- Question ID
-
2022_6336
- Legal act
- Directive 2009/110/EC (EMD)
- Topic
- Not applicable
- Article
-
2
- Paragraph
-
2
- COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
- Not applicable
- Article/Paragraph
-
Not applicable
- Type of submitter
-
Credit institution
- Subject matter
-
Definition of electronic money
- Question
-
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
-
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
- Status
-
Question under review
- Answer prepared by
-
Answer prepared by the European Commission because it is a matter of interpretation of Union law.