The growing adoption of electronic money demands increased attention from regulators on consumer protection and the overall robustness of payment systems.
Imagine starting your day by trying to buy coffee, only to find your stored-value card showing an error message. Or perhaps the wallet in your payment app won’t open because the provider has gone bankrupt. For many people, especially in rural areas, e-money services via mobile phones are the only gateway to the financial system. What if your government relies heavily on e-money platforms to distribute social benefits or collect taxes?
Digital forms of money—including central bank digital currencies (CBDCs), privately issued stablecoins, and electronic money—are evolving rapidly and integrating more deeply into everyday life. E-money, in essence, is a digital representation of fiat currency, guaranteed by the issuer. Users can convert traditional money into e-money and use mobile apps to make quick, convenient payments between individuals and businesses.
Compared to newer forms of digital currency like stablecoins, e-money is already well-established in many regions and is experiencing rapid user growth. Importantly, most e-money systems operate within regulated frameworks—unlike many privately issued stablecoins. However, keeping pace with innovations in e-money presents challenges for regulators focused on consumer protection and ensuring fair competition among financial intermediaries.
A new IMF staff report explores these challenges and highlights how consumers—and sometimes entire payment systems—could be at risk. It analyzes evolving regulatory practices across countries and offers policy recommendations for supervising e-money issuers and safeguarding user funds.
How E-Money Serves the Unbanked
E-money can be thought of as electronically stored monetary value on a prepaid card or digital device—typically a mobile phone—that is widely accepted for making payments. This stored value represents a claim on the e-money issuer that customers can redeem at any time for the original funds used to purchase the e-money.
For billions of people, especially in developing nations, e-money has become integral to daily life. In many Eastern African countries, for example, a significant share of the adult population regularly uses e-money. In Kenya, Rwanda, Tanzania, and Uganda, nearly two-thirds of adults are active users. Many lack access to traditional banking, relying instead on e-money wallets to store disposable income and conduct transactions via mobile devices.
Safeguarding the Financial System and Consumers
As e-money issuers grow in importance, establishing a comprehensive and resilient regulatory framework becomes essential. Prudent oversight should include operational risk management, prohibitions on retail lending, and rules regarding fee transparency, data protection, and customer complaint handling.
One of the most critical regulatory measures involves safeguarding user funds through segregation and protection mechanisms. E-money issuers must maintain a secure and liquid pool of assets equivalent to the total customer balances—separate from the company’s own funds. This serves as a fundamental protection against misuse of customer money and should allow for recovery of those funds if the issuer becomes insolvent.
However, segregation alone may not be sufficient if a systemically important e-money provider fails. Without specific bankruptcy rules in place, customers may not be able to access their funds quickly. In countries where e-money plays a vital role in daily transactions and the broader payment system, such disruption could have serious consequences.
Systemic Risks and Regulatory Responses
Depending on the business model and scale of e-money operations, regulators may need to strengthen prudential supervision and user protection mechanisms significantly. In cases where an e-money issuer or sector is systemically important, safeguards should focus on both protecting customer funds and ensuring continuity of critical payment services.
Some countries have considered extending deposit insurance to e-money, but practical implementation remains largely untested. Effective protection would require that customers not lose access to their funds—ideally, service should be restored or replaced within hours. However, expanding deposit insurance to e-money involves weighing the costs and benefits carefully.
As with many fintech-related issues, best practices are still emerging. The COVID-19 pandemic has accelerated the shift toward digital transactions and e-money, making sound regulatory frameworks more urgent than ever. For regulators, now is the time to act.
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Frequently Asked Questions
What is e-money?
E-money is a digital form of fiat currency stored electronically on devices like phones or cards. It represents a claim on the issuer and is widely used for payments, especially in regions with limited banking access.
How is e-money different from stablecoins?
While both are digital representations of value, e-money typically operates within a regulated framework and is often issued by non-bank financial institutions. Stablecoins are usually privately issued and may not be subject to the same level of oversight.
What happens if my e-money provider goes out of business?
Regulations in many countries require e-money issuers to segregate customer funds from corporate assets. In case of insolvency, these funds should be protected and returned to users, though the speed and process can vary.
Are e-money accounts covered by deposit insurance?
Some jurisdictions are extending deposit insurance to e-money, but coverage is not universal. It’s important to check local regulations and the specific protections offered by the e-money provider.
How can I keep my e-money secure?
Use strong passwords, enable two-factor authentication if available, and only use reputable and regulated e-money providers. Avoid sharing sensitive account details.
Can e-money be used internationally?
This depends on the provider and the regulatory environment. Some e-money systems are designed for domestic use only, while others may allow cross-border transactions through partnerships.
Jan Nolte is a Senior Financial Sector Expert in the IMF’s Monetary and Capital Markets Department. He works on financial safety net issues, including deposit insurance, bank resolution, and crisis management.
José Garrido is a Senior Counsel in the IMF’s Legal Department. He is an expert in corporate insolvency and debt restructuring with extensive experience in comparative legal analysis.