What is E-money?

Electronic money (e-money) is the digital equivalent of cash. It can be used for making payments without involving bank accounts in the transactions and always acts as a prepaid bearer instrument. E-money can be software or hardware based. As such, card-based e-money, such as e-money stored on the “GeldKarte”, is hardware based. E-money stored on an account in the Internet, such as PayPal, is software-based e-money. No matter what format, e-money still is a niche market. However, the growing digitalisation of financial services might boost its usage and might thus support its importance as a payments instrument in the near future. Other virtual forms of money, such as Bitcoins, may further enhance e-money’s importance as internet services could spread rapidly – once started – due to the sheer mass of potential users.

The digital equivalent of cash

Electronic money (e-money) is a digital equivalent of cash. It is defined as an electronic store of monetary value on an electronic device or remotely on a server. E-money can be used for making payments without necessarily involving bank accounts in the transactions. It always acts as a prepaid bearer instrument. Since 2009, e-money services have been regulated by the “E-Money Directive” (2009/110/EC).

E-money can be software or hardware based

E-money can be divided into card-based (and as such hardware-based) and software-based e-money. One common type of hardware-based emoney is the 'electronic purse', where users store relatively small amounts of money on the chip or magnetic stripe of their payment card, other smart card or on mobile phones, to make small payments. Another option is to store e-money in a payment account on the Internet (software based).