Electronic money

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Electronic money is a new expression the meaning of which is not stable. It can refer to different realities depending on the context (legal or not, historical or actual, monetary theory...).

However, the underlying principle of electronic money involves the use of computer networks, the Internet and digital stored value systems. Examples of electronic money are bank deposits, electronic funds transfer (EFT), direct deposit, payment processors, and digital currencies.

Electronic money definitions[edit]

A European Commission website describes electronic money, or e-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.[1]

Law[edit]

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.[2] Yet 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.

Electronic money systems around the world[edit]

While electronic money has been an interesting problem for cryptography, 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 remains essentially a contactless pre-paid travelcard. Two other cities have implemented functioning electronic money systems. Very similar to Hong Kong's Octopus card, Singapore has an electronic money program for its public transportation system (commuter trains, bus, etc.), based on the same type of (FeliCa) system invented by Sony and first deployed in Tokyo and Osaka, Japan. The Netherlands has also implemented a nationwide electronic money system known as Chipknip for general purpose, as well as OV-Chipkaart for transit fare collection. In Belgium, a payment service company, Proton, owned by 60 Belgian banks issuing stored value cards, was developed in 1995.[3]

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.

Electronic money systems[edit]

Centralized systems[edit]

Many systems—such as PayPal, WebMoney, Payoneer, cashU, and Hub Culture's Ven will sell their electronic currency directly to the end user. Other systems only sell through third party digital currency exchangers. In Kenya, the M-Pesa system is being used to transfer money through mobile phones. Some community currencies, like some local exchange trading systems (LETS) and the Community Exchange System, work with electronic transactions.

Decentralized systems[edit]

Decentralized electronic money systems include:

  • Ripple monetary system, a monetary system based on trust networks.
  • 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.
  • Dogecoin, a Litecoin-derived system meant by its author to reach broader demographics.

Mobile sub-systems[edit]

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.

Hard vs. soft electronic currencies[edit]

A hard electronic currency is one that does not have services to dispute or reverse charges. In other words, 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.

See also[edit]

References[edit]