Electronic Money (E-Money)

In the digital age, Electronic Money (E-Money) has emerged as a pivotal financial instrument, transforming how we conduct transactions and manage finances.

The European Union has been at the forefront of establishing a robust regulatory framework to ensure the secure and efficient use of E-Money, guided by the E-Money Directive, the 4th AMLD, and the 5th AMLD.

What is Electronic Money?

Electronic Money, or E-Money, is defined as electronically (including magnetically) stored monetary value that represents a claim on the issuer. Issued upon receipt of funds, E-Money facilitates payment transactions to entities other than the issuer, encapsulating a broad range of digital financial assets, from online account balances to prepaid debit cards.

Regulatory Evolution

E-Money Directive

Directive 2009/110/EC, also known as the E-Money Directive, laid the foundation for the regulation of E-Money within the EU. It aimed to promote market competition and innovation while ensuring the stability and security of financial transactions. The directive established clear guidelines for the issuance and operation of E-Money, emphasizing consumer protection and the solvency of E-Money institutions.

4th AMLD

The 4th Anti-Money Laundering Directive introduced stricter measures to combat money laundering and terrorist financing, extending its reach to encompass E-Money products. It highlighted the potential of E-Money as a substitute for traditional banking, necessitating comprehensive AML/CFT (Anti-Money Laundering/Countering the Financing of Terrorism) obligations for E-Money providers. The directive allowed for certain exemptions in customer due diligence under low-risk conditions, aiming to strike a balance between security and usability.

5th AMLD

Building on its predecessor, the 5th AMLD further tightened controls, particularly around anonymous electronic payments. It reduced thresholds for customer due diligence exemptions and introduced stricter rules for transactions involving third-country issued prepaid cards. This directive aimed to close loopholes that could be exploited for illicit activities, enhancing the transparency and traceability of E-Money transactions.

German ZAG

The German ZAG layed the foundation for E-Money regulation in Germany, defining E-Money as monetary value stored electronically, including magnetically, on a device or a system. It underscores the issuance of E-Money against the receipt of funds, aiming to facilitate electronic transactions and ensure the financial system’s integrity.

German BGB

The German BGB provides the contractual backbone for E-Money transactions, detailing the obligations and rights of parties involved. It clarifies the legal nature of E-Money transactions under contract law, ensuring consumer protection and transactional transparency within the E-Money ecosystem.

German GwG

The German GwG plays a crucial role in combating money laundering and terrorist financing in the E-Money sector. It mandates stringent Customer Due Diligence (CDD) and Simplified Due Diligence (SDD) measures for E-Money institutions, ensuring the identification and verification of customers and beneficial owners. The GwG’s risk-based approach allows for flexibility while maintaining high standards of due diligence to prevent illicit financial flows.

German KWG

The German KWG introduces specific provisions for SDD within the banking sector, relevant to E-Money transactions. It delineates conditions under which financial institutions may apply SDD, highlighting special case groups and monetary thresholds that signify a lower risk of money laundering or terrorist financing.

Most popular forms of Electronic Money (E-Money)

Electronic money (e-money) comes in various forms, each serving different needs and preferences in the digital economy.

  1. Digital Wallets / E-Wallets: Software-based systems that store users‘ payment information and passwords for numerous payment methods and websites. Examples include PayPal, Apple Pay, Google Wallet, and Samsung Pay.
  2. Prepaid Cards: Cards preloaded with a certain amount of money that can be used for transactions where the card is accepted. Examples include prepaid Visa, Mastercard, and various store and gift cards.
  3. Cryptocurrencies: Digital or virtual currencies that use cryptography for security. Bitcoin, Ethereum, and Ripple are prominent examples.
  4. Contactless Payment Systems: Systems that use NFC (Near Field Communication) technology for making secure payments. Examples include contactless credit and debit cards, and smartphone payment systems like Apple Pay and Google Pay.
  5. Online Banking / Internet Banking Electronic Transfers: Allows users to conduct financial transactions via the internet through their bank’s website or mobile app. Examples include bank transfers, bill payments, and mobile check deposits.
  6. Smart Cards: Cards with an embedded microprocessor chip that holds information electronically. They are used for a variety of purposes, including storing value for use in various transactions.
  7. Mobile Money: Services that allow users to store, send, and receive money using their mobile phones. Examples include M-Pesa, Venmo, and Cash App.
  8. Stored-Value Cards: Cards that have a monetary value stored on them directly. Unlike debit cards, which are linked to a bank account, the value is stored directly on the card itself. Examples include transit cards and cafeteria cards.
  9. Central Bank Digital Currencies (CBDCs): Digital currencies issued and regulated by a country’s central bank, representing the digital form of the nation’s fiat currency.
  10. Digital Currencies of Social Media Platforms: Some social media platforms have explored or launched their own digital currencies for use within their ecosystems, such as Facebook’s Diem (formerly Libra).

Top 10 European Countries for E-Money Transactions

  1. Luxembourg: Demonstrated a remarkably high volume of transactions, with a significant lead over other countries, peaking at approximately 4,455 million transactions in 2020.
  2. Italy: Showed a consistent growth in e-money transactions, reaching around 1,159 million by 2020, placing it second after Luxembourg.
  3. Ireland: Also saw a substantial number of transactions, with 181 million in 2020, indicating robust adoption.
  4. Germany, Portugal, Belgium, Lithuania, Greece, France, and Spain: These countries showed varying degrees of adoption, with millions of transactions, and are part of the top 10 countries by volume.

E-Money Purchase Transactions in the Euro Area

  • The euro area experienced a steady and significant growth in e-money transactions from 2000 to 2021.
  • Starting with 114.45 million transactions in 2000, there was a notable increase each year, reflecting the expanding digital economy and shifting consumer preferences towards electronic payments.
  • The growth rate accelerated particularly after 2009, and by 2021, the number of e-money transactions surged to over 7 billion, marking a dramatic increase over two decades.
  • The year 2013 shows a reset in the data, possibly indicating a change in reporting or data collection methodology.

E-Money Directive

Article 2(2) of the E-Money Directive (Directive 2009/110/EC) provides a clear definition of „electronic money“ within the regulatory framework of the European Union.

  1. Stored Value: Electronic money is characterized as a monetary value that is stored electronically or magnetically. This implies that electronic money can be represented in various digital forms and is not limited to physical currency.
  2. Claim on the Issuer: The stored value represents a claim on the issuer of the electronic money. This means that the holder of electronic money has a right to demand the equivalent value from the issuer, making it a financial claim against the entity that issued the electronic money.
  3. Issuance against Funds: Electronic money is issued upon the receipt of funds. This means that the issuer provides electronic money in exchange for a corresponding amount of traditional currency or other forms of funds, ensuring that there is a real-world value backing the electronic money issued.
  4. Purpose: The primary purpose of electronic money is to facilitate payment transactions. This aligns electronic money closely with traditional money, emphasizing its role in enabling the exchange of goods and services.
  5. Acceptance: Electronic money must be accepted by parties other than the issuer. This criterion differentiates electronic money from other forms of prepaid or stored-value products, as it must be widely accepted as a means of payment by individuals and legal entities apart from the one that issues it.
  6. Reference to Payment Transactions: The definition ties electronic money to „payment transactions“ as outlined in Directive 2007/64/EC (the Payment Services Directive), emphasizing its function in the broader payment ecosystem.

4th AMLD


The 4th AMLD (Directive (EU) 2015/849) highlight the regulatory approach towards electronic money in the context of anti-money laundering (AML) and countering the financing of terrorism (CFT).

  1. Substitution for Bank Accounts: Electronic money products are increasingly being used as alternatives to traditional bank accounts. This trend has led to the inclusion of these products under the scope of AML/CFT obligations, which were previously established by Directive 2009/110/EC.
  2. Exemptions under Certain Conditions: Despite the broad inclusion of electronic money products under AML/CFT obligations, the Directive allows Member States to exempt these products from specific customer due diligence measures, such as customer and beneficial owner identification and verification, in low-risk situations. However, this exemption does not extend to the monitoring of transactions or business relationships. Conditions for such exemptions include restrictions on the use of electronic money products solely for purchasing goods or services and limitations on the stored amount to prevent the circumvention of AML/CFT rules.
  3. Central Contact Point Requirement: Member States may require electronic money issuers and payment service providers, especially those operating in forms other than a branch with the head office in another Member State, to appoint a central contact point within their territory. This is to ensure compliance with AML/CFT rules and facilitate supervision without imposing disproportionate requirements.
  4. Fit and Proper Criteria for Certain Businesses: The Directive emphasizes that entities like currency exchange offices, cheque cashing offices, trust or company service providers, and gambling service providers must be managed by individuals who are deemed fit and proper. This is to protect these entities from being exploited for criminal purposes by their managers or beneficial owners.
  5. Supervisory Responsibilities: The Directive delineates the responsibilities of competent authorities in both the home and host Member States for supervising entities that operate across borders, including those distributing electronic money. The home Member State’s competent authority is tasked with overseeing the application of AML/CFT policies and procedures, potentially involving on-site visits in the host Member State. Meanwhile, the host Member State’s authority is responsible for ensuring compliance with local AML/CFT rules, including conducting inspections and addressing serious infringements.

Article 3 (16)

  • Definition Alignment: This article establishes the definition of ‚electronic money‘ in the context of AMLD, referring directly to the definition provided in Directive 2009/110/EC, Article 2(2). This cross-reference ensures consistency in how electronic money is understood across different EU directives, emphasizing its role as stored monetary value for making payment transactions and accepted by entities other than the issuer.

Article 12

  • Customer Due Diligence Derogation: Article 12 outlines conditions under which Member States may allow entities to derogate from standard customer due diligence measures for electronic money, given a low-risk assessment. The conditions include limitations on reloadability, transaction limits (not exceeding EUR 250 monthly), storage amount (not exceeding EUR 250, with a potential increase to EUR 500 for domestic use), exclusive use for purchasing goods or services, prohibition of funding with anonymous electronic money, and sufficient transaction monitoring.
  • Exclusions: The derogation does not apply to cases where electronic money is redeemed in cash or withdrawn, and the amount exceeds EUR 100, to prevent potential misuse for money laundering or terrorist financing.

Article 45 (9)

  • Central Contact Point Requirement: This provision allows Member States to require electronic money issuers (as defined in Directive 2009/110/EC) and payment service providers (as defined in Directive 2007/64/EC) to appoint a central contact point within their territory. This requirement aims to ensure compliance with AML/CFT rules and facilitate supervision by competent authorities, especially for entities established in forms other than a branch with the head office located in another Member State.


  • Risk Factors: Annex II identifies product, service, transaction, or delivery channel risk factors that may present potentially lower risks of money laundering and terrorist financing. It mentions certain types of electronic money where risks can be managed through other means, such as purse limits or transparency of ownership, indicating a nuanced approach to assessing and mitigating risks associated with electronic money products.

5th AMLD


The recitals from the 5th Anti-Money Laundering Directive (Directive (EU) 2018/843) address concerns and regulatory responses related to the use of electronic money and virtual currencies within the scope of anti-money laundering (AML) and countering the financing of terrorism (CFT).

  • Extension of Scope: This recital highlights the absence of obligations on providers offering exchange services between virtual currencies and fiat currencies (legal tender and electronic money of a country) to identify suspicious activities. It points out the potential risk this poses for terrorist financing, as it allows for the possibility of transferring money within the EU financial system or virtual currency networks with a degree of anonymity. To mitigate this risk, the 5th AMLD extends its scope to include these service providers, enhancing the monitoring capabilities of competent authorities over virtual currency use, thereby promoting a balance between technological advancement and transparency.
  • Anonymity and Misuse: The anonymity associated with virtual currencies is identified as a potential avenue for criminal misuse. While including exchange service providers and custodian wallet providers under the AML/CFT obligations addresses part of the problem, it doesn’t eliminate the anonymity of virtual currency transactions entirely, as users can transact without these providers. To counteract this, the directive suggests that Financial Intelligence Units (FIUs) should have mechanisms to link virtual currency addresses with the identities of their owners. Additionally, it proposes assessing the feasibility of allowing users to self-declare their identities to authorities voluntarily.
  • Distinction from Electronic Money: It’s crucial to differentiate virtual currencies from electronic money, as defined in Directive 2009/110/EC. Virtual currencies are not to be conflated with the broader concept of ‚funds‘ or with monetary value stored on specific exempted instruments. Unlike electronic money, which is a regulated financial instrument with a clear definition and use within the financial system, virtual currencies have a broader range of applications, including but not limited to payment, investment, or store-of-value, and are not confined to a specific game environment or digital platform.

Amendment to Article 3

  • Definition of Electronic Money: The definition of „electronic money“ is refined to align with Directive 2009/110/EC, with specific exclusions for certain types of monetary value as detailed in Article 1(4) and (5) of Directive 2009/110/EC. This adjustment narrows the scope of what is considered electronic money under AML/CFT regulations.

Amendments to Article 12

  • Lower Thresholds for Exemptions: The criteria for exemptions from certain customer due diligence measures for electronic money products have been made more stringent. The payment instrument must not be reloadable or must have a maximum monthly transaction limit of EUR 150, usable only within the issuing Member State. Additionally, the maximum electronic storage amount is set at EUR 150, reducing the previous limit to decrease the risk of money laundering or terrorist financing through electronic money products.
  • Cash Redemption and Remote Payment Restrictions: The new provision sets a limit where the derogation (exemption) does not apply if the amount of electronic money redeemed in cash or withdrawn exceeds EUR 50. Similarly, for remote payment transactions, the exemption does not apply if the transaction amount exceeds EUR 50. This aims to further mitigate the risks associated with higher-value transactions that could be exploited for illicit purposes.
  • Regulation on Anonymous Prepaid Cards: A new requirement mandates that credit institutions and financial institutions (acting as acquirers) only accept payments from anonymous prepaid cards issued in third countries if these cards comply with requirements equivalent to those set in the EU. This is a measure to prevent the misuse of anonymous prepaid cards from outside the EU for money laundering or terrorist financing. Member States also have the discretion to prohibit payments made with anonymous prepaid cards entirely.

German ZAG

Electronic Money in a legal and financial context:

  1. Stored Electronically or Magnetically: Electronic money is represented by digital or electronic values rather than physical forms like coins or notes. It is stored on electronic devices such as computers, servers, or chips in cards.
  2. Claim on the Issuer: The value stored electronically is essentially a claim against the entity that issued the electronic money. This means the issuer is obligated to honor the value stored in the electronic format, similar to how a bank is obligated to give you cash in exchange for the balance in your account.
  3. Issued on Payment of Funds: Electronic money is issued in exchange for a corresponding amount of real money. This means when you obtain electronic money, you typically do so by paying an equivalent amount in physical or ‚traditional‘ money, which the issuer then converts into an electronic format.
  4. For Making Payment Transactions: The primary purpose of electronic money is to facilitate payment transactions. This means it is intended to be used as a means of exchanging value, similar to how cash is used.
  5. Accepted Beyond the Issuer: For something to qualify as electronic money, it must be accepted as a form of payment by parties other than the issuer. This is what makes electronic money a viable and widely used payment method, as it can be used in transactions with various merchants and service providers, not just transactions with the entity that issued the electronic money.
  6. Legal Framework Reference: The reference to „Section 675f(4) sentence 1 of the Civil Code (Bürgerliches Gesetzbuch)“ indicates that this definition is grounded in a specific legal context, likely German law given the mention of the Bürgerliches Gesetzbuch, which is the Civil Code of Germany. This section likely outlines specific legal requirements or frameworks related to payment transactions and electronic money.

German BGB

A payment transaction is any provision, transmission, or withdrawal of a sum of money, regardless of the underlying legal relationship between the payer and the payee.

German GwG

The sections from the German GwG you provided focus on the requirements for Customer Due Diligence (CDD) and Simplified Due Diligence (SDD) as part of anti-money laundering (AML) and counter-terrorist financing (CTF) efforts. Here’s a summary of the key points from each section:

Customer Due Diligence (CDD)

  • Identification and Verification: Obliged entities must identify the contracting party and any person acting on their behalf, verifying the authority of the latter. This includes verifying the identity of the beneficial owner(s) if the contracting party is not a natural person, and understanding the ownership and control structure.
  • Clarification of Purpose: Entities must obtain information on the purpose and intended nature of the business relationship, especially when it’s not already clear.
  • Political Exposure: They must establish if the contracting party or beneficial owner is a politically exposed person (PEP), a family member of a PEP, or a known close associate, using risk-oriented procedures.
  • Continuous Monitoring: The business relationship and transactions must be continuously monitored for consistency with the available information about the contracting party, beneficial owner, their business activity, customer profile, and the source of their wealth. Documents and data should be updated at appropriate intervals based on risk.

Simplified Due Diligence (SDD)

  • Risk Assessment: Simplified due diligence may be applied in areas assessed as low risk for money laundering or terrorist financing. This assessment should consider various risk factors and ensure the relationship or transaction indeed presents a lower risk.
  • Reduced Measures: In low-risk scenarios, the extent of general due diligence measures may be reduced, including the possibility to verify identities using alternative credible documents or information.
  • Transaction Scrutiny: Even with reduced measures, entities must scrutinize transactions and business relationships sufficiently to identify and report any unusual or suspicious activities.
  • Inability to Fulfill SDD: If an entity cannot fulfill SDD requirements, the provisions of section 10 (9) apply, adapting as necessary.
  • Statutory Instrument: The Federal Ministry of Finance may specify, via a statutory instrument, certain case types that present lower risks where SDD is applicable, taking into account specified risk factors.
  • Exemption for Certain Domestic Transfers: Directive (EU) 2015/847 doesn’t apply to domestic fund transfers to a payment account for goods or services delivery under specific conditions, including the transfer amount not exceeding €1,000.

BaFin Interpretation and Application Guidance on the German GwG

The BaFin Interpretation and Application Guidance on the German GwG provides detailed explanations and instructions for implementing Simplified Due Diligence (SDD) under Section 14 of the GwG. Here’s a summary focusing on the key aspects of SDD:


  • Risk-Based Approach: Obliged entities are allowed to apply SDD when they determine that certain areas present a low risk of money laundering or terrorist financing, especially concerning customers, transactions, and services or products. This determination must be based on a prior written risk assessment, considering the risk factors specified in Annex 1 of the GwG and guidelines on risk factors.
  • Documentation and Adequacy: The adequacy of the SDD measures applied must be documented, and the approach must be justified, following the requirements outlined in section 10 (2) sentence 4 of the GwG.

Factors Resulting in a Potentially Lower Level of Risk

  • Flexible Application: The application of SDD is not limited to specific cases but can be used in any scenario where a lower risk level is identified based on the entity’s risk assessment.
  • Guidelines and Annex 1 Considerations: Entities must consider factors listed in Annex 1 to the GwG and the guidelines on risk factors in their risk-oriented approach. These include non-exhaustive examples of factors that may indicate a lower risk level.
  • Specific Low-Risk Scenarios: Certain scenarios are identified where a lower risk level is generally assumed, such as transactions or business relationships with other obliged entities, stock exchange-listed companies, and domestic or certain foreign authorities, provided they meet specified transparency and accountability criteria.

Scope of the Due Diligence Obligations to Be Fulfilled

  • Ongoing Obligations: Even under SDD, all customer due diligence obligations outlined in section 10 (1) of the GwG must still be fulfilled, although the extent of the measures may be reduced appropriately.
  • Beneficial Ownership and Continuous Monitoring: Identification of a beneficial owner cannot be entirely omitted, and the extent of continuous monitoring measures, such as the frequency of reviews, may be adjusted based on the risk level.
  • Verification Flexibility: In lower-risk scenarios, the verification of a person’s identity may be based on alternative documents, data, or information from credible and independent sources suitable for verification purposes, such as a driving license or an electricity bill.

Implementation and Compliance

  • Documentation: Entities must document their risk assessments and the rationale for applying SDD, ensuring compliance with the GwG requirements.
  • Termination/Non-Implementation Obligation: If an entity cannot fulfill SDD obligations, it must follow the termination/non-implementation obligation laid down in section 10 (9) of the GwG, as referenced in section 14 (3) of the GwG.

German KWG

Section 25i of the German KWG outlines the conditions under which financial institutions may apply Simplified Due Diligence (SDD) procedures, going beyond the standard due diligence requirements as set forth in the German GwG.

Conditions for Applying SDD

  1. Special Circumstances in Individual Cases: Institutions may apply SDD in specific case groups due to special circumstances, subject to a risk assessment by the institution. These cases include, but are not limited to, government-subsidised pension agreements, agreements on investment of capital formation benefits, consumer loan agreements, credit agreements under government promotion programs, sales financing, and certain types of savings and lease agreements.
  2. Written Agreements and Account Settlements: SDD can be applied if the agreement is in writing, transactions are settled via accounts held with recognized credit institutions (within the EU or equivalent), the products or transactions are not anonymous, and do not allow third-party payments except under specific conditions (e.g., death, impairment).
  3. Investment Products: For products or transactions allowing investment in financial assets or claims (like insurance), SDD applies if payments under the product can only be made in the long term, the product cannot be used as collateral, and premature payments or buyback clauses are not possible during the term.

Thresholds for Low Risk

  • Monetary Thresholds: A low risk is deemed to exist, allowing for SDD, only if certain monetary thresholds are not exceeded. These thresholds vary depending on the type of agreement or transaction but generally include payments totaling €15,000 for most agreements, with specific thresholds for savings agreements at €1,000 per calendar year for periodic payments or €2,500 for a one-off payment.

Exclusions and Record-Keeping

  • Exclusion Due to High Risk: The SDD provisions do not apply if the institution has information indicating that the risk of money laundering or terrorist financing is not low for a specific transaction or business relationship.
  • Documentation: Institutions must record and store appropriate information as required by section 8 of the GwG to demonstrate to BaFin (Federal Financial Supervisory Authority) that the conditions for applying SDD are met.