This article covers the requirements and peculiarities of EMI license
Technological progress has contributed to the development of a new kind of payment instrument – electronic money. It may be in the digital form of value stored on a technical device such as a chip card or a computer.
The term quasi money refers to highly liquid assets which can be easily converted to cash because they are in high demand and are issued by entities with excellent creditworthiness. Examples of quasi money include gold certificates, bonds, and certificates of deposit.
EMI – Electronic Money Institution (or Issuer) is a legal entity that has the right to issue electronic money and quasi-money, as well as to make payments related to e-money.
To become one, an organization has to undergo thorough scrutiny by the regulators. The clearance procedure may take up to six6 months.
Services provided by EMI licenses
The companies that receive EMI licenses also have all the rights pertaining to ordinary payment institutions. This way, they can provide both online and offline payment services.
A company can open sub-accounts for its customers within its own bank account, in order to create an electronic wallet. The clients can then exchange cash for the electronic equivalent of coins and notes issued by the company and store it in their e-wallet. EMI license is also informally known as e-wallet license.
By using the system of electronic money, customers may conduct transactions with traders. It allows them to buy products or services with virtual currency. Some e-money can also be later exchanged to physical currencies according to the current exchange rate.
Requirements and application
The main difference from the PI requirements is the initial sum of authorized capital. It’s much higher than for payment institutions and equals to €350,000. During the authorization process, these funds must remain in the company’s bank account opened in the same jurisdiction that issues the EMI license.
In different countries of the EU, there are peculiarities for obtaining this license. For instance, in Latvia, if the business does not issue more than 2 million euros per year, the company can simply work on the basis of registration. The license is not needed in that case. In the Czech Republic, the size of issued electronic money is restricted to 5 million euros. Before applying for a license in a certain country, make sure to check the applicable legislation.
The restrictions for getting an EMI concern the company’s top management. In most EU countries, the regulator performs a background check of all the managers (directors) of the company. According to the EU directive, there must be a minimum of two directors resident in the EU. In some countries, one of them may be an EU resident and another one – a resident of CIS.
The professional qualifications of the company directors must be confirmed by documentation. Their education cannot be technical, but financial or economic.
For both PI and EMI licenses, each jurisdiction may add its own rules for a company to obtain them, in addition to the generally accepted and required PSD2:
- availability of relevant software,
- efficient risk control procedures,
- secure customer identification procedures,
- strong technological base,
- segregated client fund account,
- accounting and external audit obligations,
- shareholding requirements,
- regulation of operational risks, etc.
The licensing procedure and the content of the application file are usually the same for PI and EMI. The license for e-money institutions also has a simplified variant, which is called the “small EMI-license”. This is rather an exception with many limitations in the authorized activities. It also doesn’t work in all the EU countries.
To apply to become a small EMI in the UK, as an example, you must include details of:
- your business plan;
- payment services you may provide (if applicable);
- your governance arrangements and internal procedures;
- evidence that when you start trading, your EMI will generate a monthly average outstanding e-money of less than €5 million;
- evidence that, in the 12 months preceding the application, the monthly average of payment service transactions did not exceed €3 million (this can be based on projections for newly-formed startups);
- a description of how you will protect the funds of e-money holders;
- evidence that you meet your initial capital requirements;
- the list of all the company’s directors, managers, and agents for scrutiny.
The decision on your application is usually made within:
- 3 months of receipt for standard cases,
- 12 months of receipt (if your application’s incomplete).
You are exempt from registration or authorization if your firm is a:
- credit institution;
- bank or municipal bank;
- building society;
- credit union.
Amidst the uncertainty of Brexit, many fintech firms prefer to get authorization in Lithuania, rather than the UK. It has become a hotspot for financial institutions since last year when Bank of Lithuania – the country’s regulator – introduced a procedure which allows companies to apply remotely for financial licenses. This one-click solution made Lithuania even more approachable for innovators across the world. Thus, many Chinese companies are making their way out of international limitations by applying online for financial licenses valid across the SEPA area in Lithuania.
Which companies already enjoy the benefits of EMI licenses?
Paytend Technology, a Chinese company dealing with financial services software, received their EMI license in Lithuania and established its European headquarters there. The company will operate in the EU via subsidiary Paytend Europe, chose the country due to its favorable and flexible regulatory environment.
Amazon Payments Europe has its registered office in Luxembourg and is authorized as an Electronic Money Institution. Amazon Pay allows millions of customers around the globe to check-in and checkout using information already stored in their Amazon account. In just a few taps they can complete a transaction without leaving the store’s site. With the EMI authorization, the company has easily extended its services across the EU markets.
FLASHiZ wallet, a mobile payment service provider, is one of the first mobile payment solutions in Europe using both NFC and QR codes. It’s a universal payment solution is working in physical stores, online, between end consumers (cash transfers) as well as for payment of paper invoices. FLASHiZ can also be integrated into m-commerce solutions. Being independent of banks and telco companies, FLASHiZ is a qualified EMI under the supervision of the Luxembourg banking authority.
Yapital Financial is a cashless cross-channel payment solution. In addition to making payments, consumers can send and receive instant money transfers thanks to guaranteed real-time transactions. Being licensed as an Electronic Money Institution in Luxembourg, the company complies with strict legal and regulatory requirements. In its efforts to uphold these high standards as well as to safeguard its customers’ money and financial data, Yapital has employed state-of-the-art data centers, using the latest encryption technologies, and incorporating world-class risk management tools and procedures.