E-money, short for electronic money, is a digital cash equivalent that can be used for electronic transactions and is stored on an electronic device or remotely on a server. An e-money licence is a regulatory approval that allows a company to issue e-money and provide related payment services.

In certain jurisdictions, businesses need an e-money licence if they want to provide products such as digital wallets, prepaid cards, and other forms of electronic funds storage and transfers. The licence ensures that the company complies with financial regulations such as those related to Anti-Money Laundering (AML), consumer protection, and the maintenance of adequate financial reserves.

E-money transactions are popular worldwide. In the European Union, for example, there were almost 9 billion e-money transactions in 2023. E-money licences allow companies to facilitate these payments. Below, we’ll explain what businesses need to know about e-money licences and the requirements for getting one.

What’s in this article?

• What you can do with an e-money licence
  
• What you can’t do with an e-money licence
  
• Who needs an e-money licence?
  
• Requirements to get an e-money licence
  
• How to apply for an e-money licence
  

What you can do with an e-money licence

An e-money licence allows companies to provide a range of financial services focused on digital payments and the management of electronic funds, including the following:

• Issue e-money: Companies can create and distribute digital currency that customers can use to make cashless transactions or transfer funds.

• Redeem e-money: Businesses can convert customers’ electronic balances back to cash or transfer them to bank accounts at face value.

• Handle payment transactions: Companies can transfer money on users’ behalf and manage direct debits, credit transfers, and more.

• Manage payment accounts: Businesses can open, operate, and close payment accounts for their users.

• Provide payment instruments: Companies can provide payment tools such as cards and app-based solutions that facilitate the initiation and processing of payments.

• Send money: Businesses can provide electronic services that let customers send money internationally.

• Offer payment initiation and account information services: If their regulatory permissions allow them to, companies can initiate payments from a user’s account at another institution or provide information about different accounts that the user holds.

What you can’t do with an e-money licence

An e-money licence does not allow businesses to provide the following products and services:

• Bank accounts: E-money institutions cannot provide traditional bank accounts that include services such as interest accrual and loans.

• Credit extensions: They cannot provide credit or loans to customers unless specifically permitted to do so by additional licensing.

• Investment services: Businesses cannot manage investments or give investment advice.

• Insurance services: Companies cannot offer or broker insurance products.

• High-value asset management: They cannot manage assets other than e-money such as securities, commodities, and property.

• Currency exchange: Although some basic currency exchange services might be permitted, they cannot provide comprehensive foreign exchange trading services.

• Securities: Businesses cannot issue securities or bonds.

Who needs an e-money licence?

Businesses that need an e-money licence typically operate in the digital payment space and handle the issuance, management, or transfer of e-money. Here are some common types of businesses and operations that require this kind of licence:

• Digital wallet providers: Companies providing digital wallets in which users can electronically store and manage funds

• Prepaid card issuers: Businesses issuing prepaid cards that users can load with funds for transactions or withdrawals

• Online payment platforms: Platforms that facilitate online payments for goods and services and allow users to store funds and transact electronically

• Money transfer services: Services providing electronic remittance solutions that enable users to send money across borders

• Mobile payment services: Apps and services that allow payments via mobile devices

• Cryptocurrency platforms that perform conversions: Cryptocurrency exchanges that give the option to deposit, withdraw, or convert currency – this requirement depends on the regulatory environment

• Fintech firms: Fintech startups with innovative payment solutions or financial services involving the creation or management of e-money

Requirements to obtain an e-money licence

Here are the typical steps you’ll need to complete to qualify for an e-money licence. Specific requirements and application processes vary by location.

Document a business plan

• Define your target market, including the specific customer segments and areas you plan to serve.

• Outline your revenue model and how you plan to monetise your services.

• Identify potential risks such as fraud, operational risks, and regulatory changes, along with your mitigation tactics.

• Provide financial projections that demonstrate your company’s expected growth and profitability.

Demonstrate financial stability

• Meet the minimum capital requirements of where you intend to operate.

• Prepare audited financial statements that show your company’s current financial position and ability to withstand financial shocks.

Enact security measures

• Enact strong cybersecurity measures, including encryption, firewalls, and intrusion detection systems.

• Conduct regular security audits and vulnerability assessments to address potential weaknesses.

• Prepare a clear incident response plan to handle any security breaches or cyberattacks.

Apply data protection measures

• Implement data protection policies and procedures that comply with applicable regulations such as the Gramm-Leach-Bliley Act (GLBA) in the United States.

• Obtain explicit consent from customers to collect and process their personal data.

• Provide clear, transparent information about how their data is used and shared.

Develop AML/CTF policies and procedures

• Develop a comprehensive Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) policy including risk assessments, customer due diligence procedures, transaction monitoring systems, and reporting mechanisms.

• Appoint a qualified compliance officer to oversee and implement the policy.

• Continually train employees to ensure they are aware of their obligations and can identify suspicious activities.

Conduct background checks and proper assessments

• Conduct background checks on key individuals such as directors, officers, and major shareholders, and conduct assessments of their suitability to run an e-money institution. This typically involves examining their financial history, professional experience, and any past regulatory or criminal records.
  

How to apply for an e-money licence

E-money licences are different in each country. For example, if you want to operate in the e-money space in the US, you need to secure a money transmitter licence at the state level. Here’s a breakdown of the process:

• Understand your business model: Clearly define the specific e-money services you intend to offer. This will help you identify where you’ll need to obtain licences and any additional regulatory requirements.

• Research specific regulations: Each jurisdiction has its own licensing requirements and procedures. Familiarise yourself with the specific rules and regulations of where you plan to operate. Determine if your business model requires additional licences or registrations such as a lending licence and virtual currency licence.

• Develop a comprehensive business plan: This document should outline your company’s objectives, target market, revenue model, risk management tactics, and financial projections.

• Complete the application: Complete the appropriate application form. Provide all requested information about your business, management team, and financial condition. Include the following required documentation:

  • Audited financial statements: These statements demonstrate your company’s financial stability and ability to handle customer funds.
    
  • AML/CTF programme manual: This document outlines your policies and procedures for preventing money laundering and terrorist financing activities.
    
  • Background checks: Key individuals within your company such as directors and officers will probably need to undergo background checks.
    
  • Surety bond: A surety bond acts as a financial guarantee to protect customers in case your company fails to fulfil its obligations.
    
  • Other documents: Depending on the local requirements, you might also need to provide additional documents, such as proof of net worth, organisational charts, and sample contracts.
    

• Submit the application: Follow the instructions for submitting your application package, which is usually done online or by post. Include any application and licensing fees with your application. Regulators will review your application and supporting documents. Before approving it, they might require you to attend an interview to discuss your business plan and answer any questions.

• Receive decision and resubmit as needed: If your application is approved, you’ll receive your licence. This allows you to legally operate your e-money business in that jurisdiction. If your application is denied, you’ll often have the opportunity to appeal the decision or resubmit your application after addressing any deficiencies.

• Maintain ongoing compliance: Submit periodic reports to regulators. These might include financial statements, transaction data, and AML/CTF activity reports. Be prepared to undergo audits by regulators.