PayPal, Google Pay, WePay: the explosion in ‘e-money’ providers–as they’re called by financial types–has created a trillion dollar industry worldwide. But like any centralized service, they reserve the right to block users depending on whether they agree to what it’s being used for. Human rights groups, political activists and adult performers have all suffered from e-money editorializing. Last week, a tiny blockchain startup got the green light to offer its decentralized alternative.
The Icelandic financial regulator granted the world’s first, fully regulated "electronic money institution” (EMI) license to Reykjavik-based Monerium, allowing it to put e-money on a public blockchain.
By issuing e-money on blockchains, Monerium removes the need for intermediaries and lets you automate financial transactions in areas like payments, trade finance and securities settlement. Access to Ethereum’s smart contracts and other blockchain-specific tools is the secret sauce which Monerium’s developers believe will blow legacy systems, like PayPal, out of the water.
“The functionality that has been developed—all those wonderful tools that have been developed in the Ethereum ecosystem—they suddenly become available, not only with cryptocurrencies, but with e-money,” Monerium co-founder Jón Helgi Egilsson, a former chairman of the Supervisory Board of the Central Bank of Iceland, told Decrypt.
The Icelandic regulator’s decision goes one further than e-money licenses have already been dished out for fiat-backed stablecoins (UK-based Moneyfold and Wirex, which provides cryptocurrency debit cards in Europe, to name but two.)
It’s EU-friendly license will enable Monerium to trade across the European Economic Area (EEA). Iceland is a member of the trading bloc, even while it doesn’t belong to the European Union (EU).
Monerium was founded in September 2016 for the specific purpose of bridging fiat money and blockchains. The company raised around $2 million in funding from blockchain innovation studio ConsenSys (disclosure: ConsenSys funds Decrypt,) among others.
And, whereas other blockchain startups making similar products, such as fiat-backed stablecoins, designed the technology first and looked for regulators to approve it, Monerium decided to base its technology on an existing set of rules. The focus is on consumer protection, and making sure that the underlying funds are kept separate and secure.
“The technological part is the easiest, the tricky part is to be compliant. Because if you move money between jurisdictions, rules apply,” said Egilsson.
But they’re starting off with Iceland, and testing the functionality with Icelandic krona (ISK.) “Then we transport it to other jurisdictions,” explained Egilsson, adding that it should be available outside Iceland by Q4 this year, subject to regulatory approval in destination countries.
Monerium’s achievement in gaining a license enables it to provide fiat payment services across a potential market that’s projected to be worth around $ 1,5 trillion by 2025.
In the global e-money market, which is seeing healthy growth of 10 percent, emerging Asian economies are seeing the biggest expansion. But analysts say Europe’s market will evolve quicker than the U.S., because of its innovation-friendly legislation.
The FAANGs (Facebook, Apple, Google et al) aren’t oblivious to the opportunity. Facebook is jumping on the blockchain itself, and Google has expanded its payment market options by becoming an EMI, licensed in Lithuania.
But all this comes amidst increasing pressure on the European legislature to provide for situations where cash-like liabilities can put pressure on existing regulators.
German air carrier Lufthansa, for example, is being sued as its airmiles are alleged to be a form of e-money, yet it has no issuing license.
A quick flight over to the land of the geysers might sort that one out.