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How to become an electronic money institution
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How to become an electronic money institution

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Over 230 electronic money institutions (EMIs) are currently operating in the United Kingdom, the highest number in Europe. To give you some context, the second on the list is Lithuania, with 70 institutions, and the total for the region exceeds 500. And the number is constantly growing, driven by immense demand. According to EY data for 2021, nearly 75% of consumers across 27 global markets use an e-money or fintech service.

In this article, we’re going to discover how to join this booming market, what challenges and pitfalls may occur, and how to act effectively when establishing your own e-money business and getting an electronic money institution license.

But first, let’s drill down to what an electronic money institution is and how EMI is different from the related concepts.

What is an electronic money institution?

To discern the hidden meaning of the EMI term, we should define e-money.

Electronic money is a digital monetary value that we can use to make payments. A digestible example of e-money are funds on PayPal. An electronic money institution, or EMI, is a legal entity entitled to issue e-money, which is licensed and regulated by the respective authority. For example, in the UK, EMIs are regulated by the Financial Conduct Authority, while in Lithuania, these market participants are licensed by the country’s central bank.

Besides, there are small electronic money institutions (Small EMIs). They can issue e-money and provide some payment services, but not payment initiation and account information services. To register as a small electronic money institution, the company must meet certain requirements regarding its previous business activity.

Wondering if an electronic money institution is a bank or a payment institution? The quick answer is none of the above, but let’s learn how exactly they differ.

electronic money institution

Electronic money institution vs Bank

E-money license and banking license are two completely different licensing regimes.

The essence and allure of the e-money license lie in allowing non-banks to provide payment and financial services and store clients’ funds. However, the list of banking activities available to authorised electronic money institutions is limited. Namely, opposite to banks, electronic money institutions can’t provide investment, deposit, and credit services.

Electronic money has a much lower entry barrier and simpler regulations compared to banking license, opening the doors to the financial market for tech-focused companies.

Electronic money institution vs Payment institution

Similarly, a payment institution license is more limited than an EMI license. Payment institutions can provide services like payment initiation, processing and remittances, but they can’t issue e-money or hold customers’ funds without an identifiable payment order.

This limitation makes the PI market easier to enter than the EMI. Notably, electronic money institutions require higher initial capital, and the regulation for them is more strict.

Still, some companies that start with a PI license may later opt for applying for an EMI license when there’s a need to expand the range of services. For instance, when they want to issue their own cards.

What can an e-money institution do?

The EU regulation allows EMIs to offer such services as:

  • Issuance of e-money
  • Topping up and withdrawing cash from a payment account
  • Performing transactions with e-money (remittances, transfers, etc.)
  • Issuing payment instruments or acquiring payment transactions
  • Payment initiation and account information services, etc.

Please see the Directive 2009/110/EC for the exhaustive list of activities that EMIs are allowed to perform. Each EMI specifies the activities it wants to perform in its application, and only those activities are then authorised.

Examples of authorised electronic money institutions

Let’s look at several widely known companies that hold EMI licenses to grasp better what they do.

Company Licensing country Details
Wise United Kingdom Wise started as a PI and later switched to EMI to issue its own cards to customers and hold their funds in payment accounts without an identifiable payment order. The primary services it offers now are money transfers, cross-border multicurrency accounts, and card issuance.
Airbnb United Kingdom The FCA EMI license holder is Airbnb Payments UK Ltd, a legal entity dedicated to payment processing on behalf of Airbnb, a major online marketplace for lodging.
Google Payment United Kingdom Lithuania Focusing on processing payments related to Google, this EMI is licensed by both UK FCA and the Bank of Lithuania, though the second license authorises fewer activities than the first: e-money issuance, payment initiation, account information services, and execution of payment transactions on a payment account not covered by a credit line.
Revolut United Kingdom Lithuania The famous European neobank also holds two EMI licenses. It offers banking services like current accounts, prepaid cards, and virtual prepaid cards. It also allows crypto exchange and transfer between its users.
Stripe United Kingdom Stripe is a popular payment platform from the US. It is a SWIFT and Visa payment card scheme member. Its EMI license from the UK FCA authorised it for issuance of e-money, topping up and withdrawing cash from a payment account, execution of payment transactions on a payment account, issuing payment instruments or acquiring payment transactions, money remittance, etc.

How to start your own e-money institution

Now that we’ve brushed up on our knowledge of the e-money market and electronic money institutions, we’re ready to segue into practice.

You’ll have to undergo several steps with different levels of complexity to become an EMI. Here’s the generalised and simplified list:

  • You’ll need payment software to function as an EMI. Plenty of time and resources are necessary to develop one, so you should start hiring developers and planning your future solution as soon as possible. Remember that if you plan to deal with card transactions, your software and infrastructure have to be PCI DSS-compliant.
  • Find a licensing specialist or a third-party agency assisting with EMI licensing. They’ll help you choose the jurisdiction for your future electronic money institution, prepare all the documents needed for application, and ensure compliance with regulations. At least it’s a must to have a lawyer who can help you with all the paperwork and regulations interpretation.
  • Once you’ve decided on the jurisdiction, learn the local regulation on EMIs, requirements, and how the authorisation procedure happens. You must have a minimum initial capital of €350,000+, safeguard your clients’ funds, and have insurance. Most EU regulators require EMI license applicants to have at least 2 top managers residing in the EU with financial or economic education. Other requirements you may face are related to AML, risk management, your technological base, etc. All in all, dive into the local peculiarities of the chosen country.
  • Have the pre-application meeting with the regulator’s representatives. You’ll be asked tons of questions about your future EMI, but the work you’ve made on the previous step will help you have all the answers.
  • Prepare and submit your application. You’ll have to pay the fee to file your EMI license application, collect all the requested documents, show a detailed business plan, and elaborate on the activities you’d perform and internal procedures. You’ll have to provide documented evidence of meeting all the requirements and describe things like the company’s organisational structure, security measures, accounting systems, etc.
  • Wait for the regulator to assess your application. Before approval, you may undergo several rounds of the regulator’s comments and your respective changes. The process usually takes no less than 3 months. When your application is approved, your company becomes an authorised electronic money institution.

3 challenges you may face

On a journey to becoming an EMI, you’re likely to face certain pitfalls. Forewarned is forearmed, so let’s learn about the 3 most common challenges and how to deal with them.

Legal complexities

Firstly, choosing the jurisdiction and filing an application for the EMI license isn’t a piece of cake. Piles of documents have to be prepared, and dozens of requirements covered.

Secondly, there are certain restrictions for EMIs regarding transactions size and number per day.

We highly recommend you hire a specialist capable of guiding you through the world of legal peculiarities. It will save you tons of time and help you do everything the right way.

Market disturbance

With the boom of the EMI market came the allegations of money laundering and other financial wrongdoings. According to Transparency International UK, more than one-third of EMIs authorised by the FCA have red flags related to their activities, owners or directors.

Of course, if you are not involved in any fraudulent or money laundering schemes, you won’t be the subject of such scandals. Still, the fact that there can be perpetrators among licensed EMIs stains the reputation of the market and affects clients’ trust.

We suggest double-checking all the companies you’ll do business with to avoid being dragged into trouble.

Development hassles

We’ve already mentioned that you should have payment software and infrastructure to operate as EMI and that this may end up pretty resource-draining. The cost for developing your own payment solution is likely to be measured in hundreds of thousands of euros. In terms of time, you’ll need no less than half a year for the MVP and about a dozen months to move from basic functionality to a competitive product.

The good news is that you don’t need to waste so much time and invest so much money to have a robust full-fledged payment product. You can opt for a white label payment solution and receive advanced payment capabilities in a snap, accompanied by plenty of value-added features and services.

For instance, by choosing Corefy’s white label payment provider, you receive:

  • An omnichannel payment platform with 150+ ready-made integrations,
  • Support for hundreds of payment methods, flows, and currencies,
  • Advanced analytics, reconciliations, and smart processing tools,
  • An expert payment team that costs you less than the salary of one coder, and much more.

Let’s talk about how we can help your EMI succeed!

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