Rise of Digital Banking: A Look into EMI Banking


Today it is not at all necessary to open your own bank to start providing banking services: the rapid development of financial technologies has pushed European countries to new types of licenses. One of the most sought-after licenses for fintech companies in Europe is EMI (literally, this means permission to issue electronic money). With the help of such permission, its owner has the right to provide payment transactions and issue e-money.

Our company is a professional stronghold of high-quality legal services. We have been present in the market for establishing and licensing commercial structures for many years. Our specialists will comprehensively advise you regarding EMI-licenses and other things that may be useful for your business activities.


What Are EMIs: Development of EMI-Banking, Regulation and Compliance?

Digital finance has been rapidly gaining momentum in recent years. Entering this niche means getting a great piece of the multi-million dollar project. Issuing your own money sounds tempting, but like other financial services, this type of economic activity is highly regulated in many countries. Therefore, to implement the project in the legal field, it is necessary to study many nuances.

Electronic money does not need to be printed, secured or transported. If a financial institution goes bankrupt, it cannot simply evaporate. The specificity of electronic money is that banknotes are not used and there is no need to collect change when performing transactions. They do not require secure storage, so they are more secure in a virtual wallet. The transfer takes only a few minutes, and payment is much more convenient.

Unlike conventional banknotes, which only the state has the right to issue, electronic finance in many countries is equivalent to securities, so they can be issued by private companies. An EMI license allows its holder to issue digital currencies and provide payment services. In addition, you can create and maintain your own payment system and provide a full range of service range related to the issuance of electronic money.

EMI companies are subject to the pan-European payment directives E-money, PSD/PSD2, laws of the country of registration and regulators. Unlike EMI, banks are regulated by the European Banking Authority (EBA), Central Banks and also local regulators, and the legislative framework includes many different directives.

An important detail for clients is that while banks are required to exchange tax information according to the standards of the Organization for Economic Co-operation and Development (OECD), payment services do not have such an obligation.

Since regulation for EMI is simpler, they are also more flexible in working with clients. By the way, many banks have their own EMIs as an alternative to their banking service list.

An EMI license is issued by the relevant authority in a given country or region. The license effectively provides the ability to offer the same services as traditional PSPs (payment service providers), with the additional right to issue electronic money. However, operating and issuing e-money in the EU requires a higher level of capital to obtain a license: €350,000 for an e-money institution license, versus €125,000 for a standard authorized payment institution (API) license.

What Do E-Money Institutions Offer Clients?

Electronic money institutions are authorized to issue electronic money. Perhaps the most common type is the ubiquitous e-wallet, which serves as a storage location just like regular cash wallets. Electronic money institutions also offer money transfer services, payment transaction processing, direct debit or credit transfers, and most financial transactions common to standard PSPs.

So, let’s look at the range of services that companies that own this type of permit have the right to offer. Small EMI available as follows.

  1. Payment system management.
  2. Payment transactions/fund transfers.
  3. Lending operations (exclusively through the use of own funds).
  4. The maximum turnover for 12 months on sub-accounts of payment system users cannot exceed 36 million euros (at the rate of 3 million euros per month). Institutions with a Small EMI license have the right to provide services only in the territory of the country of registration. However, this does not prohibit having clients from any country in the world.

The full EMI available is as follows.

  1. In addition to the services that companies with a small institution license to issue electronic money can offer, EMIs can provide a number of other services, including:
  2. Emission of e-money.
  3. Services that allow you to use issued e-money as a means of payment.
  4. Currency exchange, including fiat to fiat transactions.
  5. Opening sub-accounts for clients within the corporate account of the payment service provider.
  6. Services that allow users to place cash in a current account.
  7. Services that allow users to withdraw cash from their current account.
  8. Carrying out payment transactions and money transfers (including between payment accounts of users of a payment organization).

In general, the concept of e-money includes a range of technologies, from complex e-wallet systems with mobile applications to the provision of money transfers and FX services. The ecosystem’s internal culture of innovation promises continued product creation in the near future as competition intensifies with a growing number of license holders across Europe.

Benefits of an EMI-license

The main advantages of obtaining an electronic money institution license in one of the European countries are as follows.

  1. Possibility of receiving SWIFT (international interbank system).
  2. The institution’s clients receive IBAN-accounts.
  3. Possibility of remote account opening.
  4. Issuing a Visa or MasterCard payment card for clients.
  5. The company can transfer payments in different currencies.
  6. The company can independently make payment decisions and open accounts. In addition, correspondent accounts around the world.
  7. Highly-developed technology for e-solutions implementation.
  8. Providing services for depositing or withdrawing cash and all operations necessary for the operation of a payment account.

Electronic money institutions can offer a number of benefits to customers. These include:

  • zero credit risk (as mentioned above);
  • stricter enforcement of financial standards under the PSD2 mandate;
  • higher quality of service through fully regulated company guarantees;
  • wider range of services.

Transactions made through electronic money institutions are also typically processed in a fast, secure and convenient manner, resulting in lower fees. Additionally, the nature of e-money ensures that payment methods are available 24/7. The establishment of e-money paves the way for simplified accounting and increased security. Users can program payments using digital accounts, eliminating the need for constant and risky exchange of credit card information.

Future of EMI Banking

Many economic changes have already affected consumer behavior and changed business processes around the world. Consumers have become even more active in ordering and paying for services online, and for many, the need to go somewhere physically already looks strange and causes inconvenience.

Accordingly, every traditional bank will be forced to respond to these changes in customer behavior and now compete not only with each other, but also with fintech companies or EMIs, which are not burdened with bloated staff and capital costs, and therefore are able to quickly increase their market share.

The faster businesses recognize these changes, the more likely they are to survive and thrive in a post-pandemic world, and the more likely consumers are to get a better product at a better price. For new entrepreneurs, this is a great opportunity to immediately start building the business of the future.

The article’s author is Denys Chernyshov – founder and CEO of globally-famous organization Eternity Law International.


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