The E-Money Directive (EMD2)
The E-Money Directive, Directive 2009/110/EC, is the EU law for electronic money, such as the balance in a wallet or behind a euro stablecoin. It decides who may issue e-money and on which terms holders get their money back. PSD3 will fold it into one framework with payment services.
What counts as electronic money
Under Article 2 of the directive, electronic money is monetary value stored electronically, including magnetically, as a claim on the issuer. It is issued on receipt of funds, used for payments and accepted by someone other than the issuer. Value on an instrument that works only in a limited network, and certain payments through a phone bill, stay outside.
The directive replaced the first E-Money Directive of 2000, and member states had to transpose it by April 30, 2011. Its aim was to open e-money issuing to firms that are not banks, with a license of its own and lighter capital rules than a credit institution carries.
Capital, own funds and safeguarding
An e-money institution needs initial capital of at least 350,000 euros (Article 4) and own funds of at least 2 percent of the average e-money outstanding (Article 5). It may grant credit linked to payment services, but never out of the funds it received in exchange for e-money (Article 6), and it must safeguard those funds (Article 7). A member state may exempt small issuers whose average outstanding e-money stays below a limit of at most 5 million euros (Article 9).
An institution may distribute and redeem e-money through other firms acting for it, and it may provide payment services through agents. It may not issue e-money through agents (Article 3).
Redemption at par and no interest
Article 11 gives the holder the right to redeem e-money at any time and at par value. A fee is allowed only where the contract states it and only in the cases the directive lists, and it must match the issuer's actual costs. Article 12 bans interest or any other benefit tied to how long a holder keeps the e-money.
Both principles carry over to euro stablecoins. MiCAR deems an e-money token to be electronic money, lets only credit institutions and e-money institutions issue one, and applies redemption at par and the interest ban to it. The MiCAR page covers the rest of the token rules.
The directive in Germany
Germany first regulated e-money issuers as credit institutions under the Banking Act. The act that transposed EMD2 moved them out of it and into the Payment Services Supervision Act (ZAG) as a separate kind of institution, as the government bill (in German) explains. The ZAG rules took effect on April 30, 2011.
In the current ZAG, section 11 requires a BaFin license for e-money business, section 12 sets the initial capital and section 18 requires funds received for e-money to be safeguarded within five business days. Licensing practice is on the e-money license page.
Upcoming payments events
What is the difference between EMD2 and PSD2?
EMD2 governs the issuing of e-money and the e-money institution. PSD2 governs payment services such as transfers, card acquiring and payment initiation. An e-money institution may also provide payment services and then follows PSD2 for them.
Does PSD3 replace the E-Money Directive?
Yes. PSD3 repeals Directive 2009/110/EC and puts e-money institutions under the same licensing and supervision rules as payment institutions. Issuing e-money stays a licensed activity.
Is a stablecoin electronic money?
A stablecoin that refers to one official currency is an e-money token under MiCAR and counts as electronic money. Its issuer must be a credit institution or an e-money institution. A stablecoin that refers to a basket of assets is an asset-referenced token and follows other MiCAR rules.
The E-Money Directive and Finance Loop
Finance Loop covers e-money in its Payments & Digital Money track, where prepaid wallets and euro stablecoins rest on the same rules. Finance Loop is a strategic partner of the Digital Euro Association, host of the Digital Euro Conference in Frankfurt, and supported the Bybit EU x Circle Roadshow in Frankfurt with panels on stablecoins.
Finance Loop is a professional network and has the goal of driving the adoption of emerging technologies in finance, such as AI, digital payments, cloud and blockchain solutions. Finance Loop helps its members build skills and personal networks in these fields: Investment & Digital Assets, Payments & Digital Money, Digital Infrastructure & Sovereignty, and Risk & Compliance.