What is an EMI?
An Electronic Money Institution (EMI) is an organization licensed to issue electronic money, which is money stored on digital mediums such as cell phones or cards used for transactions.
While adhering to EU regulations is mandatory, each Member State can grant or deny electronic money licenses. In Spain, for exemple, this responsibility falls to the Banco de España, in collaboration with SEPBLAC (Spain’s Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offenses).
What is electronic money?
Electronic money, often referred to as e-money, represents a digital alternative to traditional cash. It is a monetary value that is stored electronically on devices such as smartphones, prepaid cards, or online accounts. This digital currency is used to facilitate electronic transactions and can be exchanged for goods and services, similar to physical money.
E-money functions through the storage of funds in electronic form. When users deposit money into an electronic account, the funds are converted into digital currency. This digital currency can then be transferred or spent via electronic platforms, enabling seamless transactions without the need for physical cash. Examples of electronic money include digital wallets, prepaid cards, and cryptocurrencies.
E-money is the digital alternative to cash and must have the following characteristics:
– be stored on an electronic medium
– it must be issued on receipt of funds for an amount not less than the monetary value issued
– be accepted as a means of payment by companies other than the issuer.
Additionally, as per European guidelines, electronic money has the following purpose:
- Facilitate the development of new, secure, and more innovative electronic money services
- Enable new companies to access the electronic money market
- Foster effective competition between all market participants
What are the services provided by EMI?
A company that holds an electronic money license is entitled to carry out the following activities:
- Issue, distribute, and redeem electronic money
- Provide payment services that enable transactions with electronic money, such as cash withdrawals from a payment account, transfers of funds to third parties, and the delivery of remittances
- Issue payment cards that allow the user to withdraw and deposit cash
- Provide information about accounts
EMIs cannot do the following:
- Receive deposits and other redeemable funds that generate returns
The money received by an EMI is not considered a deposit. They must immediately convert the funds received into electronic money.
Is there a difference between a banking license and an EMI license?
A banking license and an EMI (Electronic Money Institution) license are two of the most comprehensive and complex licenses in the financial sector, and they differ in several key aspects.
Unlike banks, EMIs are not permitted to accrue interest on deposits or market accounts. Additionally, EMIs are not covered by any deposit guarantee fund. As a result, they must keep clients’ funds in separate accounts and either insure these funds or invest them in low-risk assets to ensure their safety.
EMIs are known for offering customer-centric services and innovative products. Through EMI licensing, entities can develop neobanks, digital wallets, payment systems, and financial management applications.
Requirements for Obtaining an EMI License in the European Union
Obtaining an EMI (Electronic Money Institution) license in the European Union involves stringent regulatory requirements to ensure financial stability and consumer protection. While specific requirements can vary between countries, certain core criteria are common across the EU.
For instance, in Lithuania, a popular destination for fintech companies, applicants must have a minimum initial capital of €350,000. They are required to submit a detailed business plan, including projected financial statements, risk management policies, and descriptions of IT systems and controls. Additionally, the management team must demonstrate relevant experience and a clean financial history. Lithuania’s regulatory authority, the Bank of Lithuania, also requires proof of funds’ origin and a thorough AML (Anti-Money Laundering) policy.
In contrast, in the Netherlands, the Dutch Central Bank (DNB) oversees the EMI licensing process. Applicants must have a similar minimum capital requirement of €350,000 and provide a comprehensive business plan. The DNB places a strong emphasis on the robustness of internal governance and risk management frameworks. The fitness and propriety of key personnel are scrutinized, ensuring they possess adequate expertise and integrity.
Both countries require that EMIs maintain separate accounts for customer funds and have robust IT infrastructure to safeguard data and financial transactions. Compliance with these rigorous standards helps maintain the integrity of the EU’s financial system while fostering innovation in electronic money services.
Are there any benefits of being associated with an EMI?
As a general rule, companies choose to partner with an EMI to create innovative products and services quickly and securely. Banks that collaborate with an EMI can build highly advanced banking applications.
The Bottom Line
The rise in the number of licenses granted to Electronic Money Institutions (EMIs) in the European Union highlights the growing demand for innovative financial services tailored to digital consumers. EMIs offer a digital alternative to cash, facilitating seamless electronic transactions through various digital mediums. Obtaining an EMI license involves strict regulatory requirements to ensure financial stability and consumer protection. They differ slightly by country but generally require a robust business plan, capital investment, and comprehensive risk management policies.
Unlike banks, EMIs cannot accept deposits that generate interest and must keep client funds in separate, secure accounts. Partnering with EMIs enables companies to develop cutting-edge financial products and services swiftly and securely, promoting competition and innovation in the financial sector.
If you’re considering obtaining an EMI license or exploring innovative financial solutions, book a free consultation with our specialists today.
Our team will help you navigate the complex regulatory landscape, ensuring your business is set up for success.
Disclaimer
Widelia and its affiliates do not provide tax, investment, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, investment, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Please consult https://widelia.com/disclaimer/ for more information.
