What is an e-money institution and how are customer funds protected?

An electronic money institution (EMI) is a financial institution that offers electronic payment services such as electronic wallets, prepaid cards and online payment services. E-money institutions are licensed and regulated by financial regulators and must comply with anti-money laundering and customer due diligence requirements.

EMIs differ from traditional banks in that they do not offer traditional banking services, such as checking or savings accounts, or credit services, such as loans or mortgages. Instead, they focus exclusively on electronic payment services.

EMIs are commonly used by individuals and businesses who want to make and receive electronic payments quickly and efficiently. They can be used to pay bills, transfer funds and shop online. EMIs offer a convenient and secure way to make financial transactions without using cash or checks.

EMIs are gaining popularity due to their flexibility and ease of use, especially in the fintech sector. They are also seen as a means of promoting financial inclusion by providing access to financial services for people who do not have access to traditional banking services.

More and more providers in Europe are specializing in e-money. This makes it possible to offer account services like a traditional bank. The boundaries between traditional banks and e-M institutions are blurring. While a high level of equity capital (usually in the millions) is required to set up a bank with a full banking license, 350,000 euros is enough to set up an e-money institution in the European Union.

The authorization of an e-money 

The authorization of an e-money institution in one EU country is sufficient to operate in other European countries. The activity is merely notified to the local supervisory authorities. The supervisor in the country where the company is based remains responsible. So if you are dealing with an e-M institution, you should make sure that it has its registered office in your own country. If there are problems, it is relatively easy to contact the domestic regulator.

How safe is my money with an e-money provider?

After the real neobank boom, many of which have only an EMI’s license, there is now a wave of insolvency of those very institutions, like Ruuky.

Now many customers wonder how and whether their funds are protected 

E-money providers must comply with strict regulations, which vary depending on the country in which they operate. One common method of protecting customer funds is through segregated accounts, where customer funds are kept separate from the e-money institution’s operating funds. Another method is insurance or financial protection. As the level of protection can vary from country to country, it is important to find out about the legal framework and the reputation of the financial institution before using services.