Safeguarding is the duty of payment and e-money institutions to protect the funds they receive from users, so that users are repaid first if the firm fails. Under PSD2 and the Electronic Money Directive, firms keep the funds segregated in a separate bank account or in safe liquid assets, or cover them with an insurance policy or a bank guarantee.
Payment institutionA payment institution is a firm authorised under PSD2 to provide payment services, such as money remittance, acquiring or payment initiation, without being a bank. It cannot take deposits, may grant only short-term credit linked to payments, must safeguard client funds and holds initial capital of 20,000 to 125,000 euro depending on its services.
Electronic money (e-money)Electronic money is monetary value stored electronically, issued on receipt of funds for making payments and accepted by others than the issuer, as in prepaid cards and many wallets. E-money institutions are authorised under the Electronic Money Directive (2009/110/EC), need 350,000 euro of initial capital and must redeem e-money at par value on request.
PSD2 (Second Payment Services Directive)The second Payment Services Directive, Directive (EU) 2015/2366 (PSD2), is the EU law on payment services and their providers, applicable since January 2018. It sets authorisation, transparency, execution time and liability rules, created regulated payment initiation and account information services, and required strong customer authentication. PSD3 and the PSR will replace it.
Electronic money (e-money)Electronic money is monetary value stored electronically, issued on receipt of funds for making payments and accepted by others than the issuer, as in prepaid cards and many wallets. E-money institutions are authorised under the Electronic Money Directive (2009/110/EC), need 350,000 euro of initial capital and must redeem e-money at par value on request.
Bank guarantee (demand guarantee)A bank guarantee is a bank's undertaking to pay a beneficiary up to a set amount if the applicant fails to meet a contractual obligation. A demand guarantee pays on a compliant written demand, independently of the underlying contract. Common types are bid bonds and performance, advance payment and warranty guarantees, often subject to the ICC rules URDG 758.