An EMI, short for “Electronic Money Institution”, is a financial institution authorized to issue and manage electronic money on behalf of users. EMIs play a pivotal role in providing innovative access to a wide range of financial services.
EMIs are integral to the financial system, and their activities are subject to strict government oversight. EMIs can issue electronic money only with a licence from the competent supervisory authority of a specific country. Typically, this authority is the Central Bank, the Financial Services Authority, or other relevant financial supervisory bodies.
The concept of electronic wallets as innovative payment products was introduced by European banks in the early 1990s.
By 1994, the European Monetary Institute, the precursor to the European Central Bank, had decreed that only licensed banks could offer such services.
However, in 2000 the First Electronic Money Directive (EMD) was adopted, which established a new type of financial institution with limited authority to issue electronic money.
This sector experienced rapid growth, and in 2009, as a result of the introduction of the Single Euro Payments Area (SEPA), the EU enacted the Payment Services Directive (PSD), regulating payment services and payment service providers in the European Union (EU) and the European Economic Area (EEA). Subsequently, the Payment Services Directive PSD2 was introduced, establishing electronic money regulations and an electronic money institution (EMI) licence.
Nowadays, an increasing number of financial platforms are actively emerging in the EU, offering users innovative electronic payment options. One of the most popular business models with an EMI licence is the so-called “neobanks”, which operate without physical branches.
Services that EMI can provide
In a broad sense, a company that holds an electronic money institution licence gains the ability to do the following:
issue, distribute, and accept electronic money;
provide payment services and conduct transactions with E-money, including fund transfers, currency conversions, and more;
issue payment cards, create electronic wallets, and offer other payment instruments that provide storage services for client funds.
However, EMIs are not permitted to pay interest on deposits or provide loans to their customers.
What is electronic money?
To comprehend the concept of an electronic money institution, it is crucial to grasp the essence of electronic money. Electronic money, often abbreviated as E-Money, is a digital alternative to traditional cash. Electronic monetary assets exist solely in electronic form on various technical media such as computers, mobile phones, cards, and online accounts. E-Money can be traded on electronic platforms, stored, exchanged, or used for payment, among others.
Electronic money institutions offer greater flexibility and accessibility compared to traditional banks. Operating virtually, they provide clients with convenient access from anywhere in the world, at any time.
Moreover, fees for services offered by electronic money institutions tend to be lower or even zero, while transaction processing speed is significantly higher. Additionally, EMIs can simplify accounting processes and enhance transaction security.