E-money is coming

BitDepth#1262

ON AUGUST 4, the E-money Issuer Order was brought into law as part of the Financial Institutions Act, 2008.

So what, you might be asking, is e-money?

It is, depending on your perspective, either a sanctioned alternative to cryptocurrency or a pre-emptive response to it. Both are fair descriptions of the technology; virtual money tied to the fiat currency of a nation state.

There is, in usability terms, little difference between an e-money instrument and funds made available on a debit card. But e-money is the movement of cash into bits stored on a device or card while a debit card allows access to a bank's records of cash deposited.

Most of the money in any country is virtual. It moves as balances from account to account in a consistent system of value attribution. As TT joins the race to make more of its transactions cashless, e-money is an opportunity for the general public and, most critically, the unbanked of this country to do business without the hazards of moving cash around.

In digital form, transactions are not just securely handled but can also to be certified as legal.

The Central Bank, under the terms of the order, retains significant deep-dive power to inspect systems built to create e-money and can review transactions at the database level.

There are three tiers of e-money issuer listed in the order: micro-transactions, with a limit of $500 per transaction, mid-value transactions (up to $1,000) and high-value transactions (up to $10,000).

Before you sharpen your chops to become an e-money issuer, consider that, like any quasi-banking institution, you will need to back your capacity to issue digital funds with existing money.

Micro and mid-value issuers must have either a balance of $500,000 or three per cent of what the order describes as an e-float, the value of the hard currency in circulation as e-money.

For high-value issuers, the percentage remains the same, but the baseline financial backing rises to one million dollars.

The business requirements of the order are demanding, but are hardly insurmountable for any financial institution already operating by the rules of the Central Bank.

A casual reading of the Central Bank's role in managing the accreditation of e-money issuers suggests that this could become a scalable solution accessible to most existing financial institutions, even small credit unions.

Widespread use raises questions about standardisation.

The last thing the economy needs now is a balkanisation of financial instruments – cards and payment systems with limited or circumscribed purchasing power.

For an e-money system to work, there must be a high-level agreement on how the transaction system will work to ensure interoperability.

The Eastern Caribbean Central Bank (http://ow.ly/j1Ct30r3SPR) has implemented a system with exactly that kind of cohesiveness in mind, tying its existing EC currency to a new digital transaction system in an effort to knit multiple small-island states into a more integrated economic bloc.

The local challenge is a bit different, but e-money will offer an alternative to citizens who move unnecessary amounts of cash back and forth while offering a lubricant for the stuttering implementation of local e-commerce transactions, providing a platform for digital exchange of value.

The challenge with a TT implementation of e-money is not a lack of opportunity; it's the challenge of replacing the ease of cash transactions with a digital equivalent.

Achieving that will require a significant amount of work and oversight on the back end of the process to make implementation seamless and convenient for end users.

Mark Lyndersay is the editor of technewstt.com. An expanded version of this column can be found there