Difference between a Specialized Bank License and E-Money License

Published:
February 28, 2022
from a digital currency platform to a bank the revolut story

Are you planning to launch a Fintech project or a digital banking institution within the EEA? Are you thinking about obtaining a banking license of a specialized nature? Then we recommend that you read this article, in which we consider the main differences between a license for operating electronic money and a permit obtained for the operation of a specialized bank. In order to identify the main difference between a specialized bank license and an E-money license, it is worth understanding the terms themselves, in particular, understanding what a specialized bank institution and an E-money institution are.

The Concept of “Specialized Bank”

This term was officially fixed in 2017 in Lithuania. This form of banking institutions was introduced in order to support the reform carried out in the field of credit. In reality, institutions have become a favorable legal platform for local and international non-banking companies seeking to expand the scale of their own commercial structures. This permission can be issued by the main regulatory representative of the Lithuanian jurisdiction – Central Bank.

Electronic Money Establishment

In accordance with the second directive, containing provisions regarding the work with electronic money, the latter represent a certain monetary value issued to an individual or legal entity by an issuer – an entity that has the appropriate right to issue digital monetary assets. Electronic money meets the following criteria:

  • storage is carried out in the form of an electronic asset;
  • funds are issued specifically for certain operations;
  • can only be received by persons who do not have the status of an E-money issuer.

In order to have the right to accept payments from customers at the official level and become an electronic money institution, a company must obtain the appropriate license permission without fail.

These institutions may also, among other things, sell and resell electronic money and its products to interested consumers, providing a means of distribution, redemption and replenishment of E-money in accordance with the requests of clients and on their behalf.

In addition to the services listed above, institutions working with E-money can perform the following:

  • offer on the market the payment services listed in the second directive PSD2, which regulates payment services;
  • issue loans related in one way or another to the services specified in PSD2, subject to the conditions specified in EMD2;
  • issue electronic currency;
  • ensure the functioning of payment systems;
  • carry out transactions other than the issuance of money, taking into account the relevant legal framework in force.

Difference between a Specialized Bank License and a Permit for E-Money Establishment

So, let’s look at the main differences between the two types of licenses in accordance with some of the following points.

Electronic money  institution Specialized bank
Jurisdictions Virtually any of the EEA jurisdictions. Only within Lithuanian jurisdiction
Service list 1. Placement of cash on the account; carrying out operations that are necessary in order to work with the account.

2. Cash withdrawal; carrying out operations that are necessary in order to work with the account.

3. Payment transactions, in particular, transferring money to a supplier with whom the user works directly, or to another supplier:

(a) direct debit, including one-time;

(b) transactions carried out using a payment card or an instrument of a similar purpose;

(c) credit transfers, including orders entered into on a permanent basis.

4. Operations covered by funds from the client’s credit reserves:

(a) direct debit, including one-time;

(b) transactions carried out using a payment card or an instrument of a similar purpose;

(c) credit transfers, including orders entered into on a permanent basis.

5. Issuance of instruments intended for payment transactions and acquiring.

6. Transfer of monetary assets.

7. Initiation of payment transactions.

8. Informing clients about the status of their accounts.

1. The whole range of services covered by the license of the E-money institution.

2. Bank is authorized to accept other types of deposits and refunds.

3. Issuance of loans, in particular, mortgages and leasing.

4. Issue and management of checks, issuance of bills of exchange and payment instruments.

5. Bank is authorized to issue obligations and guarantees.

6. Mediation as a financial side.

7. Providing a credit rating.

8. Rental services for safes and the like.

If we compare a specialized institution with an ordinary one, it is worth noting that the former has the right to provide a slightly smaller list of services; in particular, restrictions apply to investments and certain other services.

Capital The officially designated capital is 350 thousand euros. In some cases, additional capital may be requested from the company as a “buffer financial layer”; thus, initially the capital can be about 500-800 thousand. Minimum: 1 million euros. Together with a possible buffer amount: about 2 mln.
Time to prepare a package of documents and issue a license Preparation of documents takes about 60 days. The license is usually issued within a year or six months. However, officially this period is about three months. Documents: 3-6 months. As for the license, it can be obtained within six months, provided that all conditions have been met and properly observed. If the regulator finds any shortcomings, the period may be delayed up to a year.
Management General regulatory requirements provide for at least 3 persons in the company’s management. However, the number of managers depends on the specific jurisdiction. A minimum of ten employees must be involved.
Record keeping, tax laws and other legal requirements According to the regulations adopted for reporting and the norms of tax legislation, E-money institutions are not considered as depository structures. A specialized bank must comply with all reporting and taxation requirements applicable to foreign accounts. In addition, such banking institutions are subject to the Unified Supervisory Mechanism.
Onboarding clients remotely For these institutions, this is possible online. Online onboarding is acceptable and possible.

 

We will be happy to help you with questions about the difference between a specialized bank and an electronic money institution, if you have any.

If you intend to invest your funds in starting your own company, pay attention to ready businesses for sale. ELI Deal specialists will advise you on any issue, and provide many offers in a variety of categories, in particular, “Cryptocurrency Exchange License”, “AFSL (Financial Services License) Australia”, “Bank with Crypto License”, and many others.

Contact us through the way you want.

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