Internet money services are similar to traditional money services in that they allow for money to be transferred easily from place to place. But because they do not have physical elements, e-money services have certain advantages to more traditional money services. Specifically, anywhere that one person might have access to the Internet with the availability of Internet payment services, one can make a money transfer or perform some other kind of money service.
Often, Internet payment services are used specifically to pay for products bought on the Internet, as e-money allows for easy payment for situations in which one person might be buying a single product from another person through eBay, for example.
An Internet payment service, such as PayPal, would take the information of a given account from the customer and would then draw the requested amount of money from that account. This money would be entirely e-money; it would never take a physical form through the transaction. PayPal could transfer those funds to the recipient’s account, for which it would also have the necessary information. An Internet payment service like PayPal would be able to perform transactions both based on credit cards and on debiting a bank account directly.
As these Internet payment services are handling money to the same extent that traditional money services might, even if that money is e-money and not physical money, lawmakers felt the need to provide some form of regulation for these internet payment services. The Uniform Money Services Act was, in fact, specifically designed to cover elements of Internet payment services, as these services would otherwise have potentially been able to escape regulation by not quite fitting the standard definitions for those regulations.
The Act provides for e-money, for example, to effectively qualify as real money, as it bears “monetary value.” “Monetary value” only goes to those monetary stand-ins that can be successfully used to make payments to a wide range of parties. As such, a gift certificate which could only be used for a single store would not have monetary value. But e-money, insofar as it can be used to pay any merchant, would have monetary value, and as such, Internet payment services dealing with e-money would thus qualify as dealing with monetary value.
This was done primarily because Internet payment services would seem to have the same risks as traditional money services, as evidenced by examples of fraud in PayPal’s history. A PayPal user’s account information might be stolen, for example, and fraudsters might then use it to make unauthorized payments or purchases.
Theoretically, PayPal, as an Internet payment service, would then be held responsible for repaying the lost funds unless they were taken directly from a PayPal deposit account. If they were taken from a deposit account, then PayPal would not have to restore the funds to the user according to the agreement made between PayPal and the user.
Internet payment services are useful tools, and even traditional money services, like Western Union, have begun offering Internet payment services and e-money services as well in order to expand their markets. But for any customer, it is important to be aware of the risks of the e-money service in question.