It’s hard to believe that it’s almost 20 years ago that ‘electronic money’ or ‘e-money’, the digital equivalent of cash stored on an electronic device, remotely at a service or in an online account was born. Emerging as a result of the digital revolution of the 1990’s which saw the introduction of the very first electronic wallets and digital coins used for online ‘micropayments’, e-money has gone on to provide the backbone to a number of significant payments innovations.
By its very nature, e-money was made intentionally more accessible than banking – allowing for innovative and secure electronic money services to be designed. As a consequence, it provided the perfect breeding ground for agile and technology enablers to enter the financial services market and who have shaped it with attractive payment propositions both for consumers and businesses.
E-money enables solutions for many different needs
E-wallet accounts and open loop prepaid cards that are issued by e-money issuers are one of the most classic by-products of e-money and have been one of the fastest growing segments of non-cash payments in recent years. This is mainly because, unlike its peers of debit and credit, prepaid platforms are able to offer flexible and versatile solutions – and are the perfect product to control risk and prevent debt (as there is no overdraft facility).
Furthermore, e-wallets and prepaid solutions have the ability to be tailored to fit a myriad of specific payment characteristics and particular niches. From ‘traditional’ gift cards to virtual card solutions for the travel industry and corporate solutions for expense and payroll management, e-money solutions have the competitive advantage as they can implemented cheaply and quickly compared to its incumbent counterparts.
Multi-currency travel cards are another e-money success story, with specific use cases such as expense and payroll solutions for corporates becoming a solid and trusted method of improving efficiencies and reducing costs. E-wallet currency accounts can be set up by the e-money issuer to allow customers to have their own e-wallet and move values of different currencies from the wallet to a merchant wallet to pay for goods and services. This means that expensive cross border FX fees and card charges are becoming a thing of the past.
Contactless payment solutions are also opening up a whole new world of possibilities when teamed with mobile smartphone apps and prepaid wearable form factors. Queuing at the bar could become a thing of the past, with some events and festivals already distributing pre-loaded wristbands that eliminate the need to pay in cash or by card.
These prepaid innovations provide the opportunity to offer payments products to a wide customer base, with added convenience that can be delivered in a way that is bound to appeal to millennials in particular.
Bank services without needing to be a bank
Another area where we have seen e-money really come into its own in the past decade is as method of providing a solution to those who have limited or no access to traditional bank accounts. Here we have seen technology evolve and new solutions emerge with some e-money issuers now able to offer current accounts - thus giving all the functionality of a banking product (e.g. set-up of debits and standing orders from the account) along with a physical prepaid card for online and offline purchases. Because of e-money issuer’s technology advantage, this can be managed much more efficiently than banks, while still providing control and budgeting features, mobile and online banking, and contactless payments.
This is often utilised as a solution for governments and local authorities for the disbursement of public funds and to distribute welfare payments to the most vulnerable in society, including asylum seekers. In this capacity, prepaid platforms again serve the sector perfectly providing reporting, monitoring and auditing while streamlining operations and resources. Furthermore, spend can be blocked right down to retailer/MCC level if necessary, and instant fraud alerts can be implemented; minimising risk.
The future of e-money, payments and banking
It already feels that we are on the cusp of something significant – with alternative payment solutions such as prepaid and mobile payments being considered more than ‘subprime’. These solutions are now being seen as real alternatives to financial services offered by established incumbents.
The term ‘banking’ will continue to evolve with changes in the regulations opening up the use of APIs and web services. Non-bank payment providers and technology enablers such as e-money issuers will collaborate more with traditional financial institutions like the banks to provide holistic payment services, combining the best of the banking system, allied with the flexibility and technology advantage provided by e-money platforms. The possibilities for e-money here could be endless – and could see the biggest consumer brands in the world becoming the financial services suppliers of the future.