If you want to streamline your financial management or access new features to help you simplify your money management, opening an electric money account could be a wise choice. However, it’s important to understand what an electronic money account is, how they work, and what the application process involves before you get started.

In this article, we provide all the information you need if you’re thinking of opening an electronic money account and give you the lowdown on what benefits this type of account can offer.

What Is Electronic Money?

Today, most accounts can be controlled electronically, so it’s easy to assume that any type of payment account is an ‘electronic money account’, but this isn’t the case. In fact, an electronic money account has a distinct definition that’s quite different from standard payment, current, or debit accounts.

Electronic money (or e-money) is defined by the European Central Bank as:

“…an electronic store of monetary value on a technical device that may be widely used for making payments to entities other than the e-money issuer. The device acts as a prepaid bearer instrument which does not necessarily involve bank accounts in transactions.”

So, e-money is ‘real money’ that simply resides in electronic format and is used to facilitate electronic transactions. Although electronic money can technically be converted into fiat currency, such as GBP or USD) and withdrawn as cash, it’s rarely used in this way and is predominantly used to transfer funds via electronic systems.

What Is an Electronic Money Account?

Before you can decide whether opening an electronic money account is right for you, it’s important to understand exactly what an electronic money account is and how it works. Fortunately, the explanation is pretty simple.

To send or receive e-money, you need to have a suitable repository and an electronic money account is just that. Sometimes referred to as a ‘digital wallet’, you can hold e-money in your electronic money account and send or receive e-money funds into and out of the account.

If you make a purchase online, for example, you’ll input your details and the money will be transferred from your electronic money account to the vendor’s. Similarly, you could buy an item in-store and use your smartphone to transfer e-money from your electronic money account to the retailer’s account.

What Are the Benefits of an e-Money Account?

If your regular bank account offers online banking, you might be wondering whether you really need to proceed with opening an electronic money account. However, e-money accounts offer notable benefits to both individual and business account holders, such as:

Enhanced Convenience

Managing your funds shouldn’t be complicated yet traditional accounts often make it so. With an electronic money account, you can make and receive payments from anywhere in the world, at any time, so there really isn’t a more convenient way to handle your finances!

Whether you’re an individual accountholder who travels regularly or a growing business that wants to reach a global audience, the enhanced convenience offered by electronic money accounts makes them an obvious choice for managing your funds.

Accurate Tracking

As you might expect, an electronic record is made every time e-money is sent or received. This means that every transaction is carefully recorded and available to view. While this is advantageous for individual accountholders, it’s particularly beneficial for business users.

If you want to compile financial reports, create budgets, or track employee expenditure, for example, an e-money account allows you to track transactions quickly and easily.

Optimal Flexibility

Depending on the specific electronic money account you choose, you’ll be able to make transactions in a variety of ways. Some account providers issue debit or pre-paid cards that can be used to make payments, for example, while you can also use your smartphone, tablet, or laptop to authorise transactions and manage your account.

Lower Fees

Although some electronic money accounts may charge fees (either recurring account fees or transaction fees), these are typically lower than the fees associated with traditional accounts. Furthermore, you’ll find that many electronic money accounts only charge fees on specific types of transactions, such as converting e-money into fiat currency and withdrawing it from your account.

Therefore, anyone looking for a cost-effective way to send and receive money globally often opts to open an electronic money account.

Instant Transactions

While there have been advances in the speed of traditional banking, regular accounts don’t always offer fast transfer speeds which can delay payments and limit your access to funds that are in the process of being transferred to your account.

In contrast, the electronic systems that underpin the e-money sector offer instant transactions. This enables accountholders to send and receive e-money in a split-second, so there are never delays to contend with.

Improved Security

Ever since financial management has moved into the digital sphere, there have been concerns surrounding security. However, advanced security protocols are in place to ensure that the funds held in e-money accounts are secure and that the data relating to your account is kept secure also.

For example, transactions are often verified via authentication and tokenization, so that the risk of fraudulent activity is greatly reduced. With these enhanced security measures in place, you can be confident that opening an electronic money account is a safe and secure way to manage your finances.

When To Use an Electronic Money Account

If you’re still not sure whether opening an electronic money account is right for you, consider the type of transactions you make on a regular basis and assess whether an e-money account can provide the functionality you need. For example, an electronic money account can be a great choice if you:

  • Make frequent electronic transactions
  • Hold multiple currencies
  • Make cross-border payments
  • Pay employees across multiple countries
  • Sell goods or services
  • Make instant transfers

As you can see, electronic money accounts offer a wide range of features and, with lower fees than most regular accounts, they can be a low-cost way to enhance your financial management. What’s more – electronic money accounts can issue debit and/or pre-paid cards, which makes it even easier to use e-money on a day-to-day basis.

Where To Open an Electronic Money Account?

Opening an electronic money account is a relatively easy process but, first, you’ll need to decide where to open your account. Common providers of e-money accounts are Electronic Money Institutions (EMIs), that are set up and designed to facilitate the needs of e-money accountholders.

What Are Electronic Money Institutions?

EMIs are legal entities that are licensed to disburse electronic money. This means that they can hold, send, and receive e-money on your behalf.

In the UK, EMIs are regulated by the Financial Conduct Authority (FCA), which gives you an extra layer of protection when it comes to protecting your assets. Despite this, EMIs don’t operate in the same way as traditional high street banks.

Although electronic money institutions all exist to facilitate e-money transactions, they don’t all offer the same range of features. Some EMIs, like PayAlly, offer multi-currency accounts and a range of transfer options, such as CHAPS, SWIFT, and SEPA, while others don’t.

Similarly, fees can vary from one EMI to another, so it’s important to compare what’s on offer when you’re opening an electronic money account.

How Do EMIs Differ from Banks?

While EMIs may appear to operate in a similar way to modern banks, there are differences between the two types of entities.

Firstly, banks are typically subject to different regulations than EMIs because they tend to be larger and hold a higher volume of funds. Although EMIs are generally regulated by the FCA in the UK and the European Central Bank in Europe, banks routinely face tougher regulations, regardless of where they operate.

Secondly, banks generally offer a wider range of services than EMIs. Electronic money institutions aren’t permitted to offer credit, for example, and they don’t usually offer deposit insurance or provide investment advice either.

Although EMIs tend to have a narrower range of services than traditional banks, this shouldn’t dissuade you from opening an electronic money account. In fact, e-money can be a great option for people or businesses that need to make a moderate or high volume of electronic transactions.

How To Open an Electronic Money Account

If you want to start sending or receiving e-money, you’ll need to decide which EMI offers the features, functionality, and pricing that suit your needs. Once you’ve done this, you’ll be able to begin the application process. While application processes are unique to each EMI, they generally follow a standard pattern.

You’ll need to submit relevant information, such as your name, address, and date of birth, along with your company information if you’re opening an account for business purposes. Then, you’ll need to provide any documentation that’s requested before your application is reviewed and your account is opened.

Once this process is complete, you’ll receive your account information, such as login details, and be able to begin making transactions using your new electronic money account.

To learn more about our electronic money account or to discover our full suite of financial services, talk to the PayAlly team now.