VIRTUAL MONEY (Part 1)

Today we will discuss the second method of payment you can use in an online shop: the number 2 on our list is “payment using electronic money“.

As we said in our previous article, it can often happen that, when we try to pay by credit card online, the card is not accepted by the system and we are asked to register on the system itself (even though the online shop web site that we are buying from indicates that all types of credit cards are accepted, without any exceptions). So, why do they say that we can easily pay with any kind of credit card, if it’s not exactly true, or at least, there is a more complicated process than usual?

We will talk about this issue in the second part of our article. First of all, let’s try to define exactly what kind of payment are we talking about here.

When such situations happen, we are probably looking at a kind of payment that goes through a system which uses electronic money.

In this article we would like to clarify the issue, as much as we can, by separating two terms which might seem to mean the same thing, but instead have very different meanings to one another if deeply analyzed: electronic money and virtual money.

Why, in your opinion, should we divide these two terms? What exactly do we mean by the concept of “virtual money”?

Finding a definition for “electronic money” is very hard, most of all because we often talk about electronic money without really thinking about what it means. It’s perfectly clear that it is a particular kind of online payment system but, generally, we tend to use this term for everything concerning online payments. But, what exactly do we mean by “electronic money”?

While surfing the net, among the numerous definitions for “electronic money”, we bumped into this one:

“Electronic money means a monetary value, represented by a credit toward the bank, stored on an electronic device – issued by the bank itself, after receiving funds not below the issued monetary value and accepted as method of payments by other customers“.

So, isn’t a payment with a pre-paid credit card, also a payment which uses “electronic money”? It seems so!

By “virtual money” on the other hand, we mean that the payment is made within a system which is separate from credit card transactions, but requires a kind of “virtual money” represented by “coins” provided by associated banks (or societies), who are directly responsible for the certification regarding the authenticity of the money issued.

In this article, we will just discuss “virtual money” since the concept of electronic money would have to stretch to include all those funds available with credit card payments. This issue, has been thoroughly discussed in our previous articles on credit card payment posted on our blog.

In order to distinguish between these two methods of payment (very different from each other), today we will speak only of currency, that we will call “virtual money”. Very often, this requires both parties (the buyer and the seller) to register on the system. Sometimes it becomes real virtual money, with its own name and value and can only be used within this system. In other cases we can change it into another type of “virtual money” when we want to use it in other systems.

Payment with virtual money (also commonly called electronic money) happens between two parties, who have registered on a specific system (in our case, the two parties are the buyer and the seller). An “account” or a “virtual purse” is opened, to which a credit card could also be assigned. When a customer pays using this method, the virtual money will be transferred into the seller’s virtual account on this system, then the seller can transfer the money into his own bank account or withdraw it.

Many countries use different systems. In Europe and USA, the most commonly known and used system is certainly PayPal, while in other countries, such as Russia, they very often use the Webmoney system, Moneymail and many others. Taking Russia as a benchmark, we can absolutely say that in many places this method of payment is more frequent than the traditional credit card payment, since the banks provide very limited services to small firms in our country, so, electronic money is effectively the only available method of payment other than cash, which can be used by the majority of people to confirm their purchases.

In this case, generally, payment works in the following way:

• The seller is asked to register with the service, which consists of opening an electronic money account;
• The buyer visits the online shop, selects the items he wants to buy and chooses the credit card method of payment;
• At the checkout, the buyer is automatically sent to the secure society payment gateway, responsible for this payment, where he will be asked to insert his own credit card data or to open an electronic money account in order to proceed with the purchase;
• At the end of the transaction, the buyer is sent back to the online shop where he will get the result of the transaction;
• The amounts from successfully concluded transactions, won’t be directly credited into the seller’s bank account, but they will be credited to the electronic money account and afterward the seller will transfer these funds from the virtual account to his bank account.

How can we pay via these systems?

1.      First of all it’s necessary to register on the system. On each system, rules and requirements are different. In some cases, a holder verification procedure can be requested. However, if any verifications are requested, these are very simple operations which don’t take too much time.

2.      It is necessary to deposit funds (virtual money) into this account. With some systems, it’s possible to do that simply using a credit card, while with others, a wire transfer or the purchase of pre-paid cards in the appropriate places is requested. There are many different methods and they vary from system to system.

3.      If you can’t enter this system of payment directly from the shop where the purchase has been made, in order to proceed with the payment, sometimes it’s sufficient to know only the e-mail address (for example, your PayPal e-mail address); in other cases, you also need to know the code of the account or of the virtual purse.

When you need to register with one of these virtual money systems, other questions can arise:

– What do I need to do? Should I register with this system or not?

– Do I need this virtual money?

– What are the pros and cons of this method of payment?

• If you frequently make online purchases, we are sure you have already come across this method of payment offered within different online shops. Maybe, it would be useful to open an account, but try it out first: do not immediately deposit a large amount of money, and remember, this money can be only used within this system and only in those shops which accept this kind of money (with PayPal you will not have this problem since PayPal allows you to make payments without depositing money on the account, but simply by linking your credit card to the account, from where the money will be withdrawn when you make the purchase. However, not all systems are equal, unfortunately!!)
• Do not expect to make a payment as soon as you have registered with the system. There are definitely going to be a few simple security checks made, for example those referring to the credit card (remember always to carefully check the terms and conditions of the provided service).
• Before registering, carefully check how your account can be loaded and also check whether the services offered seem genuinely useful and convincing.
• The same goes for withdrawing the money. If the money is not used, how can you withdraw it?

One last thing: beware of fraudulent e-mails you may often receive. Check carefully if the link indicated on the e-mail really goes to the system you are registered with.

Do you want to know the advantages or disadvantages of these systems and study what we have said above in depth? In our next article we will talk in more detail about this and other issues.