Q8. How is electronic money defined in the
Electronic Money Regulations?
in the Electronic Money Regulations mirrors
that in the Electronic Money Directive. Electronic money means monetary value as
represented by a claim on the issuer which is:
- stored electronically, including
- issued on receipt of funds;
- used for the purposes of making
payment transactions (as defined in regulation 2 of the Payment
- accepted as a means of payment
by persons other than the issuer;
and is not
otherwise excluded by the Electronic Money
Regulations, see PERG 3A.5.
Electronic money is an electronic payment
product. The value is held electronically or magnetically on the payment instrument
itself (either locally or remotely) and payments using the value are made
electronically. So, for example, monetary value stored on a:
- prepaid payment card;
- personal computer; or
- a plastic
card that uses magnetic stripe technology;
may all fall within the definition
if the value is intended to be used for the purposes of making payment transactions.
Q9. Does the electronic money definition
only apply to card-based schemes?
No. Any electronic
payment scheme that involves prepaid monetary value that can be used to purchase
goods and services directly from third party merchants is capable of being electronic money. This would include account-based
Recital (7) of the Electronic
Money Directive states that the intention is to introduce a
definition of electronic money in
order to make it technically neutral so as to cover all situations where the
payment service provider issues pre-paid stored value in exchange for funds.
Hence the definition expressly captures both electronically and magnetically
stored value and there is no longer a reference to there needing to be an
'electronic device' on which the electronic
money is stored. These changes make it clear that electronic money stored on computers hard
drives or account-based schemes are caught.
Can you explain why pre-payment is a necessary ingredient of electronic money?
The definition of electronic money says
that for a product to be electronic money,
it must be issued on receipt of funds. This part of the definition means that electronic money is a prepaid product. That
is, unlike credit provided through a credit card, the customer pays
for the spending power in advance. This is why credit cards are excluded from
the definition of electronic money.
This does not mean that electronic money paid
for with a credit card falls outside the definition. The purchase of the electronic money represents the purchase
of monetary value. The fact that the purchaser is lent the funds to buy the electronic money does not affect this. There
are two contracts, one for the sale of electronic money and one for credit.
Value on a debit card may be electronic
money or a deposit.
Guidance on this is given in Q15.
it matter that the device on which electronic value is held may be used for
No. The fact that the device on
which monetary value is stored is made available, for example, on a plastic card that also functions as a debit
or credit card or is a mobile phone does not stop that monetary value from
being electronic money.
Q12. Does it matter that the monetary value
can be spent with the issuer and third parties?
No. If monetary
value can be spent with third parties, it does not stop being electronic money just because the electronic money can also be spent with the
issuer. This is so even if in practice most of the electronic
money is spent with the issuer and only a small portion spent
with third parties.
electronic travellers cheques electronic money?
travellers cheque is a product, based on a plastic card, designed to replace
paper travellers cheques. There are two types of electronic travellers cheques:
- ones that can also be used to buy
goods and services from third parties; and
- ones whose only function is to
allow the holder to withdraw cash in a foreign currency from ATMs when abroad.
card is loaded with value, the holder pays for the value on issue and uses
the value to purchase goods and services. It is likely then to meet the first
three conditions in the definition of electronic
money listed at Q8. The remaining condition is whether the value
is accepted as a means of payment by persons other than the issuer.
An electronic travellers cheque falling into (1) above is likely
to be electronic money as it
can be used to purchase goods from third parties.
travellers cheque falling into (2) is unlikely to be electronic
money provided that:
- it can only be used to withdraw
foreign currency from ATMs owned by the issuer of the value; or
- the withdrawal of foreign currency
by a cardholder will never involve the purchase of the currency from the owner
of the ATM but instead the repayment of prepaid value by the issuer of the
Q14. If I use a trust account to store monetary value in respect
of funds I have accepted payment for, will I be issuing electronic money?
Putting monetary value into a trust account does not, of itself,
prevent the person who accepts
the payment for electronic value from issuing electronic
does electronic money differ from deposits?
of the Electronic Money Directive provides
that electronic money does not
constitute a deposit-taking activity under the BCD "in view of its specific
character as an electronic surrogate for coins and banknotes, which is used
for making payments, usually of limited amount and not as a means of saving."
In distinguishing electronic money and deposits, relevant factors include the following:
- If the monetary value is kept on
an account that can be used by non-electronic means, that points towards it
being a deposit. For example,
an account on which cheques can be drawn is unlikely to be electronic
- If a product is designed in such
a way that it is only likely to be used for making payments of limited amounts
and not as a means of saving, that feature points towards it being electronic money. Relevant features might
include how long value is allowed to remain on the account, disincentives
to keeping value on the account and the payment of interest on it.
- One should have regard to whether
the product is sold as electronic money or
as a deposit.
words, a deposit involves the
creation of a debtor-creditor relationship under which the person who
accepts the deposit stores value
for eventual return. Electronic money,
in contrast, involves the purchase of a means of payment.
Q16. What sort of factors will the FCA take
into account in deciding whether a particular scheme might be electronic money?
In considering this question relevant
- the risks incurred by the holder
of the value;
- the nature of the rights and obligations
of the holder of the prepaid value, the issuer of the value and third parties
involved in the scheme; and
- what the scheme allows the holder
of the value to do.
artificial features of a scheme that disguise, or try to disguise, the payment
function as the supply of another sort of service are not likely to prevent
the scheme from involving the issuance of electronic