E-Money
E-money is electronically stored monetary value, issued on receipt of funds and accepted as payment by parties other than the issuer — the balance in a prepaid card, a wallet or a business account at a non-bank. In the EU and UK it may be issued only by banks and authorised e-money institutions, and the funds behind it must be safeguarded, not lent.
- Also known as
- Electronic money, E-money institution, EMI, Stored value, EMI licence
- Used at
- any fintech that holds customer balances without a banking licence — wallets, prepaid cards, business accounts, payroll platforms
- Regulated by
- the E-Money Directive (2009/110/EC) in the EU, the Electronic Money Regulations 2011 in the UK; PSD3/PSR will fold it into the payments regime
- Licence
- e-money institution (EMI), with initial capital of €350,000 and ongoing capital of 2% of average outstanding e-money
- Safeguarding
- customer funds held in segregated accounts at a bank, or insured, and reconciled daily
- In a deal
- the licence transfers with the shares and needs the regulator's approval of the new controller
How e-money works in practice
A customer loads €500 onto a fintech's card. The fintech now owes the customer €500 — that is the e-money — and it holds €500 of the customer's cash, which it may not treat as its own. The funds go into a safeguarding account at a bank, in the fintech's name but flagged as customers' money, reconciled every day against the total e-money outstanding, and audited every year. The fintech earns from the card's interchange, from fees, and from nothing else: the safeguarded money cannot be lent and, since 2024 in the UK, the interest on it is the customer's or the regulator's concern rather than the firm's profit.
An e-money institution is the licence most European fintechs hold because it is what most of them do: hold balances and move them. It is cheaper and faster to obtain than a banking licence, passports across the EEA from one member state, and pairs with a payment-institution permission for the services that do not involve balances. Its limits are what it cannot do: lend the funds, pay interest as a bank would, or call itself a bank.
In an acquisition the EMI is the asset and the liability at once. The licence is why a share purchase is the structure; the safeguarding record is the first folder a buyer opens in the data room; and the safeguarded funds — €300m sitting in the target's accounts — are neither cash nor debt in the price bridge, though more than one buyer has tried to count them.
Example
A Lithuanian e-money institution holds €410m of customer balances across 1,400 business accounts, safeguarded at two banks and reconciled daily. Its own capital requirement is 2% of average outstanding e-money — €8.2m — against €14m held. A buyer offers €78m of enterprise value on a cash-free, debt-free basis; the bridge excludes the €410m entirely, counts the €14m of regulatory capital as trapped rather than free cash, and completion waits 84 days for the Bank of Lithuania to approve the change in control.
Common mistakes
- Treating safeguarded funds as the company's cash in a valuation or a price bridge. - Buying the assets and expecting the licence to come with them. - A safeguarding reconciliation that is monthly, or that the buyer's diligence never tested. - Assuming an EMI can lend, hold deposits or pay interest like a bank. - Ignoring the capital requirement, which rises with the balances and can trap cash the buyer expected to take out.