How Is an E-Money Institution Different from a Payment Institution?

As the European FinTech market grows, everyone wants a slice of the pie. You may be one of those seeking to venture into the industry or a customer wondering where to invest. For startups, getting licenses in such a competitive industry can be a challenge.

Truth be told, you may not even understand what licenses you need. Or you could have some information about the various licenses but be unable to differentiate them. In this article, we’ll give you the details of each service provider, their similarities and differences.

How Is an E-Money Institution Different from a Payment Institution?

Some Background on Payment Institutions

Payment institutions were created under the Directive 2007/64/EC. It came into force due to the Payment Services Directive. The main aim of the directive was to come up with a uniform payment market in the EU. It was also supposed to give directions on how to conduct the market. Still, the expectation was it would level the playing field.

Additionally, the directive was created to protect the rights of consumers through enhanced transparency and pave the way for more improved EU payment systems.

A Little about Electronic Money Institutions

Also known as EMIs, Electronic money institutions are defined in the Electronic Money Directive 2 (EMD2). Same as the payment institution, an electronic money institution offers financial services. The only difference is that with an Electronic Money Institution License UK, you can transact electronic money. The license also helps you remain compliant with the financial regulations put forth by the government.

With E-money institutions, a client opens a separate account just like a payment account. An E-money institution buys your fiat currency, such as the Euro, in exchange for virtual currency or electronic money to reload the account.

If you share an electronic money institution with an individual you want to do business with, payments can be made using E-money from this institution. Further, a few types of no-name debit cards can fall into the virtual currency class.

What Services Do Payment Institutions Offer?

Before the PSD rules came into force, some enterprises had started acting as payment institutions. Now that the regulations are in place, they now have to act per the rules.

Under its list of services are payment transactions. Such financial deals include credit transfers and debits. They can also grant or acquire payment instruments. On top of this, they also offer ancillary services such as custodianship and money management. Traditionally, these are services institutions like a bank will offer alongside the main ones. They include:

  • Funds transfer: This service involves sending or receiving cash worldwide
  • Custodial service: They provide storage for valuables such as jewelry and documents, a service referred to as a locker facility.
  • Forex transactions: They sell you the forex in exchange for expenses such as travel, and they can buy from you the same when you earn money abroad.
  • Internet banking: This form of banking makes it easy to do transactions online.

What Do E-Money Institutions Do?

They can offer services such as credit transactions. Additionally, they offer ancillary services, including forex exchange, safekeeping, data processing and storage, and running payment systems.

There are three classes of E-money institutions:

  • Traditional E-money institutions: They specifically issue E-money with authorization from DNB.
  • Exempt E-money institutions: They can’t issue electronic money without DNB registering it as an exempted institution.
  • Banks: These enterprises have the authorization to set up a bank but have been allowed to issue electronic money.

The Capital Requirements of Each

If you’re on the business end of things and want to launch an electronic money institution, you need EUR 350,000. On the other hand, a payment institution requires a capital of at least EUR 20,000 and a maximum of EUR 125,000.

The Law Each Model Follows

Like an electronic money institution, a payment institution complies with PSD2 standards. On top of this, they both are required to observe the money laundering regulations.

How Is an E-Money Institution Different from a Payment Institution?

Prepaid Cards Issuance

A prepaid card lets you make purchases and payments with your own money in plastic. If you’re wondering whether your E-money services providers or payment institution can issue a prepaid card, you need to understand several things. For instance, only a principal member of payment systems such as Visa or Mastercard can physically issue a card. However, both E-money and payment institutions can give you a no-name prepaid card, but issued by Visa or Mastercard.

With the above pointers in mind, should you go the electronic money institution way or the payment institution?

The key difference to remember is that both institutions offer the same type of services except one. An E-money institution is allowed to issue virtual currency, while a payment institution cannot. If you’re a customer seeking a prepaid card, you can choose either institution. But if your interest is to transact in E-money, you can only use an electronic money service provider.

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