An Electronic Money Institution (EMI) is a financial entity that provides electronic money services, enabling users to store, transfer, and manage funds digitally. EMIs are regulated entities that operate outside the traditional banking framework but offer many of the same services, such as issuing prepaid cards, facilitating online payments, and providing digital wallets.
In this article, we’ll explore what EMIs are, how they work, and how they compare to traditional banks.
What Is an Electronic Money Institution (EMI)?
An Electronic Money Institution (EMI) is a licensed financial entity that can issue electronic money (e-money), allowing customers to make transactions digitally. Unlike banks, EMIs cannot offer loans or accept deposits, but they provide an array of payment solutions, including:
- Digital wallets (e.g., PayPal, Revolut)
- Prepaid debit cards
- Online payment processing
- Cross-border transactions
Key Features of an EMI:
- Fully licensed and regulated under financial authorities (e.g., FCA in the UK, EBA in the EU)
- Can issue and store electronic money
- Provides digital payment services without traditional banking infrastructure
- Often used by fintech companies, businesses, and freelancers
For more details, visit the European Banking Authority’s EMI page.
How Does an EMI Work?
EMIs operate through digital platforms that facilitate cashless transactions. Here’s how a typical EMI transaction works:
- Funding an EMI Account – Users deposit funds via bank transfer, credit/debit card, or another EMI.
- Storing Funds as E-Money – The funds are converted into electronic money and stored in a digital account.
- Making Payments – Customers can send money, pay bills, or make online purchases using their EMI account.
- Withdrawing Funds – Money can be withdrawn via bank transfers, ATMs (if a card is provided), or used directly through linked payment services.
Unlike banks, EMIs do not lend money or generate interest on deposits, but they offer a convenient and efficient way to manage funds digitally.
When Are EMIs Used?
EMIs are widely used in various industries and for different financial activities, including:
- Freelancers & Gig Workers – Many independent professionals use EMIs like Wise and Payoneer to receive international payments.
- E-commerce Businesses – Online merchants rely on EMI payment gateways to process transactions.
- Travel & Forex Services – EMIs provide multi-currency accounts and cost-effective foreign exchange solutions.
- Fintech Startups – Many fintech companies build their services on EMI platforms rather than traditional banks.
For more information on fintech innovations, explore Finextra’s EMI resources.
Well-Known EMIs
Some of the most well-known EMIs in the industry include:
- Revolut – A popular fintech company offering multi-currency accounts and global payments.
- Wise (formerly TransferWise) – Specializes in low-cost international money transfers.
- Payoneer – Frequently used by freelancers and businesses for cross-border payments.
- Skrill – A widely used digital wallet and online payment service.
- Neteller – Provides e-money solutions for online transactions and gaming platforms.
To see a full list of authorized EMIs, visit EBA.
EMI Regulations & Licensing
To operate legally, an EMI must obtain a license from the relevant financial authority. In the UK, EMIs are regulated by the Financial Conduct Authority (FCA), while in the EU, they must comply with the European Banking Authority (EBA).Key Regulatory Requirements:
- Safeguarding client funds – EMIs must keep customer funds separate from operational funds.
- Compliance with AML/KYC rules – EMIs must follow strict anti-money laundering (AML) and know-your-customer (KYC) procedures.
- Capital requirements – EMIs must maintain a minimum level of capital to ensure stability.
For official EMI regulations, check FCA’s guidelines.
EMIs vs. Traditional Banks
While banks remain essential for traditional financial services, EMIs offer faster, more flexible, and often cheaper payment solutions.
Advantages & Disadvantages of EMIs
Advantages:
- Fast and efficient digital transactions
- Lower fees compared to traditional banks
- Global accessibility with multi-currency options
- User-friendly platforms with API integrations for businesses
Disadvantages:
- No deposit protection (funds are safeguarded but not insured like bank deposits)
- Limited financial services (no loans, credit, or overdraft facilities)
- Regulatory risks (some EMIs face stricter compliance measures)
FAQ: Frequently Asked Questions
1. Are EMIs safe to use?
Yes, EMIs are regulated and must safeguard customer funds, but they are not covered by deposit protection schemes like FSCS.
2. Can an EMI replace a traditional bank?
For payments and digital transactions, yes. However, EMIs do not offer loans, credit, or deposit protection like banks.
3. What is the difference between an EMI and a Payment Institution (PI)?
EMIs can store electronic money, while PIs only process payments without holding funds.
4. How do I open an EMI account?
Sign up online with an EMI, complete KYC verification, and deposit funds to start using the service.
5. Are EMIs only for businesses?
No, individuals can also use EMIs for personal transactions, online payments, and cross-border money transfers.
Conclusion
Electronic Money Institutions (EMIs) are revolutionizing digital payments by offering fast, flexible, and cost-effective financial services. While they cannot replace banks entirely, they provide a modern alternative for businesses and individuals looking for efficient, global payment solutions.For more information on crypto and banking, explore our banking and crypto golossary.
