What are "Online Banks"?

  • Feb. 11th 2020
  • |
  • BankApply
What are "Online Banks"?

BankApply helps clients with opening bank and EMI / "online bank” bank accounts. EMI stands for e-money institution, and it can be a confusing term for people who are not familiar with it.

Simply put, EMIs are licensed financial institutions in Europe, and the e-money license enables these financial institutions to provide a wide variety of services, but not as wide as banking license does. For example, EMIs can not issue loans (unless they have obtained a separate consumer credit license for that), can not invest their client's money or pension funds money, and can’t provide few other known services of the banks.

EMIs can, however, satisfy most of the needs the regular clients have. You can have an IBAN account, receive EUR currency, USD, GBP or any other currency which the concrete EMI enables. Some EMIs enable Swift transactions, some don’t. The functionality of an EMI current account is the same as the functionality of the bank’s current account.

The next question would be about the trustworthiness of the EMIs. EMI’s, in general, go through a rigorous application process, which takes anywhere from 6 months to 1 year in general, requires 350 000€ in capital plus three years of the operating budget, experience and impeccable reputation of the management and shareholders. That said, it’s never certain whether a concrete EMI has built good business processes, is the company managed well and is the company doing proper AML checks on its clients. These things do affect the sustainability of the business - if a business isn’t profitable and sustainable, it can close the doors. If the AML procedures aren’t as strict as required, the supervisory authority can fine or even revoke the license of the EMI, if the EMI does not react to the warnings, and so forth. It’s very unlikely that someone has bad intentions from the start because the licensing process is too complicated just to obtain the license for a short-term gain. Like any money-business, it’s a business of trust. Trust is built through a proven track record and keeping promises through long time periods.

Banks have similar business risks, as well as risks associated with giving out bad loans (2008 financial crisis was a result of giving bad loans). Banks lend out money that you deposit with them, and dependent on their risk policies, this can be dangerous. Banks are generally more complicated to onboard, they require an in-person visit, and are less flexible when it comes to new business models and high-risk clients. Banks do have one big plus, which is a 100 000€ guarantee on each deposit.

From the fee perspective, it’s wholly dependent on the concrete EMI and bank - in general, conventional banks are a bit cheaper. However, with known EMIs such as TransferWise or N26, you can find better pricing structures than conventional banks as well, not to mention the ease of use.

Which type of banking facility is better for you?

It’s difficult to tell which is better because it depends on your business and preferences, but here are some bullet points that help you decide:

  • EMIs are more flexible, and for high-risk industries or non-residents, EMIs are often the only option. 
  • EMIs don’t require an in-person visit to any concrete country, which makes it easier to get started. 
  • EMIs don’t have deposit guarantees, which are required by the banks. 
  • Both banks and EMIs have good internet banking and mobile apps - in general. 
  • Banks tend to have better fees, but this depends heavily on the bank and EMI you’re comparing. 
  • Banks have stricter AML policies and a more complicated onboarding process. 
  • It’s possible to negotiate fee structure with EMIs if you have an operational business and decent volume.
  • Both can issue VISA or Mastercards 
  • Some EMIs have specialization for concrete businesses, like Amazon FBA
Conclusion

I hope this overview was useful in understanding what are EMIs or the so-called online banks, why you might want to consider using EMI or why it might be the only option for you, and why it’s not a bad option. 

If you’re looking to match your profile with suitable banks and EMIs, just register on our platform and start the application process!

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