Can you trust Electronic Money Institutions

EMI is an institution that reminds a lot of a bank, but they don’t hold your money. 

EMI that you’re most familiar with is TransferWise. 

Is your money safe there?

It is always good to consider safety whenever you’re dealing with a financial institution. EMI-s are not an exception. 

Here, there’s another level of risk added. 

What do we mean by that?

Back in the day, there was a bank in Cyprus called FBME that got taken down because of money laundering concern. 

Let’s imagine that FBME was a sponsoring bank, and there was an EMI on top of that (this wasn’t the case here).

Well, in that situation you’d have two layers of potential risk. 

What to consider when choosing an EMI?

EMIs are not all created equally. There are a couple of things to consider. 

When choosing an EMI we consider geography, the sponsoring bank and the backers of EMI. 

You shouldn’t worry about your funds in TransferWise. Why?

TransferWise is heavily venture-backed, they have a large budget, large market cap, lots of investment. Those who are backing it up are running serious and reputable organizations. The same goes for Revolut. 

On the other hand, if you look at lots of EMIs in Lithuania you should definitely do your research and be skeptical. Why are they going to Lithuania? Because this is the cheapest place to go to. It costs around 60k to get set up there. 

Those companies can’t afford higher costs of licensing and they don’t want to do a deeper level of due diligence, do you really want to trust them with your money?

It doesn’t necessarily mean that those will be bad for you, but you should definitely do your research. 

Sometimes those guys will be the only ones that will accept your business. 

We advise you to not keep lots of money in EMIs unless it’s one of those legitimate and reputable ones. It’s highly unlikely that those guys would do some sort of scam. 

If you’re dealing with one of those lesser-known ones, you have to be aware that this might happen. 

Questions to ask

First of all, you need to think about your options. Naturally, you always want to choose the best option for your business. If you have lots of good options, those lesser-known EMIs are definitely not a way to go. 

You will start considering them if you don’t have many good options.

In this case, you’ll need to consider a few things.

Where is it based? Is it a place that’s flooded with EMIs because licensing is cheap? 

Who are the backers? 

Is it well-capitalized by major institutions or investors?

Like we already said you shouldn’t keep a lot of money there. 

What if those lesser known EMIs are the only ones that will give you an account? How to not keep lots of money with them?

Put your money in investments or in the brokerage accounts. This will make the situation better for you, and definitely much safer.