Moves to stimulate growth in the European Union’s (EU) electronic money (e-money) sector have taken a key step forward with the European Parliament’s adoption of amendments to the E-Money Directive (EMD) of 2000 proposed by the European Commission (EC) in late-2008.
The EMD adopted in 2001 was in response to the emergence of new pre-paid electronic payment products and was intended to promote the e-money sector as a source of increased competition in the EU’s payment industry. However, the EMD has fallen far short of expectations.
In its assessment of the EMD, the EC identified two major shortcomings: An unclear definition of electronic money which has led to legal uncertainty and an inadequate legal framework in areas such as the application of anti-money laundering rules.
The EC stressed that, overall, legal inconsistency will increase once the Payment Services Directive is implemented in November 2009.
Indicative of the lack of development in the e-money sector, the EC noted that in August 2007 e-money instruments in use totalled €1 billion ($1.36 billion) compared with €637 billion of cash in circulation.
In addition to eliminating legal uncertainty, amendments are also aimed at reducing other barriers to entry. One of the most significant of these is the lowering of the minimum initial capital required to establish an e-money business from the current €1 million to €350,000.
Another key part of the new EMD will remove the existing limitation on electronic money issuers (EMI) prohibiting them from conducting any business other than issuance of e-money and related services.
This change is aimed at bringing new entrants into the e-money market and stimulating innovation. New entrants could, for example, include mobile network operators currently constrained from entry because their main activity is communications service provision.
A further change under the new EMD is aimed at leveling the competitive playing field between EMI’s and existing credit providers and will enable EMI’s to grant credit related to their payment services.
The EC anticipates that EU member states will transpose the new EMD into national law by 2011 at the latest.