Moves to stimulate growth in the European Union’s (EU)
electronic money (e-money) sector have taken a key step forward
with the European Parliament’s adoption of amendments to the
E-Money Directive (EMD) of 2000 proposed by the European Commission
(EC) in late-2008.

The EMD adopted in 2001 was in response to the emergence of new
pre-paid electronic payment products and was intended to promote
the e-money sector as a source of increased competition in the EU’s
payment industry. However, the EMD has fallen far short of
expectations.

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In its assessment of the EMD, the EC identified two major
shortcomings: An unclear definition of electronic money which has
led to legal uncertainty and an inadequate legal framework in areas
such as the application of anti-money laundering rules.

The EC stressed that, overall, legal inconsistency will increase
once the Payment Services Directive is implemented in November
2009.

Indicative of the lack of development in the e-money sector, the EC
noted that in August 2007 e-money instruments in use totalled €1
billion ($1.36 billion) compared with €637 billion of cash in
circulation.

In addition to eliminating legal uncertainty, amendments are also
aimed at reducing other barriers to entry. One of the most
significant of these is the lowering of the minimum initial capital
required to establish an e-money business from the current €1
million to €350,000.

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Another key part of the new EMD will remove the existing limitation
on electronic money issuers (EMI) prohibiting them from conducting
any business other than issuance of e-money and related
services.

This change is aimed at bringing new entrants into the e-money
market and stimulating innovation. New entrants could, for example,
include mobile network operators currently constrained from entry
because their main activity is communications service
provision.

A further change under the new EMD is aimed at leveling the
competitive playing field between EMI’s and existing credit
providers and will enable EMI’s to grant credit related to their
payment services.

The EC anticipates that EU member states will transpose the new EMD
into national law by 2011 at the latest.