Electronic Money Supervisory Commission

History of e-Money

History of e-Money

  • The history of E-money (electronic money) made it possible through the age of the computer and or the increased use of computers. It started in 1860 when the Western Union introduced the electronic fund transfer (EFT) and this marked the beginning of electronic money. In 1960’s, IBM (International Business Machines) and American Airlines jointly created a system called SABRE (Semi-Automatic Business Research Environment), this allowed offices of American Airlines fitted with terminals connected to telephone lines and helped agencies to check flight times, seat availability, and then make reservations electronically that could be paid by using a system of credits.

    Finance Companies in America and Europe had started using mainframe computers in 1970s; it helped all of them track transactions or monitor deals. The system was proved to be a success internationally when foreign exchange was needed. Initially, any transactions that had been initiated but not cleared were effectively in limbo, and as computer use spread within corporations, tracking funds that were processed electronically became an important financial consideration.

    Consumer uptake of electronic money first started to be noticed in France in the year 1982 with all the introduction of the Minitel service. Countries like the UK and the US had developed basic teletext services that allowed televisions to display text such as program guides, weather, game show results, or news directly onto the television screen, with users keying in page numbers on their TV remote control to access pages. The teletext system was a simple one way service, and whilst it was useful, it didn’t allow users to query data. The French Minitel service utilized a dumb terminal with integral modem, the service operated over standard telephone lines in addition to terminals were loaded with complete AZERTY keyboards. The subscribers typed emails or searched questions. The French Minitel terminals were given away free to over 9 million households encouraging French business entrepreneurs to offer Minitel shops such as travel agencies, flower delivery, as seen on TV, music catalogues and marks the first recorded use of electronic money.in the consumer market.

    A slightly similar service had been launched in the UK in 1979 called Prestel. It supported equipment was expensive therefore required customers to call and arrange payment over the phone. A service known as Homelink started in 1983 with the support of the Bank of Scotland and Nottingham Building Society where account holders could subscribe to a special Prestel service that allowed online banking, and marks the first recorded use of electronic money.

    Late 1990’s proved to be an essential moment for electronic money. Amazon.com was launched in 1995 and PayPal was formed in 1998. This made convenient and easy payment of money online without any risk of credit card number theft. The innovation of PayPal was to offer virtual account to the customers that could be topped up using credit card or wire transfer.

    Then email addresses were used to receive and send money. The services of PayPal marked a unique beginning of electronic money which was different from traditional phone and online credit card transactions. Also in late 1990’s the technologies related to electronic money like electronic checks and embedded smart cards used the public key cryptography for transferring money. Which facilitate a secure transfer of income over the Internet between the seller and buyer.

    Also, the model of PayPal was copied by various other providers with new tips for securing customer funds utilizing gold standard, gold, platinum or palladium, yet still offering the flexibility of sending and receiving payments with an email address. Virtual currency backed by precious metals can be exchanged for any supported currency, but is typically tracked as direct comparison of the price the precious metal is fetching in the international precious metal markets.

    Electronic money virtual wallets provided by major corporations such as Verisign started to become available, encouraging an explosive growth in eCommerce. The first years of the new millennium saw the creation a number of cryptographic techniques for the prevention of personal data, and strong growth in the use of electronic money as a primary medium for payments and transactions. In the US, most banks began offering online banking facilities connected to payments options that allowed utilities and credit cards to be paid using any public computer.

  • Private currencies also proliferated around the same time, originally spurred by the demand for some form or marketplace within networked games such as World of Warcraft and Second Life. Private currencies are sometimes redeemable for real world currencies at a fixed rate pegged to the dollar or other major currency. Since those times, private currencies have developed in many forums and webmaster services as a means of offering advertising amongst members, the most famous of these perhaps being Entrecard, a service where users visit other blogs and are paid in Entrecard Credits, which become redeemable for cash once a reserve level has been met.

    In the offline world, perhaps the most successful electronic money has been facilitated with stored value cards that are denominated in local currency. The United States Military designed a stored value card known as Eagle Cash that provided an advance on a soldier’s earnings and could be used in base shops and canteens by simply presenting the chip side of the card for swiping. In Hong Kong, a stored value card originally designed to make subway ticket purchases quicker has become a defacto cash card now accepted by a majority of retailers and utilities in the city.

    Nowadays, the use of electronic money is possible due to cryptography and digital signatures. Public key encryption and decryption together are called public key cryptography. The public key encryption involves two keys, viz. public key and private key to authenticate the identity of an entity, electronically. As the name suggests, the public key is published and the private key is kept secret.Data is encrypted with the public key and the same data is decrypted with the corresponding private key. Digital signatures are used when you are encrypting some important information that is to be kept confidential. Digital signatures involve the use of hash tables that encrypt a hash using the private key and decrypts the hash using the
    Private key.

    This technique changed the tangible cash to electronic cash and is hassle free. Two types of electronic cash are direct deposit and electronic fund transfer (EFT). The debit cards and online payment of bill, help in easy and quick transfer of money.However, there are a few disadvantages of electronic money. Frauds and system failures are the significant drawbacks of electronic cash. The hacking of personal banking accounts are oserved frequently in these years. Failure of software and power loss can sometime prove dangerous when transferring money electronically.

    Although there are disadvantages, steps are taken to decrease these malpractices. Electronic money has surely changed the business and banking techniques. Electronic money has enabled anytime and anywhere banking facility.