The definition of e-money plays an important role in practice, as it determines the regulatory requirements for products and business models (e.g. distribution channels via e-money agents). The European Banking Authority (“EBA”) recently clarified in its Q&A under which conditions electronic money (“e-money”) exists. These clarifications have a direct impact on the practice of e-money issuers and shed new light on products and business models.
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Background
(e-money) products (…)
E-money, which was first defined by Directive 2000/46/EC (Electronic Money Directive 1 – “EMD1”), now covers a wide variety of payment products, e.g.
- Units of value that are only stored on chip cards as bearer instruments (e.g. the now abolished GeldKarte),
- Credit cards where the credit balance is managed centrally (e.g. server-based) by the card issuer,
- Closed account-based payment systems (e.g. PayPal) or even
- IBAN payment accounts on a credit basis (e.g. in Lithuania)
Due to PayPal, pure account-based systems currently dominate in the EU (approx. 75% based on payment volume)[1] . The remainder consists of card-based e-money products, predominantly so-called prepaid “credit cards” (mainly Mastercard and Visa). The original “real” e-money as a bearer instrument (see above, cash card) has almost completely disappeared from the market.[2] Although the ECB continues to publish that 12% (1st half of 2024) of the e-money payment volume in the eurozone is generated by “cards on which e-money can be stored“[3] , this statement is presumably based on incorrect reporting by several e-money issuers
(…) and demarcation difficulties
In practice, this means that it is sometimes difficult to classify products as e-money. One current example is the difficult distinction between e-money and sight deposits (and, in the context of the Markets in Crypto-Assets Regulation (“MiCAR”), also the (follow-up) questions relating to e-money tokens and tokenized deposits[4] ).
Whether a product is to be classified as e-money depends largely on whether the characteristics of the e-money definition are fulfilled. These characteristics are subject to interpretation and have led to differing opinions in practice.
EBA Q&A on the definition of e-money
On January 17, 2025, the EBA clarified the definition of e-money as part of its Q&A procedure (with ID 2022_6336, available here). Specifically, it deals with when a monetary value is to be classified as e-money and what role acceptance by third parties plays.
This was prompted by a question submitted to the EBA (back in 2022) by a company that wanted to obtain an e-money license from its national supervisory authority. The national supervisory authority had refused the e-money license for the issue of a “prepaid” card “connected to a global payment card scheme” (probably Mastercard or Visa). The supervisory authority justified this refusal by stating that the definition criterion “accepted by a natural or legal person other than the electronic issuer” pursuant to Art. 2 No. 2 of (EU) Directive 2009/110/EC (E-Money-Directive 2 – “EMD2”) was not met. In the course of this, the question was raised as to whether a payee himself must become the holder of the e-money in order to fulfill the criterion of “third-party acceptance” of e-money in accordance with the e-money definition.
According to the EBA, acceptance by third parties means that the e-money must actually be accepted and received by third parties. It is not sufficient for the payee to merely receive the (cash/virgin) funds resulting from the redemption of the e-money. Rather, the payee must accept the e-money itself and thus become the holder of the e-money. This requires a contractual agreement between the e-money issuer and the payee
In its response, the EBA also takes into account ECJ ruling C 661/22 of February 22, 2024 (ABC Projektai UAB vs. Lietuvos bankas). In this judgment, the ECJ points out that e-money is “a monetary asset separate from the funds received” (loc. cit., para. 47).
Practical effects
Taking into account the (albeit not legally binding) EBA opinion, (e-money) products on the market, such as the prepaid Visa or Mastercard, should probably no longer be classified as e-money. The same applies to transfers from an e-money IBAN account via interbank clearing to an account held at another institution.
In the case of account-based e-money, this de facto means that only funds that can be used as a means of payment in a closed account cycle (in which the payer and payee have a contractual relationship with the issuer) qualify as e-money. Such a closed account cycle, which is managed by the issuer, would exist, for example, in the PayPal e-money payment system.
In practice, this means
- E-money issuers must check whether their e-money products the e-money criteria as defined by the EBA.
- Payees must actually accept e-money and not just receive the resulting (cash/giro) funds.
- Accordingly, a contractual agreement between the e-money issuer and the payee is required.
- Against this background, contracts and business models should be reviewed in the light of the EBA’s view on the definition of e-money.
Conclusion and outlook
The EBA’s clarification has important practical implications. In particular, there will be an even greater focus on the contractual integration of payment recipients. Companies should therefore legally reassess their (e-money) products in light of the EBA’s view.
At the same time, the EBA’s view on the definition of e-money raises new (follow-up) questions. If certain products are no longer regarded as e-money, the question arises as to what this means for the distribution of these products (especially via e-money agents), particularly with regard to money laundering obligations
In our opinion, the upcoming regulatory developments in the context of PSD3 and PSR leave no doubt that the definition of e-money will be rethought in terms of (supervisory) law. The current discussion, in particular the Lithuanian government’s proposal in the European Council and the EBA’s opinion, highlight the need for the EU legislator to take action. This marks the beginning of a new chapter in the history of e-money and will have a significant impact in practice.
[1] See ECB Payment Statistics (available at https://data.ecb.europa.eu/methodology/payment-services-large-value-payment-systems-and-retail-payment-systems) and PaySys Consultancy calculations.
[2] Market analysis by PaySys Consultancy.
[3] https://www.ecb.europa.eu/press/stats/paysec/html/ecb.pis2024h1~5263055ced.en.html
[4] https://paytechlaw.com/giralgeld-vom-kreditinstitut-e-geld-vom-institut/
