What is an E-Money Institution?
An electronic money institution (an e-money institution or EMI for short) is a legal entity that holds a licence to issue electronic money. 3S Money is a FCS-regulated EMI - we enable clients to send and receive money from 199 countries. (Interested? Check your business's eligibility for our Global Business Account here.) For more information about EMIs and how they differ from traditional banks, carry on reading.
EMIs exist in different forms, but they usually offer some (or all) of the following:
- Issuing, distribution, or refunding of e-money.
- Payment services that facilitate transactions using e-money.
- Payment services that facilitate transactions using e-money.
- Issuing of payment cards allowing e-money to be converted into physical cash, or the customer to deposit cash onto the card to be used as e-money.
EMIs offer flexible and efficient alternatives to traditional banks. You will typically enjoy a faster account opening process, lower fees, and greater flexibility when it comes to make international money transfers.
What is electronic money?
Electronic money (or e-money) is the storage of monetary value electronically on a hardware or software product that can be used when making payments. Unlike cryptocurrency, electronic money is backed by fiat currency (your typical government-backed national currency). Electronic money is best thought of as digital cash, because it has a lot of the same properties as physical cash. For example, no interest accrues on e-money when it is held by the issuer.
Hardware-based electronic money products use a physical device like a card - either a prepaid payment card or your typical chip and pin card. Software-based products, as the name implies, use software that provide access via your mobile phone, computer or other personal device.
Buying the electronic equivalent of coins and notes, you effectively exchange cash for a different method of payment. While using a debit card to pay (which requires a bank account), or a credit card (which requires a contract), use of electronic money acts similarly to cash in that there is no need for third party authorisation when using it.
E-money is:
- Stored electronically
- Issued on receipt of funds for the purpose of making financial transactions
- Accepted as payment by an entity other than the issue
- Issued on receipt of funds for the purpose of making financial transactions
- Accepted as payment by an entity other than the issue
Is an electronic money institution a bank?
No. There are key differences between these two types of financial institutions - for example, banks and e-money institutions are regulated differently. EMIs can't offer investment, deposit, or credit services, so in this way they are quite different from a traditional bank.
EMIs, like a traditional bank, can open unique IBAN accounts for their customers. These can be used for making and receiving payments, while some can issue debit cards.
Are electronic money institutions safe?
While it's true the money held by EMIs are not protected by the UK Financial Services Compensation Scheme - in particular, because they do not lend out money deposited by clients - all EMIs in the UK have to be regulated by the Financial Conduct Authority and undergo strict licensing procedures.
All EMIs also have to comply with a number of UK laws, such as The Electronic Money Regulations 2011, as well as guidance set out in the FCA handbook.
There are also robust safeguarding measures in place that separates money held on behalf of customers from the EMI's operational funds. This means that, in the event that something happens to an EMI, your money is safe.
You can find out more about how 3S Money keeps your funds safe here.
First published: 21/01/2022.
Updated on 08/02/2022.
Updated on 08/02/2022.