EMI licence vs banking licence: what is the difference?

What an EMI licence permits

An Electronic Money Institution (EMI) authorisation allows a firm to issue electronic money — a stored-value instrument that users can load, spend, and redeem. EMI-issued products include prepaid cards, digital wallets, and payment accounts with a redeemable balance.

An EMI can also provide the full range of payment services covered by a PI authorisation: credit transfers, direct debits, money remittance, payment initiation, and account information services. What an EMI cannot do is take deposits and use those deposits to extend credit — that is the exclusive domain of a banking licence.

What a banking licence permits

A banking licence (often referred to as a credit institution authorisation in the EEA) grants the firm the right to take repayable deposits from the public and to lend. These two activities — deposit-taking and lending — form the core of the banking permission and are prohibited for all other regulated entity types.

A bank can also issue e-money and provide payment services as ancillary activities. In practice, challenger banks (neobanks) frequently operate under a banking licence while building consumer-facing products that look similar to EMI wallet products.

Deposit-taking: the critical boundary

The legal distinction between e-money and a deposit is fundamental. E-money is a claim on the issuer for a specific amount — the user can demand redemption at any time at face value. It is not subject to interest, and it cannot be used by the issuer to fund lending.

A deposit is also repayable but can be invested by the bank. Banks earn revenue by lending at a higher rate than the cost of deposits. EMIs cannot lend from the float under any circumstance. Any EMI-issued product that remunerated the holder (paid interest) or was used to fund loans would breach the boundary and require a banking licence.

Safeguarding vs prudential capital

EMIs safeguard the e-money float by holding it in a ring-fenced bank account or through an insurance policy. Safeguarded funds are legally protected from the EMI's own creditors in the event of insolvency — users can recover their balances.

Banks do not segregate deposits in the same way. Instead, banks are subject to prudential capital requirements (CRD/CRR in the EEA) that require them to hold capital buffers against potential losses. User deposits are protected not through segregation but through the Deposit Guarantee Scheme (DGS), which covers eligible deposits up to the relevant limit.

Deposit guarantee scheme coverage

Deposits at a licensed bank in the EEA are covered by the national DGS up to €100,000 per depositor, per institution. This guarantee is backed by the state or a funded scheme and provides protection even if prudential capital is insufficient.

E-money held at an EMI is not covered by DGS. Protection derives entirely from the safeguarding obligation — if the EMI's safeguarded account is properly maintained, the float should be recoverable in insolvency. However, in practice, recovery may take time and may be imperfect depending on the safeguarding structure.

Which route fits your product

Consider an EMI authorisation if your product involves a stored-value wallet, prepaid card, or payment account with a redeemable balance, but you do not need to offer interest-bearing accounts or credit from the float. The EMI route has lower capital requirements, a faster authorisation process, and a well-established EU passporting framework.

Consider the banking route only if your business model genuinely requires deposit-taking, lending, or access to central bank facilities. Banking authorisation is significantly more demanding in terms of capital (typically millions of euros), governance requirements, and supervisory scrutiny.

Many fintechs that initially planned for banking licences have found that an EMI authorisation is sufficient for their product scope. Engaging a regulatory adviser before committing to a route is strongly recommended.