Payment Institution vs. E-Money Institution: Where Your Funds Really Sit

Alejandro Martínez · 2026-10-26

Ever wondered where your money actually sits when you use a payment app? The answer isn't as simple as you might think. In Europe, the rules draw a fine line between payment institutions (PIs) and electronic money institutions (EMIs). And that line matters—a lot—for how your funds are protected and what you can do with them. ### The Payment Account: A Short-Term Parking Spot Under the Second Payment Services Directive (PSD2), a payment account is a transactional tool. It's designed to move money, not store it. Article 4(12) defines it as an account used for executing payment transactions. Article 18(2) and (3) further clarifies that funds received by a PI don't count as deposits or electronic money. Think of it like a relay race: the baton (your money) is passed from payer to payee, but the PI is just the track—not the destination. Typical examples? An acquirer's settlement balance owed to a merchant, or remittance funds held between receipt and delivery. In both cases, the PI processes the payment but doesn't offer a place to stash cash long-term. ### Case Law Widens the Scope (Slightly) The Court of Justice of the European Union (CJEU) recently weighed in. In Case C-661/22, ABC Projektai v Lietuvos bankas, the court held that a PI may receive funds not immediately accompanied by a payment order and leave them available on a payment account. This is still a payment service, not e-money issuance. The European Banking Authority (EBA) agreed in Q&A 2018_4221, provided the funds are safeguarded 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 Long-Term Wallet By contrast, e-money is "electronically stored monetary value" under the Second Electronic Money Directive (EMD2). It can be held indefinitely—think of wallets like Wise or PayPal. An EMI must safeguard funds (Article 7), issue and redeem e-money at par (Article 11), and is prohibited from paying interest (Article 12). So if you're looking to park your money for a rainy day, e-money is your friend. ### Three Questions to Tell Them Apart In practice, the distinction boils down to three questions: - **Is there an intention to use the funds for a specific future payment?** If yes, it's likely a payment account. - **Does the user hold a claim on the issuer that's redeemable at par and spendable with third parties?** If yes, it's e-money. - **What's the intended timeframe?** Short-term (pending a payment order) points to a payment account; indefinite points to e-money. > "The boundary between payment accounts and e-money can be blurry, but the intention behind the funds often clarifies it." ### The Bottom Line The CJEU and EBA allow PIs to hold funds pending future payment orders, but that doesn't mean they can offer long-term storage. That's still the domain of EMIs and credit institutions. So next time you wonder where your money is, remember: it's all about the purpose and the timeframe.