Electronic Money – Definition, Benefits, Risk, Works, Uses and More
Electronic Money Definition
In its broadest concept, electronic money includes any payment system that involves a digital medium. This means using software, hardware, and an Internet connection to carry out transactions. This way, it includes prepaid cards, credit postcards, or electronic wallets. Almost all of them are extensively used and known to most persons.
A more constrained concept of electronic money refers to money uttered in bits (minimum unit of information in calculating). Thus, it is an income of payment that does not have a corporal team, and its transactions are carried out through the exchange of bits without using bills, coins or any other conventional means. This type of money has also been called “E-money”, “digital cash”, or “cyber-currency”.
Benefits of Electronic Money
Every day there are more companies, corporations and banks that establish contracts with processors of electronic money networks to give customers access to smart cards through which they can speed up electronic transactions.
For this reason, today, almost all electronic commerce platforms worldwide contemplate electronic money transactions, which allows consumers to:
- Perform online operations to purchase available goods and services, providing consumers with a new way to meet their needs.
- Allow transfer via smartphones, computers, debit or credit cards.
- Avoid the loss or misplacement of physical money because everything is electronic.
For the government, it is also essential as it offers the following benefits:
- Save on printing banknotes and coins and expenses associated with the physical counting of cash.
- Reduce the rate of robberies because citizens do not carry cash.
- Facilitate the mobilization of the economy without the need for cash.
Risk of Electronic Money
Although electronic money considers safer than traditional currency as a means of payment, the chances of fraud are high because it does not require validating the person’s identity making the transactions.
How Electronic Money Works
In its broadest and most well-known sense, works as a virtual means of payment, but it expresses support in standard monetary units (euros, dollars, etc.). In addition, they can distort into cash.
For sample, if we have a prepaid card of 1,000 euros, we see that we have beforehand deposit that amount and can use it in transactions until it shelter. Also, if they give us a card with a quota of 3,000 euros, we will then have to pay that total, plus the interest they charge us, all spoken in euros.
In the case of strict electric money, its value express Stowe in bits. When an issuer delivers virtual to a person, it will provide a file with a set of encrypted bits. These bits are nonentity more than electronic info store on a microchip that can attach to a digital card.
Advantages of Electronic Money
Electronic money has essential advantages over fiduciary money:
- Avoid the cost and risk of transporting and storing large quantities of cash.
- It is possible to package the chip with electric money only to be used for a particular terminus, thus removing the risk of diversion, theft or loss. Therefore, it is possible to program that can only be spent in a particular store. In this method, if we send a person to buy resources, they will not be able to devote part of the cash to other uses.
- In some cases, it is likely to make dealings in complete privacy and anonymity.
- Provides greater freedom to agents to make trades.
Disadvantages of Electronic Money
There are also significant disadvantages and risks in using electronic money. Next, we describe some of them:
- It is more difficult for vital banks to calculate the money supply and carry out monetary policy.
- Given the lack of control, transactions can evade taxes with the consequent drop in State income.
- Transactions in a digital environment make it challenging to determine.
- which is the competent authority for the control and punishment of illegal activities.
- New forms of electric crime will appear that may be more complex.
- Illegal financing, fraud and money laundering activities are more likely to go undetected.
- Computer failures or attacks can have severe penalties.
Future of Electronic Money
Now, (strict) electronic money limit, but it expects to grow over time. To take benefit of its advantages, we must now design mechanisms that allow it to reduce its dangers and damages.
Just as in the past, we care it unthinkable that cash would not have a gold backing today; we must adapt to the idea that it is possible for money to definitively leave its physical form to become a digital means of payment.
Examples of Electronic Money
The term can use in the following examples:
- Wage and salary payments were honoured with electronic money.
- Square and PayPal increase their customer base because their platform allows electronic money transactions
Money is a means of conversation and a measure of value that has represent by different physical objects from shells, cocoa beans, bird feathers, and metals to coins and bills. Today money has taken the identity of data that circulates through computer networks, which can go around the world in just a few seconds.
This last form is what we know as electronic money, which exchanges through channels such as the Internet or private telecommunications networks in response to the instructions of those who make a payment or electronic transaction. This money is virtually in a bank account; it travels through the network to reach other charges and thus make payments. Money is no longer necessarily back by a physical object but by the work and production, we all do to obtain it.
To enable the electronic form and use of money, it has been necessary to install the appropriate infrastructure, such as computer systems, Internet connections and a network that allows the transfer of information on transactions from stores or ATMs to bank branches. The use requires developed telecommunications technologies and the implementation of security mechanisms, which are possible thanks to the development of technological infrastructure.