- Question ID
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2022_6336
- Legal act
- Directive 2009/110/EC (EMD)
- Topic
- Not applicable
- Article
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2
- Paragraph
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2
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
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Not applicable
- Type of submitter
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Credit institution
- Subject matter
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Definition of electronic money
- Question
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Does the wording “accepted by a natural or legal person other than the electronic money issuer” in the definition of electronic money (article 2.2) imply that a third party (payee) must become the holder of the electronic money as such and thus that there must be a direct contractual arrangement between the e-money issuer and all payees (obligating the payees to accept the issued e-money as a means of payment and granting the payees a right of redemption of the e-money) or should the criterion that a third party must “accept the electronically stored monetary value” be considered to be met where a third party payee accepts our customer’s payment with a card that is backed by the customer’s e-money (as per the description above), regardless of the fact that the payee will not become a holder of the issued e-money as such?
- Background on the question
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We issue cards which are connected to a global general payment card scheme. The business entails that we accept funds from customers and provide the customers with electronically stored monetary value as represented by a claim on us (in accordance with applicable regulations). Our customers use their e-money by means of traditional card payments, which are carried out in accordance with the global card scheme’s ordinary process (applicable to all card transactions, regardless of whether the card is backed by e-money or fiat money). Consequently, when a customer uses the card to pay for a good/service, we confirm to the card system (and by extension to the payee) that the customer has sufficient funds to satisfy the customer’s payment obligation in the card transaction (i.e. an ordinary authorization process). Following the authorization of the card payment, the payer will have satisfied its payment obligation towards the payee (seller) and can thus leave with the acquired good/service. By consequence, the customer’s e-money balance held with us (i.e. its claim on us) will be reduced in an amount equal to the purchase price. Just as in any card transaction, the seller/payee does not receive the actual payment of funds immediately. Instead, the seller/payee becomes entitled to payment (i.e. holds a claim) from its card acquirer, which in turn holds a claim on the card scheme which holds a claim on us as card issuer and EMI. During the course of the days following the customer’s card payment, the acquirer, the card scheme and ourselves will ensure that the corresponding sum (in fiat money) is sent to the payee, just as in any card transaction. The payee is typically unaware that the card it has accepted is backed by e-money (just as it could be unaware of what local currency that backs a card), and the payee does not become a holder of the “e-money” as such as the subsequent settlement payment from the card acquirer to the payee will be in fiat money.
A local regulator has recently rejected our electronic money license application under directive 2009/110/EC due to it interpreting the wording “accepted by a natural or legal person other than the electronic money issuer” (article 2.2) as meaning there must be another party than the issuer that accepts the electronic money (not just the electronically stored monetary value) as a means of payment by becoming a holder of the electronic money (meaning that an agreement must be in place in accordance with article 11.3). The local regulator thus takes the view that there is no issuance of electronic money in a situation where no third party (payee) becomes the holder of the issued e-money (other than the EMI’s customer holding the e-money).
However, based on the preparatory works to the local transposition as well as our understanding of the market’s interpretation of electronic money, electronic money can exist in various forms and models. The directive also states that the definition aims to be wide to capture different kinds of models “to avoid hampering technological innovation” (preamble 8). For example, according to such preparatory works and the “Security of Electronic Money – Report by the Committee on Payment and Settlement Systems”, electronic money can be in the form of a “numeric ledger, with transactions performed as debits or credits to a balance (hereafter referred to as "balance-based" products). Alternatively, devices can store electronic "notes" (sometimes called coins or tokens) that are uniquely identified by a serial number and are associated with a fixed, unchangeable denomination. In the latter "note-based" model, transactions are performed by transferring notes from one device to another, and the balance of funds stored on a device is thus the sum of the denominations of all notes on the device. A third possible approach, which can be thought of as a hybrid of the previous two, is also possible by using what can be thought of as electronic "cheques" that are uniquely identified electronic certificates in combination with a balance.” (page 5).
In our view, the wording of the directive and the local transposition does not require payees to accept the electronic money as a means of payment, nor does it require payees to enter into direct agreements with the issuer. The directive, as well as the local transposition, instead state that it is the “electronically, including magnetically, stored monetary value as represented by a claim on the issuer” which should be accepted by a person “other than the electronic money issuer”. Consequently, it is not the electronic money as such which is required to be accepted by someone else than the issuer although such models, where the payee does become the new holder, also exist as explained above.
- Submission date
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- Final answer
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The definition of electronic money in Article 2(2) of the E-money Directive (Directive 2009/110/EC, EMD2) reads as follows:
“Electronic money’ means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions as defined in point 5 of Article 4 of Directive 2007/64/EC, and which is accepted by a natural or legal person other than the electronic money issuer”.
In its ruling in case C 661/22, the Court of Justice of the European Union states in paragraph 47 that electronic money is “a monetary asset separate from the funds received”. The Court adds, in paragraph 48, that the creation of that separate monetary asset requires not only the reception of funds by the issuer, but also the consent of the user for the issuance of electronic money, represented by a contractual agreement between the user and the electronic money issuer. In paragraph 49 of its judgement, with relevance for the acceptance side, the Court concluded that there was no issuance of electronic money in the case in question, where there was no “conversion of funds received into an electronically, including magnetically, stored money “which could be used by a network of customers who would accept it voluntarily”.
In light of the reasoning of the Court, the last condition of the definition of electronic money (acceptance by a natural or legal person other than the electronic money issuer) should be understood as entailing the transferability and voluntary acceptance of electronic money as a separate monetary asset, and not simply as the reception by the payee of funds resulting from redeemed e-money. The submitter states that the payees (merchants in this case) are paid in scriptural money. Therefore, in accordance with the Court’s ruling in case C 661/22 and the reasoning outlined above, there is no acceptance of electronic money by a party other than the issuer in the case in question.
Furthermore, with regard to the question of whether the payees must be in a contractual agreement with the electronic money issuer, recital 18 of the EMD2 lays out redeemability as an intrinsic feature of electronic money, by stating that “electronic money needs to be redeemable to preserve the confidence of the electronic money holder”. In that respect, Article 11(3) of the EMD2 establishes that the conditions of redemption should be stated in the contract between the electronic money issuer and the electronic money holder. Article 11(7) further establishes that “redemption rights of a person, other than a consumer, who accepts electronic money shall be subject to the contractual agreement between the electronic money issuer and that person”. Consequently, the acceptance of electronic money whereby the person who accepts electronic money becomes a holder of electronic money, should therefore be understood to require a contractual arrangement with the electronic money issuer.
The scenario described in the question therefore fails to meet all of the criteria of the definition of electronic money.
Disclaimer: The answer clarifies provisions already contained in the applicable legislation. They do not extend in any way the rights and obligations deriving from such legislation nor do they introduce any additional requirements for the concerned operators and competent authorities. The answers are merely intended to assist natural or legal persons, including competent authorities and Union institutions and bodies in clarifying the application or implementation of the relevant legal provisions. Only the Court of Justice of the European Union is competent to authoritatively interpret Union law. The views expressed in the internal Commission Decision cannot prejudge the position that the European Commission might take before the Union and national courts.
- Status
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Final Q&A
- Answer prepared by
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Answer prepared by the European Commission because it is a matter of interpretation of Union law.
Disclaimer
The Q&A refers to the provisions in force on the day of their publication. The EBA does not systematically review published Q&As following the amendment of legislative acts. Users of the Q&A tool should therefore check the date of publication of the Q&A and whether the provisions referred to in the answer remain the same.