E-money institution
A firm licensed to issue electronic money and provide payment services, but not allowed to lend out its customers' funds.
The licence comes from the EU's second E-Money Directive, 2009/110/EC, and is the usual way in for fintechs that want to hold customer balances without becoming a bank. Initial capital is €350,000, a fraction of what a bank needs. The trade-off is two restrictions: the institution may not take deposits in the legal sense, and it may not lend the money out. Customer funds must be kept apart, in safeguarded accounts or secure assets.
That is why the balance is not covered by deposit insurance. The protection is that the money is supposed to sit untouched at the bottom, which works as long as somebody actually checks. When Wirecard collapsed in 2020, the UK regulator froze its e-money subsidiary, and card customers of several fintechs were briefly cut off from their own money. Revolut and Wise both started out as e-money institutions.