been safeguarded and were not, distributed to customers in priority to all other creditors.
Read that carefully, because it cuts both ways. The good half: money your provider failed to segregate is not simply gone, and you rank ahead of its bank, its landlord and its suppliers. The bad half: you are now ranking in a queue against a pot that has to be reconstructed by an insolvency practitioner from the records of a firm that has just proved it kept bad records.
The two numbers the reassuring pages leave out
How much came back
The FCA has measured this. In the policy statement behind its safeguarding reforms, the regulator estimates that payment firms which failed between the first quarter of 2018 and the second quarter of 2023 had an average shortfall of 65 percent in funds owed to clients.
Sixty five percent missing, on average, at the firms that failed. That is the number, and it is the regulator's own.
It needs one piece of context to be read correctly. It is a figure about failed firms, not about the sector. It is closer to a post-mortem statistic than a risk rate: the firms in that dataset are, almost by definition, the ones whose safeguarding was worst, which is frequently why they failed. But it is also the honest answer to what happens if the worst case arrives, and it is why "your funds are safeguarded" should never end a due diligence conversation.
How long it took
Ipagoo again, because it is documented from start to finish.
Ipagoo was FCA authorised to issue e-money and provide multi-currency payment account services. The FCA imposed requirements on the firm on 24 July 2019 and joint administrators were appointed on 1 August 2019. In the High Court proceedings that followed, the administrators reported that Ipagoo had received relevant funds from customers totalling 3,810,972 EUR, 235,854 GBP and 265,980 USD, and that it had not proved possible to establish whether any of those funds had been safeguarded as required.
The final distribution notice set 12 September 2022 as the last date for customers to prove their balances, with the distribution intended within two months of that date.
August 2019 to late 2022. Three years, for a firm the FCA described as having a small customer base, because two years of that were spent arguing in court about what the regulations meant.
Why the shortfall happens, and what changed on 7 May 2026
Both numbers have one root cause: books that cannot be reconciled quickly. Every month an insolvency practitioner spends working out whose money is whose is a month of fees coming out of the pool, and every fund that cannot be traced is a fund that has to be litigated into it.
The FCA reached the same conclusion, and the sector had grown enough to make it urgent. The proportion of UK consumers using payment firms for non-bank payment accounts rose from 1 percent in 2017 to 12 percent in 2024, and e-money institutions were safeguarding around 26bn GBP in 2024 against 11bn GBP in 2021, per the same policy statement.
The Supplementary Regime took effect on 7 May 2026. The two changes that bear directly on the numbers above: firms must now perform internal and external safeguarding reconciliations every reconciliation day, rectifying any shortfall immediately from their own funds, and they must maintain a resolution pack designed to let an insolvency practitioner return funds quickly. The end-state regime, which would replace safeguarding with a CASS-style statutory trust, has been deferred pending further consultation.
Daily reconciliation attacks the 65 percent. The resolution pack attacks the three years. Neither converts safeguarding into deposit insurance, and the full obligation is worth reading in safeguarding under the Payment Services Regulations 2017 in full.
Five checks that put your money in the better half
All five are answerable by email, and the speed of the answer is itself the signal.
1. Find the firm that actually holds the permission. Brand names are frequently not the authorised entity and are not always listed on the Financial Services Register, so look for the operating company in the website footer or the terms and conditions, then search the register for that name. If you are contracting with a distributor, the reference number that matters belongs to its principal.
2. Confirm which of the three licences it holds. API, EMI and SPI are not interchangeable. An SPI has no safeguarding duty whatsoever, and this is the single most consequential thing on the register that nobody looks at.
3. Ask which credit institution holds the safeguarding account. Regulation 23 of the Payment Services Regulations 2017 requires relevant funds to be kept separate from the firm's own money and placed in a separate designated account with an authorised credit institution, or invested in secure liquid assets. A firm that cannot name the bank has an answer problem.
4. Ask how often reconciliation runs and what happens to a shortfall. Since 7 May 2026 the correct answer is every reconciliation day, topped up same day from the firm's own funds. This question did not have a clean right answer before 2026. It does now.
5. Ask what the resolution pack contains. A firm that treats this as a strange question has not built one.
Money in motion and money at rest are different questions
This is structural rather than advisory. A deposit account exists to hold value, and the bank lends it out, which is why your money is genuinely at risk in it and why deposit insurance exists to offset that risk. A payment account exists to move value, and the institution is forbidden from lending it, which is why there is no insurance and no interest, and also no lending risk on your balance.
The protections follow from what each product is for. The useful question about any given balance is therefore which of those two things it is doing, and how that squares with the protection attached to where it sits. That is a question for you and your advisers, not something an article can answer, and nothing here is financial advice. The mechanics of the distinction are set out in how a payment institution differs from a bank and safeguarding set against the FSCS line by line.
The same question, answered about EX FI
A provider that publishes its own structure without being asked has already passed check one. Here is ours.
EXFI is a trading name of EX Financial Solutions Ltd, company number 17105188, which is not itself authorised or regulated by the FCA and acts as a distributor of payment services provided by Gemba Finance Ltd, authorised and regulated by the FCA as a payment institution under FRN 804853. Regulated payment services are for UK customers. EXFI accounts are payment accounts, not bank accounts. Funds held in them are not covered by the FSCS. They are safeguarded in segregated accounts in accordance with the Payment Services Regulations 2017.
That paragraph answers checks one, two and three for us in three sentences. Ask every provider you are considering for their version of it. The ones who can produce it immediately have thought about the day you are worried about; the ones who send you a homepage badge have not.
FAQ
Can a payment institution use my money or pay me interest on it? No. Your balance is not a deposit and it is not lent out. Relevant funds must be segregated from the firm's own money and held in a designated account at an authorised credit institution or invested in approved secure liquid assets. The absence of interest and the absence of lending risk are the same fact seen from two sides.
Can I complain to the Financial Ombudsman about a payment institution? Yes. Ombudsman access covers EMIs, authorised payment institutions and small payment institutions as well as banks. Complain to the provider first and escalate if the response is unsatisfactory. It is the one protection that does not change with the licence type.
What if my provider turns out to be a small payment institution? SPIs are not required to safeguard, though they may choose to. The FCA's guidance is to ask the firm directly what protections it has in place. Ask in writing, and get the answer before you fund the account rather than after.
Does any of this apply if my business is not in the UK? UK safeguarding rules govern funds held by a UK-authorised firm, but eligibility to open an account is a separate question from protection, and providers scope it differently. The regulated payment services distributed by EXFI are provided by Gemba Finance Limited for UK customers.
Which firm holds the FCA authorisation behind EX FI? No. EX Financial Solutions Ltd, trading as EXFI, is not itself FCA authorised. It distributes payment services provided by Gemba Finance Limited, which is authorised and regulated by the FCA as a payment institution under FRN 804853.