1. International Banking And Finance
Electronic Money and Payment
Fola Adebayo
Dilish K Daniel
Lucy Igboanugo
Saran Robinson
Melonie Whittaker
2. Introduction
New technology and new business models are changing the way
people pay for their purchases.
Main objectives of the paper:
1. To deepen our understanding of electronic money &
payments as digital alternatives to cash
2. To better comprehend the issues and risks raised by an
increased reliance on these alternatives
3. To establish a view on the role of the Bank with respect to
e-money.
3. Introduction Cont’
● E-money- monetary value stored electronically on devices such as a chip
card or a hard drive in personal computers or a server represented by a
claim on the issuer, which is issued on receipt of funds for the purpose of
making payment transactions, and which is accepted by persons other than
the issuer. Examples: multi-purpose prepaid cards, stored value card and
PayPal balances.
● E-payments- electronic payment methods that allow users to access funds
in their deposit or credit accounts in financial institutions to initiate
payments. Examples: debit and credit cards, Internet banking, and some
mobile payment schemes.
5. Recent Economical & Technological Trends &
Development
Global landscape
● There has been a diversity of experience in regard to the success and failure of various e-money schemes.
● Cash-intensive economies has the longest-lasting e-money schemes, especially those in East Asia, Africa
and Europe
Introduced to:
● Fill a particular gap in the retail payment space, such as paying for public transportation
● Serve the unbanked population or facilitating payments for online purchases.
● In East Asia it was originated by a public transportation, means developing a more efficient and
convenient means of payment for public transport usage
● Most of the prepaid e-money card products operates off-line and are contactless, to take advantage of
speed and convenience considerations.
6. Global Landscape Cont’
● One notable success is the Octopus card in Hong Kong, used both for public transport and retail transactions.
● About 40 per cent of the aggregate value of transactions is now non-transport related
● There have been e-money schemes operating in a number of European and African countries.
● African countries, lack of infrastructure encouraged the development of mobile money systems.
● The M-PESA scheme has been a great success in Kenya & other countries in Africa and Asia.
● M-PESA Transfers of monetary balances to other users with (SMS) technology is still the most common used
● European Countries use prepaid anonymous card that operates off-line for small-value transactions
● Denmark - Danmont and Mondex ( both failed, wasn't convenient)
7. Global Landscape Cont’
International e-money schemes:
● Prepaid cards issued by credit card networks, as well as server-based e-money schemes such as PayPal.
● Multi-purpose reloadable prepaid cards offered by Visa and MasterCard, are typically accepted
wherever these credit cards are accepted.
● Consumers do not require a bank account to access this payment product,PIN or signature
● The high fees charged to cardholders, large limits, its anonymous have raised security issues
● Countries are introducing new legislations such as consumer protection and anti-money laundering to
combat issues such as consumer protection and anti-money laundering.
8. Global Landscape Cont’
● Schemes that primarily rely on fees charged to merchants or other sellers of goods and services as their
main revenue source, have higher fees than more conventional payment methods because of their smaller
scale
● Existing and potential e-money products are facing substantial competition from other retail payment
methods
● E.g Oyster card, a stored-value contactless smart card used on public transport based in England.
● The Oyster card is not an e-money scheme yet because it can be used only to pay for public transport.
● It is already facing competition from contactless EMV cards in its transportation applications.
9. The Canadian Experience
E- money : Prepaid Cards
● Few e-money products are broadly used or even currently available in Canada.
● Multi-purpose network-branded prepaid card & mobile payment schemes. E.g PayPal Mobile
● Use of Presto “smart card” fare-payment system for public transit in southern Ontario.
● E-wallets and electronic P2P payment transactions: total of nearly $10 billion in 2011
● Prepaid cards payment values rose at a rapid rate of 47% annually between 2008 - 2011
● Average transaction sizes for prepaid cards increased from $85 to $115 in 2011
● Open-loop prepaid cards (Visa/MasterCard gift cards) accounted for over 80%of total transaction value
● Open-loop prepaid card activity is largely displacing debit and credit card transactions
10. Canadian Experience
Cash, Credit & Debit Cards
● The competition has come from traditional electronic payment instruments such as debit and credit cards
● Consumers use debit cards as a means of avoiding theft and fraud (PIN required)
● Credit card use has risen since the early 2000s, due to the increasing number of rewards programs associated its use
● Credit cards are also by far the predominant payment method for online transactions in Canada.
● Cash share at the POS has been declining as people have made increasing use of credit and debit cards
● Cash holders have placed increased emphasis on the use of cash as a store of value and for precautionary purposes
● Demand for cash has increased considerably during the 2007–09 global financial crisis
● Low and stable inflation and interest rate contributes to lower costs of holding cash
11. Canadian Experience
● Extensive innovative activity regarding retail payment methods in Canada is under way.
● Many are intended for lower-value transactions, where cash is still the predominant payment method.
● Tend to focus on improving the speed and convenience associated with debit and credit cards methods.
● E.g Availability of contactless credit cards using Near Field Communication technology
● Contactless debit cards(the Interac “Flash” product) began in 2011.
● Mobile phone payment products for the POS are in the process of being introduced in Canada.
● The retail payment innovations currently being introduced could lead to a further reduction in the use of
cash over the longer term.
12. Functions of Central Bank:
● Conduct monetary policy
- By controlling the interest rates!
● Promote the stability of the Canadian financial system
- By engaging in the purchase and sales of securities
Implications of e- Money on Bank Balance Sheet
● Decline in central bank asset holdings
● Loses interest income on seigniorage revenue
● Cripples the ability to implement monetary policy and promote financial stability
14. The Effect of Settlement Balance in Implementation of
monetary policy
● Bank can still retain its ability to conduct monetary policy
- If there is a demand for Bank of Canada settlement balances
● Settlement Balance implies
- Banks which needs funds borrows at the Bank Rate from the Bank of Canada.
- Extra funds is held at the floor /deposit rate (on end-of-day deposits)
15. Current Expectations
● Demand for Cash will be stable for a foreseeable future.
Reasons:
- Requires large-denomination bank notes for non-transactional purposes;
eg: precautionary and store of value.
- Requires lower-value denominations for day to day transactions
Some Facts
● Bank note holdings per adult Canadian were $2,300.
● $100 notes accounts for more than 50% of the value of currency in Canada (2013)
16. Mitigation Strategies( the impacts of shrinkage of their balance
sheets)
● The central bank can issues interest-bearing liabilities ( central bank bills)
Or Pay interest on reserve balances
- Induce private banks to hold larger deposits at the central bank.
● May impose non-interest-bearing reserve requirements on e-money deposits.
- Increases the seigniorage revenues
● Banks can also start issuing e-money.
● The Government can pump money to the Central bank.
17. A failure of a major e-money issuer could lead to:
● Significant financial losses
● Loss of confidence
● Disruption of trade
● Significant economic effects
● Inconvenience for the e-money product holder
Public Policy Issues : Safety and Efficiency
18. Protection of user interests
● Transparency of the e-money scheme regarding the rights and obligations of
consumers, retailers and issuers.
● Legal treatment of unredeemed e-money balances.
● Data protection and privacy issues resulting from misuse of customer data
● Legal, security and law enforcement issues
19. Security features to protect e-money product
● Tamper-resistant chips
● Encryption techniques & use of a PIN
● Central reconciliation Registration
● Maximum limit on e-money product & transaction value.
20. Canadian System
● No comprehensive regulatory regime surrounding stored-value schemes in
Canada.
● No prohibition on the issuance of e-money or the operation of Internet or
mobile payment schemes by non-financial institutions
● Non-banks are unregulated and could pose safety and consumer protection
concerns
21. Public policy objectives for retail payments are:
● Promotion of innovation
● Open access
● Common standards and interoperability
● Efficient and transparent pricing
● Protection of user interests
22. OVERSIGHT ROLES
● They monitor developments & constantly assessing their implications in other to
avoid stifling innovation & competition.
● They have the right to increase the amount of money issued in the state.
● They finance developing countries.
● They oversee commercial banking in countries
23. POTENTIAL ROLES OF THE CENTRAL BANK
Facilitator/Analyst Role.
● Maintain contacts with private sector player & to conduct research
& monitoring.
● They promote standardization. By managing the nations money-try
policy , through active duties such as managing interest rate.
● They manage currency, money, supply & interest rates
24. OPERATORS & ISSUER ROLE
● They promote the entry of private e-money issuers into the market
by providing a clearly specified regulatory environment.
● They are often regard as major challenge for the private sector in
developing well functioning e-money scheme.
25. Conclusion
● New technological innovations could lead to a further
decrease in the demand for cash.
● It is important for the Bank to continue to monitor both e-money and e-payment developments and study their
implications for the demand for bank notes.
● While the demise of cash is not imminent,
banks will have to continue to evaluate its
role.
26. Works Cited
Fung, Ben, Miguel Molico,Gerald Stuber.”Electronic money and payments:
Recent Development and Issues”. n.p, Web. 10 April 2015.
