Electronic Money Institution (EMI)
An Electronic Money Institution (EMI) is authorised to issue e-money and provide payment services. Modulr is an example of an EMI. EMIs are authorised by the regulator (e.g. the FCA in the UK) to issue electronic money and electronic money accounts. EMIs can offer payments as a service as an alternative to the traditional wholesale and commercial transaction banking infrastructure. They are not licensed to charge interest so are unable to offer credit/lending facilities directly. This constitutes the main difference between an EMI and a bank, however a significant point is also how the EMI must safeguard all funds in accounts. In the UK, all money converted into e-money must be stored securely in its entirety by the EMI and safeguarded in case of insolvency – ensuring that the total sum of funds is recoverable. This level of safeguarding is in contrast to the required level of the Financial Services Compensation Scheme, for instance, which provides consumers protection of their bank deposits up to a maximum of £85,000, or £170,000 for a joint account, in the event of a bank failure. The Electronic Money Directive (EMD) sets out the rules for the business practices and supervision of e-money institutions. The directive aims to lay the foundations for a single market for e-money services in the EU.
Applications
E-commerce:
Reduces fraud in online card payments by verifying the cardholder's identity
E-commerce:
Reduces fraud in online card payments by verifying the cardholder's identity
Advantages
- Enhanced security: Reduces unauthorised transactions by verifying that the genuine account holder is authorising the payment
- Enhanced security: Reduces unauthorised transactions by verifying that the genuine account holder is authorising the payment
Challenges
- User Experience: Additional authentication steps can cause friction and increase checkout abandonment
- User Experience: Additional authentication steps can cause friction and increase checkout abandonment
