With society moving away from using physical cash, there has been an explosion in the use of electronic money. In turn, this has led to the establishment of hundreds of e-money institutions (EMIs); but, what exactly is an e-money institution?
E-money institutions are concerned specifically with the issuing of e-money, which is a monetary value that is stored electronically or magnetically. This monetary value can then be used to make payments to third parties. Typically, electronic payments are carried out via debit cards, credit cards, direct bank deposits, and e-checks, although other alternative e-payment methods such as e-wallets have become increasingly popular.
The European market has proven particularly popular for the establishment of EMIs, with approximately 500 such institutions launched to date. EMIs licenced in one European Union (EU) member state can pursue opportunities and provide services in all other EU/EEA countries, enjoying the benefits of the common market.
In this article, we will answer some of the most common questions around e-money institutions.
What can an e-money institution do?
E-money institutions can perform a number of different payment activities as outlined by EU regulations. These include, but are not limited to:
- 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.
When applying for an e-money licence, the e-money institution will specify the list of activities it wishes to perform, with only these activities then being authorised. For the full list of activities permitted of an e-money institution, view the Directive 2009/110/EC.
How do e-money institutions differ from payment institutions?
Companies wishing to enter the payments industry will have to decide between applying for an Electronic Money Institution (EMI) licence or operating as a Payment Institution (PI). There are some important distinctions between these two business models.
Electronic money issuing
The main difference between EMIs and PIs is that e-money institutions, in addition to the services provided by PIs, are entitled to issue electronic money.
Minimum share capital
The minimum share capital needed to complete an application to become a payment institution is approximately €125,000, whereas the capital requirement for an EMI is €350,000.
The difference between a payment account with a payment institution and an e-money institution is that the payment account with a payment institution is more restricted. For accounts with a payment institution, monies must be transmitted to a payment processor for an identified transaction.
Read on: Deep dive: Tuum’s payments module
How to obtain an e-money licence
Obtaining an e-money licence can be an extensive process, and you will need to ensure that you are adequately prepared. In Europe, you can apply for a licence within any jurisdiction (including UK and EEA), although application processing times can vary. The Bank of Lithuania is particularly popular, as they are known for their comparatively fast processing periods.
In order to successfully obtain an e-money licence, you will need to ensure you have the following:
- Presence & team in jurisdiction of application. Depending on jurisdiction, you will need from 2 – 10 local employees
- Adequate capital. You will need to demonstrate that you have enough capital to cover first year losses
- Extensive documentation. You will need to present a business plan, programme of activities & internal policies
- Core banking solution. To successfully launch your e-money institution, you will need core banking solution that is secure, compliant, and ready-to-deploy, with detailed documentation
- Budget. You will need to cover the costs of local personnel, consultants, lawyers, etc.
- Time. The process of obtaining an e-money licence can take anywhere from 9 to 18 months – you will need to have patience
Applying for a small EMI licence
There is also the option of applying as a small EMI if, for example, you provide evidence that your trading activities do not exceed €5 million. Small EMIs also have lower capital requirements (€50k), however, you will be subject to additional criteria such as maximum storage of €250 in relation to e-money storing services.
Want to learn more?
With Tuum’s core banking platform you can rapidly launch and scale your e-money institution. Get in touch for information on our capabilities, clients, and partner ecosystem.