Assessing the legal implications and practical merits of select electronic payment channels within the European Union

Abstract

This paper reviews the legal nature of three key channels for electronic payments within the European Union; electronic payment methods, electronic money, and digital decentralised cryptocurrencies (with a particular emphasis on Bitcoin). Electronic payment methods are means of electronically transferring a standard fiat currency, such as the Euro or US Dollar, to a third party – principally through the use of credit or debit cards and through the use of services offered by electronic payment service providers. This allows for instant physical payment as well as the facilitation of online transactions. Electronic payment methods do not involve any form of electronic money that has value in and of itself, but simply a means of transferring fiat currency, to a third party. Electronic payment methods have become Europe’s dominant method of electronic payment and are currently legislated upon by the Payment Services Directive. Unlike electronic payment methods, electronic money does contemplate electronic currency which, while based on standard fiat currency, carries value in and of itself. This can be stored on a digital wallet or hard drive. Electronic money lacked legislative support in the inefficient 2000 Electronic Money Directive, and for additional reasons failed to live up to its early predictions. It has however found niche areas of use in today’s society and is now regulated by a more appropriate Electronic Money Directive. Digital decentralised cryptocurrency differs from the above payment channels in that it is not based on a fiat currency, and has no central locus of regulation, instead being governed by the users themselves in an open-source peer-to-peer network. Cryptocurrencies such as Bitcoin carry intrinsic electronic value which is dependent on a system of supply and demand. Cryptocurrency legislation is lacking in the European Union, but this author argues that a patient approach to regulating cryptocurrencies is in fact a positive thing.