E-money

Published: 1/2/2015
Electronic money (electronic cash, e-money, digital currency, digital money or digital cash) is a digital substitute for cash in electronic payments (on the Internet). Money is increasingy becoming a piece of information stored in a microprocessor (hardware) or in a database (software) which contains information on account balance, personal information, PIN, information on the conducted transactions, etc. The development of electronic money is spurred by global spreading of the Internet and a desire to make electronic payments as efficient and inexpensive as possible. It should be stressed that the development of the Internet as a global information network and the medium through which the bulk of transactions will be executed calls for additional efforts in terms of security and reliability.

Internet purchases by means of payment cards and electronic money are growing in importance, diminishing the importance of operating units of banks and increasing the number of transactions executed through information networks.  The benefits of such a form of payment for users lie in faster execution of transactions and lower costs. Monetary transactions through the Internet are cheaper than a visit to a credit institution. However, the use of payment cards in electronic payments involves payment card processing fees which are charged to the trader, making them less appealing to traders as well as potential buyers who are also charged a certain fee by the intermediary credit institution. To avoid such additional costs, electronic money was developed. In the Republic of Croatia, electronic money is regulated by the Electronic Money Act.

Possible problems in electronic money payments

The security of electronic payment systems depends on the security provided by individual algorithms and protocols, which, if applied correctly, should not threaten security. However, there is always scope for system security improvement, and one should never disregard the human factor (loss of secret key, system hacking, blackmail) which may threaten such security.

Some of the problems identified thus far in electronic money payments include:

  • possible multiple use or copying of an electronic banknote (electronic payment systems should prevent that; copying is prevented by digital signature and multiple use by entering the serial number of the electronic banknote);
  • possible forgery of electronic banknotes (this is usually prevented by digital signature of the issuer);
  • possible theft of electronic banknotes (this is prevented by verifying the validity of electronic banknote identification data); and
  • unauthorised monitoring of transactions (this can be prevented by establishing a secret communication channel between the buyer and the trader, so that the attacker cannot intercept banknotes or find out if there is a transaction going on).
IMPORTANT: Before using electronic payments, it is extremely important to protect your computer against possible network attacks. Your failure to do so may enable the attacker to use such an insufficiently protected computer for unauthorised access to the system where your directory and data files are stored, copy the electronic banknotes and spend them instead of you.

Electronic payments 

Electronic payments are a special part of electronic trade which involve the execution of financial transactions based on electronically exchanged data. In addition to electronic money payments, electronic payments include all payment card payments, Internet banking, m-banking, mobile phone parking, and transportation service payment by means of a public transportation card.

The development of information technology and computer networks has prompted changes in the use of information, particularly their storage, retrieval and distribution. This led to the development of electronic business where financial transactions are executed based on electronic exchange of data. However, in order to introduce electronic business, it is key to develop safe and efficient electronic payment systems. The methods and procedures used in electronic payment systems rely on the methods and procedures developed for the purpose of safe storage and transfer of information, such as data protection and electronic signing of data. 

Electronic payment systems:

  • Notational systems - one should have an account opened in a credit institution. Using one of the forms of cashless payments, you give an electronic order for a transfer of money from your account to the account of the trader. The order may be given by means of a credit or a debit payment card. In this system, the transaction is directly or indirectly linked to the value stored somewhere else.
  • Symbolic systems - enable electronic money payments.
  • Centralised systems - they are based on advance payments and all clients are linked to a single server through which all transactions go and which monitors and manages transactions (examples of commercial centralised systems are PayPal and WebMoney).

Decentralised systems - no monitoring, control and support is provided from a single server. Such systems have been developed for, for example, "virtual" currencies, the most prominent of which is BitCoin  Warning to virtual currency users.