Open a multi-currency account with a well known European fintech and you get an IBAN, a card and a balance that behaves in every visible way like a current account. It is not a deposit. The firm behind it is usually an electronic money institution, and the legal construction underneath the balance changes what protection you have, who is holding the cash, and what happens if the company stops trading.
The category exists because of the E-Money Directive, implemented across the European Economic Area, with the United Kingdom running an equivalent regime under its own Electronic Money Regulations. An EMI is authorised to issue electronic money, meaning stored monetary value held against funds received, redeemable at par on demand, and accepted by parties other than the issuer.
What the licence permits, and what it forbids
An authorised EMI may issue and redeem e-money, hold customer balances indefinitely, issue payment cards, provide the payment services listed in the payments directive, and operate across the bloc through passporting once its home regulator has notified the host states. In practice that covers almost everything a customer experiences as banking.
What it may not do is the important part. It cannot take deposits, and it cannot lend out customer balances to fund its own business. A bank earns the spread between what it pays depositors and what it charges borrowers, and that spread is why deposits are insured and why banks carry capital rules of a different order. An EMI earns fees, currency conversion margin and interchange. The customer money sits still.
| Bank | Electronic money institution | Payment institution | |
|---|---|---|---|
| Holds balances long term | Yes, as deposits | Yes, as e-money | Only transiently during execution |
| Lends customer money | Yes | No | No |
| Deposit guarantee cover | Yes, up to the statutory limit | No | No |
| Protection mechanism | Capital rules plus the guarantee scheme | Safeguarding of relevant funds | Safeguarding of relevant funds |
Safeguarding is not insurance
Because there is no deposit guarantee, the directive requires safeguarding. Relevant funds must be kept separate from the institution's own money, either placed in a segregated account at a credit institution or invested in secure liquid low risk assets, or covered by an insurance policy or bank guarantee payable to customers if the firm fails.
The distinction matters when something goes wrong. Segregated funds are meant to sit outside the estate available to general creditors, so the pool is distributed to e-money holders. But distribution takes an administrator, reconciliation and time, and the costs of that process can be taken from the pool itself in some regimes. A safeguarded balance is protected from being spent by the firm. It is not protected from being frozen for months while an administrator works out who is owed what. Our piece on how safeguarding accounts actually work covers the reconciliation duty in more detail.
This is a description of the regime, not legal advice. National implementations differ, and the protections that apply to a specific account depend on the entity you contracted with, its home regulator, and the terms you accepted. Check the entity name in your account terms rather than the brand on the app.
Capital, and the small EMI shortcut
Authorisation as a full EMI in the EEA requires initial capital of 350,000 EUR, with ongoing own funds calculated by reference to the average outstanding e-money, commonly 2% of that figure under the method most e-money issuers use. A payment institution offering the full range of services sits lower, at 125,000 EUR of initial capital, with reduced figures for narrower permissions such as money remittance or payment initiation.
Several jurisdictions also run a registered small EMI regime with a cap on average outstanding e-money and lighter requirements. Firms in that category can be perfectly sound, and they can also be a start-up with a fraction of the supervisory attention a full institution receives. Regulators publish the register entry with the exact permission, and a five minute check tells you which one you are dealing with. The same discipline applies to trading counterparties, as covered in our guide to verifying a licence on the register.
Why traders keep running into this
Two situations. The first is personal: a trader funds a broker from a fintech account, and the broker rejects the transfer or the fintech blocks the payment. That is normally a policy decision rather than a legal one, since e-money firms set their own risk appetite for payments to financial trading services, and it varies by provider and by country. Our notes on using Wise for trading transfers and on Revolut for traders cover the practical side.
The second is corporate. A broker or prop firm needs somewhere to hold operating cash and, separately, somewhere compliant to hold client money. Those are different problems with different answers. Client money for a regulated investment firm is governed by its own rules on segregation of client funds, and satisfying them by parking balances at an e-money provider may or may not meet the requirement depending on the regulator and the permission. Getting that wrong is a licence issue, not a banking preference, and it is worth a written opinion rather than an assumption.
What to check before you hold serious money there
Find the legal entity in the terms and put it into the home regulator's public register. Confirm the permission says electronic money institution rather than small or registered, unless you are content with the lighter regime. Read the safeguarding disclosure and note which credit institution holds the funds, because that bank's own health becomes part of your risk. Check whether the service you are using in your country is provided by the licensed entity or by a local affiliate with different permissions, since large fintechs operate several entities under one brand.
And treat balance size as a decision rather than an accident. E-money accounts are useful for moving money and for holding working amounts in several currencies. Concentrating a business's entire treasury in one, with no deposit guarantee behind it, is a risk position that should be taken deliberately. Firms with real balances usually split across a bank and one or two e-money providers, and reconcile all of them into one ledger so the exposure is visible in a single place rather than across three dashboards.
"People read the app and think bank. The terms say e-money institution, and those two words decide who gets paid first if the lights go out."
— Roman Onta, Executive Director, SINGUARD
Key Takeaways
- An EMI issues stored value rather than taking deposits, so balances fall outside deposit guarantee schemes and rely on safeguarding instead.
- Safeguarding keeps customer money out of the firm's own funds, but it does not make the money available quickly if the institution fails.
- Full EEA authorisation carries 350,000 EUR of initial capital and an ongoing own funds figure tied to outstanding e-money; small or registered regimes are lighter and are named as such on the register.
- A regulated firm's client money obligations are separate from its choice of banking provider, and an e-money account may not satisfy them.
Frequently Asked Questions
Is money in an e-money account protected like a bank deposit?
No. Bank deposits in the EU and the UK are covered by a deposit guarantee scheme up to a set limit per depositor. E-money balances are not. Instead the institution must safeguard the funds, typically by holding them in a segregated account at a credit institution or covering them with an insurance policy or guarantee, so that they are separated from the firm's own money if it fails.
What is the difference between an EMI and a payment institution?
A payment institution moves money from A to B and holds funds only fleetingly while executing a transaction. An electronic money institution issues e-money, which is a stored balance the customer can hold indefinitely and spend later. Issuing that stored value is why the EMI carries a higher initial capital requirement and an ongoing own funds calculation tied to the balances outstanding.
Can an EMI lend out the balances it holds?
No. Safeguarded funds cannot be used to fund the institution's own business, which is the structural difference from banking. A bank takes deposits and lends them, earning the spread. An EMI must keep customer money separate and earns its revenue from fees, currency conversion and interchange instead.