Electronic money (e-money) is an electronic currency that’s backed by fiat currency and is considered to be legal tender.
E-money is money which exists in the banking computer system. It is available for transactions through electronic systems only. The value of e-money is backed by fiat currencies and can be exchanged into a physical form.
In simple terms, electronic money is a secure way to store value on hardware devices such as smartphones and laptops. E-money is used for transactions and to make and accept payments to and from a person or organisation globally. Even though it can be exchanged into a physical form, the best way to monitor and utilize e-money is through electronic processing.
E-money is centralised and regulated
E-money is governed and regulated by a singular authority. In the UK, this centralised system gives the Financial Conduct Authority overall control of users’ assets. The FCA lays out regulation from safeguarding rights through to business processes that issuers need to be compliant with. UK businesses wanting to issue e-money must be authorised or registered by the FCA, unless they are exempt under Part 4A of FSMA. All issuers have to adhere to the conduct of rules set out by the FCA and must comply with relevant provisions listed in the FCA handbook. Having this centralised authority in place provides an additional layer of security for users and their funds.
Easy transactions just one of the many benefits
E-money transactions are very straight forward and the completion time is known to be extremely fast. E-money transactions aren’t determined by supply and demand. Instead, they are equal to the amount of fiat currency being exchanged in an electronic form. When the money transfer is sent, users don’t need to wait for a network to verify the transaction. The transaction is verified by an SMS message and a record of the transaction is kept by the issuer. E-money transactions happen almost instantly.
With e-money, users are able to access their accounts from anywhere at any time. The only thing needed is the internet to be able to perform operations and control funds. It is not only time that is saved, but money as well. All transactions come at little to no cost. Another great advantage is that users stay anonymous, the only person who has access to the account and all personal data inside is the account owner.
Every transaction made with electronic money is recorded on the user’s online records. All records have essential information stored, such as the name of the payer, the date and time the transaction was made and the name of the payment receiver. This provides users with the benefit of being able to track their records and ensure all payments have been processed.
Digital money has brought round endless possibilities and benefits. It is extremely convenient and easy to use. Transactions can be carried out almost instantly, unlike banking where you would have to wait a few days for a cheque to clear. It is more reliable and faster than using paper cheques and drafts and has a much lower transaction fee. These are just a few of the reasons why people prefer to use e-money over traditional banking.
The preference for using e-money is often a result of users preferring security, having a middle man involved in the transactions, and the protection available from regulations. E-money is also highly stable, keeping consumers protected from market volatility and a lot less likely to lose their funds.