E-money: it’s just like money, but better

While its name might feel self-explanatory, e-money is a currency that packs some complexity. So, what’s the difference between e-money and its regular counterparts? How’s e-money different compared to cryptocurrencies? And how does e-money actually boost conversion for e-commerce business owners? Read on to find it all out in our article.

E-money: a textbook definition📖

Legally, there are three types of money. First, you have the actual physical money, the coins, and the banknotes you have in your wallet. While online payment methods are becoming increasingly popular, European citizens show a wide range of habits when it comes to cold, hard cash: while Austrians withdraw €140 each week the same figure in Norway is just €35. After the physical, you have the money that you store in your account: this is basically the digital version of the cash that you use for purchasing goods. And third, there’s e-money: this is the currency stored in your digital wallets, phone, etc. The difference between the latter two is subtle yet important: while both make payments much faster via mobile devices and other gadgets like smartwatches, e-money comes with pros and cons alike.

First off, a huge pro of e-money is its accessibility. Digital wallets like Apple Pay, Google Pay, and Barion Wallet use e-money to allow you to make payments, use services (e.g. parking), and send money within the same ecosystem in the blink of an eye. It renders carrying a wallet completely obsolete, plus it makes online shopping much easier: digital wallets let you check out with a single click (or just a handful), while bank transfers and card payments are clunkier processes.

How's e-money different?🤔

There’s no rose without a thorn, though: e-money issuers are inferior to regular banks in a sense. Here’s why. E-money issuers (like Barion) cannot hold funds without a payment institution involved. This means that the e-money you have on your Barion Wallet is actually stored on a secure safeguarding account at a different institution (in Barion’s case, OTP). The only downside is that if you’d like to access your e-money balance, you need to withdraw any given amount and wait until it gets transferred to your regular bank account. As an e-commerce business owner, payments made via Barion Smart Gateway arrive first at your Barion Wallet, and then you need to withdraw it.

Transaction fee: circumnavigating a local specialty💸

In the case of Hungary, there’s no transaction tax on e-money. Why is this a big deal? Well, any transaction you make using your regular bank account will be taxed. No matter the amount or frequency, this pertains to every single transaction. If you’re using an e-money account, however, you don’t have to pay any fee as e-money is exempt from the transaction fee. This makes e-commerce merchants’ lives much easier: if you’re wiring large sums of money frequently, this can save you millions of Hungarian forints on a yearly basis.

A word about cryptocurrencies ₿

On paper, it might seem that cryptocurrencies and e-money are the same, but there are a few subtle differences. Since both are stored digitally and are issued by private entities, it’s easy to draw an equation between the two, but their regulatory bodies reveal a clear distinction. Cryptocurrencies are decentralized and not controlled by any central authority, such as a government or a bank, and they are often used as an alternative to traditional fiat currencies, like the US dollar or the euro. More key differences between e-money and cryptocurrency include the way they are issued, the way they are used, and the level of regulation and oversight they are subject to.

As the latest trends reflect, e-money is one of the trailblazers toward a cashless society: with its ease of use and exemption from the transaction fee, it’s more than a viable alternative to hard cash. If you want more on the topic, listen Alex Kiss, CEO at Barion to what he has to say:

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