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Electronic Money Institution

An Electronic Money Institution is often confused with a bank. This article will discuss what an Electronic Money Institution is, its difference from a bank, and how it generally works.

What is an Electronic Money Institution?
An Electronic Money Institution is an establishment that supplies a financial product, which in this case, is electronic money. It is a financial institution licensed and authorized to issue electronic money. EMI only stores electronic money
via a device.

Electronic Money Institution

What is E-Money?
Electronic money is defined as the monetary value stored in a technical device. This money stored and read by devices is used to pay for services and products. The device serves as the instrument. There is no need for the involvement of a bank account in these transactions.

The electronic money institution is responsible for storing the monetary value of the e-money in a central accounting system or the enterprise’s server. Or it will store it in an electronic carrier like a chip. The EMI uses e-money as

What is a hardware-based e-money?
The hardware-based e-money or hardware-based product is where the purchasing product relies on a physical device. One example of a personal physical device is a chip card. The hardware-based e-money must have security features. The monetary values are transferred through device readers, and there is no need for network connectivity.

What is a Software-based e-money?
Software-based money or software-based product relies on software. The software is stored on personal devices, such as phones and tablets. The software allows the transaction through the means of an online connection to a remote connection. That remote server controls the use of the purchasing power.

The Difference Between Banks and EMI’s
EMI’s are connected to Debit Cards and Credit Cards. However, that does not mean that they are already under the bank. An EMI is a private institution that can produce electronic money. A bank can produce physical money.

Though it is under the country’s main bank jurisdiction to allow an Electronic Money Institution to start issuing money, that does not mean any bank can start issuing e-money.

The Three Categories of the Electronic Money Institution
There are three EMI categories.

Electronic Money Institution
A pure electronic money institution works as an enterprise. It only holds an authorization issued by a bank. That authorization only allows the institution to issue electronic money specifically.

Exempt Electronic Money Institutions
Exempt electronic money institutions are under the exemption regulation of the country’s main bank jurisdiction. Depending on the country’s Exemption Regulation, the enterprise is exempted from the authorization requirement.
When an electronic money institution is exempted, it is not permitted to issue electronic money until the country’s bank enters the enterprise under the public register.

Banks can also serve as electronic money institutions. Based on their authorization to set up a business and the extent permitted under that issued authorization, the bank can start issuing electronic money. They are excepted from the authorization requirement for EMI’s.

Why Apply for an E-Money Institution License?
Most people in the digital age do not carry physical money. Instead, people rely on their devices, credit, and debit cards for transactions. If a company does not permit e-money payment, it already removes more than 50% of its possible consumers. To apply for an e-money institution license, you must meet the country’s main bank’s requirements. It depends upon the country you are in if there’s also a need to pass documents to a certain government department.

The digital age requires that electronic money be accepted in establishments. Otherwise, it’ll fail indefinitely.

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Do you know if any of the EMI's have insurance?
TW guarantees your money if they go bust, but not when the underlying bank where they hold your money goes bust.
It's not quite that simple. If you are a bank and you open a client funds account for an EMI, you are required to keep those funds separate and not to be used the same way as regular deposits. The enforcement of this might vary when it comes to currencies outside of TW's home jurisdictions (UK and EU), but the onus then lies on TW to ensure that for example they can cover 100% of their AUD with other currencies in case their AU/AUD bank goes bust.

This one of the many reasons why it's hard for EMIs to find banking partners: it's not commercially attractive to onboard EMIs. That's why Bank of Lithuania is doing so well onboarding EMIs, since they are able to offer bank-like services without the same underlying commercial models as private banks. SolarisBank is a private bank which has built an entire private bank on this model; it's their focus, and that's why it works for them.
Do you know which bank that is?
Transferwise says the bank depends on the address attached to your account, eg.:

CHF: Swiss Franc Account in the UK | Free Foreign Currency Account:
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(Although not sure if storing in the UK will change after Brexit and now that Transferwise has moved to Brussels? but they don’t mention anything about that here: https://transferwise.com/help/articles/2965898/what-does-brexit-mean-for-transferwise)

See also:
Free Multi-Currency Account | Foreign Currency Account in UK
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