THE LEGAL NATURE OF ELECTRONIC MONEY AND THE
EFFECTS OF THE EU REGULATIONS CONCERNING THE
ELECTRONIC MONEY MARKET
Elektronik Paranın Hukuki Niteliği ve AB Düzenlemelerinin Elektronik
Para Piyasası Üzerindeki Etkileri
Mehmet Sıddık YURTÇİÇEK *
ABSTRACT
Money has changed its shape throughout the history. There was always a strong
relationship between technology and money and other payment method. Among
these materials, gold and silver were used as reliable money forms, due to the
intrinsic value that they possess. When it is looked at the materials in that are used in
the early times, it can be observed that they are basic and easy to find in a natural
environment. Cattles, tobacco, sea salts and seashells are examples of these kinds of
money. In the latter times, the appearances of the money have changed by the
technological developments, and metals such as iron, cooper, silver and gold began
to be used together with some form of paper money. With the rapid technological
developments, we are entering a digital era, and paperless society is not a distant
dream anymore. The bank money, which is represented by numerical expressions,
showed that money can be represented electronically. Electronic money is the
product of this new era that may replace cash in the near future. This new payment
method has many advantages over the conventional payment methods. This paper
explores the legal nature of electronic money and regulatory impacts on electronic
money market. In this regard, the first effort was placed on the definition and
historical development of money. The second part of dissertation is allocated to the
legal and technical implementation of the payment methods. The last part critically
analyses the regulatory structure in e-money market and addresses the legal nature
of the electronic money.
Keywords: Bank Money. Credit Card. Debit Card. Deposit. Electronic Money.
Money. Money Remittance. Payment. Payment Instruments.
ÖZET
Para tarih boyunca şekil değiştiren bir olgu olarak karşımıza çıkmaktadır. Teknoloji
ile genel değişim aracı olan para arasında güçlü bir bağlantı bulunmaktadır. İlkel
çağlarda para olarak kullanılan materyaller incelendiğinde genel itibariyle doğal
ortamda bulunabilecek basit bir yapıya sahip oldukları görülmektedir. Büyükbaş
*
Bankacılık
Düzenleme
[email protected]
ve
Denetleme
Kurumu,
Bankacılık
Uzmanı,
Avukat,
Law & Justice Review, Volume:IV, Issue:1, June 2013
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Electronic Money Market - Mehmet Sıddık YURTÇİÇEK
hayvanlar, tütün, deniz tuzu, deniz kabuğu gibi mallar buna örnek olarak
gösterilebilir. Teknolojik gelişmeler ile birlikte paranın görünümü değim göstermiş
metal veya kâğıt paralar teknik bir uygulama sonucunda kullanılmaya başlanmıştır.
Demir, bakır, gümüş ve altın para olarak kullanılan metallerin başında gelmektedir.
Bunların içinden öz değeri olan altın ve gümüş uzun süre güvenilir bir para türü
olarak varlık gösteriştir. Son zamanlarda teknolojik alanda yaşanan hızlı gelişmeler
paranın görünümünün bir kez daha değişmesine sebep olmaktadır. Paranın
elektronik ortama taşınmasının ilk aşaması olan banka hesabında bulunan sayısal
ifadelerden ibaret olan banka parası, para kavramının artık elektronik veriler olarak
ifade edilebileceğini ortaya koymuştur. Elektronik para bu durumu bir adım daha
ileriye taşıyarak demir ve kağıt para yerine ikame edilebilecek dijital verilerin
kullanımını ortaya çıkarmıştır. Bu yeni para türü kullanım ve maliyet açısından
geleneksel parayla oranla birçok avantajlara sahiptir. Bu gelişmeler yakın gelecekte
kâğıt ve demir para kullanımının tamamıyla ortadan kalkacağı öngörüsünü
güçlendirmektedir. Bu çerçevede bu tez elektronik paranın hukuki niteliğini ortaya
koymaya çalışmaktadır. İlk bölümde paranın tanımı ve tarihi gelişimi incelenmiş
olup, ikinci bölümde ödeme sistemlerinin teknik yapısı ve hukuki nitelikleri ortaya
konulmaktadır. Son bölümde elektronik paranın hukuki niteliği incelenmiş olup
Avrupa Birliğinde elektronik paraya ilişkin yapılan düzenlemenin elektronik para
piyasasına ektileri ortaya konmaktadır.
Anahtar Kelimeler: Banka Kartı. Banka Parası. Elektronik Para. Havale. Kredi
Kartı. Mevduat. Ödeme Araçları. Ödeme. Para.
276
***
INTRODUCTION
With the new technological progress, money is changing its appearance
once again. Electronic money (e-money) appears to be the latest stage in
the historical development of the money. This new kind of money is
controversial from both legal and economic definitions of money. Emoney can be basically defined as the electronic equivalence of paper
money and coins.
The use of cash in our daily life is diminishing constantly. Today, most of
the payments are made through bank transfer. Customers give order to
their banks directly or they can use cheque or payment cards such as
credit and debit cards to make a payment from their account to payee’s
account. No physical delivery takes place, but only numbers are
transferred between accounts.
E-money offers a secure payment option without involvement of a bank
account. Therefore, it is an alternative payment method to the credit and
debit cards in retail and online payments. In fact, it was believed by many
that e-money will replace traditional payment methods (payment cards
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Electronic Money Market - Mehmet Sıddık YURTÇİÇEK
and currency) significantly, and become a new generally excepted
medium of exchange.
In the European Union (EU), e-money market was first regulated by
“Directive 2000/46/EC” (on the taking up, pursuit of and prudential
supervision of the business of electronic money institutions). During the
ten years since the Directive, e-money has not revealed the expected
potential. Evaluation process showed that the main reasons were the
ambiguous definitions and the high prudential requirements in the
Directive.
Taking the criticism into consideration, the EU enacted the Directive
2009/110/EC (on the taking up, pursuit and prudential supervision of the
business of electronic money institutions amending Directives
2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC) which
aims to encourage the growth of the electronic money market. This
Directive brought new definitions and softened requirements for e-money
institutions. The new Directive was implemented in the UK on 1 May
2011 through the Electronic Money Regulations 2011.
This paper aims to analyze the legal nature of the electronic money and
discuss the effects of the regulations on the electronic money market. In
this regard, the first part of work is concerned with the definition, legal
nature and the historical development of the money. The purpose is to
provide a legal perspective to the definition of money that will provide
sufficient primary information to analyze the legal nature of e-money.
The second part of the work is allocated to the technical and legal
structure of some of the most commonly used payment methods. This
part is aimed to provide a better understanding of e-money payments by
providing sufficient information about other payment methods.
The final part of the work reviews e-money from different perspectives
and attempts to shed more light on the legal nature of the e-money by
expressing differences between and similarities with the other payment
methods. This part also examines the effects of the e-money Directives
on the e-money market and analyses whether the changes that are made
in the second Electronic Money Directive (Directive 2009/110/EC) will
help the electronic money market to deliver the expected potential
benefits.
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I. MONEY
A. Definition of the Money
Money has different meanings in different contexts. The origin of the
word “money” comes from the Latin word “moneta” which means coin
that gets its value from inscription or stamp on it. The Latin word
“pecunia” is derived from the word “pecus” means a single head of cattle
that was a means of exchange in Rome and Greece. 1
The notions of money and payment are closely connected; therefore, one
cannot discharge his monetary obligation if there is not a clear definition
of money. Any consideration given, other than money, will change the
nature of transaction from the sale to barter. The definition of money has
some differences from economic and legal perspective.
1. Economic Perspective
The economic definition of money mainly depends on three fundamental
functions: a commonly accepted medium of exchange, a store of value,
and a unit of account. 2 Assets that perform those functions can be defined
as money.
278
For economists, the most distinctive function of money is being a
generally accepted means of exchange. To be able to define something as
money, there must be a sufficient degree of general acceptance in the
community. Anything that is generally accepted as payment for goods
and services or payment of debt can be defined as money. 3 Therefore,
bank money can be included within the definition of money, but from
legal perspective, a bank account is merely a money claim that the
depositor has against the bank. 4
Money is a common unit of account for goods and services. Instead of
expressing an asset’s price in terms of different assets, each asset has a
1
2
3
4
William F. Spalding The Functions of Money (Sir Isaac Pitman and Sons, Ltd, London, 1921) 2.
Charles Proctor, Mann on the Legal Aspect of Money (6th edn, Oxford: Oxford University Press,
2005) 10; Keith S. Rosenn, Law and Inflation (Philadelphia: University of Pennsylvania Press
1982) 36-38; Roy Goode and Ewan McKendrick, Goode on Commercial Law (4th edn, Penguin
Books, 2010) 486; Rosa M. Lastra, Legal Foundations of International Monetary Stability (Oxford
University Press 2006) 14-15.
R. Glenn Hubbard, Money the Financial System and the Economy (6th adn, Pearson Education,
2008) 7.
See Goode above note 1, 486.
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single price in terms of money. 5 This function makes money a universal
denominator of value. 6 Money is used to measure all goods and services.
Another vital function of money is being the store of value. Money can
be kept to be used in future. For that reason money should not lose its
value over time. The value of money is always expressed by the nominal
value expressed on it; thus, ten pound note always stores ten pound
regardless of the inflation. 7
Money must act as a standard of value, or standard for deferred
payments, which is sufficient to discharge a contractual obligation.
Money is desired because it provides general purchasing power; thus, the
value must be more or less stable. 8
Soddy 9 defines modern money as ‘NOTHING you get for SOMETHING
before you can get anything’. He argues that the owner of money is the
creditor and the issuer of money is the debtor and the issuer get goods
and services for nothing and thus he should do that for the benefit of
community 10.
2. Legal Perspective
From legal perspective the most important feature of money is being a
means of payment, thereby discharging monetary obligations. 11 The
function of money as a means of payment is in an aspect of its function as
a medium of exchange. 12 Payment is defined as an act of transferring
money that discharges the obligation. 13 According to Goode, what
constitutes ‘payment’ is far more important issue than the definition of
money. 14
5
6
7
8
9
10
11
12
13
14
See Hubbard above note 3, 15.
Georg Simmel , The Philosophy of Money , (Translated by Tom Bottomore and David Frisby,
Routledge & Kegan Paul, 1978) 120.
David Fox, Property Rights in Money (Oxford University Press, 2008) 9.
Alfred Marshall, Money Credit and Commerce (Macmillan Co. Lmided, 1923) 16.
Frederick Soddy, The Role of Money (George Routlege and Sons Ltd: London 1934) 24.
See Soddy, above note 24.
Von Mises, The Theory of Money and Credit (Translated Bay H.E. Barson, Jonathan Cape 1953)
69.
See Fox above note 7, 8.
See Lastra, above note 2, 14-15.
See Goode above note 2, 488.
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In Moss v Hancock 15 the Court referred to Walker’s 16 definition of
money as:
‘that which passes freely from hand to hand throughout the community in
final discharge of debts and full payment for commodities, being
accepted equally without reference to the character or credit of the person
who offers it and without the intention of the person who receives it to
consume it or apply it to any other use than in turn to tender it to others in
discharge of debts or payment for commodities.’
According to Keynes, money is simply what the state declares to be a
good discharge of money contracts. 17 According to US General
Commercial Code 18 money is" a medium of exchange currently
authorized or adopted by a domestic or foreign government.” The term
includes a monetary unit of account established by an intergovernmental
organization or by agreement between two or more countries. This
definition requires state recognition to be accepted as money.
In England, technically money means currency issued by Bank of
England.The most payments, however, are made through bank accounts
and bank transfer became universal method of settlement, it is now
necessary to accept bank accounts as ‘money’. 19
280
As to the nature of money two theories prevail. According to metalism
theory, money is a commodity, generally in the form of precious metal
and money is a creature of market and any commodity generally excepted
as a medium of exchange, should be called money. 20 In contrast,
chartalism accepts money as social relation independent of any material
representation. 21 They claim that money value has always been
independent of its material support (metallic or paper). 22
Money is a property that can be owned and transferred regardless of the
forms it takes. Money is fungible in nature; therefore money can be
exchanged with the same amount of any other money. 23
15
16
17
18
19
20
21
22
23
[1899] 2 QB 111.
Francis Amasa Walker, Money hin its Relation to Trade and Industry (H. Holt and company the
University of California 1879).
John Maynard Keynes, A Treatise on Money ( London: Macmillan, 1930) 4-5.
Part 2.b(24)
See Goode above note 2, 486; Also see Proctor above note 2, 7.
Sergio Rossi, Money and Payments in Theory and Practice (Routledge 2007) 10-17.
Rossi, above note 10-17.
Rossi, above note 10-17.
Alastair Hudson, The Law of Finance (1st edn, Sweet&Maxwell, 2009) 508-510.
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B.The History of Money
It is mentioned in the European Central Bank’s working paper 24 that,
a device is called money if the absence of such a device stops some
socially beneficial trades. This approach emphasises the necessity of
money in social life. Commodities used as a medium of exchange
varied greatly from place to place, but some of them stands out and used
widespread and affected subsequent development of the common
medium of exchange. 25
1. Barter
In early times the need for exchange did not appear in the society until
some division of labour emerged. When people began to produce more
than they consume, they began to feel the need to exchange them for the
product they need. 26 Before the emergence of money as a commonly
accepted medium of exchange the economic transactions were conducted
by barter. Barter simply is simultaneous exchange of goods. 27 To be able
to manage a barter transaction, needs of both parties must coincide. This
was not an effective way, because it was not easy to find someone in the
market that is willing to exchange commodities. At this stage product
market were uncertain and unreliable. 28
There is a different approach to the post barter transactions. According to
Howard, with the creation of money, exchange become three sided as
trading of goods for money, and then money for goods. 29 In that sense all
trades are finally barter, and the use of money facilitates exchanging
goods for goods. For that reason, all existing money represents
incomplete exchanges, and they sooner or later will be offered for goods,
because money has no use except to be spent and the possession of
money represent a postponed satisfaction. A similar opinion was
expressed by Rowe as ‘money exists because we believe we have a
24
25
26
27
28
29
European Central Bank ‘Money and Payments: A Modern Perspective’, prepared by Cornelia
Holthausen and Cyril Monnet, June 2003 (Working Paper Series No: 245) 14
at
<http://www.ecb.int/pub/pdf/scpwps/ecbwp245.pdf>
A. R. Burns, Money and Monetary Policy in Early Times ( Kegan Paul, Trench Trubner & Co. Ltd,
1927) 35.
See Spalding above note 1, 6.
Isidore Ostrer, Modern Money and Unemployment and the Law of Barter (W.H. Allen, London,
1964) 6.
Earl Dean Howard, Money and Banking (Alexander Hamilton Institute, New York City, 1910) 12;
See also See Fox above note 7, 7.
Howard, above note 7.
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future.’ 30 People exchange goods with money, because they believe some
time in the future they can use that money to purchase things they need.
2. Commodity Money
Throughout the history different commodities were accepted as a means
of exchange such as wampum, tobacco, sea salt, shells and cattle.
Ornamental stones and shells were among the first used as money. The
primitive forms of money have three function; namely exchangeability, a
measure of value, and a store of value. 31
The use of commodities as money revealed some important qualities of
money. Divisibility is a vital quality of a commodity to be used as
money. It should be capable of division into small parts to be used in
small transactions. Most of the commodities such as cattle did not have
this quality. Uniformity is another important quality of money. In
general, lack of uniformity is a serious obstacle to the acceptability. The
other important quality is the ‘stability of value’. 32 Hirst also mentioned
that, reasonable stability of value, portability and durability are the main
characteristics of good money. 33
3. Metal Money (Coin)
282
Earliest metallic monetary mediums in Europe were usually copper or
bronze. But, gold and silver were the most suitable commodities to be
used as money. Gold coins were started to be used in Anatolia by
Lydians towards the middle of 6th century B.C. 34 Those durable metals
have necessary qualities like divisibility, uniformity and satiability of
value. For these reasons they were used as money for a long time.
Intrinsic value that those precious metals possess made them popular and
reliable in the community.
4. Paper Money
The first paper money was used by Chinese as a deposit receipts for iron
coins in 1016. The first paper money in western civilisation was issued
by Massachusetts government in 1690. 35 The first banknotes that
represent a promise to pay a stated sum to a depositor were used by
goldsmiths in London. After 1670, the words ‘or bearer’ added and
30
31
32
33
34
35
Dorothy Rowe, The Real Meaning of Money (Harper Collins Publishers, 1997) 43.
See Howard above note 25, 35-40.
Ibid 41-43.
Francis W. Hirst, Money, Gold, Silver & Paper (Charles Scribner’s Sons, 1933) 16.
See Burns above note 22, 140-175; see also Hirst ibid 8-10.
See Rosenn above note 2, 4-5.
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banknotes began to circulate as substitutes for coins. Banknote issuance
became one of the most important functions of Bank of England after its
foundation in 1694. Other banks gradually decreased note issuing and
Bank of England note remained as the most important form of paper
money. 36
II.PAYMENT METHODS
A. Payment
Payment is the discharging of an obligation by the satisfaction of the
creditor. Monetary obligations can be discharged by delivering legal tender
corresponding to the amount owned. 37A payment may be absolute that
immediately discharges the payment obligation or conditional which is
subject to the fulfilment of a condition. In this respect, a payment method
can either discharge payment obligations immediately or conditionally.
There are several instruments in the market that are used to discharge
payment obligations. Some of the frequently used payment methods are
examined below. A payment method can be money or a system that
facilitate the use of money. Currency, bank money, cheque, payment
cards, and e-money are some of the outstanding payment methods. Large
value payment systems stands outside of the scope of our work, therefore
they will not be examined.
1. Currency (Cash; Physical Money)
Currency is defined as ‘a generally accepted form of money, including
coins and paper notes, which is issued by a government and circulated
within an economy.’ 38 The state has monopoly in issuing currency, but
money as a concept is broader than currency.
In the UK, banknotes are issued in the form of promissory note that must
be paid by the Bank of England on demand, however, the right of the
holder to claim gold was abolished in 1931. 39 Since then, currency does
not have intrinsic value which means, it only has a nominal value
mentioned on it. This money is called as “fiat money” because it is not
backed by any reserve and the paper price of the money is far less than its
36
37
38
39
E. Victor Morgan, A History of Money (Penguin Books, 1965) 23-24.
Serge Lanskoy, ‘The Legal Nature of Electronic Money’ (2000),Digest, No. 73, Banque De France
Bulletin
21,
24
at
<http://www.banquefrance.fr/gb/publications/telechar/bulletin/73etud1.pdf> accessed 12 July 2011.
<http://www.investopedia.com/terms/c/currency.asp> accessed 25 July 2011.
See Goode above note 2, 487; Currency and Bank Notes Act 1954, s.1 (1) and (2); The Coinage
Act 1971, s. 2(1).
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nominal value. Banknote represents a claim on the banknotes’ issuer.
This claim used to be a claim of a certain amount of gold or silver but
now it is just a claim of its own kind and amount (ten pound note
represents a claim of 10 pound).
It is mentioned in Miller v Race 40 that money is negotiable instrument
and possession of money in good faith and for full and valuable
consideration will provide the transferee a good title, regardless of the
defect on the transferor’s title. 41
Currency also has the quality of legal tender that is conferred by the state
and cannot be refused by creditor in discharging monetary obligation.42
Creditors have to accept legal tenders for their face value with the
confidence that they will, in turn, be accepted from them for the same
value. 43 Creditor can refuse payments other than made by legal tender. 44
As it is mentioned by Lanskoy, in a convertible currency system, banknotes
were regarded as a negotiable bearers instrument or debt instrument that
represent a pecuniary right in personam, and hence a chose in action. In an
inconvertible currency system, on the other hand, the currency can no
longer be converted into gold. Therefore, banknotes are not a chose in
action, but they are movables of a particular type. 45
284
At present, cash is the most convenient and popular payment method for
low value everyday transactions. Cash payments are absolute and usually
face-to-face transactions that generally do not require further
identification. Anonymity, privacy, familiarity, simplicity and ease of use
are the main advantages of this payment instrument. 46 Cash is an
effective payment system because it is divisible and flexible. Due to the
legal tender function, cash payment is final without any clearing or other
settlement process. 47
40
41
42
43
44
45
46
47
(1958) 1 Burr 452-460.
See also Lipkin Gorman v. Carpnale Ltd [1991] 2 AC 548.
Arthur Nussbaum, Money in the Law National and International (The Foundation Press Inc.,
1950) 45-46.
See Lanskoy above none 33, 26.
Gordon v Strange [1874] 1 Exch. 477.
See Lanskoy above none 33, 25.
Mohini Singh and Betty Zoppos, ‘From Cash to E-Money: Payment System Innovations in
Australia’
IRM
Press,
September
2003,
209
at
<http://www.igiglobal.com/viewtitlesample.aspx?id=8670> accessed 28 July 2011.
Rhys Bollen The ‘Development and Legal Nature of Payment Facilities’ (2004),Volume 11,
Murdoch
University
Electronic
Journal
of
Law.
<http://www.murdoch.edu.au/elaw/issues/v11n2/bollen112_text.html> Accessed 23 July
2011.
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2. Bank Money
Bank money is different from physical money in many ways. First of all,
bank money does not have physical form; it is merely a number in an
account. It is neither legal tender nor negotiable instrument; therefore,
unless there is an express or implied consent, creditor is not obliged to
accept payment by bank money. Bank money is a chose in action that
represents customer’s right to withdraw physical money.In other words
‘bank money is a legal claim for payment of a debt by tender of notes or
coins’. 48 The amounts paid to customer’s account are converted into
unsecured debts owed by bank. Thus, it is not correct to call them cash
and bank pays its own money when honouring customers order to pay a
third party. 49
In a payment with bank transfer, ‘creditor agrees to accept a claim against
his bank in substitution for his claim against his original debtor.’ 50 When
a payment is made by transfer from debtor’s account to creditor’s
account, it will be a payment by debtor, and this creates bank
indebtedness to the customer. Bank can pay the customer by delivering
cash or transfer money to a third party by customer’s instruction.51
Customer can recover his current account on demand, and demand
traditionally is made by drawing of a cheque. Debit cards, telephone
banking and internet banking are other commonly used methods to
transfer bank money.
In the payment with bank money, the bank account assumes the role of the
means of payment (cashless payment medium). Payer triggers the
payment process by giving an order to his bank to transfer funds from his
account to the creditor's account which results in a debit entry on payer’s
account and a credit entry on payee’s account. 52
As it is held by Webster J in Royal Products Ltd v. Midland Bank Ltd 53
the legal nature of transfer claim is simply an authority and instruction
from customer to its bank, to transfer an amount from his account to
beneficiary’s account. There is no cash transfer from one account to the
other, only debt owed to the transferor by its bank is extinguished or
48
49
50
51
52
53
See Fox above note 7, 17.
E.P. Ellinger, and others, Ellinger’s Modern Banking Law (Oxford University Press, 2006) 212.
Mark Hapgood QC (ed), Paget’s Law of Banking (13th edn. LexisNexis Butterworths, 2007) 356.
See Goode above note 2, 499-500.
See Lanskoy above none 33, 24.
[1981] 2 Lloyd’s Rep 194 at 198.
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reduced and debt owed to the transferee by its own bank is increased by
the same amount. 54
3. Negotiable Instruments Including Cheque
Negotiable instruments have been used since 13th century. Bills of
exchange are the first types of negotiable instrument that are used to
transfer money. As it is defined in section 3 of the Bills of Exchange Act
1882, the drawer gives the drawee an unconditional order to pay a given
amount of money to the payee. Negotiable instruments have three
distinctive features. First they confer a right of action for their lawful
owners. Transferability is another feature of negotiable instrument, and
the instrument is in bearer form. It can be transferred (negotiated) by
mere delivery. The third feature is possibility to confer a better title to
transferee than transferor. 55
‘A cheque is a bill of exchange drawn on a banker payable on demand.’56
In UK the cheque started to be used in the 17th century. Cheque is not a
payment but commitment to pay. It is held in Homes v Smith 57 that:
286
‘... where a cheque was offered in payment, it amounted to a conditional
payment which, if accepted, operates as a conditional payment from the
time when the cheque was delivered. If the cheque was not met on
presentation, the payment was subject to a condition subsequent which
meant that the sum which had been due became due once more.’
According to section 53 of the Bills of Exchange Act 1882, drawing
cheque does not constitute an assignment and the payor’s bank is not
liable on the instrument. Cheque is simply a payment instruction by
customer to his/her bank. If the customer’s account is not in funds, bank
is not obliged to pay. 58 Unlike payment cards, with a payment by a
cheque, buyer discharges his/her payment obligation through a third party
(the bank) that has no contractual relationships with the seller. 59
Cheque cannot be defined as money, because it does not have general
acceptability. Only people that are personally acquainted with each other
or in business relationships accept cheques. 60 Additionally, cheques are
widely used in only some countries like the US, the UK and France and
54
55
56
57
58
59
60
See Hapgood above note 46, 403-404.
See Ellinger above note 45, 352-353.
Bills of Exchange Act 1882, s.73.
[2000] All ER (D) 2568.
Ross Cranston, Principles of Banking Law (Second edn. Oxford University Press, 2008) 256-58.
See Hapgood above note 46, 350.
Rupert J. Ederer, The Evolution of Money (Public Affairs Press, Washingon, D.C., 1964) 17.
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even in those countries the volume of cheque used is constantly
decreasing. Most of the cheques in UK are now neither negotiable nor
transferable, because they are issued with the account payee crossing. 61
Further, as it is mentioned above, one of the fundamental features of
money is being used for the final settlements of debts. This feature
disqualifies checks that represent conditional payment from being
defined as money. 62
4. Travellers’ Cheques
Travellers’ cheque is not a bill of exchange because the drawer and the
drawee are the same and the payment order is conditional on that it is
countersigned. The instrument includes a pre-printed reproduction of
signature and purchaser, by adding his/her own countersignature and with
an appropriate proof of identity can obtain payment. Purchaser can
transfer his/her title by countersigning and inserting the name of a third
party. 63
Travellers’ cheque is an undertaking by issuer to pay the specified
amount of money to the purchaser of the instrument at the time he/she
cashes it. However it is subject to contract terms, travellers’
chequesgenerally have advantage of reimbursement when they are stolen
or lost. 64 Travellers’ cheques have been held negotiable under the US and
English law, hence a holder in due course may obtain a good title against
the issuer regardless of the title of drawee. 65
5. Payment Cards
Payment cards are plastic cards with a magnetic strip or chip. They are
widely used payment devices in purchase of goods and services in the
daily life. Payment cards enable cardholder to access his/her bank
account easily, thus card holders do not need to carry large amounts of
money. In a card based transaction, plastic card gives electronic
instructions to cardholder’s bank through the POS (Point of Sale)
machine to make the payment.66
61
62
63
64
65
66
See Hapgood above note 46, 319-20.
Above note 21,14.
See Hapgood above note 46, 343.
El Awadi v. Bank of Credit and Commerce International SA Ltd. [1990] 1 QB 606; see also
Braithwaite v. Thomas Cook Travellers Cheques Ltd [1989] QB 553.
See Hapgood above note 46, 344. See also Ashford v. Thomeas Cook &son (Bankers) Ltd 471
Pac Rep 2d 531, 533 (1970).
See Hudson above note 20, 815.
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Credit cards are issued by a bank or other financial institution which are
members of credit card network (Visa or MasterCard). Card holder make
a purchase by using his/her card and gives his signature on a paper
receipt or enters four digit special pin number which authorizes issuer to
debit customer’s account. Merchant receives payment from issuer and
customer pays issuer in full or instalments. 67 Despite the fees charged to
credit card usage, it is popular because it can be used in many foreign
countries, and for online payments.
288
There are three distinct contracts in a credit card transaction. In the
contract between issuer and cardholder, issuer undertakes to pay within a
specified credit limit and the cardholder agrees to reimburse the issuer.
The second contract is between the issuer and the merchant whereby
issuer agrees to pay to the merchant amounts due from cardholder and
merchant agree to provide goods and services on the agreed terms
especially check the signature and identification when necessary.
According to Ellinger, issuer makes a direct promise of reimbursement to
the dealer and this promise is similar to that made by a bank in a
traveller’s letter of credit. 68 Therefore, the debt is due from the issuer and
not from the cardholder. Similarly, Cranton mentions that payment is not
affected by the assignment of debt, but payee have a direct contractual
claim from the issuer. 69
Although payment is expected from the issuer, the agreement between
the merchant and the cardholder remains a contract of sale or service. It
was held in earlier cases that cardholder remains liable to pay the price to
merchant in case of the insolvency of the issuer, because the use of card
constitutes a conditional discharge of obligation to pay. 70 Lord Millet J.
in Re Charge Card Services Ltd. 71 held that, when the card used for the
payment merchant, accepts this instead of the cardholder’s personal
payment obligation. Therefore, payment by card is not conditional and
cardholder is not affected by the insolvency of the issuer. After this
decision, payment obligation is discharged when credit card, debit card or
e-money card is handed over and the payment authenticated. 72
Debit cards are different from credit cards. Debit cards functions like
modern forms of cheques and enables direct access to bank account.
67
68
69
70
71
72
See Ellinger above note 45, 581-582.
See Ellinger above note 45, 581-582.
See Cranston above note 55, 268.
Sale Continuation Ltd. v. Austin Taylor & Co. Ltd. [1968] 2 QB 849.
[1989] Ch 497, [1988] 3 All ER 702.
See Cranston above note 55, 242.
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When a debit card holder uses his/her debit card, the amount of purchase
price debited cardholder’s bank account. Transaction that is affected by
debit card is an instruction by the cardholder to the issuer for the payment
of the sum involved. Card holder can also use his/her card to withdraw
cash from his/her bank directly or through an ATM (Automated Teller
Machine) terminal. 73
6. Electronic Money
Electronic money can be basically defined as electronic surrogate of
physical money. E-money can be stored either on a chip card (similar to a
phone card), or in the form of software stored on the customer's PC that
can be used to buy virtual or real products over the internet. 74 No bank
account involves in the e-money payment transaction, and e-money acts
as a prepaid bearer instrument. 75 Payment with e-money is a real-time
payment method which is especially useful in distant transactions. In
some e-money schemes stored value can be converted from one currency
to another. 76
III. ELECTRONIC MONEY
A. Definition
Electronic Money is defined in the article 2(2) of the Directive
2009/110/EC 77 (Directive) as a “means electronically, including
magnetically, stored monetary value as represented by a claim on the
issuer which is issued on receipt of funds for the purpose of making
payment transactions as defined in point 5 of Article 4 of Directive
2007/64/EC, and which is accepted by a natural or legal person other than
the electronic money issuer”. The point 5 of Article 4 Directive
2007/64/EC 78 defines ‘payment transaction’ as “an act, initiated by the
See Ellinger above note 45, 582-583; see also Hudson above note 20, 817.
Proposal for European Parliament and Council Directives on the taking up, the pursuit and the
prudential supervision of the business of electronic money institutions, COM(1998) 461 final,
98/0252(COD).
<http://www.iang.org/money/1085en.html> accessed 26 July 2011.
75
European Central Bank, ‘Report on Electronic Money’ August 1998, at
<http://www.ecb.int/pub/pdf/other/emoneyen.pdf>
76
See Singh above note 42.
77 See Directive 2009/110/EC of The European Parliament and of The Council of 16 September
2009 on the taking up, pursuit and prudential supervision of the business of electronic money
institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive
2000/46/EC, [2009] OJ L 267/7.
78
See Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007
on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC,
2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC, OJ L 319/1.
73
74
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payer or by the payee, of placing, transferring or withdrawing funds,
irrespective of any underlying obligations between the payer and the
payee”.
B. Historical Development and Regulation
The first e-money products appeared in Japan in late 1980s. Certain
telephone, railroad companies and retailers pre-paid chip cards started to
be accepted by other companies. 79 In Europe, the first electronic money
products emerged in the early 1990s. The first examples were 'card based
e-money' applications that use electronic purses to enable consumers to
store electronic money on a chip embedded in a plastic card. The aim was
to replace low-value cash payments with electronic money payments at
the point of sale. The first examples of these schemes are Danmønt,
Mondex, and Proton. 80
1. The EU Approach
290
The preparatory framework of the first e-money directive (2000/46/EC
on the taking up, pursuit of and prudential supervision of the business of
electronic money institutions, here in after FEMD) goes back to a Report
of the Working Group on EU Payment Systems to the Council of the
European Monetary Institution (EMI) in 1994. In 1997 EMI Annual
Report which is published at in 1998 and ECB Report in the same year
were the main cornerstones of the FEMD. The 1998 ECB Report
suggested limiting the issuance of electronic money to credit institutions
in order to avoid monetary policy implications. The Directive
2000/28/EC amended the definition of ‘credit institution’ and included emoney institutions within its scope.
Electronic Money Institutions (ELMIs) was introduced by FEMD as a
special type of credit institution. The FEMD allows the issuance of emoney by non-bank institutions which are subject to lighter prudential
regime than credit institutions. ELMIs were subject to prudential
79
80
Godschalk and Krueger, ‘Why e-money still fails - chances of e-money within a competitive
payment instrument market’(2000), JEL Classification: E59, G18, G29 3 at <
http://www.docstoc.com/docs/76739243/
Why-e-money-still-fails> accessed 26 July 2011.
Draft Commission Staff Working Document Accompanying document to the proposal for a
Directive of the European Parliament and of the Council amending Directive 2000/46/EC on
the taking up, pursuit of and prudential supervision of the business of electronic money
institutions, Impact Assessment [2008] SEC(2008)2573 {COM(2008)627 final}
{SEC(2008)2572} 8 at < http://eur-lex.europa.eu/LexUriServ/
LexUriServ.do?uri=SEC:2008:2573:FIN:EN:PDF>
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supervision rules that are applicable to credit institutions under the recast
Banking Directive 81.
Electronic Money was defined in article 1(3) of FEMD as a "monetary
value as represented by a claim on the issuer which is: i) stored on an
electronic device ii) issued on receipt of funds of an amount not less in
value than the monetary value issued iii) accepted as means of payment
by undertakings other than the issuer.” The objective of the FEMD was to
create a clear legal framework to strengthen the single market for
electronic payments and enhance competition while ensuring an adequate
level of prudential supervision. 82
After a consultation and evaluation period, the new e-money Directive
was enacted by the EU and came into force at 30/10/2009. The new
Directive aims to encourage growth in the EU market by addressing
concerns about the scope and applicability of e-money legislation.
2. The US Approach
The US approach to e-money issuers is different from the EU approach.
The US adopted ‘wait and see’ approach to the e-money market and
mainly left its development to the market discipline. The general
incentive was not to preclude the development of the e-money market
with regulations in early stage. There are no Federal level restrictions on
the issuance of e-money, but different Federal agencies address specific
policy. 83 One of the reasons for that relatively relaxed approach is partly
because of high usage of cheques as a non-cash payment and the size and
complexity of the US economy. 84
According to Krueger,85 the US has also regulated e-money market, but
instead of a general federal level regulation, there are many layers of
regulation that effect e-money market, coming from federal agencies as well
81
82
83
84
85
See Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006
relating to the taking up and pursuit of the business of credit institutions (recast), OJ L 177/1.
Proposal for a Directive of The European Parliament and of The Council of on the taking up,
pursuit and prudential supervision of the business of electronic money institutions, amending
Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC, [2008]
COM(2008) 627 final 2008/0190 (COD) 4, at
< http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0627:FIN:EN:PDF>
European Central Bank ‘Electronic Money Institutions Current Trends, Regulatory Issues And
Future Prospects’ prepared by Phoebus Athanassiou and Natalia Mas-Guix, July 2008, (Legal
Working Paper Series NO 7 ) 11.
See above note 70.
Malte Krueger, ‘E-money regulation in the EU’ (2002), In: Robert Pringle and Matthew
Robinson (eds.), E-Money and Payment Systems Review, London: Centralbanking, 239.
http://www.paysys.de/download/Krueger%20e-money%20regul.pdf Accessed at 21July 2011
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as from the states. The US approaches to e-money market as an alternative
payment mechanism under the Uniform Monetary Services Act. Krueger
mentions that the US approach has two advantages. First ‘it puts less
stringent restrictions on e-money issuers (for instance, no redeemability
provision, more liberal investment restrictions). Second, it is much
broader as it harmonises not only e-money regulation, but also most of
the other payment activities in which non-banks may engage.’
C. Slow Progress and its Reasons
Since the adoption of the FEMD in 2000, the e-money market has not
developed as much as it was initially expected. Only for a few ELMIs
licences have been granted. 86 The Commission working paper express
that the e-money market has developed slower than expected, and is far
from reaching its full potential. It also mentions that only three ELMIs
have used single passport which is an indication of the limited
development of the market. 87
292
The Commission started evaluation process in 2005 with a public
consultation. 88 Regular consultations conducted with Member States and
interested stakeholders. In July 2006, Commission published a staff
working document 89 based on the evaluation study and the public
consultation on the FEMD.
So far e-money market has not developed enough to become an
alternative for cash. According to the Evolution Report 90 as of late 2005,
the total amount of e-money issued by banks is approximately EUR 450
million, and the amount of e-money in circulation issued by ELMIs and
institutions operating under a waiver is approximately EUR 215–225
million. Despite of the gradual increase in recent years, total amount of
electronic money in circulation remains low when compared with EUR
637 billion cash in circulation in the EU in August 2007, which is less
than 1 %. 91 Card-based systems have not gained widespread acceptance
86
87
88
89
90
91
For the list of e-money institution see Electronic Money Association web page <http://www.ema.org/pages/members.php>.; see also Annex I of ECB Legal Working Paper Series NO 7 / July
2008.
Commission Staff Working Document on the Review of the E-Money Directive (2000/46/EC), [
2006] SEC(2006) 1049, 12.
On the basis of the Article 11 of the FEMD.
See above note 83.
Evaluation of the E-Money Directive (2000/46/EC) Final Report [2006] submitted by The
Evaluation
Partnership
Limited,
4
at
<
http://ec.europa.eu/dgs/internal_market/docs/evaluation/e_money_directive.pdf>
accessed22 July 2011.
See above note 76, 9.
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among merchants and consumers and there are no indications to suggest
that electronic money gradually replacing banknotes and coins in
payments for everyday purchases.
It is expressed in the proposal for the new e-money directive that the
number of entrant to the e-money market after the adoption of the FEMD
has not been as significant as expected. Thus, e-money has not yet
become a credible alternative to cash in most of the Member States. As of
August 2007, only EUR 1 billion e-money (in comparison with 637
billion of cash) is in circulation in the EU. The number of ELMIs is 20
and 127 entities were reported operating under a waiver at end-2007. 92
The impact assessment emphasised that the majority of ELMIs are
operating in UK. 93
ECB also mentions that:
‘the role of e-money continues to be marginal in the EU, with total euro
area e-money balances estimated to account for no more than 0.1% of
banknotes and coins in circulation in December 2007, an increase of 04%
on the figure for December 2000; similarly, the number of e-money
transactions effected in the euro area in 2006 represented a share of 0.7 %
of all non-cash payments compared to an estimated 0.3% in 2000.’ 94
1. Unclear Definition and Application
The Commission identified the main reason for the failure as the
uncertainty of the scope and application of FEMD. 95 Most of the
respondents expressed a need for revising the Directive because of the
unclear definition of e-money. 96 Impact Assessment Report also
expressed two main problems that were identified by the evaluation and
the consultation process of FEMD. The first problem was about the
unclear definition of e-money and the scope of the Directive which
created legal uncertainty as to whether the FEMD applies to certain
business models. The second problem was the lack of adequate legal
framework. 97
As a response to the criticisms, the definition of the e-money was
changed with the new Directive. Different from the definition in the
92
93
94
95
96
97
See above note 78, 4.
See above note 76, 10
See above note 79, 9.
See above note 83,10
See above note 78, 5.
See above note 76, 8.
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FEMD, new definition includes magnetically stored value, in order to
achieve technical neutrality between different forms of e-money. With an
inclusion of a reference, the definition brought in line with the definition
of payment transactions that was set out in the Payment Services
Directive.
The new definition covers all types of e-money whether it is held on a
payment device or stored remotely at a server. On the other hand, the
Directive does not apply to specific pre-paid instruments designed to be
used only in a limited places or for a limited range of goods or services.
Instruments like store cards, public transport cards, meal and other
vouchers or prepaid mobile phones that allow the pre-paid electronic
value holder to purchase goods or services, do not fall within the
definition of e-money unless they are developed to be general purpose
instruments. There is no clear distinction between limited or general
purpose e-money applications; it needs to be decided case by case basis.
294
Monetary value that is used to purchase digital goods or services (such as
ring tones, music or digital newspapers) that can only be used through a
digital device (mobile phone or a computer), also exempt from definition.
In this case customer pays the network operator directly and there is not
any direct payment or debtor-creditor relationship between the customer
and any third-party goods or services supplier. This exemption can be
applied to platform providers such as Facebook if they offer accounts to
purchase digital goods in an online marketplace accessible through a
phone. 98
2. Disproportionate Prudential Requirements
E-money can be issued by ELMIs and Credit institutions. Therefore,
there are two options to be able to issue e-money: to apply for a licence
as an electronic money institution or to become a full-blown credit
institution. Payment institutions were not allowed to issue electronic
money, 99but with the new Directive, payment institutions can apply for a
licence to issue e-money.
Although they can neither receive deposits from the public nor grant
credit from funds received from the public, electronic money institutions
were considered to be credit institutions. The prudential requirements for
98
99
Ben Regnard-Weinrabe, Mark Taylor, and Rachel Shepherd. ‘Mobile Payments and the New Emoney
Directive’
(2011)
The
Society
for
Computers
and
Law,
at
<http://www.scl.org/site.aspx?i=ed14813> accessed 04 August 2011.
See above note 78, 4.
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the activity of ELMIs were closely linked to the prudential regime of
credit institutions under Directive 2006/48/EC. As e-money institutions
cannot grant credit, they do not need to maintain a solvency ratio to cover
credit exposure, maintain an amount of capital to cover for market risk
and they are not subject to restrictions on the amount of credit that they
can grant customers. 100 The Commission services' public consultation
showed that there was a strong opinion that the rules were
disproportionate to the risks of ELMIs. 101
The high initial capital requirement (EUR 1 million) was seen as a major
obstacle for smaller firms that therefore prefer to operate under waiver
rather than to apply for ELMI licence. The fact that pre-paid payments
are on average low value payments and any financial risks that might
exist are also low. For that reason the high initial capital and own fund
requirement were not proportionate to the risk. 102 The initial capital
requirement was also criticised by a number of stakeholders. This was an
obstacle especially for smaller firms that want to enter e-money market.
The 2% own funds requirement combined with other aspects of the
FEMD such as limitation of investments and restriction of activities have
caused complaints. Certain restrictions and requirements imposed by the
FEMD and some implementation and interpretation of national
authorities hindered the development of the market to some extent. The
limitation of investments was significantly reducing ELMIs profitability
and was putting them at a competitive disadvantage with credit
institutions. The restrictions of activities were prohibiting ELMIs from
doing any business other than the issuance of e-money and closely related
services. 103
With the new Directive, amending the definition of credit institution in
Directive 2006/48/EC, ELMIs are not considered as credit institutions
anymore. Credit institutions are still allowed to issue e-money, but in
order to maintain a level of playing field, credit institutions can carry out
that activity through a subsidiary under the prudential supervisory regime
of this Directive, rather than under Directive 2006/48/EC.
The initial minimum capital reduced from €1 million to €350,000. Initial
and ongoing capital must be at least 2 per cent of the average outstanding
balance of e-money. This replaces the previous requirement, which was
100
101
102
103
See above note 79, 18.
See above note 78, 7.
See above note 83, 6.
Ibid,14
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calculated as 2 per cent of the total amount of financial liabilities related
to outstanding electronic money. 104
The scope of activities that ELMIs can undertake is expanded so that they
can undertake different business activities. They will not be restricted to
issuing and administering e-money, or storing data. Removal of this
barrier will create an opportunity for some companies like mobile phone
operators to develop new services or to enter to the e-money market. 105
3. Physiological Factors
Physiological factors play an important role in the preferred payment
system. The habit to carry and use physical money is reduced
significantly by the increasing use of bank money, but still there are
considerable amounts of money in circulation. It takes time to gain
market confidence for a new payment product. Interviews during the
evaluation process suggested that consumers only start to use e-money
when they are practically 'forced to' in certain situations and once they
become used to e-money, they extend its usage to other areas. 106
296
Lack of anonymity is one of the leading physiological factors that affect
customer’s confidence. Unlike cash, most e-money products keep records
of transactions and users. States generally intend to restrict use of
anonymous financial instruments, but there is a significant demand to
make anonymous payments. 107 Although some e-money schemes provide
anonymity through sophisticated encryptions, still there is a considerable
degree of fear that the use of e-money will leave a trail that may be
followed.
Froomkin mentioned that e-money can leave the audit trail, or it can
provide greater anonymity than currency. Anonymity can be provided by
blinded coins which mean that the issuer cannot trace the coin's serial
number. 108According to Ishman, one of the most attractive features of emoney is its anonymity. He claims that there is no way to obtain
104
105
106
107
108
HM Treasury, Laying of regulations to implement the new E-Money Directive, a consultation
document
[2010],
10
at
<http://www.hmtreasury.gov.uk/d/emoney_directive_consultation.pdf> accessed 25 July 2011.
Ibid 10-11.
See above note 76, 9.
See above note 79, 11.
A. Michael Froomkin ‘Flood Control on the Information Ocean: Living With Anonymity, Digital
Cash, and Distributed Databases’ (1996) U. Pittsburgh Journal of Law and Commerce 395 at
<http://www.law.miami.edu/~froomkin/articles/ocean.htm> accessed at 30 July 2011.
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information about the customer and this feature is the significant
difference between e-money and credit card payments. 109
In fact anonymity can be provided to some degree. Even cash itself is not
completely anonymous, because it is usually exchanged in face to face
transaction, bears a unique serial number, and carries fingerprints.
Blinded electronic coins provide more privacy than ordinary credit cards,
which keep complete transaction records.
Payment system must maintain a very high standard of confidence which
is closely related to the integrity of the payment method. The lack of
standardisation and credible guarantees affects consumer’s confidence
negatively. Merchants accept payments by e-money, if they are confident
that the issuer will provide the payment amount. 110
Good 111also expresses that the adoption rate of e-money will depend on
consumers’ belief and use of e-money products. E-money especially
provides security and confidence in small payments on the internet,
which can attract more consumer to use e-money. On the other hand
complexity of e-money product must be reduced to a minimum level in
order to attract more users. Besides, consumer needs to be sufficiently
informed about the advantages of e-money products.
D. The Types of E-money Application
E-money systems can be either card-based, stored in a chip of a smart
card, or software based systems, stored in the memory of a computer.
Payments are made by transferring electronic values between debtor and
creditor. 112Aside from some technical differences, card-based products
and software-based products have many similarities. In both system
customers have to buy e-money before they use it for payment purposes.
Both types of e-money are represented by an encrypted electronic string
of bits. 113
109
110
111
112
113
Mark Ishman Quincy Maquet ‘A Consumer's Analysis Of The Electronic Currency System and
the Legal Ramifications For a Transaction Gone Awry’ (1999) Murdoch University Electronic
Journal of Law (Volume 6, Number 3)
<http://www.murdoch.edu.au/elaw/issues/v6n3/ishman63_text.html> accessed 30 July
20011.
Alan L Tyree ‘Computer Money - Some Legal Considerations’
<http://www2.austlii.edu.au/~alan/newcastl.html> accessed 21 July 2011
Barbara Ann Good, The Changing Face of Money: Will Electronic Money Be Adopted in the United
States (Garland Publishing, Inc. Newyork & London, 2000) 64.
See Hapgood above note 46, 395-98
See above note 71.
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Applications are also divided as open versus closed systems. In a closed
system, stored value can be used for single purpose or in a specific
environment. They are generally used by universities within the campus
premises or in public transportation. Open system, on the other hand,
allows stored value to be used for multiple purposes and different places.
In fully open systems, e-money can be used in the same way as currency.
This feature makes e-money the primary substitute of cash. 114
Another division is accounted versus unaccounted e-money system.
Unaccounted model is more similar to cash transactions. In this system
electronic coins are created and at the time of payment they are delivered
to the counterparty, and card to card transactions are also possible. Emoney card generally records last several transactions which provide
some degree of anonymity. Accounted model keeps records of all
transactions and indicates the amount of e-money left. 115
1. Software Based Systems
298
Software-based e-money (digital cash) is used with specialised software
on a computer that allows electronic value to be transferred. The value is
stored on a server under the control of the issuer and customers can
access to the e-money remotely. Software-based e-money services
developed to offer a secure (without disclosing credit card details) means
of purchase of goods and services on the internet. It also offers merchants
more innovative and cheaper ways to sell goods on the internet. 116This
type of e-money can be stored in an online account that is accessible via
internet, e-mail and/or, via mobile phone text messaging (SMS). E-cash,
PayPal, Digicash and Money bookers are the most successful examples
of this kind.
a) E-Cash
The company that produce ‘eCash’, Digicash, established in 1990 by
David Chaum. Customer must have an account at a DigiCash-licensed
bank, than he/she can withdraw eCash that is stored in the user’s
computer hard drive. E-Cash can be used on Internet or with anyone that
use eCash system. E-Cash system uses "blind signatures" to provide
anonymity. In this system, the customer, not the bank generates the
eCash token, and forwards them to the bank for certification. The bank
stamps its signature on each token, debits the customer’s account and
114
115
116
See Good above note 106, 29.
Ibid 33.
See above note 76, 8.
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sends the token back over the Internet. Digital tokens are registered and
verified by the issuer without revealing to whom it was originally
issued. 117 When the customer spends eCash, electronic coins are
transferred to the merchant and the merchant’s software automatically
sends it for authentication. The issuer cannot trace where or by whom the
e-money spent. 118
The eCash system was designed specifically for use on the internet. Upon
confirmation of the payment request, the electronic coins were
transmitted from the payer’s hard disk and are deposited to the
merchant's safe on the Bank's server. 119E-cash system showed that
individuals can send e-money back and forth over the Internet without
central intervention and there can be network-based e-money beside cardbased systems. 120
b) PayPal
PayPal is established at March 2000 with the merger between Confinity
and X.com. It was purchased by eBay in October 2002. PayPal system
enables payments and money transfers to be made on the internet.
Customers can send money without sharing financial information, with
the flexibility to pay using bank accounts, credit cards or promotional
financing. 121
PayPal is the best-known and widely-used software-based e-money
scheme. PayPal provides low value payment service primarily to
customers of its parent company E-Bay. PayPal accounts are accessible
via internet browser, email, and/or mobile text message (SMS). 122
Customers generally use a credit card to open a PayPal account and load
it with funds. These funds can be sent to any valid email address. If the
email’s recipient accepts the payment, his/her own PayPal account will
be credited. If the recipient does not have a PayPal account he/she can
117
118
119
120
121
122
Chambers Yang, ‘Electronic Money and Relevant Legal and Regulatory Issues’ (2005)
<http://www.law-bridge.net/english/LAW/20055/0821553577455.html> accessed 21 July
2011.
See Hapgood above note 46, 395-98
David Kreltszheim ‘Identifying the proceeds of electronic money fraud’ (1999) Information
Management & Computer Security (Volume 7 Number 5 1999) 223 at <
http://www.deepdyve.com/lp/emerald-publishing/identifying-the-proceeds-of-electronicmoney-fraud-EDN9dixEFb> accessed 23 July 2011.
Electronic Money and E-money Institutions, Association of E-money Institutions in the
Netherlands [2002] <http://www.11a2.nl/docs/empp1511.doc> accessed 23July 2011.
<https://www.paypal-media.com/about>accessed
25
July
2011;
see
also
<http://en.wikipedia.org/wiki/PayPal> accessed 25 July 2011.
See above note 76, 8.
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open a new account in order to accept the payment. E-money on the
PayPal account can be withdrawn any time. 123
User Agreement for PayPal Service expresses PayPal’s main business as
the issuance of e-money that does not qualify as a deposit or an
investment service (1.1). For that reason PayPal account holder will not
receive interest or any other earnings (5.1).When a customer make a
payment with PayPal he/she authorize PayPal to obtain funds from
his/her applicable Funding Source (Balance, instant transfer, bank
transfer, eCheque, credit card, debit card or Redemption Codes)to issue
e-money and to transfer the e-money to the recipient (3.4). The recipient
is not required to accept e-money that is made available to it. If the
recipient refuse to accept e-money PayPal return it to customer’s account
(3.8). E-money can be send in over 15 different currencies (3.12). 124
2. Card-based Systems
300
Card-based systems store e-money on a chip embedded in a plastic card.
No account information is necessary and authentication is enabled
through the card. This card (or computer software as outlined above) can
be used in exactly the same way as cash or other means of payment such
as a credit card. For example, a multi-purpose pre-paid card can be used
to pay parking fees, to make 'phone calls, to purchase newspapers and
magazines etc. subject only to the amount of monetary value stored on
the card and, of course, acceptance by merchants. 125 Mondex, Visa Cash,
Proton and Chipknip are well known examples for this type of e-money
applications.
a) Mondex
Mondex was introduced in UK by National Westminster Bank (NatWest)
in 1995. The majority of the Mondex’s shares (51%) was acquired
MasterCard International in February 1997. Trials were conducted in
Swindon, the Universities of Exeter, York, Nottingham, Edinburgh and
Aston. Mondex International grants franchises to banks from different
countries. 126
123
124
125
126
Manfred Kohlbach, ‘Making Sense of Electronic Money’ (2004) JILT at
<http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2004_1/kohlbach> accessed 27 July 2011.
<https://cms.paypal.com/uk/cgi-bin/marketingweb?cmd=_rendercontent&content_ID=ua/BuyerProtection_full&locale.x=en_GB> accessed 29 July 2011.
See above note 70.
For further historical and geographical information visit
<https://mol.mastercard.net/molbe/public/login/ebusiness/smart_cards/mondex/about/Visi
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Mondex Electronic Cash enables cardholders to carry, store and spend
electronic value using their payment card. Mondex transfers e-money
without requiring signature, PIN or transaction authorization exactly like
cash. Mondex also enables the exchange of e-values from one party to
another instantaneously via telephones, PCs and TV set top boxes. 127
In Mondex system e-money is stored on a microchip and e-money is
exchanged securely from the chip on the card to the chip in the terminal.
It is possible to effect peer-to-peer (P2P) payments face to face or
anywhere in the world by using telephone Internet technologies. It is an
open stored value system that supports up to five different currencies. Emoney monetary can be loaded on to a chip card at Mondex-enabled
ATMs or special purpose machines by using bank transfer or cash.
Merchant can retransfer the e-money that it received as a payment to a
third party. Merchant can redeem e-money from its bank but it can also
keep it like the physical money. 128
In Mondex system there is one issuer that functions like central bank for
electronic money. E-money represents a claim on the issuer, but the
originator’s liability is contingent on presentation of electronic money.
The issuer distributes e-money to participating banks and each bank pays
for the electronic money issued to it. The originator holds a float of
currency which stands behind the e-money it has issued. Participating
banks reissues e-money to customer in return for cash or bank transfer
from the consumer’s account. Issuing bank and other participating bank
undertake to redeem e-money upon presentation. 129
b) Visa Cash
The first Visa Cash is used in Manhattan New York in 1996 with the
participation of Citibank, Chase Manhattan, MasterCard and Visa. This
first initiative was unsuccessful, but in 1997, visa cash is successfully
used in Hon Kong with the agreement of People’s bank of China and
Visa International. 130 Visa Cash is an open e-money system. The Visa emoney cards can be single purpose disposable or multi-function cards,
combined with a debit and/or credit card. Disposable cards are purchased
o-history.pdf>; see also <http://wings.buffalo.edu/academic/department/som/isinterface/is_syllabus/mondex/mondex.html>
127<https://mol.mastercard.net/mol/molbe/public/login/ebusiness/smart_cards/mondex/about/i
ndex.jsp> accessed 25 June 2011.
128 See Hapgood above note 46, 395-98
129 Ibid 395-98
130 See Good above note 106, 78-80.
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from kiosks or card dispensing machines. Multifunction non-dispensable
card can be reloaded from ATMs or special purpose machines. Visa emoney cannot be transferred from person to person. Merchants transmit
transaction records to their bank at the end of the day and merchant’s
account is credited. Unlike Mondex, Visa Cash is an account-based
system. The issuer maintains an account of the value issued and reduces
the balance in the account each time it is notified that value has been
exchanged for goods or services. 131
c) Proton
Proton e-money system was developed by Banksys, a payment company
owned by 60 Belgian banks, in 1995. According to the ECB statistics, in
2003 Proton (Belgium) is the most widely used scheme in the EU. There
are approximately 10 million cards having the Proton function, and
around 20 % of these are actively used. Proton is mainly used in
canteens, vending machines, public telephones and parking meters. 132
302
Cardholder can load his/her card with e-money by transferring money
from the account associated to the card. There is no cardholder
verification, and the cardholder confirms his identity by his Personal
Identification Number. An electronic journal keeps trace of every
transaction and cardholder can check the purse balance and limited
journal information. 133
d) Chipknip
Chipknip was introduced in 1996 in Netherlands, based on technology of
Proton e-money system. There is no need for a PIN in this system, and
card holder only confirms the transfer amount on the card reader at the
point of payment. Chipknip e-money cards are used in public transport,
parking lots, office canteens, and for small retail transactions. 134
There is a reloadable version that integrated into around80 % of Dutch
debit cards, and a disposable version called Prepaid Chipknip. Both kinds
of cards are mainly used for parking and many parking meters in the
Netherlands only accept payment via Chipknip. 135
e) Limited use pre-paid cards
131
132
133
134
135
See Hapgood above note 46, 395-98.
See above note 76, 9; see also Good above note 106, 80.
<http://www.epci.be/proton.htm> accessed at 20 July 11.
<http://en.wikipedia.org/wiki/Chipknip> accessed at 20 July 11.
See above note 76, 9.
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There are many limited purpose pre-paid card systems used mainly in
transportations or school campuses. There are different treatments to the
limited purpose cards in different countries. While some companies are
exempt from e-money regulation, others work under a waiver.
Oyster card, which is used is London undergrounds and other public
transports, is one of the most well known prepaid systems. Value can be
stored and used and it is possible to top up in offices or from automated
machines. Oystercard does not constitute e-money because it is accepted
as a means of payment only by Transport for London. On the other hand,
Rejsekort A/S, which offers a country-wide electronic ticket system for
travel payments, is a fully-licensed e-money institution in Denmark,
(Travel Card). 136
Smart cards that are issued by the Maltese Government for university
students that can be used for specific items in participating shops are not
considered as e-money. On the other hand, two companies offering
computer chip based payment cards to pay for transactions in football
stadia, are treated as e-money institutions in Germany, and operate under
the waiver. These cards are valid only at the premises of the respective
stadia. 137
Card-type electronic gift vouchers recently replaced paper based
vouchers. These cards are accepted only in the various stores of the retail
chain. 138Gift vouchers are generally used for single purchase. On the
other hand, gift cards are designed to be used for multiple purchases. 139
Customer loyalty cards enable the holder to purchase goods and obtain
discounts in issuer’s goods or services. The card balance increases as
cardholders make purchases. Depending on the structure, card holder can
use the card balance in a third party stores. Those cards are outside the emoney definition but it is harder to determine if they are used in third
party stores or with an incentive scheme which rewards the use of a
particular card and is convertible into cash. But, the air miles loyalty
scheme run by an airline that is not convertible into cash or negotiable
outside that business would not qualify as e-money. 140
136
137
138
139
140
See above note 79.
Ibid.
Ibid.
See Bollen above note 43.
See above note 79.
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E. The Legal Nature of E-Money
1. Assignment
There are various contractual relationships in an e-money scheme. There
is a contractual relationship between the issuer and the participating
banks (in Mondex system). Another contract is between the bank and its
customer. The contract between customer and merchant is a sale contract.
E-money is issued by ELMIs upon receipt of the funds and stored in
customers’ e-money cards, or the memory of their computers. As emoney is a claim on the issuer, the issuer (ELMIs) will ultimately be
liable to redeem the electronic money for currency. Any e-money holder
(customer, merchant or anyone that get e-money as a gift) can redeem it
for cash. 141
When a bank (in Mondex system) or a customer obtains the e-money,
issuer’s undertaking to redeemmay be qualified as a debt(a chose in
action) owed by the issuer to the bank or customer. Transfer of e-money
to a third party, might constitute an equitable assignment of this chose in
action. Legal assignment is unlikely to happen, because assignment will
almost always be for the part of the debt (e-money). 142
304
This presumption does not explain the relationships properly. Because,
there is no debtor-creditor relationship between the issuer and the holder
until the holder presents electronic money for redemption.143
Furthermore, neither party intends144 to assign any kind of debt when the
e-money is used as a payment. Therefore, it is not possible to characterise
the e-money payment as an assignment of a debt. Geva 145 proposes that
funds transfer should be accepted as ‘extinction of the debt owed to the
payor and the creation of a new debt owed to the payee.’
The best explanation for the relationship between issuer and the customer
is that it is a sale agreement, whereby issuer sells e-money to the
customer (buyer). It is possible to accept e-money as a series of standing
141
142
143
144
145
See Hapgood above note 46, 436-439.
Statutory requirements of a legal assignment are mentioned in section 136 of the Law of
Property act 1925. A legal assignment must be in writing, absolute, for the whole debt and a
written notice must be given to the debtor.
See Hapgood above note 46, 436-439
Intention is the main element of the equitable assignment; therefore, there will not be any
equitable assignment without a sufficient intention; see also William Brandt’s Sons & co v
Dunlop Rubber Co Ltd [1905] AC 454.
Benjamin Geva, and Muharem Kianieff ‘Reimagining E-Money: Its Conceptual Unity with other Retail
Payment
Systems’
(2002)
6-7
at
<http://www.imf.org/external/np/leg/sem/2002/cdmfl/eng/bg_mk.pdf> accessed 22 July 2011, 23.
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offers of unilateral contracts, whereby issuer makes a standing offer to
convert e-money in to currency or bank money. 146The issuer undertakes
to redeem e-money to anyone who takes a valid e-money in good faith
and for value to cash or bank money. In other words, issuer undertakes to
give real value (currency or bank money) for any valid e-money to
whoever presents it. 147
2. Deposit
According to section 5 (2) of The Financial Services and Markets Act
2000 (Regulated Activities) Order 2001 ‘deposit’ means ‘a sum of
money, paid on terms … under which it will be repaid, with or without
interest or premium, and either on demand or at a time or in
circumstances agreed by or on behalf of the person making the payment
and the person receiving it’. The legal nature of deposit is analysed above
under the ‘Bank Money’ section.
There are different opinions about whether e-money constitutes deposit or
not. According to Tyree, all forms of e-money must have an accounting
system and an access and an authentication method. ‘Since money is
handed over, accounts maintained and payments made from the amount
handed over, there seems little reason to treat electronic money different
from the usual current account.’ He refers e-money as deposit which
represents a loan to the issuer. The e-money holder uses the access
method to give a payment instruction to the financial institution which is
contractually bound to effect payment similar to a cheque payment. He
concludes that e-money ‘is not some special development requiring the
invention of new legal rules. It is an evolutionary development which fits
comfortably within our existing legal framework.’ 148
Geva also points out the similarity between deposit and e-money and
mentions that some of U.S. states such as the State Banking Department
of Texas stated that ‘it will consider Smart Cards to be subject to the
Texas Sale of Checks Act since the issuer will be holding the funds of
consumers who will rely on the issuer to ensure that the card will be
honoured by merchants when it is presented for payment.’ 149
146
147
148
149
Richard Hooley ‘Cybercash: The Legal and Regulatory Issues Raised by Electronic Money’
(2000-2001)Int'l Fin. & Econ. L. 273 , 280.
See Tyree above note 105.
Alan
L
Tyree
‘The
legal
nature
of
electronic
money’
(2000)
at
<http://austlii.edu.au/~alan/svc-legal.html> accessed 25 July 2011.
See Geva above note 140, 14-15.
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The Directive clearly mentions that the issuance of electronic money
does not constitute adeposit-taking activity. 150 In order to preserve
customers’ confidence, e-money is redeemable, but redeemability does
not make the funds received, deposits or other repayable funds for the
purpose of Directive 2006/48/EC. As an electronic equivalence of coins
and banknotes, e-money is generally used in small amount payments and
it is not used as means of saving. ELMIs are not allowed to grant credit
from the funds received or held for the purpose of issuing electronic
money or pay interest.
HM Treasury also expresses that, issuing e-money does not constitute a
deposit-taking activity, because e-money is a way to make payments,
rather than a way to save. 151The difference between e-money and a
deposit relationship is that e-money products are deposited with the
intention of using them for payments. Deposit, on the other hand, was
placed at a deposit taking institution with the intention of getting it back
at some point in time. 152Bank money can be mobilised through transfer
orders, debit cards or cheques, but e-money can only be mobilised with
specific card or software-based instruments. 153
3. Payment Cards
306
Electronic money card is identical to credit and debit card with a chip
placed on it. There is a special electronic purse application on the chip
that enables to store electronic values and use those values to pay for
goods and services through electronic transfer. The merchant can turn the
electronic money into bank money or currency.
Credit and debit cards do not qualify as e-money within the meaning of
the Directives. Debit cards must be related to a bank account while credit
cards require an extra agreement (Credit agreement) with card provider
or bank. Payment by credit or debit card typically involves technical
devices (POS machine, telephone, and computer) to access bank
accounts and transfer bank money. Payment by e-money does not involve
any personal bank account or prior authorisation, but only decreases
electronic value that is paid in advance. 154The customer is simply
purchasing a digital means of payment which can be used in the same
way as cash.
150
151
152
153
154
Article 6(3)
See above note 99, 7.
See above note 115, 14.
See above note 71.
See above note 71.
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Geva 155 mentions the similarity between e-money and debit card and
expresses that in the case of debit card, ‘the account is maintained and
activity is recorded centrally’ by the bank. In the case of e-money, ‘the
account is maintained and activity is recorded on the device itself’.
Furthermore, he states that ‘both the debit card and the smart card are
subject to the same law governing the transmission of messages between
sender and receiver and the movement of value or funds from payor to the
payee.’ 156
According to Lanskoy e-money is a new ‘dematerialised’ form of debt
instrument, but it is not the dematerialisation of a classic form of preexisting paper instrument. Therefore, it is ‘a debt instrument not
dematerialised’, but ‘embodied in an electronic instrument, whose
circulation affects full and final payment.’ He concludes that e-money is
not ‘a new form of money but a debt instrument that facilitates the
circulation of bank money.’ 157
This opinion, however, does not explain how bank money can be
circulated outside of the banking system. In the example of cheques and
bank payment cards, transactions always followed by a movement (debit,
credit) in a bank account. Payment by e-money, on the other hand, is not
necessarily followed by a bank account movement. It is possible to acquire
or redeem e-money without having any bank account from the issuer.
Furthermore, e-money can be issued by a non-bank e-money issuer.
At this stage, it is necessary to determine whether a payment by e-money
is absolute or conditional. As it s analysed above, a payment by credit or
debit card is presumed to be an absolute payment. It is possible to use the
same presumption for e-money, the payment by e-money should be
presumed as an absolute payment. By accepting a payment by e-money,
the merchant acquires a claim against the issuer. 158
The main difference between the payment with e-money and the
payment with credit or debit cards is the timing of settlement. In credit
or debit card payment, purchaser’s account is debited after purchase,
but e-money must be acquired beforehand. This shows that e-money
is in fact very similar to cash and the electronic surrogate of
banknotes and coins. Both e-money and cash are usually drawn from
the payer's bank account in advance of the time the payment is
155
156
157
158
See Geva above note 140, 26.
See Geva above note 140, 26.
See Lanskoy above none 33, 38.
See Hapgood above note 46, 436-439; see also Hooley above note 141,282.
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made. The main difference between cash and e-money is that emoney essentially is a form of private money. 159 Furthermore, unlike
credit and debit cards, if the holder loses his e-money card, he also loses
the e-money stored on it, which is similar to physical money. 160
4. Traveller’s Cheque
E-money has many similarities with traveller's cheques. Neither e-money
nor traveller’s cheques is linked to a bank account. Both are issued in
return for money paid to an issuer and can be used to purchase goods or
services. However, unlike traveller’s cheque e-money is generally an
anonymous instrument. Besides, travellers’ cheques generally have
advantage of reimbursement when they are stolen or lost.
5. Money
308
To be able to define legal nature of e-money as a new kind of money, it is
necessary to discuss whether e-money has the necessary features of money.
As mentioned above, money is anything that is generally accepted in
payments. Money also is a unit of account and store of value. Today,
currency and bank money are the two main concepts that can be accepted as
money. E-money must act in a manner similar to currency and bank money,
in order to be accepted as money.
According to Lanskoy, e-money is not a new legal form of money, because
it does not fulfil the three defining criteria of money which are a unit of
account, a means of payment and embodied in a monetary
instrument. 161Lanskoy points out that one of the main difference between
e-money and central bank money e-money is a right to sum of central bank
money, but banknotes issued by central bank is corporeal movables, and
therefore, e-money ‘cannot possibly be assimilated to fiduciary money.’162
Hooley 163, based on Mann’s definition, also defends that e-money is not
money, because it is not a tangible movables and it is not issued under
the authority of the State.
Geva, on the other hand, expresses that e-money can be identified as
“money”. 164 According to Geva 165 e-money has the potential to meet the
159
160
161
162
163
164
165
Above note 21, 36.
See Hapgood above note 46, 436-439.
See Lanskoy above none 33, 29.
Ibid, 31.
See Hooley above note 141, 281.
See Geva above note 140, 13.
Ibid 6-7.
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requirement that is brought by definition in Moss v. Hancock. E-money
must serve as a universal medium of exchange which is measured by
wide acceptance among creditors. In this regard, e-money that is stored in
a multi-purpose scheme that accepted a wide geography and by numerous
merchants is likely to constitute money. 166
Good 167 and Akindemowo 168 also mention that e-money has most
qualifications that are necessary to be accepted as money. E-money is a
medium of exchange; it is accepted by growing number of merchants in
payment of goods and services. However, it can still be argued that emoney has not gained general acceptance from the community yet. As emoney is based on currency it can function as a unit of account, and it
functions as store of value as much as the underlying currency does. In
addition, Sugiura mentions that the e-money is becoming a lot closer to
actualmoney in the eyes of the user and it has a potential to become real
money, because of the increasing use and functions of e-money
products. 169
In fact, e-money has the necessary features to be characterized as a new
type of medium of exchange. Especially some electronic money products
(Mondex) function more similar to currency and fitinto the definition
mentioned in Moss v. Hancock. E-money fulfils all three criteria that are
required from economic perspective, and it discharges monetary
obligation absolutely upon payment. But, as it is mentioned by Geva, prepaid value loaded on single-purpose products (such as phone and public
transportation cards) constitutes an advance payment for the goods or
services and should not be regarded as money. 170
Today, almost all electronic money products are surrogates of fiat money,
and their purchasing power fluctuates with the purchasing power of the
underlying currency. These e-money products themselves are fiat money,
because neither they nor underlying currency have an intrinsic
166
167
168
169
170
Ibid 6-7.
See Good above note 106, 16.
Olujoke Akindemowo ‘Fading Rustle, Chink and Jingle: Electronic Value and the Concept of
Money’, (1998) University of New South Wales Law Journal, (Vol. 21, Issue 2), 466.
Nobuhiko Sugiura ‘Electronic Money And The Law: Legal Realities And Future Challenges’
(2009) Pac. Rim Law & Policy Journal Translated by Jean J. Luyat 511 at
<http://digital.law.washington.edu/dspacelaw/bitstream/handle/1773.1/537/18PacRimLPolyJ511.pdf?sequence=1> accessed 27 July
2011.
See Geva above note 140, p.7.
Law & Justice Review, Volume:IV, Issue:1, June 2013
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Electronic Money Market - Mehmet Sıddık YURTÇİÇEK
value.171Because of the similarity of the e-money to cash, it is not
necessary to have a contract between customer and issuer. Issuer
generally warns user to treat electronic purse like cash wallet, and if the
card is lost, the money in it will also be lost. Obligation to redeem the
electronic money issued is undertaken by the e-money institution. 172
Most of the card based e-money products carry ‘Master Card’ or ‘Visa’
logo and are accepted by a wide range of shops across the world. For that
reason general acceptability does not seem to be the main obstacle in the
e-money market. The main problem in the market is the level of
consumers’ demand for and willingness to use e-money instead of the
other payment methods.
310
As e-money has the necessary qualifications to be defined as money, it is
possible to accept that it is also a negotiable instrument. Therefore, transferee
can obtain a better title than the transferor had, if he/she gives a valuable
consideration. On the other hand, similar to bank money, e-money is not
legal tender. Therefore merchants are not obliged to accept e-money as a
payment for goods or services unless it is agreed otherwise. However,
where a merchant is a member of an e-money scheme, and displays the
scheme’s logo to the public, he makes a standing offer to accept
electronic money payment. 173
E-money may cause an increase in the loss of anonymity, but anonymity is
not one of the defining features of money. Anonymity is lost to a degree by
the transition from coins to paper money, since individual banknotes bear a
unique serial number. 174But, some e-money products, especially dispensable
e-money cards, can provide more anonymity than banknotes.
F. The Future of E-Money
Although e-money has not been able to meet expectations so far, there is
a great growth potential in the e-money market. As mentioned by
Commission, only 1 billion Euros out of 637 billion Euros cash in
circulation were replaced by e-money. 175 According to HM Treasury, the
market for e-money is growing rapidly. ‘The number of e-money
171
172
173
174
175
Paula Hernandez-Verme; Haibo Huang and Andrew B. Whinston ‘Private Electronic Money, Fiat
Money and the Micropayment Systems’, (2004) Job Market Paper at
<http://www.madeforamericamalls.com/emoney.pdf> accessed 25July 2011.
See Cranston above note 55, 267.
See Hapgood above note 46, 436-439.
See Geva above note 140, 8.
European Central Bank ‘Electronic Money Institutions Current Trends, Regulatory Issues And
Future Prospects’ prepared by Phoebus Athanassiou and Natalia Mas-Guix, July 2008, (Legal
Working Paper Series NO 7 ), 3.
Law & Justice Review, Volume:IV, Issue:1, June 2013
The Legal Nature of Electronic Money And The Effects of The EU Regulations Concerning The
Electronic Money Market - Mehmet Sıddık YURTÇİÇEK
accounts operated by e-money issuers in Europe has grown from 15
million in 2005 to 125 million at the end of 2009, and the total value of
outstanding e-money has risen from €400 million to €1.7 billion over the
same period.’ 176These figures indicate that e-money market still is a
promising field for investors.
Credit and debit cards are most commonly used payment methods,
because of the commercial barriers especially because of the lack of
interoperable systems. 177Credit and debit cards are used extensively for
retail payments, and have replaced cash and checks to some degree.
E-money schemes that include pre-paid stored-value cards and
software money stored in computer memory began to be used in store
and online purchases.
Online shopping is increasing substantially with the electronic payment
systems and e-commerce, can contribute to the success of e-money
products. Similarly e-money has a potential to be a critical element of the
development of e-commerce. According to some writers e-commerce is
unlikely to take off without e-money. 178There are some security concerns
when giving credit or debit card details for online payments. Despite of
the encryption protocols that provide a certain degree of assurance,
consumers still fear about unauthorised third party access to this
information. Payment by e-money presents a more secure alternative to
credit and debit cards in online payments. 179
As it is mentioned by Birch 180 e-money has many advantages over cash.
First of all, cash is dirty, and bacteria on it, increase the contamination
risk. Cash is heavy and therefore hard and expensive to carry and keep.
E-money also has advantages especially in small amount payments such
as vending, parking or ticketing machines. Since they do not require
online authorisation, transaction cost is lower than credit or debit card
payments.
176
177
178
179
180
HM Treasury, Laying of regulations to implement the new E-Money Directive, a consultation
document [2010], 10 at <http://www.hmtreasury.gov.uk/d/emoney_directive_consultation.pdf> accessed 25 July 2011., 4.
Julia Hörnle, ‘The European Union Takes Initiative in the Field of E-Commerce’, Commentary
(2000) ( JILT) at <http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2000_3/hornle> accessed
31 July 2011.
Michel Andrieu, ‘The future of e-money: main trends and driving forces’, (2001) foresight (Vol.
3 Iss: 5) 429.
Gbenga Bamodu ‘The Regulation of Electronic Money Institutions in the United Kingdom’
(2003) JILT at <http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2003_2/bamodu/> accessed
24 July 2011; see also ibid Hörnle.
David Birch, ‘E-cash issues: electronic cash is not just about technology European Business
Review’, (Vol. 99 Iss: 4) 211.
Law & Justice Review, Volume:IV, Issue:1, June 2013
311
The Legal Nature of Electronic Money And The Effects of The EU Regulations Concerning The
Electronic Money Market - Mehmet Sıddık YURTÇİÇEK
The development of the market ultimately depends on the incentives of
consumers to use of electronic money. Customers must have a high level
of confidence on the effectiveness of e-money as a means of payment.
Significant consumer preference is essential to the successful growth of emoney; thus, sufficient consumer trust, similar to that established with cash
and, debit and credit cards must be established.181Merchants may prefer emoney because of lower transaction costs. Benefits from the fees charged
to consumers and merchants, as well as the revenues from the investment
of outstanding e-money balances, may attract more entrants to the emoney market. On the other hand, costs of meeting regulatory
requirements and the costs associated with the purchase and maintenance
of e-money cards and software or merchant terminals are among
disincentives in the market. 182 As it is mentioned by ECB, investors
will not invest in e-money schemes so long as the number of users is
not high enough. 183
312
It is expected that the removal of these restrictions with the new e-money
Directive, will significantly reduce costs for new participants entering to
the e-money market by allowing them to issue e-money alongside their
core business activities. This has a potential to encourage e-money
limited purpose issuers, such as transport operators, mobile operators and
retailers, to launch new services in the market. 184
The Commission anticipates that the new Directive will have a positive
impact on the electronic money market and increase the amount of
electronic money in circulation up to EUR 10 billion and the number of
institutions around 120. 185All in all, it is still true to say that e-money still
has the potential to be an efficient and effective means of payment and
play an important role in the development of e-commerce. 186
CONCLUSION
As it was mentioned by Kebelac,187 money history shows that, money has
evolved towards more efficient forms of money. E-money is one of the
181
182
183
184
185
186
187
Ruth Wilson and Roksana Moore, ‘The New Electronic Money Directive: A second chance for emoney
in
Europe?’,
(2010)The
Society
for
Computers
and
Law,
at
<http://www.scl.org/site.aspx?i=ed14813> accessed 04 August 2011.
See above note 77, 10.
See above note 21, 37.
See Wilson above note 172.
See above note 76, 6
See above not 68.
Gabriele Kabelac ‘Cyber money as a medium of exchange’ [1999]Deutsche Bundesbank
Working Paper No. 5/99, 1, available at SSRN: http://ssrn.com/abstract=220193 or
doi:10.2139/ssrn.220193 accessed 30 July 20011.
Law & Justice Review, Volume:IV, Issue:1, June 2013
The Legal Nature of Electronic Money And The Effects of The EU Regulations Concerning The
Electronic Money Market - Mehmet Sıddık YURTÇİÇEK
most efficient payment methods and it has many advantages over
cash, cheque and credit and debit cards. Cheques and payment cards
facilitate the use of bank money with the orders given by holders to
their banks. The use of cheque is diminishing rapidly and it cannot be
used for online payments. Credit and debit cards are the most
commonly used payment methods for on-line purchases. But, the
involvement of the critical bank account and personal information
makes online credit and debit card payment prone to frauds.
The main force behind e-money is the increasing use of technology in
our daily life. The development of safe and fast internet facilities
increases the need for secure online payment systems. Card based emoney products can be used in retail payments through POS machines
as well as in small payments like vending and parking machines.
Software based products, on the other hand, provide a safe way in
distant selling, especially on the internet.
E-money fits into both economic and legal definitions of money;
however, there are still some different opinions on its legal nature. Emoney, as a new type of money, brings more efficient and more secure
payment option to the users. It has the potential to be the latest stage
of evolution of money. The main obstacle in this regards appears to be
the insufficient consumer demand to e-money products.
The new e-money Directive has removed most of the obstacles that
hinder the development of the e-money market. It is expected that the
recent changes will increase the number of new entrants to the market
and stimulate investments. This can trigger the use of e-money in the
near future, albeit it may take a long time to completely replace cash.
***
Tables of Authorities
Legislation
United Kingdom
Bills of Exchange Act 1882.
Coinage Act 1971.
Currency and Bank Notes Act 1954.
Law of Property act 1925.
Law & Justice Review, Volume:IV, Issue:1, June 2013
313
The Legal Nature of Electronic Money And The Effects of The EU Regulations Concerning The
Electronic Money Market - Mehmet Sıddık YURTÇİÇEK
The Electronic Money Regulations 2011.
EU Directives
Directive 2000/46/EC of the European Parliament and of the Council of
18 September 2000 on the taking up, pursuit of and prudential
supervision of the business of electronic money institutions, OJ L 275.
Directive 2006/48/EC of the European Parliament and of the Council of
14 June 2006 relating to the taking up and pursuit of the business of
credit institutions (recast), OJ L 177/1.
Directive 2007/64/EC of the European Parliament and of the Council of
13 November 2007 on payment services in the internal market amending
Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and
repealing Directive 97/5/EC, OJ L 319/1.
Directive 2009/110/EC of The European Parliament and of The Council
of 16 September 2009 on the taking up, pursuit and prudential
supervision of the business of electronic money institutions amending
Directives 2005/60/EC and 2006/48/EC and repealing Directive
2000/46/EC, [2009] OJ L 267/7.
314
Cases
Ashford v. Thomas Cook &son (Bankers) Ltd 471 Pac Rep 2d 531, 533
(1970),
Braithwaite v. Thomas Cook Travellers Cheques Ltd [1989] QB 553.
Brandt’s Sons & co v Dunlop Rubber Co Ltd [1905] AC 454.
Continuation Ltd. v. Austin Taylor & Co. Ltd. [1968] 2 QB 849
Continuation Ltd. v. Austin Taylor & Co. Ltd. [1968] 2 QB 849.
El Awadi v. Bank of Credit and Commerce International SA Ltd. [1990]
1 QB 606.
Gordon v Strange [1874] 1 Exch. 477.
Homes and another v Smith and another [2000] All ER (D) 2568.
Lipkin Gorman v. Carpnale Ltd [1991]2 AC 548.
Re Charge Card Services Ltd.[1989] Ch 497, [1988] 3 All ER 702.
Royal Products Ltd v. Midland Bank Ltd [1981] 2 Lloyd’s Rep 194 at
198.
Law & Justice Review, Volume:IV, Issue:1, June 2013
The Legal Nature of Electronic Money And The Effects of The EU Regulations Concerning The
Electronic Money Market - Mehmet Sıddık YURTÇİÇEK
Sale Continuation Ltd. v. Austin Taylor & Co. Ltd. [1968] 2 QB 849.
William Brandt’s Sons & co v Dunlop Rubber Co Ltd [1905] AC 454.
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