Payment Institution or E-Money Institution? Where Your Funds Really Sit

Alejandro Martínez · 2026-10-26

Ever wondered what actually happens to your money the moment it leaves your account and lands somewhere in the payments chain? It's a fair question, and the answer depends heavily on who's holding it. A Payment Institution and an Electronic Money Institution look similar from the outside, but they treat your funds in very different ways. Let's break it down. ### What a Payment Institution Actually Does With Your Money A payment account run by a Payment Institution is a short-term, transactional tool. Under Article 4(12) of the Second Payment Services Directive (PSD2), it's an account used to execute payment transactions. Nothing more. Articles 18(2) and (3) keep it tightly scoped to payment services. They also make one thing clear: funds a PI receives don't count as a deposit, other repayable funds, or electronic money. Think of an acquirer's settlement balance owed to a merchant, or remittance money held between the moment it's received from the payer and the moment it reaches the payee. In both cases, the PI is just moving the payment along. It isn't offering you a place to park your cash. ### The Court Widened the Picture a Little Case law has nudged the boundaries. In Case C-661/22, ABC Projektai v Lietuvos bankas, the Court of Justice of the European Union said 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 as the issuance of e-money. The European Banking Authority landed in the same place in Q&A 2018_4221, provided the funds are safeguarded under Article 10 PSD2. The key condition? There has to be an intention to use the money for future payments. That keeps the account in transit mode, not storage mode. ### Where E-Money Comes In E-money is a different animal. Under the Second Electronic Money Directive (EMD2), it's "electronically stored monetary value" and it can sit there indefinitely, like the wallets Wise and PayPal offer. An EMI has to safeguard the funds it receives (Article 7) and issue and redeem e-money at par (Article 11). It also can't pay interest or any other time-based benefit (Article 12). > The simplest way to think about it: a payment account is a hallway, while e-money is a room you can actually live in. ### Three Questions That Settle the Distinction In practice, the line comes down to a few practical checks: - Is there an intention to use the funds for a specific or identifiable future payment? If yes, a payment account fits better. - Does the user hold a claim on the issuer that's redeemable at par and spendable with third parties? If yes, that balance is e-money. - What's the intended timeframe? A short window pending a payment order points to a payment account. An indefinite one points to e-money. ### The Bottom Line The CJEU and the EBA let a PI hold funds pending future payment orders. That's not the same as letting it offer long-term storage of value. That territory still belongs to EMIs and credit institutions, even if the boundary gets blurry in real-world cases. If you're building or using a payments product, knowing which side of that line you're on matters more than it might first appear.