What Is an EMI? Electronic Money Institutions Explained

What is an EMI? An EMI, or Electronic Money Institution, is a company licensed to issue electronic money and process payments without being a full bank. It can open accounts for you, give you an IBAN, issue cards and move money across borders. What it can’t do is lend your money out or offer investment products.

We know this model from the inside, because ConnectPay is an EMI ourselves. We hold an electronic money licence in Lithuania and run business accounts, cards and payments under it every day.

In this guide, we explain how electronic money institutions work, the two types of EMI licence, how they’re regulated, and how an EMI compares with a traditional bank. We also answer the question most people really want answered: is your money safe with an EMI? The short version is yes, when the right rules are in place. The longer version is worth understanding before you choose a provider.

What Is an EMI (Electronic Money Institution)?

If you’re asking what is EMI in finance, the answer comes down to one product: electronic money. E-money is a digital stand-in for cash. When you pay €1,000 into an EMI account, the EMI issues €1,000 of electronic money that you can spend, transfer or withdraw at face value.

Electronic money institutions are licensed to issue that e-money and to carry out digital transactions on their clients’ behalf. That includes incoming and outgoing transfers, card payments and currency conversion. Most EMIs operate entirely online, through an app, a web dashboard or an API. A few also keep physical offices or service points, but branches aren’t part of the model.

The category took its current shape in Europe after the EU adopted the Second Electronic Money Directive (EMD2) in 2009. EMD2 set clearer rules on capital, safeguarding and supervision, and it lowered the barriers to entry compared with the first directive. That made it practical for non-bank companies to get licensed, and many of the payment apps and business accounts people use today grew out of that framework.

One detail surprises people: e-money doesn’t earn interest. EMD2 prohibits it, because an EMI account holds payment funds, not savings.

How Does an EMI Work?

Think about a Lithuanian e-commerce company that starts selling to customers in Germany, Poland and the UK. It needs an account with an IBAN, a way to accept payments in several currencies, and cards for its team. A traditional bank might take weeks to onboard it. An EMI can usually handle all of that in one place.

Here’s how an EMI works in practice. The EMI onboards the business online, running identity and anti-money laundering (AML) checks digitally. Once approved, often in under 48 hours, the company gets a digital account and an IBAN. From there, the EMI can issue prepaid or debit cards, provide e-wallets, and send and receive payments across several networks, including SEPA for euro transfers and SWIFT for international ones.

Every euro the company holds is e-money issued by the EMI and backed one-to-one by client funds that the EMI safeguards (more on that below).

EMIs also tend to charge lower fees than traditional banks. That’s mostly structural. There’s no branch network to maintain, the technology stack is newer, and the product range is narrower. Many EMIs also expose their services through APIs, which is how platforms embed accounts and payments into their own products. Our list of the best fintech API companies shows what that looks like across the market.

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Types of EMIs: Small vs. Authorised

There are two types of EMI under UK and EU frameworks, and the difference mostly comes down to scale.

A Small EMI is designed for lower-volume issuers.

In the UK, a firm can register as a Small EMI as long as its average outstanding e-money stays at or below €5 million. Registration involves lighter-touch checks and lower capital requirements, which makes it a realistic starting point for an early-stage company. Several EU countries offer a similar option under national waivers. The catch is scope: a Small EMI generally can’t passport its services into other countries.

An Authorised EMI holds full authorisation.

Once average outstanding e-money goes above the regulatory threshold, a firm must move to this category. It must also hold at least €350,000 in initial capital and meet the full set of governance, safeguarding and reporting rules.

Most electronic money institutions that serve larger client bases, or operate across several countries, need full authorisation. If a provider is handling your business funds across borders, it’s worth checking which category it falls into.

EMI Regulation and Licensing Requirements

EMIs are lighter-touch than banks, but not lightly regulated. The rules are detailed, and supervisors check them.

In the UK, electronic money institutions are regulated by the Financial Conduct Authority (FCA) under the Electronic Money Regulations 2011. In the EU, each EMI is licensed and supervised by a national authority. In our case, that’s the Bank of Lithuania. An EMI authorised in one EU country can then passport its services across the European Economic Area.

To get an EU licence, an EMI needs a minimum capital base of €350,000. It must also maintain ongoing own funds in line with the volume of e-money it has outstanding. On top of that come regular audits, reporting to the regulator, and IT and security requirements. Because EMIs provide payment services, they must also comply with PSD2, including strong customer authentication for account access and payments.

The core restriction is just as important. EMIs can’t offer lending or investment services on their own. To provide those, they need to partner with a separately licensed institution. AML and KYC obligations apply in full, which is why many platforms rely on embedded compliance from their EMI rather than building it themselves.

EMI vs. Traditional Banks

People sometimes use the term “EMI bank,” but an EMI is not a bank, and the differences are concrete. Here’s how they compare side by side.

The biggest difference is in the first row. A bank takes your deposits and lends them to other customers. That’s its business model, and it’s why banks face far higher capital requirements and get deposit insurance. An EMI has to keep client money available and can’t put it to work as loans.

As a result, EMIs offer fewer services overall. You won’t get a mortgage or an investment account from one. What you get instead is speed, lower fees and a digital-first setup. For many businesses that mostly need to receive, hold and send money, that trade-off works well. If you’re comparing options, our roundup of business checking accounts puts banks and EMIs side by side.

Is an EMI as Safe as a Bank?

The honest answer is that EMIs are safe in a different way than banks.

Traditional bank deposits in the EU are covered by deposit guarantee schemes up to €100,000 per depositor. EMI accounts don’t carry that guarantee, because the money you hold with an EMI isn’t a bank deposit. It’s e-money, backed by client funds.

Instead, regulated EMIs must safeguard those client funds. That means keeping them fully segregated from the company’s own operating money, usually in dedicated segregated accounts at a credit institution or invested in secure, low-risk assets. The EMI can’t use that money to pay salaries, cover expenses or settle debts. If the EMI fails, safeguarded funds are ringfenced for clients rather than creditors.

Safeguarding and deposit insurance work differently, and it’s worth knowing which one protects you. But that difference isn’t a reason to distrust EMIs. A well-run EMI with strict safeguarding keeps your money just as separate as you’d expect, while the bank model relies on insurance.

Benefits of Using an EMI

Most businesses don’t come to an EMI out of curiosity. They come because they need an account that works now, not in six weeks.

• Speed. Electronic money institutions usually open accounts online, often in under 48 hours, with digital KYC instead of branch visits and paperwork.
• Cost. EMIs typically charge lower fees for accounts, transfers and currency exchange, because their infrastructure is leaner.
• Product range. EMIs can issue e-wallets, prepaid and debit cards, and IBANs, often through an API. A marketplace can give each seller a dedicated virtual IBAN to automate reconciliation. Our guide to virtual IBAN providers explains how that works.
• Finally, EMIs connect businesses to international payment networks like SEPA and SWIFT, so they can pay suppliers and get paid across borders without waiting for a full banking relationship.

How ConnectPay Operates as an EMI

We hold an electronic money institution licence in Lithuania, so everything in this article applies to us directly.

Under that licence, we offer multi-currency IBAN accounts, card issuing, and SEPA and SWIFT payments. We run AML and KYC compliance as part of the service, so clients don’t need to build their own compliance stack to start moving money. Platforms and fintechs use our APIs to embed these services into their own products, while smaller businesses use the same accounts directly through our dashboard.

As an EMI, we don’t lend client money or invest it in risky assets. Client funds are safeguarded in segregated accounts, kept apart from our own operating funds, in line with the regulatory requirements covered earlier. That’s the core protection we offer, and we treat it as the foundation of everything else.

For businesses that work across currencies, our guide to the best multi-currency bank accounts shows where an EMI account fits among the options.

What an EMI License Means for Your Money

An EMI isn’t a bank, and that’s not a weakness. It’s a different model with different rules. Once you understand the distinction, choosing a provider gets much easier.

Here’s what an EMI licence means in practice. Your money is safeguarded, not covered by deposit insurance. It’s held separately from the company’s funds and can’t be lent out. The EMI has met capital requirements and is supervised by a national regulator, and it can’t offer loans or investments without a licensed partner.

With those fundamentals in place, a well-regulated EMI can be a safe, fast and cost-effective way to manage accounts and payments. Before you sign up with any provider, ask three questions:

1. Who supervises it?
2. How it safeguards client funds?
3. Whether it’s a small or fully authorised EMI?

If you’d like to see how this works in practice, ConnectPay is a good place to start.