March 4 2025
by Robert Courtneidge, The Payments Association
What is this article about?
This article examines the EBA’s redefinition of e-money as a separate monetary asset and its implications for financial institutions.
Why is it important?
It challenges traditional e-money business models, raising regulatory and operational uncertainties for issuers and payment providers.
What’s next?
Industry players must assess compliance options, explore alternative business structures, and engage with regulators to navigate the evolving payments landscape.
The European Banking Authority (EBA) has recently issued a pivotal ruling that redefines electronic money (e-money) as a “separate monetary asset.” This interpretation has now been formally confirmed by the European Commission (EC), reinforcing the EBA’s narrower definition and making compliance with this interpretation a regulatory certainty rather than an evolving debate. This decision is more than just a regulatory clarification; it marks a fundamental shift in how e-money is classified, with significant implications for financial institutions, payment service providers, and the wider fintech ecosystem.
Traditionally, e-money has been understood as a digital representation of fiat currency, backed by funds held by the issuer and used for payment transactions. However, the new interpretation—based on a European Court of Justice (ECJ) ruling (Case C-661/22)—suggests that e-money must exist independently from commercial bank money. This raises important questions about how e-money should be issued, stored, and redeemed, potentially disrupting widely used payment models, including prepaid cards, digital wallets, and e-money accounts.
For businesses operating in the payments sector, the impact of this ruling could be far-reaching. If upheld, it may require e-money institutions (EMIs) to restructure their operations to ensure compliance, reconsider their business models, and adapt to evolving regulatory expectations. Additionally, the ruling could blur the regulatory distinctions between e-money, bank deposits, and emerging digital assets, further complicating compliance obligations.
The EBA’s redefinition of e-money stems from a landmark ruling by the European Court of Justice (ECJ) in Case C-661/22, which examined the legal and operational nature of e-money under the Second E-Money Directive (EMD2). The European Commission has now endorsed this interpretation, stating that e-money must be an independent monetary asset with explicit contractual agreements governing its issuance and acceptance. This confirmation solidifies the legal basis for the ruling and signals that firms must move quickly to assess compliance obligations. In its judgment, the Court concluded that e-money must exist as a separate monetary asset, distinct from the commercial bank money that underpins most financial transactions today. This decision introduces a new regulatory interpretation that significantly diverges from the traditional understanding of e-money.
Historically, e-money has functioned as a prepaid digital equivalent of fiat currency, stored electronically and used for payments. It has always been fully backed by customer funds held in safeguarding accounts, ensuring users could redeem their balances at par value. However, the ECJ ruling suggests that for e-money to qualify as such, it must not merely be a claim on an issuer but an independent form of monetary value.
This shift has three major implications:
Industry experts have raised concerns that this interpretation could create operational and compliance burdens, potentially forcing some EMIs to revise their safeguarding structures or even reconsider their regulatory classification. In contrast, regulators argue that the change provides greater clarity on the distinct role of e-money within the financial system, ensuring that it remains a well-defined and transparent category separate from traditional bank deposits and other digital financial products.
The EBA’s redefinition of e-money as a separate monetary asset presents a fundamental challenge to the traditional structure of e-money issuance. Historically, e-money has been treated as a digital equivalent of fiat currency, seamlessly integrated into existing payment systems. However, under this new interpretation, e-money would need to exist independently from commercial bank money, raising complex regulatory and operational questions for e-money institutions (EMIs).
One of the most immediate impacts of this shift relates to safeguarding requirements. Under EMD2 and PSD2, e-money issuers are required to hold customer funds in segregated accounts with authorised credit institutions or invest them in secure assets to ensure redemption at par value. However, if e-money must now be treated as a separate monetary asset, it is unclear how these safeguarding structures would need to evolve. Would issuers need to hold reserves differently, or would new mechanisms for collateralisation be required?
Beyond safeguarding, the redefinition could also affect capital calculations and risk management frameworks. EMIs currently operate under a lighter regulatory regime than full-service banks, with capital adequacy rules designed around their role as intermediaries rather than deposit-taking institutions. If e-money is no longer viewed as a claim on the issuer, but rather as its own asset class, it could lead to higher capital requirements and a need for alternative risk models.
A significant portion of the e-money ecosystem relies on prepaid cards and digital wallets, where users load funds that are then used for transactions. These models operate on the principle that merchants are ultimately paid in commercial bank money, with the e-money issuer handling the conversion and settlement process. Under the new definition, it is unclear whether e-money can still function as an intermediary between fiat deposits and payments, or whether new contractual arrangements would be required between issuers and merchants.
Industry stakeholders warn that if prepaid and digital wallet business models are forced to change, it could lead to operational disruptions, increased compliance costs, and potential restrictions on how EMIs operate within the financial ecosystem. Some experts have suggested that this ruling could blur the line between e-money and stablecoins, potentially accelerating regulatory shifts toward blockchain-based alternatives under MiCA.
While regulators view this redefinition as a step toward greater financial clarity, it remains to be seen whether traditional e-money providers can adapt their models without significant disruption. Many in the industry are now seeking further regulatory guidance to determine whether compliance will require structural overhauls or more minor procedural adjustments.
The requirement for e-money to be classified as a separate monetary asset has sparked considerable debate among industry participants, particularly regarding its practical feasibility. Traditional payment systems—including bank transfers, card payments, and digital wallets—all rely on settlement in commercial bank money. The new definition of e-money appears to introduce a requirement that no existing payment model fully meets, raising concerns about whether compliance is even possible under the current financial infrastructure.
The foundation of modern payments is interoperability between financial institutions, where money is transferred via clearing networks and banking rails. When an e-money user transacts, the issuer typically holds corresponding funds in a safeguarded account and facilitates payments in commercial bank money. The EBA’s new position implies that e-money should no longer be just a claim on safeguarded funds but an independent asset class, separate from bank deposits.
This raises key operational challenges:
Some experts suggest that blockchain-based stablecoins may be the only existing model that meets the EBA’s new definition of e-money. Unlike traditional e-money, stablecoins represent tokenised value that moves independently across a distributed ledger, meaning the asset itself is transferred rather than merely a claim on funds.
However, this raises additional regulatory complexities:
If neither traditional e-money models nor stablecoins fully meet the new definition, this ruling could place e-money issuers in regulatory limbo. Industry participants argue that without further clarification, the reclassification of e-money could:
Regulators, on the other hand, may argue that the ruling clarifies the distinction between e-money, deposits, and crypto assets, ensuring greater transparency in financial markets. The outcome will likely depend on how the EBA chooses to implement its stance in practice, and whether further legislative adjustments will be required.
With the European Commission now backing the EBA’s position, this ruling is no longer just a regulatory interpretation—it is becoming a definitive standard for e-money compliance within the EU. The decision introduces both challenges and opportunities for e-money issuers, requiring a reassessment of business models, regulatory strategies, and long-term operational planning. Firms that were waiting for potential adjustments or reversals must now assume that the narrower definition of e-money will hold, prompting more immediate action.
One potential response for EMIs is to restructure their business models by transitioning away from e-money issuance and instead operating as payment institutions (PIs) under PSD2. However, this shift raises an industry-wide question: will card schemes accept authorised PIs as full members for issuing? Historically, card schemes have only granted full issuing membership to banks and e-money institutions, meaning that if the EBA’s definition leads to a large-scale transition from EMI to PI status, it could require a fundamental change in scheme rules. Without this adjustment, firms shifting to PI models could face challenges in maintaining their card-issuing capabilities.
Advantages:
Challenges:
Some regulators, such as the Central Bank of Ireland, have already indicated that PIs can operate prepaid card programs without an e-money license, a precedent that could become more relevant under this new framework.
Another possible response is to embrace blockchain-based alternatives, particularly stablecoins that align with the EU’s MiCA. MiCA introduces a regulatory framework for E-Money Tokens (EMTs), which function similarly to traditional e-money but are issued on blockchain networks.
Advantages:
Challenges:
While some e-money issuers may explore stablecoins as an alternative, it remains unclear whether all EMIs will be willing or able to transition into this regulatory framework.
Given the uncertainty and potential operational constraints introduced by the EBA ruling, some firms may explore regulatory arbitrage, relocating to jurisdictions with more flexible frameworks for e-money issuance.
Potential destinations:
Challenges:
With the European Commission’s confirmation of the EBA’s narrower definition of e-money, the regulatory framework for e-money issuance is becoming more clearly defined. The classification of e-money as a separate monetary asset introduces new compliance considerations that may require adjustments to existing business models. The extent of these changes will depend on how the ruling is implemented and whether further regulatory guidance provides additional clarity. While some firms may seek to align with the revised definition, others may explore alternative licensing models or regulatory approaches. A key consideration for the industry will be whether card schemes adjust their rules to allow authorised PIs full issuing membership, as this could determine whether transitioning from an EMI to a PI is a viable long-term solution. As the industry adapts, ongoing dialogue between regulators and market participants will be key to ensuring clarity, stability, and continued innovation in the e-money sector.
The EBA’s redefinition of e-money challenges traditional models, raising regulatory uncertainties and requiring compliance reassessment.
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