An Electronic Money Institution, commonly referred to as an EMI, is a regulated financial entity authorised to issue electronic money and provide payment services. EMIs sit at the core of modern fintech infrastructure, enabling digital payments, wallets, and account-like services without operating as traditional banks.
They play a crucial role in how money moves across apps, platforms, and borders.
Defining electronic money
Electronic money represents a digital store of value issued on receipt of funds. It is used for payment transactions and accepted by parties other than the issuer.
Unlike bank deposits, electronic money does not sit on a balance sheet as a loan to the institution. Instead, it must be fully safeguarded, meaning customer funds are protected and kept separate from the institution’s own money.
This distinction is central to how EMIs are regulated and how they differ from banks.
What an EMI is allowed to do
An EMI can issue electronic money and provide a wide range of payment services. These typically include card issuance, digital wallets, money transfers, merchant acquiring, and account-like payment accounts with IBANs.
EMIs often power everyday financial products such as prepaid cards, challenger banking apps, payroll wallets, and embedded payment solutions.
They can also passport their licence across multiple jurisdictions, particularly within Europe, allowing them to scale efficiently.
What an EMI cannot do
EMIs are not banks. They cannot take deposits in the traditional sense, nor can they lend customer funds or pay interest on balances derived from electronic money.
They also do not have access to central bank liquidity facilities or deposit guarantee schemes. This limitation reduces systemic risk but also constrains their business model.
As a result, EMIs focus on payments, user experience, and operational efficiency rather than balance sheet growth.
How EMIs are regulated
EMIs operate under specific regulatory frameworks that emphasise consumer protection and financial stability.
In the European Union, EMIs are authorised under the Electronic Money Directive and supervised by national competent authorities. For example, in the United Kingdom, EMIs are regulated by the Financial Conduct Authority.
Key regulatory requirements include capital thresholds, safeguarding of client funds, operational resilience, and anti-money laundering controls.
This framework enables innovation while maintaining trust in digital money.
Safeguarding and consumer protection
Safeguarding is one of the most important features of an EMI.
Customer funds must be held separately, either in segregated accounts at credit institutions or invested in low-risk secure assets. If an EMI fails, safeguarded funds should be returned to customers rather than used to pay creditors.
This model prioritises protection over yield and is a defining characteristic of electronic money regulation.
Why fintech companies use EMI licences
Many fintech firms choose the EMI route because it offers regulatory clarity without the full burden of a banking licence.
Obtaining an EMI licence is generally faster and less capital-intensive than becoming a bank. It allows companies to launch payment products, issue cards, and manage user balances while remaining compliant.
This approach has enabled the rapid growth of digital wallets, neobanks, and embedded finance platforms across Europe and beyond.
EMI versus bank: key differences
The difference between an EMI and a bank lies in risk and function.
Banks intermediate money by taking deposits and making loans. EMIs move money and store value without lending it out.
Because EMIs do not create credit, they pose lower systemic risk. However, they also rely on partner banks for safeguarding, settlement, and access to payment systems.
Both models coexist, serving different needs within the financial ecosystem.
The role of EMIs in embedded finance
EMIs are foundational to embedded finance. They allow non-financial companies to integrate payments and wallets directly into their products.
Marketplaces, platforms, and software providers use EMI infrastructure to offer seamless financial features without becoming banks themselves.
This has accelerated innovation while keeping regulated entities accountable for financial operations.
Challenges and future outlook
Despite their growth, EMIs face increasing scrutiny. Regulators are paying closer attention to safeguarding practices, outsourcing, and operational resilience.
Competition is also intensifying, with banks modernising their systems and non-bank providers expanding globally.
Looking ahead, EMIs are likely to remain central to digital finance. Their success will depend on strong governance, robust infrastructure, and the ability to scale responsibly.
An EMI is a cornerstone of modern financial infrastructure. It bridges the gap between traditional banking regulation and technology-driven innovation.
For fintech founders, EMIs offer a practical path to market. They also provide fast and accessible payment services for users. For regulators, they represent a controlled way to support innovation without compromising stability.
Understanding EMIs is essential for understanding how digital money works today.
