1. WHAT IS "DIGITAL BANKING LICENSE"? — 4 MODELS WORLDWIDE

Legal Truth in India: There is no legal definition of neobank under Banking Regulation Act, 1949. RBI has never issued digital-only bank license. RBI discussion paper 2022 proposed 2-stage digital bank (digital business unit → full license) but not finalized. So Indian neobanks operate under Outsourcing Guidelines as tech service providers.

2. SPAIN / EU LICENSING FRAMEWORK — Most Complex

Spain transposed EU rules into one supervisor — Banco de España — but 4 different authorizations:

A. Credit Institution (Entidad de Crédito) — Full Bank License

• Law: Law 10/2014 + CRR Regulation 575/2013 + ECB SSM
• Capital: €5m minimum initial capital
• Grants: Deposit taking + lending + payments + MiFID + passport across EU
• Authority: Banco de España + ECB Joint assessment
• Example: BBVA, Santander, new digital: Bunq Spanish branch via passport

B. Electronic Money Institution (EDE — Entidad de Dinero Electrónico)

• Law: EMD2 2009/110/EC transposed via RD 19/2018, now merging into PSD3/PSR
• Capital: €350k
• Can: Issue e-money, offer IBAN, cards, no lending with e-money funds
• Must: Safeguard client funds in segregated account at credit institution
• Most Spanish neobanks: Revolut UAB (LT) passporting, Rebellion, BNext used this

C. Payment Institution (EP — Entidad de Pago)

• Law: PSD2 Directive 2015/2366 -> RDL 19/2018 Spain
• Capital: €20k to €125k based on service (Money remittance €20k, Payment initiation €50k)
• Can: P2P, Bizum, account information, payment initiation, no e-money issuance
• Future: PSD3/PSR from Dec 2026 will merge PI + EMI into single license type with single capital regime

D. Limited Network / PPI Equivalent

• Not full EMI but Spanish fintechs use limited network exemption for closed-loop wallets

Passporting: Once licensed in one EU state, you can passport to Spain by notification to Banco de España — no new license. This is why Revolut LT EMI serves 11m Spain customers without Spanish license.

3. INDIA LICENSING — Partner Model Case Law

RBI Position:

• Full bank license requires physical presence — RBI governor statement 2022: "Digital banking service providers need physical presence"
• No 100% digital bank yet
• Existing licenses you can get:
  1. PPI License — Revolut obtained in 2024 India — allows multi-currency forex card + cross-border remittance, not deposits.
  2. BBPOU / Payment Aggregator / NBFC
  3. SFB / Payment Bank — e.g., Fino, Airtel — but limited

Three Landmark Cases That Created Licensing Law by Judgment:

1. Karan Singh Parmar v Union of India (PIL Delhi HC) — Brand Misuse
Facts: Petition said neobanks calling themselves "bank" violate Section 7 BR Act — only licensed banks can use word bank, banker, banking.
Held: RBI directed to enforce. Outcome: RBI circular 2022 — neobanks must disclose "Powered by [Licensed Bank Name], deposits held by partner bank regulated by RBI" in all marketing. Cannot say "We are bank". This is now licensing condition via outsourcing.

2. Suhan Saleem N v Federal Bank (Jupiter) — Kerala HC 2023 — Who is License Holder?
Jupiter froze user account. Jupiter said: we are only tech platform, Federal Bank is bank. Federal Bank said: customer of Jupiter, not ours.
Court: Under RBI Master Direction on Outsourcing of Financial Services, licensed bank cannot outsource core liability. Federal Bank as licensed entity remains liable for customer funds. Tech platform is agent.
Ratio for licensing: In India, license holder = risk bearer. Neobank cannot shed liability via contract.

3. Indmoney Tech Pvt Ltd v Ashok Kumar — Delhi District — PPI Liability
User lost money in PPI wallet linked to investment app. Court applied Consumer Protection Act + Payment & Settlement Systems Act — PPI issuer + tech platform jointly liable for failure to safeguard.

Combined Rule India: If you are digital banking platform without license, your partner bank license is deemed your license for liability purposes.

4. EU / SPAIN LICENSING CASE LAW

4. Revolut UK License — July 2024 — 3-Year Authorization Fight
Revolut applied 2021 for UK bank license. Bank of England initially rejected due to audit, crypto exposure, governance. Finally granted with restrictions 2024. Shows future law trend: Even with EMI license, regulators will demand banking license for deposit taking + higher capital + independent risk committee.
Precedent cited in Spain: Banco de España now asks EMI applicants with >500k users to submit bank license roadmap.

5. Wirecard AG / Wirecard Bank Collapse 2020 — BaFin Failure
Wirecard had German EMI + bank license, falsified €1.9bn. German regulator BaFin failed to supervise holding company. EU response: EBA Guidelines + DORA + new EMI safeguarding audits.
Spanish impact: Banco de España now requires monthly safeguarding reconciliation + external audit + funds in at least 2 credit institutions. Any EMI that co-mingles funds loses license.

6. Commission v Spain — Payment Accounts Directive Infringement (Agence Europe 2017-2018)
Spain failed to transpose Directive 2014/92 (Basic Payment Accounts) by Sept 2016. Commission referred to CJEU, asked daily fine €48,919. Spain transposed via RD 19/2017.
Principle: Licensing includes obligation to provide basic account — cannot refuse because client lives in another EU state. Applies to digital banks — you cannot geofence EU residents.

7. IBAN Discrimination — Banco de España Enforcement Guidance 2023
Case cluster: Spanish employers, Agencia Tributaria, utilities refusing Revolut LT IBAN. Banco de España stated this violates SEPA Reg 260/2012 Art 9 — illegal. While not license revocation, persistent IBAN discrimination leads to conduct sanction under Law 10/2014 — relevant for digital bank license renewal.

8. Bunq vs Dutch Central Bank — Proportionality of License Conditions
Bunq challenged DNB demanding traditional bank-like branch audit. Court held digital bank license conditions must be proportionate to risk — digital KYC allowed if meets AML.

5. FUTURE LICENSING — PSD3 / PSR — Changes from Dec 2026

Agreement Nov 2025, publication Dec 2026, application mid-2028.

What changes for Spain:

• Merger of PI + EMI: One authorization — Payment Institution with varying permissions. No more EMD2.
• Capital increase: EMI €350k → likely €400k+ with additional safeguarding capital buffer
• New license category: Payment Account Information Service becomes part of PI license
• Re-authorization: All existing PIs/EMIs in Spain must re-apply within 27 months after PSD3 entry with new dossier to Banco de España.
• Passport tightening: Must have substance in home state — letterbox EMIs in Lithuania for Spanish market will be challenged.
• FIDA — Financial Data Access: New license to access financial data (investments, insurance) — separate from PSD3.

Timeline:

• Q2 2026 formal adoption
• Dec 2026 OJ publication
• Mid 2028 PSR applies, PSD3 transposition deadline (21 months)
• Spring 2029 Verification of Payee mandatory

6. WHICH LICENSE SHOULD YOU TAKE?

For Spain/EU diaspora neobank serving Spaniards abroad:
Take Lithuanian or Spanish EMI → passport → then plan full bank license once >€500m deposits (Revolut path). Cheapest route: Spanish PI if only Bizum + remittance.

For India:
Don't apply for bank license — impossible. Take PPI + PA-G + NBFC + partner bank. Structure contract so partner bank is clearly principal, you are tech provider per outsourcing guidelines — otherwise you will be held liable under Suhan Saleem case.

For Thesis:

Best research question: "Does India need digital bank licensing like EU? Analysis of liability gap after Jupiter/ Federal Bank judgment vs Spanish EMI safeguarding model"