What is an Electronic money institution (EMI) or digital app-based account?

We have entered into a new era for banking and there are now several alternatives to opening a traditional retail bank. This new era has seen fintech companies take what traditional banks offer and combine it with innovative technology to offer a modern user-friendly way managing money. Electronic banks or e-banks, are comparable in many ways to traditional retail banks except that they exist solely online, which means they do not have any physical branches. All of the banking facilities are provided through a platform accessed via a mobile phone or tablet.

Is an Electronic Money Institution the same as a bank?

No, EMI’s are not banks in the traditional model, but they are authorised or registered either as payment institutions or electronic money institutions by the UK’s financial services regulator, the Financial Conduct Authority (FCA). You can find out whether an EMI is authorised with the FCA here.

How do I know whether I am dealing with an Electronic Money Institution or a bank?

A quick check on the FCA register will reveal the type of business and whether it has authorised status.

But the most popular app-based banking solutions chosen by the BritBound community are:

• Monzo - App-Based Bank
• Monese - App-Based Electronic Money Institution
• Revolut - App-Based Electronic Money Institution

How does an EMI differ from a traditional bank account?

EMI's exist solely online. But that is not necessarily a way of telling because Monzo also exists solely online but they are a licensed bank! But the answer has to do with what they can and cannot do with your money.

If you are really interested in the difference here then may I suggest you undertake additional research, it’s a hefty topic and too lengthy for me to try and explain here! This website covers the topic quite substantially. https://www.emergingpayments.org/article/in-todays-regulated-payments-industry-who-does-what/

Are internet-only (app based) banks safe to use?

If the account provider isn’t a licenced bank, i.e. it is an electronic money institution, it doesn’t mean your money isn’t safe, but it does mean that your money is not protected in the same way as a bank. Digital banks are very aware that security is a major factor when choosing a bank, hence why they boast of the latest technology and the highest level of security. They have had to invest highly in this area ensure in order to gain consumer trust and draw us away from the bricks and mortar retail banks.

Personally, I use both a digital only bank and I also have an account with Barclays, recently I lost my card and I spent 15 minutes on the phone cancelling it, in that time my entire account could have been cleaned out! I also have a Monese account and had I lost that card it would have been as easy as logging in and freezing or cancelling my card! So, in this situation I feel that the digital bank offered me a more secure banking solution!

The antiquated systems used by old traditional banks means that they simply cannot cope or implement new technology in the way that electronic money institutions are doing, and cannot compete with the latest automated services on offer by the EMI’s. Here are a few of the main advantages for choosing an EMI over a traditional high-street or retail bank.

Advantages

• Easy to open– the average length of an appointment at a retail bank can be up to 90 minutes. The amount of support documentation, paperwork and form filling can beggar belief! But these internet-based banks can offer you a bank account solution in minutes, all from the comfort of your own living room! The set-up process is as simple as downloading an app and following the step by step instructions which usually entail taking a photo of your ID and giving a selfie video of yourself saying something daft like, “I love banking on my mobile”! But it’s really very easy.

• They are tech savvy– one of the biggest frustrations when banking with one of the high street giants is the dated platforms they use and the cumbersome methods you have to employ to do things like talk to someone or cancel your bank card. With pre-paid current accounts and digital banks they have developed innovative, efficient, user-friendly apps that are not built on old, out-dated systems. These newer systems offer a lot more like giving you updates whenever the card has been used, being able to freeze your card temporarily and much more.

• They want you – no really, they do!!As these banks are new, they do not have a long list of customers who have been with them for years. They need to get creative in ways to lure you over, which means they are actually offering benefits and features that are actually quite attractive. It’s no wonder the retail banks are beginning to panic, they have been resting on their laurels for years and have been completely blind sighted by these fintech companies!

• Foreign Currency Cards – when you spend money overseas with a traditional bank, you can usually expect to be clobbered with fees for spending, withdrawing and an exchange rate that is anything but competitive. With the new wave of digital banks there is often the opportunity to open a Euro account, (Monese) or the ability to use your card overseas without any fees and a competitive exchange rate.

• Harder to get into debt – if you are signing up with the likes of Monese or Revolut then the lack of any overdraft or credit facility means that you cannot get into debt, because you can only spend what you have in your account.

• Easier to Budget – Multiple wallets or pots so you can set aside savings or particular spending folders such as rent and bills. They also offer clever budgeting tools to help you keep track of your money

Can I open an app-based account, if I am not from the UK?

Yes, but only with certain providers. The ones you need to look for are those that do not require you to be a UK resident or provide proof of your UK address. If you do not have a secure UK address for setting up a bank account then check out our mail holding and forwarding service here.

The following three providers can open an account for you as a non UK resident.

1) Monzo - if you follow this link you will get £5 and BritBound does too.

2) Monese - if you use BRITBOUNDBONUS when you sign up you will get £15 and BritBound does too.

3) Revolut

Can I open an account whilst I am still in Australia, New Zealand, Canada or elsewhere?

The only app-based account we know of that allows you to set it up overseas is Monese. If you do want to set it up whilst in your home country then make sure you don’t do it so early that you start paying fees, or choose the fee-free account option.

• Australia, New Zealand, Canada (& Rest of world) – you can set Monese up whilst overseas and then when you arrive here you can log into your App once you have your UK Sim in place and then update your phone number. As far as I know you won’t be able to have your card posted any further than a European Country. But you could order it just before you leave so it is waiting for you when you get here. We have lots of bank cards at the BritBound Base where we keep them securely until they are collected.

• Europe -not only can you set your account up before you leave, but you can also order your bank card so you have your bank card before you even arrive in the UK. As far as I know, Monese is the only one that offers this, but that may change.

How can I check the level of protection I have when choosing an app based bank account?

If you have decided on an internet-only account and wanting to ensure they are using the highest level of security then here are three considerations:

1) Authentication - what is the sign in process, or ID authentication? Most digital banks require two-level authentication as standard. The two-step authentication can comprise of pin numbers along with facial recognition, fingerprint scanning and voice recognition. This two-step process is considered the most secure way to protect yourself online.

2) Loss of card or phone – If you lose your card or device, what actions can you take to protect your account. How quickly you can cancel your card and could your account be compromised if the device you are using is lost or stolen, is there a web platform you can access to cancel your card.

3) Governing body protection – are they protected by the relevant governing bodies? When it comes to banking bodies, you should expect it to be Financial Conduct Authority (FCA) approved at the very least. If the provider is a licenced bank then your money (up to £85,000) will be protected by the Financial Services Compensation Scheme (FSCS)

Are there any disadvantages to choosing a digital banking solution over a retail bank?

No physical branches– as the internet banks are all app-based, you won’t have a physical branch to visit if you need to. More and more people now bank online but if you are someone who tends to visit a bank branch frequently then you might want to consider a retail bank rather than an internet one.

• No own branded ATM’s – at the present time most of the cashpoints / ATM’s in the UK, that are situation on the High Street are free to use so even if you bank with a traditional bank, you can use other ATM’s. However, what you might find is that you have to pay your internet bank to withdraw from the ATM’s. Most allow you to withdraw a up to a certain amount free. But check.

• Limited additional services – the digital banks generally specialise in bank accounts , currency accounts and money transfers. This means that they do not tend to offer credit cards, loans, mortgages or overdrafts.

• Not as easy to deposit cash orcheques – whilst we are quickly becoming a cashless society, if you do get paid in cash (unlikely) then you need to pay it in using a post office.

Can you use on Apple Pay?

Yes, Monese, Monzo and Revolut can all be used with Apple Pay.