Back in 2000, when the growth of e-commerce
gave birth to the concept of consumers making purchases with
electronic money (e-money), the usage of e-money across Europe was
something that initially was viewed as having great potential, but
a fragmented and confusing legal backdrop has hindered its

Attempts have been made by regulators to clarify the legal aspects
of e-money issuance since 2000, most notably in the form of the
E-Money Directive, which was intended to address the activities of
non-banks in e-money, but the situation remains murky for many
e-money providers.

At its inception in 2000, the EC stated that the purpose of the
directive was to facilitate access by non-credit institutions to
the business of e-money issuance. However, according to the EC,
e-money is still far from delivering the full potential benefits
that were expected at the time of its adoption and is not yet
considered a credible alternative to cash.

New rules to boost market

A review of e-money rules was undertaken in 2005 by the European
Commission (EC), and after a lengthy period of consultation, the EC
now says the current rules have hampered the take-up of e-money and
held back technological innovation.

“Figures on the limited number of fully licensed electronic money
institutions or on the low volume of electronic money issued
demonstrate that electronic money has not yet really taken off in
most of the member states,” the EC added.

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On 9 October, the EC published its revised proposals for a legal
framework to govern the issuance of e-money in the hope of boosting
usage. The EC hopes that the revised rules will ease market
entrance for new providers and contribute to an industry whose
expected volume could reach up to €10 billion ($12.3 billion) by

In its proposal document, the EC states: “The proposal aims at
enabling new, innovative and secure electronic money services to be
designed, providing market access to new players and fostering real
and effective competition between all market participants.

“As all provisions have been amended and the structure was revised,
it is proposed to repeal the existing E-Money Directive and replace
it by a new directive. The proposal now passes to the European
Parliament and the Council of Ministers for consideration.”

With the view of “promoting the emergence of a true single market
for electronic money services in the European Union”, the EC’s
revised rules include a technologically neutral and much simpler
definition of e-money.

E-money is now defined as a monetary value stored electronically on
receipt of funds and which is used for making payment transactions,
covering e-money held on payment devices such as prepaid cards or
e-wallets, or stored remotely at a server.

Harmonised legal regime

A more harmonised legal regime has also been drawn up to ensure
much greater consistency between the prudential requirements of
e-money institutions and payment institutions under the Payment
Services Directive (PSD).

New prudential requirements include an initial capital requirement
of €125,000, enabling many more smaller players to enter the
market, and a new formula to determine ongoing capital

The waiver regime, under which smaller players can obtain
derogation for some authorisation requirements, is aligned with
that of payment institutions under the PSD, and anti-money
laundering requirements have also been updated.

The revised rules also clarify the application of redemption
requirements, with special reference to their application to mobile
telecommunications. Consumers would have the right to claim back
e-money at any moment, under conditions laid down by the new

EC internal market commissioner Charlie McCreevy said: “The e-money
industry has significant untapped growth potential. I believe that
the new rules will accelerate the up-take of electronic money in
Europe. These modern rules will foster competition and innovation,
while ensuring market confidence and a high level of protection for

“This will be an important contribution to our broad objective of
creating a single market for electronic payments.”