Electronic money

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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.[1]


In 1983, a research paper by David Chaum introduced the idea of digital cash.[2] In 1990, he founded DigiCash, an electronic cash company, in Amsterdam to commercialize the ideas in his research.[3]The first electronic payment was sent in 1994.[citation needed] In 1997, Coca Cola offered buying from vendor machines using mobile payments.[4] It went filed for bankruptcy in 1998.[5][6] In 1999, Chaum left the company. After that Paypal emerged in 1998.[7] Other system such as e-gold followed suit, but faced issues because it was used by criminals and got raided by US Feds in 2005.[3] In 2008, Bitcoin was introduced, which marked the start of Digital currncies.[3]


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.[8] 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.

Uses of Electronic Money Worldwide[edit]

  • Hong Kong’s Octopus card system: Launched in 1997 as an electronic purse for public transportation, is the most successful and mature implementation of contactless smart cards used for mass transit payments. After only 5 years, 25 percent of Octopus card transactions are unrelated to transit, and accepted by more than 160 merchants.[9]
  • London Transport’s Oyster card system: Oyster is a plastic smartcard which can hold pay as you go credit, Travelcards and Bus & Tram season tickets. You can use an Oyster card to travel on bus, Tube, tram, DLR, London Overground and most National Rail services in London.[10]
  • Singapore’s FeliCa: A contactless RFID smart card, used in a variety of ways such as in ticketing systems for public transportation, e-money, and residence door keys.[11]
  • Netherland’s Chipknip: As an electronic cash system used in the netherlands, all ATM cards issued by the Dutch banks had value that could be loaded via Chipknip loading stations. For people without a bank, pre-paid Chipknip cards could be purchased at various locations in the netherlands. As of January 1, 2015, you can no longer pay with Chipknip.[12]
  • Belgium’s Proton: An electronic purse application for debit cards in Belgium. Introduced in February 1995, as a means to replace cash for small transactions. The system was retired in December 31, 2014.[13]

Types of systems[edit]

Centralized systems[edit]

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.

Decentralized systems[edit]

Main article: Cryptocurrency

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.

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.

In 1994 Mondex and National Westminster Bank provided an 'electronic purse' or to residents of Swindon

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.

In 2012 O2 (Ireland) (owned by Telefónica)launched Easytrip to pay road tolls which were charged to the mobile phone account or prepay credit.

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[edit]

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.

See also[edit]


Defunct electronic money[edit]