What is an Electronic Money Institution?

An Electronic Money Institution (EMI) is a legal entity authorized by a financial regulator to issue electronic money, typically alongside certain payment services. In the EU and the UK, this means a firm that has obtained authorization to issue e-money. The term itself originates in EU law (first in Directive 2000/46/EC and then recast as Directive 2009/110/EC). The UK also uses the term in its Electronic Money Regulations 2011.

Outside Europe, regulators license the same business model under other labels: “e-money issuance service” in Singapore; Stored Value Facility (SVF) licensees in Hong Kong and the United Arab Emirates; Money Services Businesses (MSBs) in the United States; and federally supervised Payment Service Providers (PSPs) in Canada. In this article, we’ll delve deeper to answer the question: what is EMI, how it works, and how it is regulated.

Key Takeaways:

• EMIs are regulated entities that issue e-money but not deposits and must safeguard customer funds.
• There are different types of EMIs, such as Authorized EMI, Small EMI, and Hybrid EMI. They differ in thresholds, permissions, and passporting.
• Core services of EMIs include issuance of e-money, wallets, transfers and remittances, and redemption of funds.
• Regulations include authorization, capital, maintaining funds, par-value issuance, compliance with laws and regulations, and protection of users.
• EMIs require a license to operate.

How Does an EMI Work?

An Electronic Money Institution (EMI) issues e-money when a customer loads funds into a wallet, card, or similar account. The EMI must safeguard customers’ funds by keeping them in segregated accounts or protected by an insurance policy or guarantee. The e-money, also known as electronic money, must also be redeemable at face value. EMIs must not take deposits and must not grant interest or other time-linked benefits on e-money, which makes it very distinct from banks. Beyond issuing e-money, an e money institution can also provide payment services like transferring funds or issuing payment instruments.

3 Types of EMIs

To understand further what EMI is, it helps to look at how regulators group license types for e-money issuers. Here are the common types of EMIs:

Authorized Electronic Money Institution (AEMI)

An AEMI is a fully licensed firm allowed to issue e-money and, where permitted, provide regulated payment services like issuing cards and executing transfers. Aside from the initial capital requirement, safeguarding of funds, governance, and conduct obligations, they need to maintain a percentage of average outstanding e-money. AEMIs can generally operate at scale, including cross-border in the EEA through the standard passporting regime applicable to e-money and payment firms under EU rules.

Small Electronic Money Institution (SEMI)

A SEMI is a lighter-touch registration for firms that operate below defined activity thresholds. SEMI faces tighter limits, cannot passport across the EEA, and in the UK are restricted from some activities, such as account information or payment initiation services, unless they upgrade to complete authorization. Although prudential expectations are proportional, SEMIs still require robust safeguarding, governance, and AML arrangements, and they must monitor thresholds to determine when they can apply to become AEMIs if growth pushes them over the caps.

Hybrid Electronic Money Institution

A hybrid EMI is an authorized issuer of e-money that also conducts other commercial activities outside e-money issuance and payment services, for example, retail or platform businesses that embed an EMI capability. This model requires additional prudential care to prevent double-counting of capital and to manage group risks when a firm mixes regulated and unregulated business.

Services Offered by Electronic Money Institutions

EMIs sit at the intersection of stored value and payments. They enable consumers and businesses to hold value electronically, pay merchants, and move money without becoming banks. They do this by combining e-money issuance with regulated payment services and by partnering with card schemes, banks, payment services, and distributors. Here are the services that EMIs do:

• E-money issuance & wallets. Load funds and hold them as e-money in a wallet or on a prepaid card. EMIs must safeguard these funds, and holders may redeem them at face value.
• Payment transfers & money remittance. Execute payment transactions (P2P, bill pay, domestic/cross-border) under the payments rulebook that EMIs are allowed to rely on.
• Issuing payment instruments. Provide cards or other instruments that let customers initiate payments. EMIs can perform payment services activities provided they follow the laws and regulations of their jurisdictions.
• Merchant services/acquiring. Arrange acceptance of electronic payments for merchants as part of the permitted payment services suite.
• Cash-in & cash-out networks. Distribute and redeem e-money through third parties acting on the EMI’s behalf.
• Operational and ancillary services. Provide operational support and closely related ancillary services for e-money issuance and payment processing.

How are EMIs Regulated?

Electronic Money Institutions are licensed and supervised entities. Across major countries, the rules converge on three key goals: protecting customer funds, ensuring secure payments, and maintaining sound governance. The exact labels differ (EU/UK e-money frameworks, Singapore’s Payment Services Act, the U.S. MSB model), yet the core obligations below are broadly consistent. Here are the rules and practices that EMI around the world follows:

• Authorization & perimeter: An EMI must obtain regulatory authorization (or register under a small-firm tier) before issuing e-money.
• Safeguarding of customer money: Funds received for e-money must be protected so they’re safe if the firm fails. This is typically done by segregation in safeguarded accounts or by an insurance or guarantee.
• Capital & ongoing own funds. Authorized EMIs hold an initial capital and maintain their own funds linked to outstanding e-money. National rules and commission papers confirm these thresholds.
• Par-value issuance and redemption: E-money must be issued and redeemable at par on demand. Regulations also prohibit EMIs from paying interest tied to how long balances are held.
• Conduct & disclosures: When providing payment services, EMIs must follow transparency rules on fees, terms, and customer information. They are also required to offer accessible complaints and redress routes.
• Strong Customer Authentication (SCA) & secure interfaces: Remote payments must use SCA and secure communication.
• Major incident reporting: EMIs must classify and promptly report significant operational or security incidents to their regulators.
• Operational resilience: In the EU, DORA (in force since 17 Jan 2025) hardens ICT-risk, testing, and third-party oversight requirements for financial entities such as payment and e-money institutions. 
• AML/CFT obligations. EMIs are subject to anti-money-laundering rules (e.g., EU AMLDs/UK MLRs; MAS PSN01 in Singapore), including customer due diligence, monitoring, and reporting; AMLD5 tightened thresholds for anonymous prepaid instruments.

Filing for an E-Money license is mandatory to operate an e-money service, but the process can take months or even years. However, if you need to enter the market quickly or avoid the technicalities of the application, you can acquire an existing entity with an Electronic Money Institution license as a subsidiary. In this option, the holding company “inherits” the EMI license of the subsidiary.

FAQ

What is electronic money?

Electronic money or e-money is a stored monetary value, issued on receipt of funds, used to make payments, and accepted by parties other than the issuer. It is not a bank deposit and does not earn interest.

What services are not offered by EMIs?

EMIs cannot offer lending or investment services. These offerings fall outside the EMI scope unless the firm also holds separate authorizations.

What is an EMI license?

EMI licenses serve as the regulator’s authorization to issue e-money and, where permitted, offer payment services.

How safe are Electronic Money Institutions (EMIs)?

EMIs safeguard the funds with a guarantee or insurance and redeem them at par on request. EMIs are also supervised, must hold capital, and own funds. They also follow regulations based on the jurisdiction of their operations.