EUC/EBA Q&A 2022_6336 on qualification of scheme branded prepaid cards as e-money

Background

The EUC/EBA Q&A 2022_6336 describes an e-money balance held in a payment account and its associated scheme branded card. These enable customers to utilise a card scheme network to make payments to merchants that are part of the network, but who do not have a direct relationship with the e-money issuer itself.

The merchants who accept the card for payment, by virtue of their participation in the scheme, will have an indirect relationship with the issuer, also with other issuers, and will expect to receive settled funds through their acquiring PSP that is a member of that scheme.

The Q&A relates to a decision by a national regulator that reviewed the product and suggested that it did not meet the definition of e-money, as the e-money value issued by the issuer would in their view have to be transferred to third party merchants, who would then accept it through a payment transaction. This means, the regulator argued, that third parties need to become holders of the electronic money, and additionally have a direct contractual agreement with the issuer for this purpose.

The question was submitted through the European Commission Q&A process in 2022, and a response was finally provided on 17/01/2025.

The Q&A rationale

The European Commission in its Q&A, referred to the definition of electronic money, and the elaboration set out in the CJEU case C 661/22. It stated that for the definition of e-money to be met, and for e-money to be regarded as issued, a number of conditions (amongst others) must be fulfilled: (i) E-money electronic value (as a separate monetary asset) should be issued, (ii) Issuance should be undertaken upon the consent of the user, by way of a legal agreement between the parties, and (iii) The e-money should be accepted by a network of customers, who accept it voluntarily.

They also referred to the CJEU’s comments on acceptance which suggested that this entailed the transfer of the asset itself, and the voluntary acceptance of the electronic money (asset) by third parties (merchants) – as a means of payment.

The Commission also mentioned the EMD2 provision on redeemability for non-consumers being subject to a contractual agreement between the parties, suggesting that this implied an obligation to have a contractual agreement with merchants and similar third parties.

Q&A findings

Overall the Q&A found that the product did not satisfy the definition of e-money on the following counts:

(i) The value created by the prepaid card issuer was not converted into a separate monetary instrument that could be used by a network of customers who would accept it voluntarily.

(ii) The absence of a contractual agreement between the issuer and the merchants, including for redeemability, means that the basis for acceptance by merchants is not place.

(iii) Given that merchants receive settlement funds in scriptural money, there is no transfer of e-money monetary value to the merchant, and there is therefore no acceptance of the electronic money (asset).

Analysis

Whilst three party payment systems have payers and payees in a direct contractual relationship with e-money issuers, four party models such as those considered in the Q&A must rely on multilateral contracts established through scheme rules. Contracts between participants can therefore be established indirectly, and having the same effect.

Secondly, acceptance of e-money as a means of payment need not involve taking possession of that e-money, or of holding that e-money in an account in the name of the payee. Title to the e-money can be transferred without the e-money being physically transferred from one digital or magnetic device to another.

The fact that merchant settlement takes place in scriptural (bank) money, does not mean that the merchant is not agreeing to accept e-money as the means of payment. The merchant naturally requires that the e-money is redeemed prior to settlement, as the safeguarded funds are held by the issuer and not by the acquirer.

This arrangement provides for interoperability of e-money issuers in a multiparty issuing environment, with multiple issuers and multiple acquirers. This is beneficial in enabling diversity in issuing and acceptance by all participating merchants.

Conclusions

The distinguishing features of e-money, as set out in CJEU Case 661/22, can be addressed through multilateral contracts and agreement to redeem e-money once accepted in payment. The three party model of e-money value flow needs not be the only contemplated solution.

An interpretation that does not contemplate multiparty e-money payments by requiring physical transfer of value, and that excludes multilateral contracts is overly restrictive.

Merchant acceptance of e-money as a means of payment can be ensured through the legal framework, and settlement in scriptural money is a matter of convenience and practicality. Legislative interpretation can encompass both three party and multilateral models.

How we can assist

If your firm issues Mastercard and/or Visa-branded prepaid cards in the EU, your business model may be affected. FM Legal can help clarify the e-money regulatory perimeter and what it could mean in practice for your business.