What Is Electronic Money Made of?

Electronic money is a financial instrument that allows us to make payments and transfers with an electronic device.Its operation consists of storing money that is physically in banknotes and coins, in a current account or in a credit card, in any electronic medium such as a physical card, a virtual card, a telephone, a computer or any other device whose memory allows you to do it, which you can then use to make payments with the limit of the amount you have loaded.

Money is a medium of exchange and a measure of value that has been represented by different physical objects from shells, cocoa beans, bird feathers, metals, to coins and bills. Today money has taken the identity of data that circulates through computerized networks and that can go around the world in just a few seconds.

You can use it:

  • To make payments on the internet. In addition to the security that the instrument you use already has (card, telephone, etc.), you will have the guarantee of the disposal limit, since you can only make payments for the amount previously charged. 
  • To comfortably make small payments. As it is accepted as a means of payment by companies other than the issuer, you can pay by bus, telephone, restaurant or kiosk.

What characteristics do electronic money entities or EDEs have ?

  • They are companies that, in the exercise of this activity, cannot receive funds for an amount greater than the monetary value issued.
  • They have received authorization for its creation from the Ministry of Economy and Business, after a report from the Bank of Spain.
  • They cannot operate without having obtained authorization for this activity and without being registered in the relevant registers.
  • They are subject to the control and supervision of the Bank of Spain, as well as its registration.

This last form is what we know as electronic money , which is exchanged through channels such as the Internet or private telecommunications networks, in response to the instructions of those who make an electronic payment or transaction. This money is virtually in a bank account, from there it travels over the network to reach other accounts and thus make payments. Money is no longer necessarily supported by a physical object, but by the work and production that we all do to obtain it.

To enable the electronic form and use of money, it has been necessary to install the appropriate infrastructure , such as computer systems, Internet connections and an electronic network that allows transfer of information on transactions from merchants or ATMs to bank branches. The use of electronic money requires developed telecommunications technologies , as well as the implementation of security mechanisms , which are possible thanks to the development of technological infrastructure.

The new advances allow increasingly safer, faster and more efficient transactions, and, similarly, they make us think that in the near future, transactions will not be made only from ATMs, point of sale terminals or computers, but also from portable devices. like cell phones. The latter is already possible, but only in some whose technologies are highly advanced. For this reason it is more problematic and delayed in countries with a low level of development. Hence, in Mexico, only a part of the population has access to this type of payment method.

Electronic Money Payment methods

The most common electronic means of payment are credit and debit cards and prepaid cards . By means of these, payment instructions are sent, which consist of giving the order to make an electronic transfer of funds from your card to the account of the person who sells you the product or service. Direct debits can also be made , that is, you authorize someone to periodically charge your bank card a service, for example: the payment of electricity. Every month the money is automatically subtracted from your account and transferred to the electricity company account.

With the credit card you buy first and then pay the bank on the agreed date. It works like a loan that you receive from the bank and that you pay days later. Instead, with the debit card you pay with the money you have in your bank account. When the payment you made with your debit card is recorded, the bank immediately subtracts it from your account. With the prepaid card you pay before using the service: for example, you buy credit for your cell phone and then use it. Usually the latter are used to pay not very high amounts or to buy in a single establishment.

In the near future, the impact of electronic means of payment will continue to increase, as their use in all types of transactions grows. Surely we still have a lot to see in the evolution of money and electronic payment methods.

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