Learn what an EMI is, and how electronic money institutions are different from traditional banks.
Electronic money, also known as e-money or digital currency, is money primarily held in digital form. The term also includes money-like assets – for example cryptocurrency.
With that in mind, electronic money institutions (EMIs) are financial companies that issue electronic money and provide payment services. Clients can open accounts, send money overseas and set up direct debits, just like they can at traditional banks.
At first glance, EMIs seem very similar to high street banks. However, there are a few important differences between electronic money institutions and traditional financial establishments, which we'll explain below.
What is an EMI?
Simply put, electronic money institutions are financial companies that hold and distribute digital currency. The term originally emerged from the European Union’s E-Money Directive, first adopted in 2000 and last amended in 2009.
In the UK, EMIs are payment service providers (PSPs) licensed by the Financial Conduct Authority (FCA). Licensing is a legal requirement, with firms either filing for authorised EMI or registered small EMI status under the Payment Services Regulations 2017.
From a practical, consumer-focused perspective, EMIs offer many of the same products and services as traditional banks. For example, they can:
Provide business and personal multi-currency accounts.
Send domestic and cross-border payments.
Use payment networks, like ACH, SEPA, SWIFT, ACCHAPS, EFT and Faster Payments.
Unlike banks, EMIs are not allowed to lend money, charge interest or pay interest to account holders.
Many individuals open accounts with EMIs to hedge against the risk of debanking. Because alternative accounts work well for day-to-day business or personal needs in multiple jurisdictions, they can help keep transactions flowing.
What’s the difference between a payment institution and an electronic money institution?
Payment institutions and electronic money institutions are both financial entities, but they do slightly different things, and they’re regulated differently.
Payment institutions, or PIs:
Primarily deal with money transfers and foreign exchange transactions.
Usually act as intermediaries between payers and payees, whether they’re consumers or businesses.
Are regulated as small PIs or authorised PIs under the Payment Services Regulations 2017.
In contrast, electronic money institutions:
Issue e-money, also known as electronic money or digital currency, which is the digital equivalent of the funds their clients deposit with them.
Deal with a range of transactions, plus payment cards, direct debits and credit transfers.
Allow account holders to store funds electronically and, in most cases, make payments electronically via digital wallets or mobile apps.
Are regulated as small EMIs or authorised EMIs under the Payment Services Regulations 2017 and Electronic Money Regulations 2011.
To recap, while both PIs and EMIs handle money and facilitate financial transactions, PIs focus on payments, while EMIs usually specialise in issuing electronic money and providing payment services.
Are EMIs safe?
Before opening an account, it’s important to make sure that an EMI is properly authorised by the FCA. Licensed EMIs must comply with a list of safeguarding requirements designed to keep consumer funds safe.
When clients deposit funds in EMI accounts, they receive e-money, or “relevant funds”, in return. Meanwhile, EMIs must keep client funds in separate safeguarding accounts at authorised credit institutions – for example, banks. The same applies when individuals or businesses deposit funds to make payments, whether they’re account holders or not.
EMIs aren’t allowed to mix client funds with their own funds. When EMIs deposit client funds in safeguarding accounts at banks, those funds are protected by law. Should the e-money institution fail, funds in the safeguarding account are ringfenced for the sole benefit of its clients, who are then reimbursed in full.
What are the advantages of an EMI?
If you need to open an account, there are several compelling reasons to consider an EMI rather than, or in addition to, a traditional bank. These include:
Enhanced safety. EMIs are licensed by the FCA and keep client funds in separate safeguarding accounts, so you can rest assured that your money is safe.
Cutting-edge innovation. Because EMIs generally don't have to shoulder the financial burden of brick-and-mortar branches, they can invest in product innovation instead.
Better flexibility. EMIs often have a larger and broader risk appetite, so they can often accept previously debanked consumers and businesses.
Easy access. Many EMIs are also fintechs, so account holders can move funds, swap currencies and make payments via an online interface or smartphone app.
Embrace the digital era with Interpolitan
Electronic money institutions provide many of the same services as banks, making them a great option if you’ve been debanked or have trouble accessing traditional banking services.
An Interpolitan personal or business account can help you overcome financial challenges and keep payments flowing smoothly in more than 160 jurisdictions.
If you’re used to personal service, you’ll feel at home here. We match all new clients with dedicated relationship managers, who provide support via phone or email whenever needed. Opening an account takes just 7–10 days, so you can onboard and access the tailored solutions you need quickly and efficiently.
We also work with a range of intermediaries, including lawyers, accountants and family office representatives. So, if you’re looking for a bespoke alternative banking solution on behalf of a third party, please get in touch with us today.
To learn more about how an Interpolitan account can help you navigate the financial world, get in touch with us today.