Report on

E-Money and its usage

(Business communication)

Submitted by

Piyush porwal

Submitted to

Prof. radhika
 Content of report

Sl. No. Particulars Pg. no

1 abstract 1
2 introduction 2-3
3 Definition 4-5
4 Types of e-money 6
5 Conclusion 7
6 Bibliography 8
 Abstract

E-money is the newest payment instrument. As a part of the new electronic

payment system , e-money raises the professional interest about its implications to
further development of banking functions in the global and networked economy.
Statistical evidence confirms the existence of e-money in the developed countries,
which is understandable because of their high technological level and knowledge
and the ability to absorb useful innovations of any kind. But, although electronic
money has been present in their markets for more than 20 years, its use is still at a
very low level. One of the leading factors opposing the existence of e-money is the
strong competition from the debit/ credit cards. E -money has the potential to
substitute currency in circulation . Now, the influence is not significant - central
banks are recording very low decrease of currency in circulation as a result of
increase of e-money. But still, having in mind that any innovation takes time to be
accepted on the market, in the future central banks and experts need to follow the
developments surrounding e-money more closely and more carefully.

1
Introduction
Money has existed in civilisation for thousands years, originating from both economic and
non-economic causes such as tribute, trade, blood money, barter and religious rites. Primitive
money took many forms, from cowrie shells to cattle and whales teeth, and later coinage. The
development of money can be divided into four main groups: the first is objects-as-money
group which consisting of the first generation (trade by barter) and the second generation
(trade with valuable objects); the second is currency-as-money group which consisting of
the third generation (coins) and fourth generation (paper notes); the third is claims-as-
money group which comprising the fifth (deposit accounts), sixth (plastic money) and
seventh generations (electronic payments (EPs) and electronic fund transfers (EFTs)); and the
fourth is electronic-impulses-as-money group which covering the eighth generation (smart
cards) and ninth generation (digital coins). The continued development of money was very
much linked to the growth in world trade and commerce. With the onset of the industrial
revolution, foreign and domestic trade increased greatly and monetary exchange and payment
systems rapidly developed.
The advent of electronic payment can be traced back to 1918, when the Federal Reserve
banks of the USA first moved currency via telegraph. Electronic payment systems exist in a
variety of forms which can be divided into two groups: wholesale payment systems and retail
payment systems. Wholesale payment systems exist for non-consumer transactions, high-
value wholesale payments flow through the three major interbank funds transfer systems:
CHIPS, SWIFT and Fedwire. Retail electronic payment systems encompass those
transactions involving consumers. These transactions involve the use of such payment
mechanisms as credit cards, automated teller machines (ATMs), debit cards, point-of-sale
(POS) terminals, home banking, and telephone bill-paying services. Payments for these
mechanisms are conducted online and flow through the check truncation system and the
ACH. A number of innovations are taking place in the area of retail electronic payments
known as electronic money (e-money). These innovations, which are still at a relatively early
stage of development, have the potential to challenge the predominant role of cash for
making small-value payments and could make retail transactions easier and cheaper for
consumers and merchants.
2
Electronic money or E-money was introduced as a payment instrument more than 20 years
ago. The dynamics of the use of e-money was much slower than expected in the beginning,
primarily as a result of the expensive implementation, while at a later stage the introduction
of complex regulations for an electronic money institution played an inhibitive role. That is
why in this paper (after the definition of e-money, the analysis of e-money as an instrument
and its introduction to the market) the main focal point is the process of regulation needed
for new system implementation. There are beneficial experiences of the countries of the
Euro-zone and also the countries from the region which help each country to discover and
investigate new challenges in the domain of using e-money and implementation of new
ways of banking. Having in mind that the digital era is yet to come, e-money will bring
many discussions and issues in the near future.

What is money?

Money is a medium that people are willing to accept for the goods, securities, and services
that they sell. Money serves three purposes. First, as just mentioned, it serves as a medium of
exchange. Second, as a standard of value, it serves as a measure for the value of a good or
service and thus provides a standard for making comparisons between different goods and
services. Finally, it functions as a store of value, thus it can be saved and used in the future.
In order to realize its three functions, money possesses certain characteristics which allow it
to enable transactions. First, it must be durable to function as a store of value. In other words,
when money is not spent, it is retrievable. However, if it is destroyed, stolen, or otherwise
lost, it is not replaceable. Second, it must be difficult for individuals to create or counterfeit
money. Public trust in money's legitimacy is an essential element of its successful use as a
medium of exchange. Third, it must be widely accepted. The larger the community of users
who trust and accept money, the more that its value as a medium of exchange is increased.
Finally, when it is exchanged, there is anonymity.

3
Definition of E-money
E-money is the newest instrument in the payment system, and according to definition this is
the money that is transferred electronically. But still, the definition of e-money is more
complex and more precise, and it is a problem to describe a dynamic phenomenon within a
comparatively static framework. According to the European directive, e-money presents a
monetary value, as represented by a claim on the issuer, which is stored on an electronic
device, issued upon receipt of funds in an amount not less in value than the monetary value
issued and accepted as a means of payment by undertaking other that the issuer.

E-money is not printed money or a deposit. Payments are limited only to the sum which is
stored on the electronic device. One of the main differences with the other payment
instruments is that the issuer and the recipient of e-money are different, while in the case of
other payment instruments they are the same (for example banks can issue credit cards and at
the same time accept payments with such cards). An issuer of electronic money can be a
bank .

The highest number of transactions is registered in the developed countries, which have the
largest share in globalization of the financial system. Nowadays e-money is most often used
for small payments, among retailers or in the virtual world. These two areas in which e-
money is most often used actually define the two basic types of e-money: hardware and
software e-money.

Hardware E-money

Hardware e-money Hardware e-money is card-based e-money, mostly used by retailers. In

most of the cases it is used for small payments or for one type of payment. It can be divided
according to the purpose, according to the location they are used at-only in the university
area, in the sport centers; or according to the technology they use-those that can be passed
through a reader or those which are readable without contact.
4
In first place, transactions with e-money cards are very similar to the credit or debit cards, but
still there are differences between them. In the two cases, the user needs to transfer cash in
order to use the e-money card or the credit/debit card. Also, these two types of cards can be
used globally, using the internet connection. On the other hand, the e-money card is not
connected with a bank account (as the credit/debit card) but with the sum on the electronic
device. Also, with the e-card there are no possibilities for debt and the transaction is only to
the sum which is on the electronic device.

Software E-Money

The transfer of electronic money is through a telecommunication network and the internet,
while the money is stored on the server . This type of e-money is not stored on the chip of the
card, or on the computer, but on the central server at the issuer of the e-money. It is known as
server based e-money or software e-money. Well-known examples are PayPal, DigiCash etc.
The payment is through on-line models, and the transfer of money is by an online account
(bank deposit accounts are not included). The user has access to his account by the internet
explorer, email or by his cell phone. This type of e-money is most often offered on the market
by nonbanking institutions. For example the money from the card is transferred on the PayPal
account. There is no access to the financial data of the user. An advantage of using PayPal is
that the user gets bonuses or points, lower provisions etc.

5
Conclusion
Designing an appropriate regulatory framework for e-money involves balancing different
objectives including the system stability and security, financial integrity of the issuers,
protection of consumers and the promotion of competition and innovation. Therefore, in
general, the framework should be e-neutral. However, at the early stage, without any
successful experience, authorisation and supervisory regime for e-banking and e-money
would be similar to that for conventional banking service and products, just as HK has
adopted, and it should be adjusted and readjusted following the development of e-money.

Regulatory authorities also face a choice concerning the timing of the introduction of any
possible regulatory measures. On the one hand, establishing a comprehensive regulatory
framework at an early stage would risk stifling innovation. Although Greenspan, the
chairman of the Federal Reserve Board of the USA, recognized that in the current period of
change and market uncertainty, there may be a natural temptation for the regulators and a
natural desire on the part of some market participants, to have the government step in and
resolve the uncertainty, through standards, regulation, or other government policies, he still
stressed that as financial systems become more complex, detailed rules and standards have
become both burdensome and ineffective, if not counterproductive. He argued that if we
wished to foster financial innovation, we must be careful not to impose rules that inhibit it. To
develop new forms of payment, the private sector will need the flexibility to experiment,
without broad interference by the government. Hence, in the earlier period, industry
participants may find that self-policing is in their best interest.

However, on the other hand, there may be a risk that the overall cost of regulation will be
significantly higher were there to be a substantial delay in implementing measures that
ultimately prove necessary, and existing regulatory framework could somehow inhibit
desirable innovations by not adapting quickly enough. As Mr. Padoa Schioppa, of the Bank of
Italy, has said, "the road to define a new institutional model must be different from the ones
adapted in the past. At the beginning of this century, an agreement on how to manage a
monetary system based on currency and deposits was only reached after a financial and

6
monetary crisis. It would be extremely dangerous to pass through a similar learning process
today, not least because payment systems in the industrialised world would amplify the
problems of any single market operator, diffusing its effects to the whole economy".
It is true that the regulation and supervision of e-banking and e-money is still at an early
stage, like the product itself, and is still evolving. However, governments should not therefore
adopt a wait and see approach towards legislating for it, which is especially true if you agree
with the somewhat extreme view of David Saxton who claims "Digital cash is a threat to
every government on this planet who wants to manage his own currency"

Bibliography
http://lawyer.20m.com/English/articles/e-money.htm

https://en.wikipedia.org/wiki/Electronic_money

http://www.eccf.ukim.edu.mk/ArticleContents/JCEBI/JCEBI_2/spisanie%20Neda
%20Popovska-Kamnar.pdf

http://lawyer.20m.com/English/articles/e-money.htm