Electronic money or e-money, is an evolving term that can have different meanings but in principle involves the use of computer networks and digital stored value systems to store and transmit money. It may have official legal status or not. It may be historical, current or theoretical.
The underlying principle of electronic money involves the use of computer networks such as the Internet and digital stored value systems. Examples of electronic money are bank deposits, electronic funds transfer, direct deposit, payment processors, and digital currencies.
Electronic money can be understood as a way of storing and transmitting conventional money through electronic systems or as digital currency which varies in value and is tradeable as a currency in its own right.
A European Commission website describes electronic money, as “a digital equivalent of cash, stored on an electronic device or remotely at a server.” It cites as one example an “electronic purse”, in which users store relatively small amounts of money on a smart card to use for small payments. It also points to e-money being stored on and used via mobile phones or internet-based payment accounts.
In 1983, a research paper by David Chaum introduced the idea of digital cash. In 1990, he founded DigiCash, an electronic cash company, in Amsterdam to commercialize the ideas in his research. The first electronic payment was sent in 1994. In 1999, Chaum left the company.
Since 2001, the European Union has implemented a directive "on the taking up, pursuit and prudential supervision of the business of electronic money institutions" last amended in 2009. Doubts on the real nature of EU electronic money have arisen, since calls have been made in connection with the 2007 EU Payment Services Directive in favor of merging payment institutions and electronic money institutions. Such a merger could mean that electronic money is of the same nature as bank money or scriptural money.
While electronic money has been a problem for cryptography[how?], to date, the use of e-money has been relatively low-scale. One rare success has been Hong Kong's Octopus card system, which started as a transit payment system and has grown into a widely used electronic money system. London Transport's Oyster card system is essentially a contactless pre-paid travelcard. Singapore has an electronic money program for its public transportation system (commuter trains, bus, etc.), based on the(FeliCa) system invented by Sony and first deployed in Tokyo and Osaka, Japan. The Netherlands has implemented a nationwide electronic money system known as Chipknip for general purpose, as well as OV-Chipkaart for transit fare collection. In Belgium, payment service company Proton was founded in 1995, and is owned by 60 Belgian banks issuing stored value cards.
Among electronic money systems, a number[which?] use contactless payment transfer to facilitate payment and give the payor more confidence in not letting go of their electronic wallet during the transaction.
Types of systems
Many systems—such as PayPal, eCash, WebMoney, Payoneer, cashU, and Hub Culture's Ven will sell their electronic currency [clarification needed] directly to the end user. Other systems only sell through third party digital currency exchangers. The M-Pesa system is used to transfer money through mobile phones in Africa, India, Afghanistan, and Eastern Europe. Some community currencies, like some local exchange trading systems (LETS) and the Community Exchange System, work with electronic transactions.
Cryptocurrencies allow electronic money systems to be decentralized, systems include:
- Bitcoin, a peer-to-peer electronic monetary system based on cryptography.
- Litecoin, originally based on the Bitcoin protocol, intended to improve upon its alleged inefficiencies.
- Ripple monetary system, a monetary system based on trust networks.
- Dogecoin, a Litecoin-derived system meant by its author to reach broader demographics.
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A number of electronic money systems use contactless payment transfer in order to facilitate easy payment and give the payee more confidence in not letting go of their electronic wallet during the transaction.
In about 2005 Telefónica and BBVA Bank launched a payment system in Spain called Mobipay which used simple short message service facilities of feature phones intended for pay-as you go services including taxis and pre-pay phone recharges via a BBVA current bank account debit.
O2 (United Kingdom) invented O2 Wallet at about the same time. The wallet can be charged with regular bank accounts or cards and discharged by participating retailers using a technique known as 'money messages' The service closed in 2014
Hard vs. soft electronic currencies
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A hard electronic currency is one that does not have services to dispute or reverse charges. In other words, it is akin to cash in that it only supports non-reversible transactions. Reversing transactions, even in case of a legitimate error, unauthorized use, or failure of a vendor to supply goods is difficult, if not impossible. The advantage of this arrangement is that the operating costs of the electronic currency system are greatly reduced by not having to resolve payment disputes. Additionally, it allows the electronic currency transactions to clear instantly, making the funds available immediately to the recipient. This means that using hard electronic currency is more akin to a cash transaction. Examples are Western Union, KlickEx and Bitcoin.
A soft electronic currency is one that allows for reversal of payments, for example in case of fraud or disputes. Reversible payment methods generally have a "clearing time" of 72 hours or more. Examples are PayPal and credit card. A hard currency can be softened by using a trusted third party or an escrow service.
Defunct electronic money
- "E-money". The EU Single Market. European Commission. 11 August 2013. Retrieved 9 January 2014.
- "Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC, Official Journal L 267 , 10/10/2009 P. 0007 - 0017". Retrieved 30 December 2013.
- Good, Barbara Ann (2000). The changing face of money: will electronic money be adopted in the United States?. Taylor & Francis. pp. 80–81. ISBN 978-0-8153-3809-3. Retrieved 28 December 2010.