The distinction between payment services and electronic money (e-money) issuance is an essential aspect of the financial services regulatory framework within the European Union. The Court of Justice of the European Union (CJEU) plays a crucial role in clarifying the boundaries and definitions within the EU’s regulatory landscape, which is important for legal certainty and the proper functioning of the internal market.
Payment Services typically refer to the business activities that facilitate the transfer of funds. This includes services like enabling cash to be placed on or withdrawn from a payment account, execution of payment transactions (such as direct debits, credit transfers, and card payments), issuing and acquiring payment instruments, and money remittance. The Payment Services Directive (PSD2) is the regulatory framework that governs these activities within the EU.
E-Money Issuance, on the other hand, refers to the issuance of a digital alternative to cash, which is stored on an electronic device or remotely at a server. E-money can be used for making payment transactions to entities other than the issuer. The business of issuing e-money is regulated by the Electronic Money Directive (EMD), which sets forth the rules for the issuance and operation of electronic money.
The regulatory border between these two services is significant because it determines the licensing requirements and regulatory standards that an entity must meet to provide such services. E-money institutions and payment institutions are subject to different regulatory regimes, capital requirements, and supervisory mechanisms.
The CJEU’s clarification becomes critical when a service provider offers products or functionalities that could fall into either category. For example, a company might offer a mobile app that enables users to store funds for later payment transactions. Depending on the features of the app, it could be classified as a payment service or e-money.
One of the key differences is that e-money must be accepted as a payment method by entities other than the issuer. Therefore, if the app allows users to make payments to a wide range of merchants, it could be considered e-money. If, instead, the app’s functionality is limited to managing the user’s existing funds for specific payment transactions, it might be regarded solely as a payment service.
The CJEU’s rulings help to determine whether an entity’s operations require a license as a payment institution under PSD2 or as an e-money institution under the EMD. This is important for several reasons:
