The Real Cost of Buying vs. Starting an EMI: Navigating the Financial and Regulatory Maze
Buying vs Starting an EMI: When venturing into the world of Electronic Money Institutions (EMIs), a critical decision awaits: should you start a new EMI from scratch or buy a ready-made one? For more information, reach out to us at connect@swissfintechpro.com
At first glance, buying may appear as a shortcut to market entry, the reality, especially in terms of financial outlay, is often starkly different. Firstly, there is the hefty price tag, starting from an eye-watering 2 million euros, and then they are a host of other challenges.
Let’s dissect this decision with a factual lens and see why initiating your own EMI could be more than just a cost-saving strategy.
Why Buying a Ready-Made EMI Is Not the Optimal Choice
Price and Availability
- Limited Availability of Targets: The quest for a suitable ready-made EMI is arduous. The scarcity of options often leads to compromises or settling for subpar entities.
- Costly Targets: These rare finds often demand a hefty investment, sometimes upwards of 2 million euros, for what essentially amounts to an empty shell: a license and a safeguard account, devoid of any substantial business, client portfolio, or proprietary software.
- Capital Intensive Ventures: The initial high cost of acquisition is just the beginning. Post-purchase, significant investments are needed to align the EMI with operational and regulatory standards. In contrast, starting an EMI from scratch is significantly less expensive, freeing up capital for other critical areas like marketing.
Lengthy and Complex Acquisition Process
- Lengthy Acquisition Timeline: The acquisition process is a marathon, not a sprint, spanning 6 to 12 months. This timeframe includes due diligence, regulatory transfer processes, and more, challenging the notion that buying is faster than starting from scratch. On the other hand, we can apply for a license in France or Ireland in 6 to 8 months, quicker than buying an existing EMI.
- Misconception of Reduced Paperwork: The administrative load in acquiring an EMI is formidable. Buyers encounter the same stringent regulatory hurdles as they would in a new application, including KYC, fit and proper tests, and the necessity of a comprehensive business plan.
- Regulatory Transfer Complexities: Transferring an EMI license is no cakewalk. It invites increased regulatory scrutiny, especially if there’s a change in the business model, such as shifting from traditional EMI operations to crypto-related activities.
- Regulatory Perception Concerns pertaining to Buyer: Consider the regulator’s perspective on a transaction where a buyer is willing to shell out over 2,000,000 Euros for what is essentially an ’empty suit’ EMI. This kind of investment, primarily driven by apprehension and uncertainty about the licensing application process, can raise questions. Regulators might wonder why a buyer would prefer to invest such a significant amount in an entity with minimal intrinsic value rather than navigating the application process for a new license.
Legacy and Red Flags Issues
- Regulatory Red Flags pertaining to Seller: Quick turnovers of EMI ownership, especially within 6 to 18 months post-license issuance, raise regulatory eyebrows. This skepticism can lead to intensified scrutiny and, in some cases, outright refusal of the transfer.
- Inherited Challenges: Buying an operating EMI means taking on its legacy – operational, cultural, and compliance issues. Untangling these complexities can be both costly and time-consuming.
Conclusion
Taking these points into account, starting a new EMI emerges as a more logical and financially viable choice. This approach allows for tailored compliance frameworks, clear operational setups, and avoids the exorbitant costs and hidden intricacies of purchasing an existing EMI. In addition, it requires less time than buying one and the autonomy, and long-term benefits of building an EMI from the ground up often outweigh the apparent convenience of buying an existing entity.
Do not hesitate to contact if you want more information on Buying vs Starting an EMI at connect@swissfintechpro.com
