Aug 9, 2023
3 minutes

Everything you need to know about Electronic Money Institutions (EMIs)

understanding electronic money institutions and their role in fintech industry
Quick summary

If you have questions about the significance of e-money and how an electronic money institution (EMI) could benefit your business, this is the article for you. Here we explore everything you need to know to to help you make an informed decision on what EMI to pick.

Table of Contents

    What is an Electronic Money Institution (EMI)?

    The financial landscape is constantly evolving. This evolution has seen Electronic Money Institutes (EMIs) gain prominence over the last decade.

    E-money or electronic money is effectively a digital currency, an alternative to cash, or rather money. Technically it's when an issuer gets the money from the bank and issues it to the customer electronically. Any institute doing this must have an EMI licence which gives them the authority to issue e-money on behalf of their customers.

    EMIs allow issuers to operate more nimbly and cost-effectively than traditional banks. This is super useful for fintech customers who already rely on technology to support them to work faster.

    See how fintechs revolutionise spend management & outshine banks

    What is an EMI?

    EMIs are authorised entities providing digital payment services and issuing electronic money.

    Online money transfers, electronic wallets, prepaid cards — EMIs can help you with all of these and more. Their fees are usually cheaper than more traditional banking counterparts, transactions are often faster, and businesses can access relevant financial tools to help manage finances more effectively.

    Would your business benefit from using an EMI?

    While banks and fintechs often have regulations and rules in common, EMIs enable fintechs to achieve faster, more user-friendly, specific innovations for their customers.

    Most fintech companies use EMIs, as they have simplified the process for fintech firms such as ours to compete with conventional banks on a more level playing field.

    Initially, the emergence of fintech companies marked them as major challengers to established banks, primarily due to their ability to offer comparable services with a significantly enhanced customer experience and at a more competitive cost. However, this scenario has since undergone a notable transformation.

    The critical point is that most fintech firms don't want to transform into full-fledged banks solely to deliver identical services within the confines of traditional banking regulations. Such a shift would hinder their capacity to innovate rapidly and provide customers with the optimal experience.

    Similarly, traditional banks often lack the internal structure to foster innovation from within. And as a result, they frequently opt for a more cost-efficient approach by forming partnerships with fintech companies to revamp specific aspects of their services.

    Ultimately, there is ample room within the financial system for both traditional banks and fintech enterprises. But, for customers, the advantage of leveraging fintech companies often lies in agility, speed, and efficiency (supported by EMI).

    Exciting developments in the EMI industry

    Fintech is an industry moving at a rapid pace. It's driven by impressive technological advancements serving a space demanding accessible financial services for frictionless global business transactions.

    The investment this industry is witnessing from venture capitalists, private equity firms, and other investors means the fintech space is more dynamic than ever.

    So what kind of developments have we seen in recent years?

    One example: Convenient mobile payments

    Electronic Money Institutes now support the use of Google and Apple Pay, which means users can add their corporate cards to their digital wallets and make payments easily at POS terminals and online checkouts. Wherever you’re purchasing items and Apple or Google Pay comes up as a payment option — you can use it.

    Mobile payment services like Google Pay and Apple Pay differ from e-money because they offer a digital payment solution via corporate cards (once added).

    We answer three common questions about EMIs

    Sometimes, you just need to get some questions answered. Here are three of the most asked questions about EMIs.

    Is my money safe with an EMI?

    Yes. Plenty of safeguarding measures are in place to protect your money. EMIs segregate customer funds from all others. They can either invest in low-risk assets or deposit them into a separate account with an EEA-authorised credit institution.
    EMIs can also protect funds with an insurance policy.

    How are EMIs regulated?

    The Financial Conduct Authority (FCA) regulates all UK EMIs. They are governed by the Electronic Money Regulations 2011. All EMIs must gain authorisation from the FCA to operate legally and submit an application outlining a program of operations to the FCA. They are to comply with safeguarding requirements to protect all customer funds.

    Similarly, each country's competent authority in the EEA regulates EMIs according to local rules that largely follow European directives.

    How do EMIs differ from traditional banks?

    There are a few differences to be mindful of. Banks can attract deposits and lend them out; hence, they typically need to offer diverse services, from savings accounts to mortgages and lending. This broad product focus typically goes hand in hand with a higher regulatory burden and more internal complexity.

    EMIs can not lend out any funds collected from their clients - instead, as mentioned above, funds need to be safeguarded. This is one of the reasons EMIs can afford to have a narrower focus on specific business needs, thus fuelling innovation.

    EMI use cases: which industries would benefit?

    Here are some of the most common industries to benefit from EMIs:

    Freelancers and small businesses

    Using an EMI is often more affordable when compared to traditional banks. So EMI payment services and business accounts are more accessible to freelancers and small businesses, as these businesses typically have smaller budgets.

    Multi-currency businesses

    Travel and hospitality companies can benefit from EMIs facilitating cross-border payments and FX services. This makes it easier for them to access a wider range of payment methods and enjoy better exchange rates, avoiding additional charges.

    Final thoughts

    A lower regulatory burden than many traditional banks allows EMIs to operate more efficiently and better serve their diverse business customer base than traditional banks.

    EMIs have experienced prolonged periods of growth by providing fast and convenient digital payments for businesses looking for technology-focused financial services. Companies that want to become more agile choose EMIs over traditional banks, which consistently accelerates exciting opportunities for EMIs to develop new, innovative banking solutions.

    Payhawk is registered as an agent of two different EMIs, which means we provide payment services on behalf of those companies. We can facilitate faster financial transactions while giving you the tools required to manage your money more effectively, keeping an eye on spend at all times.

    Discover how Payhawk can help your business manage spend, including leveraging e-money across corporate cards, and providing smart expense management software. Schedule a demo.

    Trish Toovey - Content Director at Payhawk - The financial system of tomorrow
    Trish Toovey
    Senior Content Manager

    Trish Toovey works across the UK and US markets to craft content at Payhawk. Covering anything from ad copy to video scripting, Trish leans on a super varied background in copy and content creation for the finance, fashion, and travel industries.

    See all articles by Trish →
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