In a world of constant change and development of new technologies, even traditional banking institutions faced substantial competition during the last years.

With the introduction of new technologies in the finance space (the infamous ‘fintech’) and new business models, one of the questions we are often asked by our clients is ‘What is the difference between an Electronic Money Institution, a Payment Institution and a Bank?’.

The Bank: What is it?

A Bank is a Financial Institution licensed to receive deposits from the public and make loans. There are several types of banks, such as Retail, Commercial and Investments Banks. In most countries, banks are regulated by the National Government or Central Bank(s) such as the UK’s Bank of England and the EU’s European Central Bank.

Business owners often look to Banks to save their cash, to receive interest on deposits and to access credit facilities. Banks may also provide financial services such as Wealth Management, Currency Exchange, and Safe Deposit Boxes.

Interestingly, Revolut has recently obtained its full banking license in Lithuania for the European Economic Area and has also obtained its full banking license by the FCA for the UK.  

EMI: What is it?

An Electronic Money Institution is a Regulated Financial Institution that is authorized to issue Electronic Money (e-money) which is a digital representation of money.

The relevant EU Directive (2009/110/EC) dates back to 2009. Despite this, EMIs gained popularity after the financial crisis of the mid-2010s and are often seen as easy, convenient and in some cases even cheaper solution, for the opening of corporate accounts, among other.

Services offered by EMIs often include:

• Virtual IBAN accounts (personal and business).
• Merchant accounts.
• Physical or virtual payment cards (debit, prepaid, corporate, travel money, gift).
• E-wallets
• Money transfers and foreign currency exchange services.

Unlike traditional banks, EMIs are rarely authorized to provide loans or other credit facilities and to offer any form of return on deposits. EMIs tend to focus on electronic payments rather than traditional banking services.

Perhaps the most famous example of a successful EMI in the EU is that of Wise (Transferwise).

Payment Institutions (PI)

A Payment Institution is a Regulated Financial Institution that provides payment services that allow individuals and businesses to make and receive payments. These includes services like Bank Transfers, Payment Processing, Money Remittance, and Executing Payment Transactions.

Unlike EMIs, PIs do not issue e-money. Services offered by EMIs often include:

• Processing Payments (e.g., credit card payments, bank transfers).
• Money Remittance (sending funds between individuals or businesses).
• Payment Gateway Services (enabling merchants to accept online payments).

Which type of institution should I use?

 A reasonable question, as to which type of institution to choose then, can arise. The response would be that it depends on the needs of each company. For those who need credit facilities, deal with cash or prefer to have the option of visiting a physical branch, a Bank might be a better option. For individuals who do not require face-to face interactions or credit facilities, an EMI or a PI might be a more suitable option. Should you wish to proceed with either of the above-mentioned institutions, we are happy to assist you! Contact our Banking Team at: info@paraschou.com.cy