.svg)
New proposals seen by Vixio are seeking to provide clear definitions for e-money services in the third Payment Services Directive (PSD3), given concerns around how e-money accounts should be interpreted.
The Lithuanian delegation to the EU has said that the new regulatory framework for payments “should seek a clear delineation between electronic money and that in the payment account”.
This comes as the EU’s separate legal framework for e-money looks set to be repealed as part of the payment services package, with former e-money institutions becoming a subcategory of the payment licence once it becomes law.
According to the document, which has been distributed among member state delegations, the merger of the second Payment Services Directive (PSD2) and the second Electronic Money Directive 2 (EMD2) is “a welcome development aimed at streamlining regulatory frameworks”.
However, as the Lithuanian delegation points out, improvements need to be made to the framework to prevent confusion and a patchwork of interpretations throughout the EU.
“Even after the adoption of the EMD2, we still struggle to accurately classify a product or service that lies between payment services and electronic money,” the proposal says.
“Is it the concept of 'pre-payment' that essentially defines electronic money? Is it the reserved monetary value or purchasing power? Or is it its [conventional] payment acceptance network? Are there other defining characteristics, and if so, what are they?”
According to the delegation, “the debate continues, essentially reinforcing a somewhat frustrating impression that electronic money is hard to understand due to the absence of a clear and well-defined concept”.
The CJEU ruling
Separate from the European Commission’s payments package, a recent ruling by the Court of Justice of the European Union (CJEU) clarified that funds held in a payment account without a payment order are not automatically considered to constitute electronic money.
The Lithuanian delegation believes this raises questions about the concept of electronic money and its distinction from funds in a payment account.
In the case of ABC Projektai UAB v Bank of Lithuania (Case C-661/22), the key issue was whether a payment institution receiving funds without an accompanying payment order and crediting them to a payment account constitutes providing a payment service or issuing electronic money.
The CJEU concluded that this scenario does not mean issuing electronic money, and the decision was based on two considerations:
- Issuing electronic money requires converting funds into a distinct monetary asset, separate from a mere payment account entry, and accepted as a means of payment by other entities.
- There must be a contractual agreement stating that the issuer will create a separate monetary asset equivalent to the user's funds.
Meanwhile, the Lithuanian delegation points out that a separate CJEU ruling — Bundeskammer für Arbeiter und Angestellte (Austria) v ING-DiBa Direktbank Austria Niederlassung der ING-DiBa AG (Case C-191/17) — specifies that payment accounts must allow essential operations: depositing; cash withdrawal; third-party payments; and receiving credits.
Electronic money accounts, however, primarily serve as claims on the issuer, stored electronically and issued upon receipt of funds, and unlike payment accounts used for daily transactions, electronic money represents a stored value that is accepted beyond the issuer and designed for specific transactional use cases, adding complexity in differentiating it from payment account funds.
Lithuania’s proposal
According to the Lithuanian delegation, the practical experience in supervising both payment and e-money institutions has made it “increasingly apparent that the main feature, distinguishing electronic money from other funds in payment accounts, is a functionality of an actual account”.
To counter these issues, it has proposed three definitions within the PSD3, which categorise it by what they say are distinct types:
- Electronic money: Considered a unique monetary asset, separate from a simple payment account entry, aligned with the legal interpretation in Case C-661/22.
- Electronic money services: Encompasses the issuance and redemption of electronic money, and potentially the management of electronic money accounts (depending on whether the term "electronic money account" is formally defined).
- Electronic money account: A specialised account type for storing electronic money, distinct from a standard payment account. It operates within the issuer’s centralised system, governed by a contract, allowing electronic money to circulate per the issuer’s rules, but lacking standard payment account functionalities.
This differs from the European Commission’s original proposal, which includes the following definitions:
- Electronic money: Defined as meaning 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 other natural or legal persons than the issuer.
- Electronic money services: The issuance of electronic money, the maintenance of payment accounts storing electronic money units, and the transfer of electronic money units.
“In our view and considering the recent European Court of Justice (ECJ) ruling, only a limited range of products in the EU payments market should qualify as electronic money,” the proposal says.
It notes examples such as prepaid cards not linked to payment accounts (like gift cards and prepaid cards), closed-loop payment systems such as PayPal, and certain stablecoins, such as the electronic money tokens defined under the Markets in Crypto Assets (MiCA) regulation.
The proposals, which were submitted earlier this month, will now likely be considered by the other EU member states in the Council of the EU, which makes up part of the triologues.
Whether it gets accepted and added into the Council’s general approach document, which will ultimately define its negotiating stance with the European Parliament and the European Commission, will depend on a variety of factors, but mostly whether Lithuania can get other member states on side.
What counts towards the proposal is Lithuania’s expertise in this field, considering the name it has made for itself as a jurisdiction familiar with supervising payments and e-money, and the pertinence of the topic, considering the CJEU ruling.
