When is E-Money Actually E-Money? Understanding the EBA’s Interpretation

In an era of rapid digital financial innovation, the precise definition of electronic money (e-money) is crucial for regulatory clarity.

The European Banking Authority (EBA), referencing the Court of Justice of the European Union (CJEU) ruling in case C-661/22, recently provided guidance on when digital monetary value qualifies as e-money. This ruling sheds light on essential conditions that must be met for a financial instrument to be classified as electronic money under EU law.

The Legal Definition of Electronic Money

According to the E-Money Directive (EMD2), electronic money is defined as:

“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... and which is accepted by a natural or legal person other than the electronic money issuer.”

While this definition may seem straightforward, its application is not always clear-cut. The CJEU ruling clarifies key aspects that differentiate e-money from other digital payment instruments.

E-Money as a Separate Monetary Asset

One of the most significant insights from the ruling is found in paragraph 47, where the Court states that e-money is “a monetary asset separate from the funds received.” This distinction is critical—e-money is not simply a digital representation of existing funds but rather a new, separate monetary unit that must meet specific criteria.

Paragraph 48 further establishes that the issuance of e-money requires:

• The receipt of funds by the issuer.
• The explicit consent of the user for e-money issuance, typically formalized through a contractual agreement.

This means that simply holding funds digitally does not automatically make them e-money; they must be issued in a distinct format recognized as such by both the issuer and the user.

The Role of Acceptance in E-Money Qualification

Acceptance by parties other than the issuer is another crucial criterion for an instrument to be considered e-money. In paragraph 49, the Court states that e-money must be transferable and voluntarily accepted as a separate monetary asset. This goes beyond merely receiving funds; rather, it involves:

• The ability to transfer the electronic value within a network of willing participants.
• The voluntary nature of acceptance, means that parties other than the issuer must recognize and transact with the e-money.

In the case in question, merchants were paid in scriptural money rather than electronic money, which means the transaction did not meet the legal standard for e-money acceptance. Simply put, if an entity is only facilitating payments rather than issuing a separate digital monetary asset, it does not constitute e-money.

Contractual Agreements and Redemption Rights

Another key aspect clarified in the ruling is whether merchants or payees need to have a contractual agreement with the e-money issuer. Recital 18 of EMD2 emphasizes that e-money must be redeemable to maintain consumer confidence. Article 11 of EMD2 further establishes that redemption rights must be outlined in a contractual agreement between the e-money issuer and both holders and acceptors of e-money.

Thus, for someone to be considered an “acceptor” of e-money (rather than just a recipient of funds), they must have a direct contractual arrangement with the e-money issuer. If no such contract exists, the transaction fails to meet the definition of e-money acceptance under EU law.

For financial institutions, payment service providers, and fintech innovators, this ruling underscores the need for meticulous structuring of digital payment models. Compliance with e-money regulations is not merely about terminology; it’s about meeting well-defined legal criteria to ensure legitimacy and stability in the digital financial ecosystem.

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