What is Electronic Money: Everything You Need to Know

Here's a breakdown of the basics of digital currencies, where they come from, how they're used, and why they matter in today's financial landscape.

As technology relentlessly reshapes our world, our financial systems won’t be left behind. With physical cash giving way to electronic money, we're seeing a futuristic landscape where transactions are seamless and coin-free. But what is electronic money? How does it work and impact businesses, consumers, and the broader monetary system?In this guide, we'll demystify electronic money's benefits, challenges, and role in shaping our cashless future. Let's dive into the intriguing world of electronic money.

A Closer Look at Electronic Money

To fully appreciate the impact of Electronic Money, we need to define how it operates. What is Digital Money?Digital or electronic money, as defined by the European Central Bank, is a monetary value stored digitally on a technical device. Unlike traditional money, it's not a physical entity but rather an electronic version of cash. It can be used to conduct transactions, pay for goods and services, and doesn't necessarily have to involve banks or traditional banking systems in its transactions. How Does Digital Money Work?Electronic money operates via advanced technologies and networks. Stored on devices such as smartphones, computers, or specialized payment systems, it's exchanged digitally between parties. When a transaction occurs, the monetary value is transferred from one account to another, with all the associated information securely stored.Have We Really Stepped into the World of Electronic Money?Without a doubt, the evidence is clear: electronic money is here to stay. The European Union has seen a dramatic surge in e-money transactions, from 2.1 billion in 2014 to 7.4 billion in 2021. Some central banks, the most notable cases being Sweden and China, are even working on launching central bank digital currencies meant to complement the "regular" money.This is part of a more significant trend sweeping the globe. Increasingly, people are turning away from cash and embracing digital payments for convenience. We're well on our way to becoming an entirely cashless society!

How do Businesses Benefit from Electronic Payments?

Businesses are reaping substantial rewards from the shift to electronic money, with benefits including:

Enhanced efficiency due to instant transactions
Improved security, minimizing risks like theft or loss
Broadened market reach through borderless transactions
Better cash flow management via real-time tracking
Cost savings from reduced handling of physical cash

Is Electronic Money Better than Physical Money?While digital payments offer numerous advantages over physical cash, universal adoption relies upon the widespread availability of online access and financial literacy. The Swedish Civil Contingencies Agency (a department that prepares for national emergencies) advises keeping “cash in small denominations.” This is to ensure citizens can use money in case of natural disasters, power outages, or cyber-attacks. Many people would do that without a nudge from a government agency.Physical currency still holds an essential place in the present day. Nevertheless, with increased access to technology and knowledge about finance, it is clear that electronic money will lead the way into the future.

What is an eMoney License?

An eMoney License, also known as an Electronic Money Institution (EMI) license, is a regulatory approval granted to businesses providing electronic money services. It ensures compliance with regulatory requirements, including capital adequacy, anti-money laundering measures, and risk management systems.How to Get an eMoney Institution License (EMI)?In Europe and Finland, obtaining an EMI license involves:

Preparation: Crafting a detailed business plan outlining your services.
Application: Submitting your plan, proof of capital, management details, and risk management strategies to the financial authority. In Finland, this authority is the Financial Supervisory Authority (FIN-FSA).
Evaluation: Undergoing a review period that can take several months.
Approval: Receiving the EMI license upon satisfying all requirements.

The Rise of Neo-banks in the Digital Era

Neo-banks are digital institutions without physical branches, offering financial services exclusively through digital platforms, just like Narvi. Many neo-banks hold an Electronic Money License, meaning they are one step below traditional banks — while the services are comparable.With a user-friendly interface, 24/7 accessibility, fully online onboarding, API, and features tailored to modern needs, such as instant payments, access to multiple people, multiple bank accounts in the same dashboard, and downloading statements, Narvi thrives in offering business accounts.

The Future of Money

When Will Money Be Completely Digital?

The world is rapidly hurtling towards digital finance, with electronic transactions and neo-banks gaining traction. But when will the money be wholly digitized?While a precise timeline remains unclear due to varying levels of digital adoption across the globe, the International Monetary Fund (IMF) believes we are now in the experimentation phase with Central Bank Digital Currency (CBDC), indicating a potential shift towards largely electronic finance within several decades. How is Cryptocurrency Different from Digital Money?Digital money and cryptocurrency, both forms of electronic currency, have key distinctions. Digital money mirrors existing fiat currencies and falls under financial authority regulations. Conversely, cryptocurrencies like Bitcoin are decentralized and unregulated by any central authority. The IMF suggests that carefully designed CBDCs could offer better durability, security, and lower costs than private digital money forms, including cryptocurrencies, making them potentially integral to the future digital money landscape.

Narvi Business Account

Narvi as Your One-stop Gateway to Electronic Money

At Narvi, we offer an innovative solution for businesses navigating the world of electronic money. Our Electronic Money Institution (EMI) license in Finland, our commitment to exceptional customer service, and our ability to onboard customers allow us to leverage the expanding online payments market.Our platform delivers numerous advantages, including dedicated IBAN accounts, instant SEPA payments, smooth digital onboarding, and multiple access levels for user accounts. All these while maintaining high standards of regulatory compliance.Join Narvi Payments and let us empower your business's financial operations in the evolving electronic money landscape.

Find out how Narvi can meet your business needsTake step one to a smarter way of handling your trading finances. Reach out to our team and learn how you can transform your trading and transacting.

Published April 17, 2024, updated November 12, 2024Author:

Neil Ambikar, Co-Founder and CFO of Narvi Payments.Read next:

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Narvi Payments Oy Ab is an Authorized Electronic Money Institution (EMI). Narvi’s EMI license is granted by the Finnish Financial Supervisory Authority (FIN FSA) with the registration number 3190214-6. Narvi’s license is Passportised to all European Union countries.

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