The proliferation of Electronic Money Institutions (EMIs) have not only become a vital factor in the ever-evolving fintech landscape, they have become equally important to the traditional finance space. 

A recent ClearBank report outlined the significant connective role EMIs play for traditional banks who are still wary of the fintech sector. EMI licences have also been highlighted as an important gateway for countries to introduce new and innovative payment methods. 

John Salter, Chief Customer Officer at ClearBank, explained in further detail some of his key takeaways from the report, analysing which countries are adopting EMIs the best and if we are entering an era of ‘Coopetition’ between banks and fintechs. 

Payment Expert: Firstly John, what were some of your key takeaways from the ClearBank report, ‘UK and European banks and EMIs: friends or foes?’

John Salter: One key takeaway is the growth of EMIs across Europe. The report points out some of the bumps in the road of recent years, with some EMIs restricted in the clients they can take on, as well as financial troubles. Despite these bumps, the EMI sector has flourished. 

The amount of customer funds safeguarded in the UK and Europe stands at €35bn, double that of five years ago. As Celent puts it, EMIs are “systemically important” to the fintech ecosystem.

One other big takeaway is the interconnectedness and complexity of that ecosystem. It’s not as simple as banks and EMIs in competition. Banks are critical partners for EMIs – providing safeguarding services, credit and banking services, and access to account-to-account payment rails.

EMIs are looking to add banking partners for risk mitigation and resilience, but they don’t always find it easy. They struggle to find the easy integration, API quality and risk appetite that aligns with their business.

PE: Can you explain the significance of EMI licences in not only being able for non-traditional payment providers to enter the space, but also their value for traditional banks to access more modern technologies?

Salter: As a bank, we know first-hand the responsibilities and regulations that come with a banking licence. It’s not an easy undertaking! 

One big difference is that the capital requirements for an EMI licence start at around €350,000, while a full banking licence requires capital of at least €5m.

EMI licences allow fintechs to offer a limited number of services, but they can partner with banks or other institutions to offer, for example, credit facilities or savings accounts. Large banks find it difficult to be everything to every customer, and EMIs can more easily specialise and reach niche segments or offer unique and focused products. 

These partnerships can work both ways, international payments being the most obvious example — why build a whole new product when you can work with an EMI and have mutually beneficial partnership?

PE: Which countries/markets have been the most receptive to EMIs and how has this in turn affected their financial sectors?

Salter: The UK is the largest market, with around 250 licences authorised. Lithuania is next, with around 80, and Ireland, Malta, and the Netherlands more notable in recent years. These are also some of the biggest fintech hubs in Europe. That’s no coincidence, given they’re also home to forward-thinking and ‘fintech friendly’ regulators that have played a critical role in supporting and encouraging broad financial and technology ecosystems. 

In the UK, for example, you have a global financial hub that attracts the best talent, attracts funding from Venture Capitals and private equity firms and a network of support services.

PE: Are we entering an era of ‘Coopetition’, where banks and fintechs may still be competing with one another, but recognising the value in collaborating to help push the industry forward?

Salter: I’d say that we’re already there and have been for some time.

Something that should be noted is that while funds worth €35bn are held in safeguarding arrangements, EMIs are primarily about enabling transactions, and the value of these transactions will be many times higher. 

As EMIs generally cannot operate without partnering with a bank, it’s an incredibly valuable opportunity. Banks need to understand that they cannot serve every need and working with EMIs means they can serve customers they would otherwise be unable to.

I do think banks in general recognise the value in this collaboration, but they need to look closely at the frustrations some EMIs reported when selecting a partner. Some needs highlighted in the report are APIs they can easily integrate, virtual accounts in multiple currencies and seamless customer onboarding.

PE: Lastly John, and thank you for your time, do you anticipate any regulatory changes, or recommend any, that would bolster more participation of companies to apply as an EMI?

Salter: I think regulatory changes are inevitable and our report shows that the EMI sector believes this too. More than that, they welcome more regulation — they see it as increasing credibility after some recent market failures. This isn’t something often reported in the market, however.

There are changes in the works that will affect EMIs, for example PSD3 and the UK’s ongoing review into Payment Service Regulations. There are likely to be new rules on winding up plans, security, and business continuity. 

Some EMIs have expressed a worry that this will make it tougher to find a banking partner as banks will choose to work with a few larger EMIs rather than many smaller ones. 

So, while it’s obviously important for EMIs to make sure they are meeting the requirements of any new regulations, it’s also important that banks understand their role in maintaining a healthy fintech ecosystem.