What are the Differences between ‘funds’ in a Payment Account offered by a Payment Institution and “funds” in an Account issued by an Electronic Money Institution?
A Payment Account offered by a Payment Institution is a short-term, transactional tool. Under Article 4(12) of the Second Payment Services Directive (“PSD2”), it is an account used for the execution of payment transactions. Article 18(2) and (3) confines it to payment services and provides that funds received by a PI do not constitute a deposit, other repayable funds or electronic money. Typical examples are an acquirer’s settlement balance owed to a merchant and remittance funds held between receipt from the payer and delivery to the payee. In both cases the Payment Institution merely processes the payment and does not offer a place in which to store money.
The scope of the payment account has been widened slightly by case law. In Case C-661/22, ABC Projektai v Lietuvos bankas, the Court of Justice of the European Union held at paragraph 53 that: ‘a Payment Institution may receive funds not immediately accompanied by a payment order, and leave them available on a payment account, as a payment service rather than the issuance of e-money’. The European Banking Authority reached the same conclusion in Q&A 2018_4221, subject to safeguarding under Article 10 PSD2. The condition is an intention to use the funds for future payments, so the account remains one of transit rather than storage.
By contrast, e-money is “electronically stored monetary value” under the Second Electronic Money Directive (“EMD2”) and may be held indefinitely, as in the wallets offered by Wise and PayPal. An EMI must safeguard the funds it receives (Article 7) and must issue and redeem e-money at par (Article 11). It may not pay interest or any other time-based benefit (Article 12).
In practice, the distinction turns on three questions. First, is there an intention to use the funds for a specific or identifiable future payment? If so, a payment account is the more suitable characterisation. Second, does the user hold a claim on the issuer that is redeemable at par and may be spent with third parties? If so, the balance is e-money. Third, what is the intended timeframe? A short period pending a payment order points to a payment account, whereas an indefinite period points to e-money.
In conclusion, the CJEU and the EBA permit a PI to hold funds pending future payment orders, but this does not allow it to offer long-term storage of value. That remains the territory of EMIs and credit institutions, although the boundary can still be difficult to draw in practice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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