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ELECTRONIC MONEY



Electronic money payment systems as an alternative to banking institutions


What is electronic money?


In a nutshell, electronic money (also called “e-money”) is a digital record of value in a given system. E-money can be exchanged between two parties, but no one actually touches money because all that happens is an exchange of electronic records.


The media that stores this predefined value or payment information can be either hardware or software.


You might be surprised, but every payment and transaction you make with your debit or credit cards is electronic and involves the exchange of electronic money. The hardware, or key, that gives access to the electronically stored value of your checking account is the card itself. In fact, financial information is stored in the chip and magnetic stripe. When you use this payment method, after reading the card on a POS reader, a connection and subsequent exchange of values (e-money) takes place between your bank and the merchant's bank. They are connected to a server over the Internet to verify and confirm a transaction. It is also possible to make a payment even without a real-time connection – for example, when shopping on board an airplane. In these cases, the transaction is finalized at a later stage.


Online banking also stores your money electronically - on servers. Prepaid card issuers, digital wallets and other financial institutions can accept cash and in return issue you electronic money to pay in the digital world.


Electronic money company licensed by the FCA (Financial Conduct Authority) - the most transparent supervisory authority that issues licenses for electronic money operators is located in London - Great Britain.


There is, however, one major difference.


What is an electronic money company?


In the simplest terms, companies such as Wise, Juni, Monese, iCard, Revolut and many others are licensed to issue electronic money and have the right to develop and provide digital payment solutions.


Here are a few reasons why your money is better protected with electronic money institutions:

  • Your money is kept in special (or "segregated") bank accounts.
  • Your money is not exposed to investment risk - it is separated from the funds in our corporate accounts.
  • The money is protected in a different way than the standard bank deposit guarantee, up to €100,000, which comes from the Bank Deposit Guarantee Fund (FGVB). The difference is that with electronic money operators, assets are not subject to the risks that exist with banks.
  • Your money in companies like Wise, Juni, Monese, iCard, Revolut are kept separately from the company's assets and capital and cannot be subject to requests and claims from our creditors.
  • Electronic money institutions are similar to banks in terms of security requirements and processes for collecting and managing customer information.


    How widespread is e-money?


    According to data from the European Union, only about 9.6% of the money in circulation is in the form of banknotes or coins. This means that around 90.4% or 12.5 trillion euros are electronic and stored on servers around the world.


    Electronic money is now widely accepted and widely used because it is much easier to handle than cash.


    People who prefer cash payments but receive their paychecks in their bank accounts are actually using electronic money, which they unknowingly "exchange" for cash - with every ATM withdrawal.


    Cash is sometimes criticized as some people insist that it is favored and used for unregulated purposes. This opinion is not objective, since unregulated financial operations also happen with electronic money, and on a larger scale, when banks do not exercise control.


    Why should I use e-money instead of cash?


    Paper money has its advantages in certain situations, however, its use is steadily decreasing with time and the advent of technology.


    As a consumer, you are free to pay as you prefer, but electronic money is gradually taking a larger share of in-store transactions.


    Some regions and countries already pay primarily electronically - with contactless debit cards or mobile phones.


    This is due to several factors:

  • E-money drastically reduces the cost of cashing paper money.
  • Issuing electronic money does not require natural resources, such as wood fiber or other plants used to make paper.
  • The technology is not new, it has already proven itself, we can rely on it and usually the risks are under control.
  • Different jurisdictions around the world have already adopted legal frameworks to regulate the use of electronic money and prevent abuse.
  • Banks usually protect their customers' deposits with government funds/guarantees.
  • Electronic money is perfect for internet commerce because it allows users to conveniently shop online. And this is natural, since it is not possible to exchange cache remotely.
  • E-money companies also protect your money. They are in the so-called "segregated" accounts.


    It is not always possible to open a foreign bank account due to local restrictions. For example, in some jurisdictions only a resident of the bank's jurisdiction can do this. Nevertheless, the option of opening an EMI account offers several unique advantages:

  • no minimum deposit requirements;
  • simplified compliance rules;
  • no restrictions when closing transactions on the account;
  • a high degree of confidentiality of the owners' data due to the lack of exchange of tax information;
  • providing additional guarantees for the safety of funds when a certain threshold is exceeded.


    • How can Smart Startup UK lawyers help?

      Fintech digital payments logo


      • FINANCIAL LICENSE IN ESTONIA


        • Fi logo
      • E-money institution is a company whose usual business is issuing electronic money. To work, you need to get an Emi (Estonia) license.


        In addition to issuing electronic money, you can engage in the following activities:

      • Provision of payment services;
      • Granting of credits related to the provision of payment services under the following conditions: the provision of credit is an auxiliary service and is provided exclusively for the purpose of performing payment operations; credits issued in connection with the execution of the payment operation must be returned within 12 months; loans must not be provided from funds received or stored for the purpose of performing payment operations; the payment institution's own capital should be sufficient to cover the risks associated with the granted loans;
      • Providing additional services directly related to the issuance of electronic money or its processing or payment services;
      • Working with payment licenses;
      • Carrying out other activities unrelated to the issuance of electronic money, unless otherwise provided by law.


        • Estonian payment license license can be obtained from the Joint Stock Company (JSC) or from the Joint Stock Company (JSCo) whose authorized capital must be at least EUR 350,000.


        Smart Startup UK solicitors provide e-money licensing services in Estonia. With the help of our specialists, the process will be carried out correctly and within the agreed time.


        Requirements for joint-stock companies

      • Availability of auditor
      • Presence of at least 4 persons, 3 of whom will be on the board of directors of the company and 1 will be a legal representative (member of the management board) of the company.
      • At least 1 founder (shareholder), can be both a legal entity and a private person
      • Registration of shares in the securities center


        • Stages of establishing the company:

      • Appointment of the auditor of the company
      • Preparation of a decision to establish a company
      • Preparation of the articles of association of the company
      • Opening a bank account of the founder/shareholder of the company (if JSC)
      • Opening of the securities account is done after opening the account of the founder (if it is JSC)
      • Registration of documents with a notary
      • Opening a bank account for a company
      • Contribution from the company's share capital
      • Registration of the company in the securities center (if JSC)
      • It takes about two months to set up a joint stock company and about two weeks for a full partnership.


        The list of documents required to prepare a license application for a payment license in Estonia

      • A copy of the articles of association, and in the case of an active commercial company - a decision of the general meeting on changes to the introduction of the articles of association and the amended text of the articles of association
      • When establishing a commercial company - a notarized copy of the articles of association or decision on incorporation.
      • A document confirming the presence of contributed or payable share or equity capital
      • A program of activities with a description, first of all, of the planned payment services business plan
      • Initial balance sheet and income statement, and in the case of an ongoing business partnership, a balance sheet and statement of income and expenses as of the end of the month preceding the submission of the application and statements for the last three business years
      • Description of the application of the general requirements for the storage and protection of client funds
      • Internal regulations and rules for internal accounting or their drafts
      • Data on information and other technological means and systems, security systems, mechanisms and control systems necessary to provide planned services
      • Description of the internal control system and measures to ensure compliance with the obligations related to the fight against money laundering and the financing of terrorism and related to the information about the payer that accompanies the money transfer
      • Description of the organizational structure, including, if necessary, a description of its use of agents or branches or outsourcing of services, and its participation in national and international payment licenses
      • List of shareholders with the names of each one of them, registration or personal code, if any, and in the absence of one - dates of birth and data on the number of shares acquired by each shareholder or on the shares belonging to each of them.
      • Information for persons with a significant share of participation
      • Information about managers, containing names, surnames, personal codes or, in their absence, date of birth, residential address, education information, full list of places of work and positions, and in the case of members of the management board. - a description of their responsibilities and, at the applicant's discretion, - documents confirming the trustworthiness of the managers and their compliance with the requirements of the legislation
      • Information about business partnerships in which the participation of the applicant for a license or its manager exceeds 20 percent and this information must contain the amount of equity or share capital, a list of activities and the size of the share of the applicant and any participation of a manager
      • Information about the applicant's auditor and internal auditor, including their names, residence or location, personal codes or, in their absence, dates of birth or registration codes
      • In connection with an existing commercial partnership - documents confirming the amount of equity, with a report of a sworn auditor.
      • Technical, economic and legal principles of operation of the payment license, approved in advance by the Bank of Estonia, as well as draft rules for organization of the system, if the applicant wishes to participate in the operation of the payment license.


        The Financial Inspectorate takes 3 to 6 months to consider the license application for a payment license in Estonia,


        The value of the package of services is 55,000 euros (at AD).


        The price of a payment license in Estonia includes:

      • Full support for company incorporation, including registration of registration documents with a notary public, appointment of a company auditor, assistance in opening a bank account and securities account, registration of registration documents at the securities center.
      • Full support for obtaining an e-money license in Estonia, including processing all necessary documents and submitting an application to the Financial Inspectorate, communication with the Financial Inspectorate during the processing of the payment institution license application (e-money Estonia).
      • Legal address of the company.
      • Payment of all government obligations.
      • Preparation of powers of attorney and their translation.
      • Legal and accounting consultations.


        If you need a license for a card operator, our lawyers will advise you on what you need to do to get a license!

      • Tallinn, Estonia
      • Performance period - from 3 to 6 months