I was thinking more in an upfront payment model, where the customer pre-funds their account with the merchant. If you immediately sent those funds to the merchant, then would you avoid functioning as an e-money institution?
replyOf course, this would then mean that the customer is trusting merchant not to run off with their money.
That's an interesting idea. This may avoid the e-money issues, but:
reply - The customer has to pay upfront, which lowers conversion rates.
- No shared balance across multiple merchants, resulting in higher total payment processing fees.
- As you already noted, trust shifts to each merchant to honor unused balances.