EMI in the world of banking

Nowadays, banks have become an integral part of our lives. About 60-80% of the population is involved in the banking system in one way or another. the reason for this is that banks no longer act exclusively as custodians of funds. We make transfers, pay for groceries in stores, and pay taxes using our bank accounts, which has made our lives easier.

But are all the accounts we use really bank accounts? And why did this article start with the topic of banks, which is not in tune with the title of the article?

Alternative banking

The fact is that we usually refer to all our current accounts through which we can make and receive money transfers as bank accounts, which is not always true.

The beginning of the 21st century was marked by a boom in digital technology, which has affected all areas of life, including financial services. The demand for digitalisation of financial processes created favourable conditions for creating a certain alternative to banks, which at that time were not very fast and accessible. This is where EMIs entered the market.

What is an EMI?

An EMI (Electronic Money Institution) is a legal entity that, on the basis of a licence, has acquired the right to provide payment services for the issuance and execution of payment transactions with electronic money.

As I mentioned earlier, there was a demand from society for the ability to quickly transfer funds from point A to point B, without unnecessary paperwork, without SMS and registration (well, almost). And EMIs have actually met this demand by providing such services accordingly.

The most well-known EMIs today are Wise, Revolut, Payserra, PayPal.

Electronic money institutions have inherent features that distinguish them from conventional banks. Among them:

• The scope of services that EMIs are entitled to provide is much narrower than that of banks. For example, EMIs cannot provide lending or deposit services. Their main functionality is interaccount transfers, issuing electronic money, currency conversion, etc.

• EMIs, as their name implies, deal only with electronic money (the digital equivalent of cash issued by institutions such as EMIs in exchange for real money), which may cause difficulties in cashing it out, depending on the EMI, its terms and conditions, and may require additional conversion, for which additional fees may be charged;

• They are more involved in the fintech environment, which makes it much more likely that the institution will be involved in various open banking products that make the process of transferring funds much easier and more convenient

Of course, these points are not the only features that distinguish EMIs, but they are the most noticeable and useful for EMI clients.

Why EMI after all?

‘Why should I use EMI accounts at all if I can open them with banks that I have confidence in and that are well-known and secure,’ you may ask.

The fact is that e-money institutions, like any other financial institutions, are subject to regulation by regulators, but they are subject to less control than traditional banks, which is why EMIs themselves are more loyal and less demanding to their new customers.

Let me explain how this manifests itself.

Let’s imagine that you are:

• A start-up company operating in the IT, marketing, or any other area where the product is not obvious and widely understood
• Do not have a significant amount of funds to guarantee your stability.
• The founders and directors are not well-known businessmen in the industry with vast experience.

Such a client is not entirely reliable and risky for the bank, as it is not sure of your solvency and transparency of your intentions, which will make the opening process very long, troublesome and most likely unsuccessful.

This is where EMIs come in handy. Apart from the fact that EMIs have far fewer requests and requirements for new customers, a large number of e-money institutions usually also try to cover specific types of businesses or specialise in specific requests. All you need to do is find the right EMI that can cover your needs. Given the prevalence of EMIs today, there is sure to be an option that suits your needs.

Safety when using an EMI

The loyalty of EMIs does not come from nowhere, it is due to the reduced regulatory scrutiny as the funds you transfer to these institutions are not used by them, like banks, for their own business purposes (such as buying shares, lending, etc.), so the activities of EMIs do not require such close monitoring.

This does not mean, however, that e-money institutions are not accountable and operate in a completely chaotic manner, as EMIs are subject to a serious security review process to obtain a licence to provide their services. EMIs, like any other financial institution, are also required to comply with AML and CFT standards and act in accordance with FATF recommendations.

How to choose your EMI?

As mentioned earlier, the number of EMIs on the market is really significant, which means that there is enough variety to open a personal or business account to help you find the most comfortable one for your needs.

What to look for when choosing an EMI for your own or your company’s needs:

• Fees. We have already mentioned that EMIs cannot use customer funds to conduct their business activities, but they must receive benefits for their own functioning, just like any legal entity running a business. To this end, electronic money institutions charge you fees for opening an account (a one-time payment), transferring and receiving funds, account maintenance (in fact, payments for prolonged non-use of the account), etc.
  When choosing the most convenient tariffs, pay attention to the fees for making payments, as EMIs can often set a percentage of the transaction rather than a fixed fee, which can be quite disadvantageous for you when transferring large amounts of money.

• Countries of operation. If you know the jurisdictions from which and to which transactions will be made, you need to find out whether the EMI where you plan to open an account can conduct transactions between such countries. Usually, when it comes to payments between EU countries, virtually every EMI will have no problems, but if you specify specific jurisdictions such as the UAE or Asian countries, you may have issues with this.
• Currencies. If you choose an EMI for your specific needs, which, for example, cannot be fully met by institutions such as Wise or Payserra, you may often face situations where you will not be able to accept payments in all currencies. It depends on your type of business, counterparties, etc. That is why you should always check with the EMI to avoid any last-minute mishaps.

Conclusion

EMIs have become a modern alternative to banks, providing speed, convenience, and accessibility of financial transactions for businesses and individuals in the digital world. With their help, you will have the opportunity to perform the minimum required list of operations that a company needs in order to fully function and make a profit, which is the main purpose of doing business. You will be able to pay for the services of counterparties, pay salaries to employees, pay administrative fees, receive funds for your activities and then withdraw them to your existing bank accounts in the form of dividends, etc.

However, you need to be very careful about your choice in order to ensure a truly comfortable experience. Consider your own specific needs, whether the EMI will be able to provide you with the full range of services you need, whether your interaction with the EMI will be profitable, and whether you can trust such an institution and be sure that your funds will be safe.

Which option you choose may indeed determine your company’s ability to conduct its business activities, as your company’s account is an integral tool without which the company simply cannot be viable.