Payment Institution or E-Money Institution? The Fund Difference Explained

Alejandro Martínez · 2026-10-26

When you send money through an app like Wise or PayPal, do you ever wonder where that money actually sits? And why some fintechs can hold your balance indefinitely while others can't? The answer comes down to a legal distinction that's more important than it sounds: payment institutions (PIs) versus electronic money institutions (EMIs). ### What Exactly Is a Payment Account? A payment account offered by a PI is a short-term, transactional tool. Under Article 4(12) of the Second Payment Services Directive (PSD2), it's an account used for executing payment transactions. Article 18(2) and (3) confines it to payment services and says funds received by a PI don't count as a deposit, other repayable funds, or electronic money. Think of it like a conveyor belt. Money comes in, gets processed, and moves on. Typical examples? An acquirer's settlement balance owed to a merchant, or remittance funds held between receipt from the payer and delivery to the payee. In both cases, the PI merely processes the payment—it doesn't offer a place to store money. ### How Case Law Widened the Scope The scope of the payment account has been widened slightly by case law. In Case C-661/22, ABC Projektai v Lietuvos bankas, the Court of Justice of the European Union held at paragraph 53 that: > "a Payment Institution may receive funds not immediately accompanied by a payment order, and leave them available on a payment account, as a payment service rather than the issuance of e-money." The European Banking Authority reached the same conclusion in Q&A 2018_4221, subject to safeguarding under Article 10 PSD2. The key condition? An intention to use the funds for future payments. So the account remains one of transit, not storage. ### E-Money: The Storage Version By contrast, e-money is "electronically stored monetary value" under the Second Electronic Money Directive (EMD2) and may be held indefinitely—like the wallets offered by Wise and PayPal. An EMI must safeguard the funds it receives (Article 7) and must issue and redeem e-money at par (Article 11). It may not pay interest or any other time-based benefit (Article 12). ### Three Questions to Tell Them Apart In practice, the distinction turns on three questions: - **Is there an intention to use the funds for a specific or identifiable future payment?** If so, a payment account is the more suitable characterization. - **Does the user hold a claim on the issuer that is redeemable at par and may be spent with third parties?** If so, the balance is e-money. - **What's the intended timeframe?** A short period pending a payment order points to a payment account, whereas an indefinite period points to e-money. ### The Bottom Line The CJEU and the EBA permit a PI to hold funds pending future payment orders, but this doesn't allow it to offer long-term storage of value. That remains the territory of EMIs and credit institutions, although the boundary can still be difficult to draw in practice. So next time you see a balance sitting in an app, you'll know: it's either in transit or stored—and the law treats them very differently.