Bank vs EMI: the key differences
How a bank and an EMI differ
If you're weighing up banks against EMIs, here's the main thing to consider: a bank is licensed to hold deposits and make loans, while an EMI (electronic money institution) holds a different kind of license. An EMI can issue electronic money and offer payment services, but it can't offer loans or take what financial regulations call ordinary deposits.
Your bank balance is just that, a deposit, often earning interest, which the bank then uses to make loans to others, within their regulatory limits. If you're with an EMI, your balance is electronic money. That means it's a digital version of cash, stored for you and always exchangeable one-to-one for regular money. But EMIs must keep that e-money liquid, not lend it out, and always convert it back when you want to withdraw.
What this means for money held in apps
If your cash is in a bank account, it's a deposit and the bank owes that money to you. In the UK and EU, most of those deposits are protected up to a limit by a deposit guarantee scheme (for example, the FSCS or its EU equivalents). But put money in an EMI's app account, and things change: now you hold e-money. That balance gets safeguarding, not deposit insurance. Which means the EMI has to keep your funds away from its own and follow strict rules, but there's no government guarantee scheme behind it. Compare the systems in safeguarding versus deposit protection.
It doesn't matter if you've signed up with a well-known app, what matters is the exact structure. Let’s say you keep 2,000 euros in a multi-currency account. Even if the provider is licensed, that e-money is protected by rules applying to EMIs, not by the same government guarantee a bank uses. Be sure to check the terms for every product you use, since the way your money is safeguarded can change with each provider and country.
Interest, lending and what to check first
A bank can pay you interest, supply overdrafts or use your credit file when making decisions. EMIs can't pay interest on e-money, and you won't get a loan from them directly. Some EMIs offer features like ‘savings pots’, but these rely on partnerships with actual banks. Before putting in money, always identify the legal entity, whether it’s a fully licensed bank or an EMI, and read about what happens if the provider goes out of business or the service is disrupted.
Want to know who’s regulated as what? Use the official public register to confirm. Get all the details on what an electronic money institution is. Curious about other kinds of payment licenses? See what a payment institution is and how it is regulated.
Frequently asked questions
Is an EMI a bank?
No. An electronic money institution has its own category under financial regulation. It can issue e-money and let you send or spend that balance, but can’t take retail deposits or lend like a bank. Some providers run both EMI and banking licenses within a group, so always look up the exact legal firm you’re transacting with in the regulator's register.
Are e-money balances protected if the provider fails?
Yes, but differently. E-money is safeguarded rather than covered by deposit insurance. That means the EMI has to keep your money separated from its own funds, intending that eligible balances are returned if it collapses. However, the practical mechanism and timing depends on the country and method of safeguarding. You’ll need to check with your provider's terms and their regulatory listing for details.