{
  "title": "Making Electronic Money Safer in the Digital Age",
  "publication": "IMF Blog, December 14, 2021",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2021/12/14/blog121421-making-electronic-money-safer-in-the-digital-age",
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  "summary": "As e-money use grows, regulators need to focus on consumer protection and the integrity of the overall payments system.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: José Garrido, Jan Nolte\n- Publication date: December 14, 2021\n- Core message: As e-money use grows, regulators need to focus on consumer protection and the integrity of the overall payments system.\n- Motivation: Growing reliance on e-money for everyday payments and government functions (benefit transfers, tax collection) creates potential systemic risks and consumer-protection challenges."
    },
    {
      "heading": "Nature and use of e-money",
      "content": "- Definition: E-money is a digital representation of fiat currency guaranteed by its issuer; customers exchange regular money into e-money to make immediate payments via apps, prepaid cards, or electronic devices.\n- Characteristics:\n  - E-money represents an enforceable claim against the e-money issuer; customers can demand repayment of funds used to purchase e-money.\n  - E-money operates in a regulated framework, unlike most privately issued stablecoins.\n- Financial inclusion role:\n  - E-money is a vital part of daily life for billions of people, especially in many developing countries where many lack access to the banking system.\n  - Example region: East African countries—\"two-thirds of the combined adult population of Kenya (where M-PESA has reached a high degree of market penetration), Rwanda, Tanzania, and Uganda use e‑money regularly.\"\n  - Many users do not have bank accounts and store significant shares of disposable funds in e‑money wallets accessed by mobile phones or computers."
    },
    {
      "heading": "Risks and regulatory gaps",
      "content": "- Operational failures: Examples include stored-value cards returning errors or wallets becoming inaccessible due to provider bankruptcy.\n- Dependence risks: In rural areas, e-money may provide the only access to the financial system; failure could cut off access.\n- Systemic concerns:\n  - A potentially systemic e-money issuer’s failure could disrupt day-to-day transactions and critical payment services at large scale.\n  - Segregation/safekeeping alone may not ensure quick customer access to funds absent specific bankruptcy rules; discontinuity could create severe problems.\n- Supervision challenges: Regulators and supervisors may struggle to keep pace with evolving business models and need to consider consumer protection and level playing field issues."
    },
    {
      "heading": "Policy recommendations and safeguards",
      "content": "- Prudential regulation and governance:\n  - E-money issuers should be subject to proportionate prudential regulatory requirements.\n  - Issuers should establish operational risk governance and management systems to identify and limit risks.\n  - Issuers should be prohibited from retail lending.\n- Consumer protection measures:\n  - Rules governing disclosure of fees, protection of consumer data, and handling of complaints should be applied to e-money issuers to protect potentially less sophisticated consumers.\n- Safekeeping and segregation:\n  - All e-money issuers need mechanisms to safekeep and segregate customer funds.\n  - Issuers need to maintain a secure pool of liquid funds equivalent to the amounts of customers’ balances, kept separate from the issuer’s own funds.\n  - Purpose: Fundamental safeguard against misuse and, in principle, allow recovery of funds in issuer bankruptcy.\n- Continuity and systemic protections:\n  - In countries with a potentially systemic e-money issuer or sector, protections should seek to preserve customers’ funds and ensure continuity of critical payment services.\n  - Services should be restorable or replaceable quickly, preferably within hours.\n- Deposit insurance:\n  - Some countries have sought to extend deposit insurance to e-money, but operationalizing such protection remains largely untested in practice.\n  - The costs and benefits of effectively extending deposit insurance coverage to e-money should be carefully considered."
    },
    {
      "heading": "Context and urgency",
      "content": "- Evolution of digital money: Central bank digital currencies, privately issued stablecoins, and e-money continue to evolve and become more integral in daily life.\n- Policy environment: Best practices are still taking shape in the fintech sphere, making decisions challenging.\n- Pandemic effect: The pandemic accelerated online transactions and e-money’s growth, increasing the importance of prudent e-money frameworks.\n- Call to action: For regulators and supervisors, the time for action is now.\n\nIMF Blog: Making Electronic Money Safer in the Digital Age — José Garrido, Jan Nolte; December 14, 2021\n\n---\n\n\n References\n\n- IMF staff paper\n- https://www.imf.org/wp-content/uploads/2021/12/e-money-2.png\n- Global Crypto Regulation Should be Comprehensive, Consistent, and Coordinated\n- Public and Private Money Can Coexist in the Digital Age\n- Legally Speaking, is Digital Money Really Money?\n- You’ve Got Money: Mobile Payments Help People During the Pandemic\n\nSource: https://www.imf.org/en/blogs/articles/2021/12/14/blog121421-making-electronic-money-safer-in-the-digital-age"
    }
  ],
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    "[Markdown version](/en/blogs/articles/2021/12/14/blog121421-making-electronic-money-safer-in-the-digital-age/index.md)",
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    "Authors: Jose Garrido, Jan Nolte",
    "Published: December 14, 2021",
    "Authors: José Garrido, Jan Nolte",
    "Publication date: December 14, 2021",
    "Core message: As e-money use grows, regulators need to focus on consumer protection and the integrity of the overall payments system.",
    "Motivation: Growing reliance on e-money for everyday payments and government functions (benefit transfers, tax collection) creates potential systemic risks and consumer-protection challenges.",
    "Definition: E-money is a digital representation of fiat currency guaranteed by its issuer; customers exchange regular money into e-money to make immediate payments via apps, prepaid cards, or electronic devices.",
    "Characteristics:",
    "Financial inclusion role:",
    "Operational failures: Examples include stored-value cards returning errors or wallets becoming inaccessible due to provider bankruptcy.",
    "Dependence risks: In rural areas, e-money may provide the only access to the financial system; failure could cut off access.",
    "Systemic concerns:",
    "Supervision challenges: Regulators and supervisors may struggle to keep pace with evolving business models and need to consider consumer protection and level playing field issues.",
    "Prudential regulation and governance:",
    "Consumer protection measures:",
    "Safekeeping and segregation:",
    "Continuity and systemic protections:",
    "Deposit insurance:",
    "Evolution of digital money: Central bank digital currencies, privately issued stablecoins, and e-money continue to evolve and become more integral in daily life.",
    "Policy environment: Best practices are still taking shape in the fintech sphere, making decisions challenging.",
    "Pandemic effect: The pandemic accelerated online transactions and e-money’s growth, increasing the importance of prudent e-money frameworks.",
    "Call to action: For regulators and supervisors, the time for action is now.",
    "[IMF staff paper](https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2021/12/13/E-Money-Prudential-Supervision-Oversight-and-User-Protection-464868)",
    "[https://www.imf.org/wp-content/uploads/2021/12/e-money-2.png](https://www.imf.org/wp-content/uploads/2021/12/e-money-2.png)",
    "[Global Crypto Regulation Should be Comprehensive, Consistent, and Coordinated](https://blogs.imf.org/2021/12/09/global-crypto-regulation-should-be-comprehensive-consistent-and-coordinated/)",
    "[Public and Private Money Can Coexist in the Digital Age](https://blogs.imf.org/2021/02/18/public-and-private-money-can-coexist-in-the-digital-age/)",
    "[Legally Speaking, is Digital Money Really Money?](https://blogs.imf.org/2021/01/14/legally-speaking-is-digital-money-really-money/)",
    "[You’ve Got Money: Mobile Payments Help People During the Pandemic](https://blogs.imf.org/2020/06/22/youve-got-money-mobile-payments-help-people-during-the-pandemic/)"
  ],
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