E-money transactions are defined as the issuance of electronic money. It is therefore essential to know what e-money is. For this purpose, the European legislator has created a separate directive, namely the (second) Electronic Money Directive (Directive 2009/110/EC), also called EMLD2. In the German Payment Services Supervisory Act (“ZAG”) the definition of electronic money is found in Section 1 (2) sentence 3.
What is e-money?
Let’s look at the definition of e-money in detail:
E-money is first and foremost a monetary value. This means that it must have the function of money, like book money, i.e. serve as a means of payment or barter.
The monetary value must be stored electronically, including magnetically. This means that electronic money is always stored somewhere. This alone does not say much, because e-money can be stored for instance on a card (chip card like the money card) but also on an account and in the latter case the difference to a non-e-money account, which may also show a credit balance, is not really visible.
Furthermore, the monetary value must be in the form of a claim on the issuer. This means that the e-money entitles the owner to make a claim on the issuer namely, to redeem it for fiat money. However, the issuer cannot simply exclude the right to redeem and thus escape classification as e-money, but e-money is also present if the claim is only against someone else (e.g. a merchant accepting the e-money).
E-money must also be issued against receipt of funds, which must be a legal tender or e-money itself. This means that constellations in which, for example, a monetary value is issued against the payment of Bitcoin do not fall under the definition of e-money because Bitcoin is not a legal tender.
The e-money must be issued “upon receipt” of funds, which means e-money is paid in advance or “prepaid”. However, payment by credit card or direct debit is usually also allowed, even if the money is then not credited to the issuer immediately.
Lastly, e- money must be used for the execution of payment transactions, with a single payment transaction being sufficient.
It is very important that a third party other than the issuer accepts the e-money. Due to the criterion of so-called third-party acceptance, voucher cards which can only be redeemed in the shop of the issuer are in fact not e-money.
Why is the e-money definition so important?
A good understanding of the e-money definition is important to distinguish e-money from other forms of stored value. For example, Section 1 (11) sentence 5 no. 1 of the Germany Banking Act (“KWG”) distinguishes crypto assets from electronic money, i.e. they are logically mutually exclusive. However, it is necessary to take a close look because many stablecoins are likely to qualify as e-money and not crypto assets, as they are issued by an issuer upon receipt of fiat money.
Who can issue e-money?
First of all, e-money institutions may issue e-money, because there is a specific authorization for carrying out the e-money business pursuant to Section 11 ZAG. In addition to e-money institutions, however, CRR institutions, the central banks, the ECB, the federal government, cities and municipalities as well as some administrative bodies may issue e-money as well.
Exemptions to the definition of electronic money
Section 1 (2) sentence 4 ZAG provides for exemptions to the definition of e- money. If one of these exemptions applies (which also apply to payment services), the stored value is not deemed e-money. These exemptions mainly concern payment instruments that can only be used for a very limited range of products or only in a limited network. Since these exceptions are very relevant in practice, we have saved them their own little door in the advent calendar.
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