The Reserve Bank of India (RBI) working group on electronic money has recommended that only banks should be allowed to issue multi-purpose e-money. Non-banks should not be permitted to issue multi-purpose e-money.
The working group was headed by HSBC's chief executive officer Zarir J Cama. The other members in the committee include ICICI Bank executive director Nachiket Mor, RBI monetary policy department convenor D V S Sastry and SBI general manager S Krishna Kumar.
The group recommended that multi-purpose e-money may be permitted to be issued only against payment of full value of central bank money or against credit only by the banks. The issuance of e-money on credit basis should be strictly regulated and closely monitored.
It added that if required issuers must be under obligation to offer redemption of their e-money liabilities net of service charges.
According to the European Central Bank e-money may be broadly defined as "an electronic store of monetary value on a technical device_.used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transaction, but acting as a prepaid bearer instrument".
These products could be classified into: pre-paid stored value card and pre-paid software based product that uses computer networks such as internet. The stored value card typically uses a microprocessor chip embedded in a plastic card while software based scheme typically uses specialised software installed in a personal computer.
The stored value card could be of three types - single-purpose card, closed-system or limited-purpose card and general-purpose or multi-purpose card.
The single-purpose card generally with a magnetic chip recording the amount of fund therein is designed to facilitate only one type of transaction-- telephone calls, parking facilities etc.
The closed-system or the limited-purpose cards are generally used in a small number of well-identified points of sale within a well-identified location such as corporate/university campus. The multi-purpose card can perform variety of functions with several vendors viz., credit card, debit card, stored value card, identification card, repository of personal medical information etc. These cards may reduce demand for current accounts in the bank for likely reduction in transaction costs, and prudent portfolio management.
According to the group e-money could have profound impact on compilation of monetary statistics and money supply unless regulated prudently. E-money could be issued against cash. If e-money is allowed to be issued only by banks, then currency would be substituted with demand/time liabilities through e-money.
The group added that if e-money is issued on credit, there is possibility that issuers may assume a leveraged position. The group has recommended the central bank should regulate and closely monitor the practice of issuing e-money on credit.
It is also pointed out that the proportion of interest bearing liabilities in monetary aggregates would grow in the event of growing use of e-money which would render them more unstable, and information content of monetary aggregates would also change.
