What is electronic money?
Electronic money is a form of money in banking computer systems exchanged electronically. These values represent real money that is convertible to fiat cash. Today, there is wide use of electronic cash because of the convenience of electronic transactions.
A handful of systems worldwide that millions of people use have backing by online activities related to electronic money. Some of these are Paypal, Webmoney, Transferwise, and Skrill. Email addresses identify online payment systems so you can convert digital currencies between accounts. Wide usage and recognition from users made massive retailers and service providers accept this kind of transaction.
Money in different forms and substitutes
In the earlier centuries, people would go to a goldsmith to store their money since they know how to discern gold’s purity and weight. Then, a goldsmith in return will give a receipt where you can find the gold’s value and details. Over time, people realized that this receipt is as valuable as the physical gold. It has been the central concept of today’s banking system.
Later on, people would deposit their money to the bank for safe-keeping and protection. They can withdraw it anytime when needed. People may carry a bankbook or a card to track how much money they’ve kept in the bank. People realized that these could substitute real money.
Today, people are getting more and more comfortable with the idea of money substitutes like electronic money. It is more comfortable and more convenient for cash-in and cash-out. It is handy with everyday transactions with very minimal need to use actual cash.
The difference between bank deposits and electronic money are different monetary regimes. For bank deposits, it is fractional reserves. Electronic money not issued by banks has 100% backing, and it must be a dollar-for-dollar match.
Hardware-based and software-based products
Hardware-based products don’t need an internet connection. To make a payment, a device reader can read a personal device like a chip card with hardware-based security.
On the other hand, software-based products are devices such as handheld phones, tablets, and computers where you can transfer money quickly using an internet connection.
Electronic money channels and ways
Physical money’s role has lessened in today’s modern world of technology. Consumers and businesses can agree that electronic cash is safer, more convenient, and widely used. There are many ways to receive and transfer money, like direct deposits, electronic fund transfers, and payments through credit and debit cards. The facilitation of most electronic money transactions is through payment processing networks such as Visa and Mastercard. There is usually a tie-up between banks and financial institutions, and payment processing networks.
Money security issues
Even if electronic money is widely used and considered safe in place of physical cash, there are still some issues. One is a fraud where people transfer money without the need to verify the owner’s identity. It can be an issue with the IRS and tax evasion since they can go without drawing too much attention. Also, systems are not always perfect. Electronic transactions can go wrong with a system error.