In recent years, the rise of e-commerce and the increasing popularity of mobile devices such as tablets and smartphones have revolutionised the retail payments landscape and enabled new ways of making payments, one of which is by using electronic money (“E-Money”).
E-Money is a payment instrument that contains a monetary value that is paid in advance by the user to the E-Money issuer. For example Touch ‘n Go Sdn Bhd.
Now with it, the user can purchase virtual or real goods and services from third-party merchants who accept the E-Money as a form of payment. Like our highway toll operators and retail outlets.
When users pay using their E-Money, the amount will be automatically deducted from their E-Money balance.
A payment instrument, whether tangible or intangible, that stores funds electronically in exchange of funds paid to the issuer and is able to be used as a means of making payment to any person other than the issuer.
Therefore, E-Money is legally recognised as a valid and enforceable legal tender in Malaysia.
Well, to put it simply here’s a breakdown
This new sub-system includes the likes of Google Wallet, Apple Pay, Android Pay. It allows users to access funds in their deposit or credit accounts in financial institutions or credit card networks to initiate payments.
The rise of social networking sites and online gaming sites has spurred the growth of virtual currency market.
“a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community.”
Virtual games often make use of virtual currencies to enable transactions between the game players. Players can use the virtual money to buy new features in a game, extend their lives or send virtual gifts to other players.
So the next time if you were to get scammed online and lose your ‘gaming money’, too bad.
A cryptocurrency is a payment instrument using cryptography to secure the transactions and to control the creation of new units. Bitcoin became the first cryptocurrency in 2009.
Many merchants have started accepting cryptocurrency which enables users to use this virtual currency to buy goods and services in the real world. As cryptocurrency is not backed by any government, many central banks have cautioned against it.
They recognised that only a prudent and safe management of E-Money schemes can encourage wider acceptance and success of E-Money schemes. It’s also to instil users’ confidence in the usage of E-Money as well as encourage new, innovative and more secure E-Money schemes to be designed.
E-Money issuer in Malaysia must adopt the principles and minimum standards outlined in the Guideline and obtain approval from the Central Bank before it can operate their E-Money schemes. The principles are:
The higher the number of merchants who are willing to accept E-Money, the higher the probability that E-Money will be spent by users. As such, transaction and operating costs will also be lowered if there is a wider use and acceptance of E-Money in the market (“Economies of Scale”).
The E-Money market has developed slower than expected and has not yet developed enough to become an alternative for cash. Evidently, it takes time to gain market confidence and change consumers’ mindset and behaviour for a new payment instrument.
The convenience and anonymity make E-Money schemes vulnerable to exploitation for money laundering and other criminal activities. The cross-border nature of E-Money schemes makes it challenging for law enforcement to combat money laundering and other criminal activities.
Historically, many of the E-Money schemes were developed primarily for use at low-value transactions – such as public transportation, car parking and pay phones. Over time, this has been expanded into fields such as retail transactions.
One notable success is the Octopus card in Hong Kong. It’s estimated that over 40% of the aggregate value of transactions is now non-transport related.
However, consumers still fear unauthorized third-party access to their personal information and worry about the lack of security features on some of these e-commerce sites. Payment by E-Money present a more secure alternative to credit and debit cards in online payments since it does not involve a bank account and no personal information is required to be submitted when making a transaction.
So, there is a need to strike a balance. Between ensuring a well-functioning payment system and not stifling the innovations and technological developments of new E-Money schemes. This is to reduce transaction costs and increase convenience and efficiency in modern Malaysia.