E-money-is Important in the Financial Policy in the Future?

Many innovations to existing payment systems have been successful, but the question remains as to how e-money, a fundamentally new payment system, has fared. As mentioned earlier, most types of e-money take one of two forms: stored value cards and network e-money. Initially, many believed that these innovations would allow more retail and smaller-value transactions to be made electronically, paralleling the move to electronic funds transfer for large-value payments. Of course, substantial investments were needed to provide the infrastructure for using these types of payment devices and to ensure that enough consumers and merchants would use them to make the investments worthwhile. In the end, despite optimistic predictions, this first generation of e-money products was not widely adopted in the United States.

In general, stored-value cards have been successful in closed payment systems, where e-money was the primary payment instrument accepted, and have failed in open payment systems, where competing instruments were readily available. Examples of closed system successes include mass transit systems, college campuses, and military bases. Two well-publicized open system e-money experiments that fizzled (one at the 1996 Olympics in Atlanta and the other on the Upper West Side of Manhattan in 1997 and 1998) accepted e-money at only limited locations and suffered operational difficulties. Limited locations discouraged consumer use, while operational difficulties discouraged merchant use. Both consumers and retailers were able to substitute other payment instruments, which resulted ultimately in lack of either customer or retailer support for the product.

Possibly as a result of these experiences, new e-money plans target captive markets, including corporate expense accounts, teenagers with allowances, and payroll for employees without bank accounts, and use the existing, well-functioning credit card and debit card networks. The fundamental e-money characteristic--that a liability is issued by an entity primarily for the purpose of making payments--is retained. However, these new products are similar to a standard debit card issued by the major networks in terms of technical implementation, institutional arrangements, value transfer, recording of transactions, and currency denomination.

I should note, however, that it took years for ATMs and debit card networks to be widely used and accepted within the United States. Ultimately these innovations in the payment system have proved efficient and cost-effective for users. E-money may have a similar experience, with natural setbacks at first, further evolutionary development, and eventually a growing acceptance from the general public.
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