The E-Money Licence
This month the new on-line mobile banking start-up, Tide, was granted an E-Money Licence by the FCA.
This clears the way for the bank to start in earnest and position itself as an SME focused mobile bank.
What most people don’t realise is that there is a whole set of regulation laid out for E-Money operators. E-Money is defined as;
“E-money is money that is typically stored on a card which is linked to the user’s account and can be used to pay for goods and services”
Put bluntly, e-money is a sector that is going to grow and grow.
The difference between e-money and your current account is the potential to withdraw your current account as cash, whereas e-money remains electronic. That said, I don’t often use cash anyway these days given my contactless debit card, apple pay and on-line banking.
For most people the difference between normal money and e-money is mostly semantics.
That is until you get to the detail, which may make e-money a little more appealing than you realise.
The Differences E-Money Licence & Standard Banking Licence
Call me sad, but this is where the differences may start to appeal to you. It is about how the money deposited in your e-money account (or online wallet, mobile bank etc) is able to be used. The definition on use of funds is;
“Cash invested in funds must be held in secure, liquid low-risk assets which are held by a custodian or placed in a segregated account. Alternatively, the firm may hold an insurance policy or bank guarantee to safeguard the funds. An additional safeguard is that customers should now rank above other creditors in access to those funds if the e-money issuer becomes insolvent”
The key part in this paragraph is the first few words about keeping your money secure and liquid. This means the banker in question cannot invest your money wherever they want without your consent.
Let me clarify what this means for you.
If you put your money into your normal bank then you get a sum of interest (maybe not for RBS if you read the news) and the bank can do what it wants with your hard earned dollar.
That means investing it anywhere, that could mean your cash is used to support unethical causes, companies or countries that don’t meet your beliefs, pretty much anything.
The UK banks are pretty hot on avoiding unethical investments but where do you draw the line? Animal testing, cosmetics, medical testing, political wishes, connected military suppliers?
The E-Money banking licence means that your money remains secure and liquid. If the licence holder wants to do something then they need your consent and need to show where and what is going to happen. So your money is in your account and if it is used somewhere else then you know about it. It sort of seems fairer to me.
If you want to know more about E-Money then let me know or look it up on the FCA. It is an area of growth that actually seems to meet more demands of the client than regular traditional banking, we could be onto a good thing.
By Dave Farmer
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