As a start-up company, financial transactions will be an inevitable part of your business dealings. The right banking method is crucial to a flourishing business.
Even though the benefits of traditional banking cannot be denied, EMIs, or electronic money institutions, are slowly becoming the choice of banking for businesses, and with good reason. The digital banking services and the enhanced cybersecurity of EMI are superior to traditional banking.
Here we will discuss how both banking routes operate and what makes EMIs more attractive to business owners.
Banking Structure in Brief
Before we dive into the ABCs of EMI, let’s briefly overview the basic structure of banking.
- Banks are subjected to stringent financial regulations and supervision by the central authority that licenses them in their country of operations.
Additionally, a minimum of $10-$20 million is the starting capital base funding required to establish bank operations.
- Checking accounts, mortgages, credit/debit card issuance, payment services, overdrafts, asset management, direct debit functionality, and digital financial services are some of the most common services offered by banks.
- Did you know that banks are required to make quarterly reports to the central authorities? This is to keep a predetermined level of liquidity (the ratio of cash and short-term assets to liabilities), which in turn has led banks to adopt more conservative practices and offer rigid conditions in conducting business.
The resulting boom in the financial services sector can thus be attributed to the inability of banks to adapt to these changing business climates.
In contrast, rules and restrictions are more lenient in EMI operations.
- In general, the startup capital of less than half a million dollars is a more flexible option for EMIs. Plus, the reporting stipulations are also less rigorous.
- The multitude of services offered by EMIs in addition to banking services includes but is not limited to credit transfers, foreign exchange services, direct debits, and cash remittance as well as electronic money.
- Borderless unlimited transactions, e-wallets, IBAN accounts, and payment cards are the best options provided by EMIs.
Should You Choose a Bank?
In this digital era, conventional banks, most of which were established in the pre-digital age, need considerable capital and resources to provide up-to-date modern services. Nevertheless, these efforts will still not reach the range and depth of digital services.
EMIs, by definition, are designed and built for the digital era of monetary transactions through the Internet. The myriad of options available for customers’ transactions makes EMI a better choice, whereas banks are limited to card payments and wire transfers.
Moreover, conventional banks need to spend considerable funds on infrastructure to enter the market. EMIs, instead, redirect these resources to acquiring new business and achieving the highest value.
Finally, an E-money license is much cheaper than a banking license. The resulting competition between the operators encourages better yet cost-effective services for the customer.
Advanced Solutions for All Business Needs
Enhanced Compliance Procedures
As opposed to other financial service providers with numerous binding regulations, EMIs have the advantage of online monitoring through their personalized internal systems and top-notch technical solutions. As a result, response to suspicious activity can be done quickly and in real-time.
Additionally, EMIs also can settle compliance issues and perform enhanced due diligence procedures effectively.
Ownership structure, business activity, and company location are some of the parameters assessed by EMIs. For instance, low-risk enterprises include EEA-based companies.
Digital and Remotely Operated Solutions
Digitalization has allowed clients the opportunity to enjoy banking facilities and manage their accounts remotely. This has transformed banking in modern times. The introduction of IBAN accounts – a single international bank account – now allows customers to store multiple currencies of their funds.
Furthermore, there are unlimited transaction opportunities in foreign exchange services that allow for smooth currency conversion. The round-the-clock customer support via message, email, or phone through professional account managers is a bonus.
Quick Payment Options
One of the biggest advantages of electronic money institutions is the variety of options for multi-currency payments. In contrast, this is not true for traditional bank services as credit/debit cards or limited wire transfers are the commonest means to conduct payments.
This is where EMI gains the upper hand. Their payment options including e-wallets as well as electronic currencies, making them a better choice in banking options.
Secure and Safe Funds
Despite not being banks per se, EMIs are still monitored by the government and other central financial institutions in their market of operations.
For example, many EMIs are licensed by the national bank of the particular country and adhere to the regulations of the said institutions. This may involve keeping all customer funds at the national bank to guarantee their funds. Therefore, the risk of losing money is zero.
As opposed to many banks being unable to pay their customers’ entire savings, this is not possible with EMIs.
Issues With Cybersecurity
As much as digitization has ushered a new era in banking, it has come with its own set of vulnerabilities, especially in terms of cybersecurity. The onslaught of cyberattacks akin to a plague is a threat to the industry as a whole. The most common attacks on digital banking include phishing, unencrypted data, spoofing, malware, and insecure third-party services.
Despite several measures taken by banks toward asset protection against cyberattacks such as the Deposit Protection Scheme of EU member countries, protection of sensitive data isn’t guaranteed.
On the other hand, the level of security established has firmly established EMIs in the fintech market. As a result of the regulations and controls in place, EMIs have become the most reliable place for transactions and open accounts for businesses.
In summary, the degree of security and a broader band of services provided by EMIs are greater than conventional banks. Furthermore, the slow adaptation to modern services coupled with the conservative customer acceptance rates has contributed to the decrease in popularity of conventional banks.
This in turn has become the stronghold of EMIs. The flexible products designed with business world needs in mind and quick adaptability with less stringent regulations have made EMI the choice of banking for businesses.