In the second case, customers actually purchase monetary value from the MNO (FCA 2014). In the first case, the MNO is only a service provider, not an issuer of mobile money – mobile money is a service provided on deposits, not money – and customers own deposit claims on banks, not the funds deposited with banks. In the second case, the MNO sells mobile money to customers. In the first case, the MNO’s business is to allow customers to access and mobilise their bank deposits through mobile devices. Take a mobile network operator (MNO) offering mobile money services. There are in fact two relevant cases here. Regulatory institutions and field experts talk about customer funds when referring to the funds received against e-money issuances. The second objective raises a critical issue. The first objective ensures that all e-money outstanding is redeemable at all times on customer demand. An apparent inconsistencyĬurrent e-money regulations are especially concerned with securing two operational objectives: first, enforcing the 100% backing regime and second, protecting so-called ‘customer funds’. 2016).īut even with substitution achieving scale, a key feature would still differentiate between bank deposits and e-money, at least under existing regulations, and that is through the different monetary regimes underpinning them – fractional reserves for bank deposits and e-money issued by banks, on the one hand, and 100% backing for e-money issued by nonbanks on the other.2 Under the latter regime, e-money issuances must be matched dollar-for-dollar by money in circulation. In principle, as e-money usage becomes widespread and people no longer cash out, transactions can take place in e-money with only minimal need for cash to change hands or for deposits to move between accounts (Bachas et al. In time, they may use it more widely and even hold it instead of cash and deposits (Pulver 2008, Morawczynski and Pickens 2009). In the case of e-money, people at first use it as an easier way to access the value stored in it – they use it for small transfers, engage in frequent cash-in and cash-out transactions, and keep it in small amounts (Hanouch and Kumar 2013). This owes to people increasingly trusting them as capable of storing value (as money does) and growing more comfortable with their acceptance. To the extent that money substitutes start getting accepted in place of the original, they themselves become money. Eventually they (largely) replaced cash as payment devices and even central bank money as a settlement instrument. As claims on money, however, deposits progressively became substitutes for money, since people found it more convenient to use them instead of cash in the exchange process. In the early days of banking, a deposit was understood to be a safe place inside a well-protected vault where customers would keep their cash and withdraw it when needed (Rothbard 2008). Aren’t the latter, too, a technology to access and mobilise the value stored in them (cash and other funds) on demand? The answer must be framed in an evolutionary context. Money is what people think money isĬonsider further the analogy between e-money and bank deposits. Addressing this question should lead regulators to consider whether and how regulations should evolve to best reflect the true nature of e-money. The question is whether e-money is just a service on existing money or whether it can serve as money proper, ultimately replacing cash and deposits. From this perspective, e-money is nothing but a convenient technology for customers to access these funds, quite akin to online banking, swiping a card at merchant establishments, or making ‘card-not-present’ transactions. a computer server or network).1 The functionality thus described, however, is analogous to accessing accounts held at banks, which represent claims on funds that customers may exercise at any time. These features are integral to e-money regulations worldwide, which refer to e-money as a prepaid payment instrument issued against the receipt of funds whose value is either stored on a device in the possession of customers or is accessible from customers when it is stored elsewhere (e.g. The Committee on Payment and Market Infrastructures – the international standard setter for payment systems – defines electronic money (e-money) as “value stored electronically in a device such as a chip card or a hard drive in a personal computer” (CPSS 2003), and the GSM Association – the trade body that represents mobile money operators globally – further indicates that “the total value of e-money is mirrored in (a) bank account(s), such that even if the provider…were to fail, users could recover 100% of the value stored in their accounts” (GSMA 2010).
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