GlossaryTerm · Banking

What is e-money?

By Tokenova Editorial Desk

The legal form behind many wallets, prepaid cards and payment apps.

6 sources ↓
A prepaid payment card next to a phone showing the card's app and balance
Photo: “Kyash Card Silver and App” by Dx6682, CC BY-SA 4.0 (edited: cropped, colour-graded)

Quick answer

E-money (electronic money) is digitally stored monetary value, a claim on the issuer, that is issued when you hand over funds so you can make payments, and that others accept⁠[2]. It must be redeemable at face value at any time⁠[3], cannot earn interest and is safeguarded rather than deposit-insured.

Key points

  • E-money is a claim on the issuer, not a bank deposit.
  • Issuers must redeem it at any time at par value, so 1 unit of e-money equals 1 unit of money.
  • Issuers may not pay interest or any reward linked to how long you hold it.
  • If the issuer fails, safeguarding should return most of your money, but deposit insurance does not apply.
On this page
  1. How does the law define e-money?
  2. What rules protect e-money holders?
  3. How is e-money different from a bank deposit?
  4. FAQ
  5. Sources

#How does the law define e-money?

The European Commission describes e-money as a digital alternative to cash that lets people pay with money stored on a card or phone or over the internet; the EU rules are currently set by the E-Money Directive 2009/110/EC, which the Commission is revising as part of its payments package⁠[1]. UK law, which implemented that directive, defines electronic money as electronically stored monetary value represented by a claim on the issuer, issued on receipt of funds for making payments and accepted by someone other than the issuer⁠[2]. Many digital wallets and prepaid cards work this way, as do some apps described in is a fintech app a bank.

#What rules protect e-money holders?

Two UK rules are central. The issuer must issue e-money at par value when it receives funds and redeem it at par value at any time you ask⁠[3]. And it must not award interest, or any other benefit linked to how long you hold the e-money⁠[4]. If the firm fails, the FCA explains that your money is not protected by the FSCS; instead it should have been safeguarded in a separate account or protected by insurance, and you should get most of it back, though possibly slowly and not in full⁠[5].

Worked example

Example: €100 in e-money vs a savings account

You load €100 into an e-money wallet and leave it for a year. Because e-money cannot earn interest, it is still €100 and you can redeem it at €100. The same €100 in a savings account paying a hypothetical 3% a year would be €103 after one year. Computed with code.

#How is e-money different from a bank deposit?

A bank can lend against deposits and pay interest, and deposits are covered by deposit insurance up to a limit; see how deposit insurance works. An e-money institution must safeguard the funds it receives in exchange for e-money⁠[6], and it pays no interest. Related terms: neobank and stablecoin.

Frequently asked questions

Is e-money real money?

It is a claim on the issuer that must be redeemable at face value on request⁠[3], so you can always ask to get your money back as regular funds.

Can I earn interest on e-money?

No. UK rules forbid e-money issuers from paying interest or any time-based benefit on e-money balances⁠[4].

Sources

  1. E-money — European Commission (DG FISMA) Primary
  2. The Electronic Money Regulations 2011, regulation 2 (Interpretation) — legislation.gov.uk, 2011 Primary
  3. The Electronic Money Regulations 2011, regulation 39 (Issuance and redeemability) — legislation.gov.uk, 2011 Primary
  4. The Electronic Money Regulations 2011, regulation 45 (Prohibition of interest) — legislation.gov.uk, 2011 Primary
  5. Using payment service providers — Financial Conduct Authority, 2026 Primary
  6. The Electronic Money Regulations 2011, regulation 20 (Safeguarding requirements) — legislation.gov.uk, 2011 Primary

Read next