Electronic money

Electronic money, or e-money, is the money balance recorded electronically on a stored-value card. These cards have microprocessors embedded which can be loaded with a monetary value. Another form of electronic money is network money, software that allows the transfer of value on computer networks, particularly the internet. Electronic money is a floating claim on a private bank or other financial institution that is not linked to any particular account.^[1] Examples of electronic money are bank deposits, electronic funds transfer, direct deposit, payment processors, and digital currencies.

Electronic money can either be centralized, where there is a central point of control over the money supply, or decentralized, where the control over the money supply can come from various sources. Electronic money that is decentralized is also known as digital currencies. The major difference between E-money and digital currencies is that E-money doesn't change the value of the fiat currency (USD, EUR) it represents, but digital currency is not equivalent to any fiat currency. In other words, all digital currency is Electronic money, but Electronic money is not necessarily digital currency. Many mobile sub-systems have been introduced in the past few years including Google Wallet and Apple Pay.

History

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] It filed for bankruptcy in 1998.^[4][5] In 1999, Chaum left the company.

In 1997, Coca Cola offered buying from vending machines using mobile payments.^[6] 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 was raided by US Feds in 2005.^[3] In 2008, bitcoin was introduced, which marked the start of Digital currencies.^[3]

Law

Since 2001, the European Union has implemented the E-Money 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.

In the United States, electronic money is governed by Article 4A of the Uniform Commercial Code for wholesale transactions and the Electronic Fund Transfer Act for consumer transactions. Provider's responsibility and consumer's liability are regulated under Regulation E.^[9][10]

Uses of electronic money worldwide

• 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.^[11]
• 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.^[12]
• Japan’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.^[13]
• Netherlands’ 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.^[14]
• 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.^[15]

Types of systems

Centralized systems

Many systems—such as PayPal, eCash, 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. 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.

Mobile sub-systems/Digital wallets

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' 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 Jan 2010, Venmo launched as a mobile payment system through SMS, which transformed into a social app were friends can pay each other for minor expenses like a cup of coffee, rent and paying your share of the restaurant bill when you forget your wallet.^[16] It is popular with college students, but has some security issues.^[17] It can be linked to your bank account, credit/debit card or have a loaded value to limit the amount of loss in case of a security breach. Credit cards and non-major debit cards incur a 3% processing fee.^[18]
• On September 19, 2011, Google Wallet was released in the US only, which makes it easy to carry all your credit/debit cards on your phone.^[19]
• 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
• On September 9, 2014 Apple Pay was announced at the iPhone 6 event. In October 2014 it was released as an update to work on iPhone 6 and Apple Watch. It is very similar to Google Wallet, but for Apple devices only.^[20]
• GNU Taler is an anonymous, open source electronic payment system currently (September 2015) in development.

Decentralized systems

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.
• Nxt, conceived as flexible platform to build applications and financial services around.

Hard vs. soft electronic currencies

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

• Automated Clearing House (ACH)
• Cashless catering
• Community Exchange System
• Credit card
• Debit card
• Digital currency
• Digital wallet
• E-commerce payment system
• Electronic Money Association
• Payment system
• Virtual currency
• Electronic Payment System

Defunct electronic money

• Beenz.com
• Flooz.com
• InternetCash.com

References

1. Al-Laham, Al-Tarawneh, Abdallat (2009). "Development of Electronic Money and Its Impact on the Central Bank Role and Monetary Policy" (PDF).
2. Chaum, David (1982). "Blind signatures for untraceable payments" (PDF). Department of Computer Science, University of California, Santa Barbra, CA.
3. Griffith, Ken (April 16, 2014). "A Quick History of Cryptocurrencies BBTC — Before Bitcoin". Bitcoin Magazine. Retrieved 18 April 2015.
4. "Digicash files Chapter 11".
5. "Requiem for a Bright Idea".
6. "History of Mobile & Contactless Payment Systems".
7. "Digital vs Virtual currencies".
8. "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.
9. "ELECTRONIC FUND TRANSFER ACT (REGULATION E)" (PDF). Federal Deposit Insurance Corporation.
10. "In Introduction to Electronic Money Issues - Appendixes" (PDF).
11. "Hong Kong Octopus Card" (PDF). 2005.
12. "What is Oyster?".
13. ""Contactless" convenience with Sony's FeliCa".
14. "Home - Chipknip".
15. "Proton".
16. "Origins of Venmo". Retrieved 2015-04-23.
17. "Venmo Money, Venmo Problems".
18. "Venmo pricing".
19. "This Day in Tech: Google Wallet launches". September 19, 2011.
20. "Apple Watch works with Apple Pay to replace your credit cards". September 9, 2014.