License service logo

LICENSING


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


      • FCA-UK CARD OPERATOR LICENSE


        • FCA logo
      • FCA - Financial Conduct Authority. In the UK, almost all financial services activities must be authorized by the Financial Conduct Authority - FCA. This is the organization that issues licenses for electronic money card operators. The legislation of the United Kingdom provides for the possibility of setting up an organization on the territory of the country with a financial license from the FCA. The procedure for organizing a business allows you to create a profitable project that deals with electronic currencies in less than 1 year.


        For such companies, opportunities are opened to open accounts using IBAN technology, the institution becomes a member of SWIFT, SEPA and gets the opportunity to issue its own cards for making payments.


        Characteristics of the activities of British companies. The main difference between such an organization and a bank in the classical sense is that such a financial institution has no right to issue loans and interest on customer deposits. However, the advantage is the absence of the need to obtain a banking license and the disinterest of the financial supervision authorities.


        Up to £350,000 of capital will be required to set up the organisation. Payment is made in favor of the regulator at the time of license registration. Upon successful completion of the registration, the English Financial Market sends a confirmation to the applicant-founder.


        The capital of the company is irreducible, money is always available for withdrawal or exchange and other financial transactions. This type of license is called an AEMI (Authorized Electronic Money Institution). Such a tool provides an opportunity for business development in the field of blockchain technology, allows you to quickly launch tools for regulating activity.


        The authorized electronic money institution allows you to carry out financial transactions outside the UK and enter into agreements with leading banks abroad to issue your own banknotes. In the competencies of organizations working with both legal entities and individuals.


        What you need to get a license. Documenting the AML system is bureaucratically easier than the usual procedure. It is enough to perform identification through remote communication over the Internet. The service is offered remotely to customers worldwide.


        Requirements for obtaining an EMI license in the UK

        To be licensed as an electronic money institution in the UK, applicants must pass a set of regulatory requirements that confirm their operational integrity and financial stability:

      • A solid financial foundation with a minimum capital of €350,000 (approx. GBP 305,000) is required to set up an authorized e-money business.
      • Operating capital, fixed at 2% of electronic money issued, is necessary to maintain the financial health of the company.
      • Mechanisms, such as separate client bank accounts or insurance policies, should be in place to adequately protect client funds.
      • The governing body must be credible, qualified and experienced to carry out its responsibilities effectively.


        Additional conditions as specified by the FCA include:

      • The institution must be legally recognized as a legal entity.
      • All payment services must be made within the United Kingdom.
      • Implementation of sound management structures and a strategic business plan is required.
      • Strict measures should be put in place to protect users' funds.
      • Adequate indemnity insurance should be taken out to cover potential risks.
      • Directors must be of good standing and possess the skills appropriate to their roles.
      • There should be no history of money laundering among any of the managers.
      • The head office of the institution must be located in the United Kingdom.
      • Compliance with all applicable money laundering regulations is non-negotiable.
      • Shareholders with a stake of 10% or more must pass a "fit and proper" test.
      • All significant relationships with other parties must be clear for the FCA's ability to supervise the business effectively.


        Documentation

        To apply for an EMI license in the UK, the following documents and information are essential:

      • Specific Business Identification.
      • Program for operations.
      • Business plan and financial projections.
      • Describe how a business is organized.
      • Provide proof of initial capital.
      • Measures to secure client funds.
      • Compliance, governance arrangements and internal control.
      • Procedures for handling security incidents and related customer complaints.
      • Processes for processing sensitive payment data,
      • Measures have been put in place to maintain operations.
      • Performance, Transaction and Fraud Data Collection Methods.
      • Internal control for compliance with anti-money laundering and anti-terrorist financing obligations.
      • Provide information about qualifying holdings or shareholders.
      • Describe in detail any external service arrangements.


        The transactions carried out by such organizations are not subject to VAT. The only compulsory charge is income tax paid at the end of the year, which is accepted in the UK as progressive.


        Benefits of the UK licensing system


        The electronic money institution system allows to solve several problems of transnational business - making international transfers and services abroad with carrying out operations in US dollars. Also among the advantages of receiving SWIFT and IBAN in the UK are the opening of accounts for citizens and organizations, the issuance of MasterCard payment cards with currency turnover in USD / EUR / GBP, currency of other countries, the possibility of creating your own AML department .


        Tax accounting


        Under the Automatic Exchange of Financial Information Rules 2018, the CRS Data Verification Directive applies to credit institutions and other financial service entities. When you use the AEMI (Authorized Electronic Money Institution) standard, information about transactions and account holders is kept confidential.


        Types of English licenses


        Authorisations to carry out operations in the financial sector when obtained in the UK are divided into two types: small (SEMI) and large (AEMI). In the first case, it is enough to put funds in the capital up to 50,000 pounds sterling, the period for issuing a license is 4 months, the founder must put only one citizen of the kingdom. In the case of a large license it is necessary to provide capital in the amount of 350,000 pounds sterling, registration will take 6 months, 2 residents of the country with English passports are required.


        The blockchain operations license issued in the United Kingdom opens wide opportunities for business development in this area.


        The value of the package of services is 62,000 euros (at AD).


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

      • London, UK
      • Performance period - from 7 to 9 months