When you’re running a business, you hear about a lot of licenses and certifications. It’s hard to know which of them apply to your business and is worth the time and effort to achieve. The following will explore one type of license in detail to better help you make the right decision for you and your business—the e-money license.
What Is An E-Money License?
E-money simply stands for electronic money; it’s a cash alternative that’s digital and involves a monetary value that is stored electronically on a device which the holder can use to make payments to entities. It’s what’s used every time someone completes a cashless payment. In Europe, companies that want to offer cashless payments to their clients must seek out an e-money license. The process for application varies; seeking out an e-money license in Lithuania is different than seeking one out in the UK. Prepaid debit cards are a common example of e-money, but e-money can also be software-based. PayPal is a good example of a software-based e-money product.
Laws Regarding Prepaid Cards
If you’re looking into getting an e-money license, you should know that there are limits that can be placed on what you present to your clients. In particular, prepaid debit cards are used across Europe by people who don’t have bank accounts; many of the more recent laws protect these people. For instance, there cannot be time limits on the holder’s right to redeem the monetary value on the e-money card. EMIs must also protect the funds they receive from customers in such a way that if they become insolvent, they’re still able to repay their clientele.
What Is An Electronic Money Institution?
Electronic money institutions (often called EMIs for short) are institutions of a financial nature that have been given permission to issue electronic money. This means they are capable of performing the same functions as a bank or payment institution (PI). They are also able to provide IBAN accounts, e-wallets and payment cards.
Full-Banking Versus E-Money License
Making the choice between a full banking license and an e-money license is going to depend on several factors, including your business goals. A full-banking license involves meeting the legal criteria required to operate as a bank. This means you can offer payment services, protect customer deposits under a deposit protection scheme, manage customer deposits, use the title ‘bank’ in your marketing endeavours, offer interest-bearing loans, offer financial services like wealth management, and issue credit cards, loans and other products of a lending nature. The title of a full-banking license will vary from country to country, but within the Eurozone, the European Central Bank is going to be approving or rejecting your application.
In contrast, an e-money institution allows you to present payment services to clients as well as offer some other financial services products, but you will not be able to function as a bank or to use the term ‘bank’ in your marketing. E-money institutions are able to accept customer funds and transform them into e-money, but they’re not allowed to manage these funds. E-money accounts serve as digital wallets, but they cannot be overdrawn or earn interest. E-money institutions can also offer debit cards, transfers between accounts, direct debits, and standing orders, but they’re not able to offer lending as a standalone product. They can also offer certain digital financial services like foreign currency exchange.
Application Process
To become an e-money institution, you need to prove you have the minimum capital requirement (usually around €350,000), pay the application fee (somewhere between €1000 – €3000, and be supervised by a national financial services regulator. The process usually takes around fifteen months and, when complete, involves passporting rights in the EU and EEA.
Security
In addition to following the instruction for applying for an e-money license, providers need to think about digital security. Data has become the most valuable commodity on earth (even more valuable than oil), and this means people are looking to steal, sell, study and misuse data. The FBI shared that victims of cybercrime lost almost seven billion dollars last year alone. If you’re collecting data on your employees or customers, it’s vital that you take the proper steps to protect that data, particularly as it’s tied to financial behaviour. You should be working with a professional security team or provider to accomplish these ends.
The above information should give you an idea of the e-money licensing process and whether it’s right for you. It’s important to note that you must keep client money in a segregated account, and limits on transaction volumes vary by country.
