E-money as a claim

E-money is a claim on its issuer, stored electronically, and issued on receipt of funds for the purpose of making payment transactions. That definition comes from the EU Electronic Money Directive, Directive 2009/110/EC, and it is the legal anchor for wallets, prepaid cards and many fintech products. E-money is not a bank deposit, it is not central bank money, and it is not legal tender. The holder can redeem it at par value at any time, and the issuer must safeguard the funds received in exchange for e-money, either by holding them in a separate account at a bank or by investing them in secure, liquid, low-risk assets. Source: Directive 2009/110/EC on electronic money institutions; European Banking Authority, electronic money guidance. The parties are the electronic money institution as issuer, the holder who has paid funds in exchange for e-money, and the merchant or beneficiary who accepts it. The issuer must be authorised as an electronic money institution or act as an agent of one, and it must hold the safeguarded funds separately from its own operating funds, so that if the issuer fails, the holders have a prior claim on the safeguarded funds. The holder has a right of redemption at par, which means EUR 100 of e-money can always be exchanged for EUR 100 of bank money, subject to the issuer terms and any fees. A product that hides this chain from the customer is mis-selling the product. A worked example shows how the claim moves. The institution places the EUR 200 in a safeguarding account at a bank, separate from its own funds. The customer pays a merchant EUR 60 from the wallet, and the wallet balance falls to EUR 140, while the merchant e-money balance rises to EUR 60. The merchant then redeems the EUR 60, the institution pays EUR 60 from the safeguarding account to the merchant bank account, and the merchant receives bank money. At no point did the customer hold a bank deposit, and at no point did the merchant receive central bank money, yet the payment worked because every party trusted the issuer and the safeguarding. The difference from a bank deposit is the point that most often confuses a product team. A bank deposit is a claim on a bank, protected by deposit guarantee up to EUR 100,000 per depositor per bank, and the bank may lend the deposited funds. The protection for the holder is the safeguarding, not a guarantee scheme, and the holder must be told that in plain language. In the United Kingdom the same structure applies under the Electronic Money Regulations 2011, and the Financial Conduct Authority requires safeguarding and clear disclosure. A business analyst who writes e-money into a requirement as if it were a deposit has made a regulatory error, not a wording error. Failure shows why safeguarding matters. If safeguarding was not done properly, holders become unsecured creditors and may lose part of their funds, and the regulator can take enforcement action. A second failure is a redemption failure: a holder tries to redeem EUR 500, the issuer delays or refuses, and the holder has a complaint and a regulatory right, not just a customer service issue. A third failure is a merchant who accepts e-money without understanding that settlement depends on the issuer, and who discovers the difference only when the issuer is in difficulty. Each failure is a governance failure first and a technical failure second. The effect on the bank, the customer and operations is specific. For the customer, e-money is convenient and fast, but it is not a deposit, it is not guaranteed, and redemption is a right that must be honoured at par. For the bank that provides the safeguarding account, the account is a client money account, and the bank must understand that the funds belong to the holders, not to the institution, and must not set them off against the institution debts. For operations, reconciliation has three legs: the e-money ledger that records every holder balance, the safeguarding account statement that proves the funds are held, and the merchant settlement file, and the three must agree every day, with any shortfall escalated immediately as a safeguarding breach. For a business analyst, product owner or subject matter expert, the checklist for any e-money product is short and non-negotiable. Name the issuer and its authorisation, name the safeguarding method and the safeguarding bank, state the redemption right and the redemption timing, state plainly that e-money is not a deposit and is not covered by deposit guarantee, and design the reconciliation that proves the e-money ledger equals the safeguarded funds every day. The payment messages for e-money are often proprietary wallet messages rather than ISO 20022, and the integration must map the wallet ledger to the bank ledger so that a load, a payment and a redemption each post correctly. 053 statement still matter at the boundary, where the wallet meets the bank account. E-money also sits beside two neighbouring concepts that must not be confused with it. A payment institution under the Payment Services Directive, Directive (EU) 2015/2366, known as PSD2, may execute payment transactions but does not issue e-money, and its safeguarding duties differ. The EU Markets in Crypto-Assets Regulation, Regulation (EU) 2023/1114, creates a separate regime for asset-referenced tokens and e-money tokens, and a product team must know which regime applies before it writes a single requirement. Getting the regime wrong means building the wrong controls, the wrong disclosures and the wrong reconciliation. Takeaway: e-money is a claim on an authorised electronic money institution, issued on receipt of funds, redeemable at par, and protected by safeguarding, not by deposit guarantee. It is not a deposit, not central bank money and not legal tender. The holder, the issuer and the safeguarding bank are the three parties, and the daily proof is that the e-money ledger equals the safeguarded funds. Further reading: Directive 2009/110/EC on electronic money institutions; Directive (EU) 2015/2366, PSD2; Financial Conduct Authority, Electronic Money Regulations 2011 guidance; Regulation (EU) 2023/1114, Markets in Crypto-Assets. Last reviewed 7 November 2026.