Digital means of payment are more present in public discourse than ever; not least due to the new phenomenon of “crypto payments”, i.e. cashless payments using distributed ledger technology (“DLT”). Previously unresolved issues around the topic of cashless payments (what exactly is the difference between deposits and e-money?) are thus gaining momentum again: the question of how to distinguish between commercial bank money token (tokenized deposits) and e-money tokens has recently arisen! Our article from October 8, 2024, Payment tokens in the regulatory crossfire between MiCAR & PSD2/EMD2 (upcoming PSD3/PSR) provides an initial insight and overview.
Table of Contents
In this article, we want to examine the currently recurring thesis as to whether e-money may only be issued by e-money institutions or also by, for example, credit institutions, and what the current practice is in this regard.
Is it true that e-money can only be issued by e-money institutions?
In publications – particularly in the “crypto scene” – one increasingly encounters the following thesis or a diagram that suggests the following:
Bank money is (only) issued by credit institutions and e-money (only) by e-money institutions. See, for example,
- Figure 1 below, which is shown in the publication “Commercial Bank Money Token” (dated July 17, 2024) by the Federation of German Industries (Bundesverband der Deutschen Industrie e.V. – “BDI”) and the German Banking Industry Committee (Deutsche Kreditwirtschaft – “DK”) [1], as well as
- the almost identical figure in the Deutsche Bank article “CBDCs in Europe: retail and wholesale project to follow” (November 16, 2023)[2]
- or in the 2024/2025 Annual Report of the German Council of Economic Experts (13 November 2024). There, the German Council of Economic Experts adopts this misleading representation (page 168, Fig. 58).[3]
(Quelle: https://english.bdi.eu/publication/news/commercial-bank-money-token)
So which is it?
- The first statement is true. Bank deposits are only available at credit institutions.
- The second statement, on the other hand, is not E-money can be issued by both credit and e-money institutions (so-called e-money issuers). This is clearly stated in the Second Electronic Money Directive 2009/110/EC (E-Money Directive 2 – “EMD2”), according to which credit institutions within the meaning of Art. 1 (1) lit. a) EMD2 are also e-money issuers, as are e-money institutions within the meaning of Art. 1 (1) lit. b) EMD2.
What is the situation in practice?
In practice, at least in the EU, most e-money is issued by credit institutions (approximately 80 to 90% in terms of e-money payment volume). Consider PayPal (e-money issuer: PayPal (Europe) S.à r.l. et Cie, S.C.A., a credit institution based in Luxembourg) and Italy, the dominant prepaid card market in Europe, where these cards are primarily issued by credit institutions.
False thesis leads to (consequential) problems
The false thesis that e-money is only issued by e-money institutions often leads to the equally false conclusion, especially with regard to so-called “crypto-payments”:
E-money tokens can only be issued by e-money institutions and not (also) by credit institutions. The latter, on the other hand, can (only?) issue tokenized deposits.
Unfortunately, this is not the case. A credit institution can provide both tokenized forms of money. This is already indicated by Article 48 (1) (a) of the Markets in Crypto-Assets Regulation (“MiCAR”), which provides for both the credit institution and the e-money institution as e-money token issuers.
This raises the difficult question of what distinguishes tokenized bank deposits from an e-money token, a question that has not yet been satisfactorily resolved in the literature.
In short, it is about the regulatory classification of payment tokens:
- while e-money tokens, i.e. e-money issued on the basis of distributed ledger technology (in particular blockchain), are indisputably regulated under MiCAR,
- the regulatory classification of so-called commercial bank money token, i.e. tokenized deposits on a distributed ledger basis, is controversial, as these are – arguably – to fall outside the scope of the MiCAR (and within the scope of the Deposit Guarantee Scheme Directive, cf. Art. 2 (4) (b) MiCAR).
Outlook
Presumably, the question of the clear distinction between traditional deposits and e-money, which is also still open, will have to be answered first.
In the European Council, this long-overdue clarification is fortunately being discussed at the initiative of the Lithuanian government in connection with the planned merger of PSD2 and EMD2 through PSD3 and PSR.
The outcome remains to be seen, but – in keeping with the advent season – it is hopeful.
[1] https://english.bdi.eu/publication/news/commercial-bank-money-token
[2] https://flow.db.com/cash-management/cbdcs-in-europe-retail-and-wholesale-projects-to-follow#!
[3] https://www.sachverstaendigenrat-wirtschaft.de/publikationen/jahresgutachten.html
