Electronic Money Institution (EMI) licences have rapidly become an integral part of a payment company’s growth ambitions in Europe. 

This is compounded further by a recent report by ClearBank and produced by Celent, revealing that EMIs now hold deposits of €35bn across Europe, an increase of 84% from 2019. 

The UK and European banks and EMIs: friends or foes?, report is based on in-depth interviews with over a dozen industry players, including banks, EMIs, and fintechs that are EMI clients. 

There has been a proliferation of fintechs, neobanks and cryptocurrency companies that have applied and/or received an EMI licence over the past several years, including Crypto.com, payabl., and Payhawk. 

An e-money licence allows firms to offer limited payment and financial services and does not require the same high capital reserves as a banking licence. Unlike banks, deposits held by an EMI are not guaranteed by a deposit protection scheme, however, an EMI is required to safeguard its customers’ funds at all times, through third party arrangements.

The report highlights the interconnectedness and complexity of the fintech ecosystem, where banks, EMIs and other fintechs are as much cooperative partners as they are rivals. There are very few cases where an EMI can offer its services without a bank involved somewhere in the value chain.

John Salter, Chief Customer Officer, ClearBank, said: “EMIs fill the gap left by incumbent banks unwilling or unable to support the fintech sector and now play a significant role in how financial services are delivered. 

“Their customers and regulators are, partly in response to recent failings, demanding a greater emphasis on safeguarding, operational resiliency, fraud and AML controls. This report supports our core belief that cooperation and collaboration are key to better services for consumers and businesses.”

The report also examines how EMIs, and their relationships with banks, are affected by the fintech downturn and increased regulatory pressure.

It finds that: “Safeguarding of customer funds, as required by Electronic Money Regulations, is receiving more scrutiny from the customers and partners of EMIs. However, EMIs have limited choice in the safeguarding arrangements open to them.”

Many EMIs are looking to add new banking partners to provide additional risk mitigation and resilience and when an EMI is selecting a banking partner, ease of integration and risk appetite alignment are much more important than price.

Lastly, EMIs expect regulation to tighten in response to market failures. However, this is welcomed by these companies as a way to increase reputation by demonstrating accordance with higher compliance standards.

Zilvinas Bareisis, Head of Retail Banking and Payments at Celent, and one of the co-authors of the report, added: “EMIs have played a key role in the growth of fintech and are now systemically important. 

“We live in an age of ‘coopetition’, with the same entities competing in one area and cooperating elsewhere. This is the case for banks and EMIs—they can compete and partner on the way to capturing this opportunity.”