Emily M. Weitzenboeck, 2011 Norwegian Research Center for Computers & Law

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2 Background to development of electronic money Digital cash systems E-money products Notion of e-money

3 Many types of electronic payment systems, and various classifications put forward by scholars Different types: Online credit card payment systems Smart card based electronic payment systems (hardware based) Server-based electronic payment systems Focus on electronic money & digital cash systems

4 How it all started Japan (mid-1980s), Europe (early 1990s) Many of the early products were developed by nonbanks Interest by European central banks and finance ministries European Commission concerns: Ad hoc proliferation of schemes might weaken the internal market and stifle competition and innovation Need for clear legal framework

5 Significance for e-commerce: Internet and www provide an additional venue for sale and purchase of goods and services. Intense discussion & lobbying: European Commission keen for a relatively light legal framework E-Money Directive (Directive 2000/46/EC on on the taking up, pursuit of and prudential supervision of the business of electronic money institutions)

6 Three types of digital cash systems: Pre-paid systems Ordinary money is withdrawn now but the goods or service is actually purchased later. Known as stored value card Pay-now systems Payment is made at the same time as the product is purchased. Pay-later systems E.g credit card system Each type can be online or offline.

7 Classification of e-money products (1): Card-based (hardware-based) Electronic purses E.g. Proton Smart cards for public transport

8 Classification of e-money products (2): Server-based: Relative success in catering to niche markets More successful ones are pre-funded personalised online payment schemes E.g. PayPal Other examples which also involve use of cards: E.g. mobile phone based micro-payment solutions; prepaid debit cards

9 Yet notion of what is electronic money unclear: Different terms e.g. : electronic money, virtual cash, cyber cash, internet cash, digital cash Essentially it is the electronic representation of money or, more accurately, the digital representation of currency. What is money? Moveable (chattel) having legal tender Changing nature Electronic money

10 "funds" (PSD, art. 4) means banknotes and coins, scriptural money and electronic money as defined in Article 2(1) of the E-Money Directive (2009/110/EC) NB Dir 2009/110/EC repeals and replaces with amendments Dir. 2000/46/EC

11 Payment Distinguished from invoicing Payment is transfer of funds form a payer to a payee Payment transaction is defined in the Payment Services Directive (Dir 2007/64/EC) (PSD, art. 4): an act, initiated by the payer or by the payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and the payee Distinguish payment system from underlying (or perhaps overlying ) transaction

12 The e-money market has developed far slower than expected and is far from reaching its full potential No e-money product has gained widespread acceptance as a general means of payment However, some products (in particular server-based ones) have found relative success in niche markets and for very specific uses

13 Initial expectations about the extent to which the E-Money market would grow have proved optimistic Few e-money licences have been granted Problems in commection with how Directive 2000/46/EC (now repealed and replaced by the 2009 EMD) should be interpreted Uncertainty about how the 2000 Directive should be applied to mobile network operators the European Commission sought to clarify the issue through a public consultation and the publication of a guidance note.

14 Characteristics desired of digital cash systems: Anonymity Reusable Widely accepted Similar as re physical currency

15 Inability to determine spending patterns of identifiable individual Unlinkability Untraceability Difficult with past and current digital cash systems

16 Reusable, widely accepted: Possibility to use digital cash in different places in a relatively indefinite time No rigid limitation of its validity or place or merchants where it can be used Difficulties because of money laundering and tax considerations