Is an electronic money institution a financial institution?

Is an electronic money institution a financial institution?

Financial establishments

Electronic money institutions, also known as EDEs, are those whose activity is focused on the issuance of means of payment in the form of, precisely, electronic money, which is accepted as a means of payment by companies other than the issuer. They are regulated by Law 21/2011 of July 26th.

These entities transform money in general terms into electronic money so that it can be used in transactions in those online establishments that are authorized. By way of example, one of the best known of these entities is Paypal.

Electronic money companies

Electronic money institutions are legal entities authorized to issue electronic money, meaning any monetary value stored by electronic or magnetic means that represents a credit on the issuer, that is issued upon receipt of funds for the purpose of carrying out payment transactions and that is accepted by a natural or legal person other than the issuer of electronic money. Electronic money institutions may also provide payment services not related to the issuance of money.

Their regulatory regime is set out in Law 21/2011, of 26 July, on electronic money, as amended by Royal Decree-Law 19/2018, of 23 November, on payment services and other urgent measures in financial matters, and its implementing regulations approved by Royal Decree 778/2012, of 4 May, on the legal regime of electronic money institutions insofar as it does not oppose RD Law 19/2018.

Payment institution examples

An e-money license entitles an institution to issue e-money, which is nothing more than money stored on an electronic medium, such as a card, which is used for payment transactions at establishments other than the issuer’s own.

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Electronic money institutions (EDEs) are regulated by Law 21/2011 of July 26 and by Royal Decree 778/2012 of May 4. The aforementioned regulations enable DMEs to issue electronic money, as well as to manage payment services such as, for example, cards or transfers. Their main activity consists of transforming the money deposited by their customers into electronic money accepted by third parties.

“Any monetary value stored by electronic or magnetic means representing a claim on the issuer, which is issued on receipt of funds for the purpose of making payment transactions and which is accepted by a natural or legal person other than the issuer of electronic money”.

Roughly speaking, electronic money is a substitute for physical money (coins or banknotes), stored in an electronic device such as a prepaid card, a chip or even a cell phone. These devices are used to carry out payment transactions such as purchases in both physical and virtual stores.

Electronic money

They are engaged in the issuance of electronic money admitted as a means of payment by companies other than the issuing entity, which must be issued at face value. Electronic money” is understood as the monetary value in which the following three characteristics are present:

DBEs transform current money into electronic or virtual money, replacing it with coupons, numerical series, etc. This virtual money is the one that can be used to carry out online transactions in authorized establishments (e.g.: purchases through eBay, which work through the Electronic Money Entity “Paypal”). This form of electronic payment is characterized by its security in transactions (it is enhanced to the extent that no data is provided, for example, about the credit card of the person who wants to make a purchase over the Internet), its convenience (the electronic money can be managed and exchanged for cash when it is decided not to use it anymore) and its ease of use (it does not even require the holder to have a current account or a card in his name).

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