What is an E-Money License in Europe?
Both startups and tech giants are fascinated about the new use cases of E-Money connected with blockchain as well as smart contracts, which can be used in automated transactions, M2M payments, and IoT industry in the near future. With an E-Money license tied to the Euro, business holders can provide tokens which are not just stable coins but the real Euro; while, businesses without an E-Money license are providing tokens that are simply stable coins, not the Euro. Serkan Katilmis, Maximilian Forster, Ya-Fang Cheng, Hsiao-En Chen
According to the definition from the European Central Bank, E-Money is electronic storage of the monetary value on electronic devices such as smartphones and online accounts that can be used to pay for goods and services.  Obviously, businesses with an E-Money license are able to issue the regulated E-Money as a digital equivalent of cash to the public.
With E-Money issued on the basis of blockchain/ smart contract technology, there are potential business models and use cases which are going to bring digital disruptions in financial markets; furthermore, it provides an alternative channel for transactions, which seems to be more secure and tamper-proof. For example, it offers a more efficient and economical way for cross-border transfers. Furthermore, by using E-Money united with blockchain and smart contracts, CASH ON LEDGER aims to enable IoT machines such as drones to pay and bill Euro automatically in the near future.
The advantage and disadvantage of E-Money
It is important to understand the pros and cons schemes of E-Money since that E-Money with blockchain might replace physical cash in the future.
- Smart contract use case. Using E-Money in smart contracts heralds a new kind of payment system. For example, Monerium is the world’s first company to issue regulated E-Money on smart contracts for IoT and supply chain payment systems.
- Instant tokens trading. By using programming E-Money tied with fiat currency, traders can exchange or buy digital coins instantly on chain. For instance, CASH ON LEDGER provides integrated services into existing financial systems through IBAN and E-Wallet; that is to say, people can transfer Euro on chain for other tokens via IBAN.
- Ideal for micro-payments and M2M payments. Compared with credit/debit card payment ecosystems that have a contractual as well as a complex system between users, using E-Money is more straightforward and efficient. As pay-per-use cases are more popular nowadays, E-Money with blockchain makes an ideal model in micro-payments as well as machine-to-machine (M2M) payments for users. For example, CASH ON LEDGER aims to integrate IoT machines into the economic cycle for financial transactions.
- Anonymity. By using E-Money, the user remains anonymous as using fiat currency, which is contrary to credit/debit cards.
- Safety. In comparison with physical currency, E-Money is more protected since it needs your own personal identification number (PIN) to complete the transition; furthermore, instead of carrying huge amount of money, an e-wallet is nearly sufficient.
- Lack of confidence in the system. We need an account and the password to use E-Money. Maintaining a secure E-Money system is essential. Currently, there are still risks and doubts that the user’s e-wallet might be hacked or the password might get leaked.
- Counterparty risk. As long as dealing with the advantage of anonymity during transactions, there is a possibility that a participating party may fail on its contractual obligation. Many transactions can only be carried out if counterparty credit risks are accurately identified and risk prevention measures are introduced. Without the third-party system such as the escrow account as a means of increasing credit, transactions between token on chain are still doubtable.
- Negative interest rate. It will lead to additional costs because of the negative interest rate policy in some European countries. People need to pay for additional fee in order to put their money in bank accounts, which also induce people from using E-Money.
What services can also be provided with an E-Money license?
Holders with an E-Money license can not only issue E-Money but also provide all kinds of payment services. It is also possible for businesses with the license to redeem and distribute E-Money, execute E-Money payment transactions such as standing orders, make money remittance, and issue IBAN accounts, payment cards, e-wallets, and etc. Therefore investment to such institutions creates an opportunity to act successfully in all European markets at significantly lower incorporation and operational costs.
Why some crypto businesses have E-Money licenses, some don’t?
There are no fixed answers for the question. The meaning hidden behind of whether having an E-Money license or not should be according to the business requirements and purposes. Nowadays, no matter crypto fintech startups or even multinational technology giants aim to attract new users by occupying a place in this new trending crypto markets; obviously, the best way to do so is not changing customers’ daily routines and also provide them with a more efficient and user-friendly experience. That is, enabling users to use fiat currencies is still the best idea. 
Take one example here, as the first licensed Electronic Money Institution (EMI) in Iceland, Monerium is the first company to issue regulated E-Money on blockchains across the European Economic Area (EEA), which is authorized by the Financial Supervisory Authority of Iceland (FME). Another fintech startup, CASH ON LEDGER aims to integrate the existing financial ecosystem by using smart contracts to enable automation of new business services and its long-term goal is to become the machine-to-machine (M2M) service provider. By the purpose of doing so, CASH ON LEDGER has also applied and been granted an E-Money license by the Spanish National Bank, which means it can build up new use cases with regulated E-Money in a B2B market under the regulation of European Economic Area.
However, STASIS, a crypto startup without an E-Money license, provides its stable coin with a more decentralized financial service such as dealing at the crypto exchange without interference to traditional intermediaries like banks and dealers.
For those crypto businesses with an E-Money license that can issue the regulated E-Money tied to the fiat currency enable customers to pay even in places where the cryptocurrency is not accepted. That is to say, businesses with an E-Money license tied to the Euro are not just providing a stable coin but the real Euro; however, businesses without an E-Money license are simply issuing a stable coin, not the Euro.
Conclusion: blockchain-based E-Money has huge potential in the future
It should be noted that E-Money institutions not only issue e-tokens, but also provide related services such as money transfers, payment transactions, opening a payment account, and etc. In addition, businesses with blockchain-based E-Money are able to carry out broader activities not only related to payment services.
As we are gradually moving towards a cashless society, the importance of E-Money will continue to grow significantly, startups who equips with an E-Money license have potential opportunities under the trending of disruptive technologies. Moreover, under the regulations of the European Union (EU), CASH ON LEDGER and Monerium are startups providing tokens that combine the price stability as well as the creditworthiness of the Euro with blockchain technology; it means they are issuing the real Euro, not stable coins. Applying innovative business models to traditional and complicated financial systems requires great efforts and risk-taking. And those who are willing to take challenges are going to win an essential place in the markets.
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Serkan Katilmis is a tech entrepreneur and investor, who has more than 20 years of experience in top-tier management consulting. As CEO of CASH ON LEDGER, he promotes the Euro on blockchain systems such that smart contracts can be used in an industrial setting or in B2B contexts. Prior to that, Serkan was working for leading organizations Goldman Sachs, accenture and PwC as an executive. He holds an MBA from Duke University and completed several executive strategy programs at INSEAD. You can contact him via Linkedin.
Maximilian Forster focuses on business development working for Cash On Ledger GmbH. He is the co-founder of the Blockchain Bayern e.V., member of INATBA and member of the Blockchain WG at Bitkom e.V.; previously, he helped to build up the DLT and blockchain service offering of KPMG and Accenture and worked on the blockchain investment strategy for Picus Capital. He is also in close connection with the blockchain ecosystem: for example, he has contributed to the Goethe University Frankfurt’s “Digital Banking Practical Handbook” and DHL’s “Blockchain in Logistics” publication. You can contact him via Linkedin.
Cheng Ya-Fang has studied Finance and Informatics at the Technical University of Munich (TUM). As a professional auditor in PricewaterhouseCoopers(Pwc) for two years, she had advanced her practical experiences in the field of finance and business by providing audit and tax assurance services to multinational corporations. Further, she is also an active attendee of various blockchain and technology forums. You can contact her via email or Linkedin.
Hsiao-En Chen studied TUM-BWL at the Technical University of Munich. Her fields of interests are mainly blockchain technology, cryptocurrencies, e-commerce. She participated in several projects related to Fin-tech applications, previously worked as an Assistant editor in “MIS Review” and Research Assistant in the Department of Management Information Systems in National Chenchi University, Taiwan. You can contact her via Linkedin.