Frequently asked questions

Payment Institution vs emi? What is payment institution? What is payment Institution definition? What is payment Institution example?

What is e-money

Electronic money is a digital store of a medium exchange. Where the medium exchange is being the key.

E-money can be used for payment transactions with or without bank accounts.

Let’s expand on a medium of exchange.

A medium of exchange is any item that is widely acceptable in exchange for goods and services.

It is a pre-paid stored value in exchange for funds.

Example:

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Oyster card / London Tube – you top up the card and use it to pay for the service of transportation. Oyster cards in not a bank card.

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Any closed loop virtual pre-paid card (for example travel voucher, gift card like Uber-eats, Amazon, Apple and etc.)

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Crypto currency – non FIAT currency, acquired in exchange for a set value with FIAT money or mined. It is stored in a digital wallet, outside the banking infrastructure.

! Opening/issuing a bank account ( IBAN) is not the same as issuing an e-money.

! Issuing a debit card (bank card) attached to an IBAN is not the same as issuing an e-money or pre-paid card.

When opening an Iban, you do not issue digital currency like EUR or GBP, USD.

Only central bank of Europe can issue EUR/ digital or paper for that matter.

Only US department of Treasury can issue USD and etc.

Fun fact: Anyone who will try to” issue” USD digital or paper will be convicted for felony. It’s a federal crime.

Below are some of the key services FIs offer:

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Payment accounts (IBANs), payment transactions, such as credit transfers and direct debits via payment cards or similar devices.

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Disbursement of payment instruments; (like debit card)

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Money transfer services (SEPA, SWIFT, Ripple and other payment rails)

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Currency exchange services and other ancillary services associated with their principal services;

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Loans (with FIs own money)

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Money remittance

EMI vs Financial Institution (FI): Differences between electronic money institutions and payment institutions Now that we are familiar with both EMIs and FIs, let’s peek at some of the disparities between both concepts:

• Money issuing The ability to issue e-money is the ground difference between EMIs and FIs. Only electronic money institutions are allowed to issue e-money, while FIs aren’t. At the same time, EMIs can provide all the services that PIs do (but it doesn’t mean they are automatically allowed to do so – this area is strictly regulated, so they need authorization from a national regulatory agency to provide specific kinds of payment services.

Payment institutions cannot issue electronic monies. E-monies Institution can, but shall calculate the amounts of issued monies against the own capital. sample is provided below.

An EMI that issues electronic money and provides related payment services when filing an application for granting an authorisation of an electronic money institution shall apply Method D for the calculation of its own funds requirement.

An EMI intending to provide payment services not related to the issuance of electronic money shall have the right to choose Method A, B or C for the calculation of its own funds.

1. EMI that issues electronic money and provides related payment services shall apply Method D for the calculation:

·       at least 2% of the average outstanding electronic money;

·       IF outstanding electronic money is not known in advance, then EMI to calculate its own finds requirement on the basis of a representative portion assumed to be used for the issuance of electronic money, provided such a representative portion can be reasonably estimated on the basis of historical data and to the satisfaction of the Regulator in Europe..

2. If EMI provides payment services not related to the issuance of electronic money, the own funds requirement for this activity shall be calculated in accordance with one of these Methods: A, B or C:

Method A: own funds shall amount to at least 10% of the fixed overheads for the preceding 12 months.

Method B: own funds calculated according to monthly average payment volume (MAPV) – one twelfth of the total amount of payment transactions executed by EMI during the last 12 months:

The own funds shall amount to at least the sum of the following elements multiplied by the scaling factor (k):

4% of the slice of MAPV up to EUR 5 million

2.5% of the slice of MAPV above EUR 5 million up to EUR 10 million

1% of the slice of MAPV above EUR 10 million up to EUR 100 million

0.5% of the slice of MAPV above EUR 100 million up to EUR 250 million

0.25% of the slice of MAPV above EUR 250 million

The scaling factor (k) shall be:

0.5, where the EMI provide only the payment service specified in Article 5(6) of the Law on Payments: money transfers;

1.0, where EMI provide any of the payment services specified in Article 5(1-5) of the Law on Payments:

services enabling cash to be placed on a payment account as well as all the operations required for operating a payment account;

services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account;

execution of payment transactions, including transfers of funds on a payment account with the payment service provider of the payment service user or with another payment service provider: execution of direct debits, including one-off direct debits, execution of payment transactions through a payment card or a similar device and/or execution of credit transfers, including standing orders;

execution of payment transactions where the funds are covered by a credit line for a payment service user: execution of direct debits, including one-off direct debits, execution of payment transactions through a payment card or a similar device and/or execution of credit transfers, including standing orders;

issuing and/or acquiring of payment instruments.

Method C: The multiplication factor (n) shall be equal to the sum of amounts of the indicator (r)\ :

10% of the slice of the indicator r up to EUR 2.5 million,

8% of the slice of the indicator r from EUR 2.5 million up to EUR 5 million,

6% of the slice of the indicator r from EUR 5 million up to EUR 25 million,

3% of the slice of the indicator r from EUR 25 million up to EUR 50 million,

1.5% above EUR 50 million.

indicator (r): the sum of interest income, interest expenses, commissions and fees and other operating income.

AND multiplied by the scaling factor (k).

The indicator shall be calculated at the end of each financial year on the basis of the audited figures for the previous financial year.