This is the era of electronic money transactions. To know the history of electronic money, read on…
Electronic money covers a wide variety of monetary transactions. The transferred money can be a credit or debit. The electronic money, also known as digital money, includes the use of computer network like internet and digital stored value systems for transactions. The financial cryptography and other related technologies are included in electronic money. The transactions are made on internet or with the help of smart cards.
The roots of electronic money can be found in the increased use of computers. In 1860, the Western Union introduced the electronic fund transfer (EFT) and this marked the beginning of electronic money. Semi-Automatic Business Research Environment (SABRE) was jointly created by IBM and American Airlines.
In 1964, a fully operational airline reservation system, with a real time transaction processing system, was set up by SABRE. The telephone lines were connected to the terminals fitted at the airport and reservations were done on the basis of credit, for the first time in history. In 1970, all branches of the banks in Europe were linked using mainframes. France witnessed the use of electronic money, with the introduction of the Mintel services. The French Mintel terminals were given free of cost to everybody so that they could use these terminals for online shopping.
In late 1990s, the technologies related to electronic money like electronic checks and embedded smart cards used the public key cryptography for transferring money. With the advent of e-mail, the transactions of electronic money started increasing. People started sending their credit card details via e-mail to buy goods. Later, the customers started having an online account to avoid transaction fees.
Nowadays, the use of electronic money is possible due to cryptography and digital signatures. Public key encryption and decryption together are called public key cryptography. The public key encryption involves two keys, viz. public key and private key to authenticate the identity of an entity, electronically. As the name suggests, the public key is published and the private key is kept secret.
Data is encrypted with the public key and the same data is decrypted with the corresponding private key. Digital signatures are used when you are encrypting some important information that is to be kept confidential. Digital signatures involve the use of hash tables that encrypt a hash using the private key and decrypts the hash using the private key.
This technique changed the tangible cash to electronic cash and is hassle free. Two types of electronic cash are direct deposit and electronic fund transfer (EFT). The debit cards and online payment of bill, help in easy and quick transfer of money.
However, there are a few disadvantages of electronic money. Frauds and system failures are the significant drawbacks of electronic cash. The hacking of personal banking accounts are observed frequently in these years. Failure of software and power loss can sometime prove dangerous when transferring money electronically.
Although there are disadvantages, steps are taken to decrease these malpractices. Electronic money has surely changed the business and banking techniques. Electronic money has enabled any time and anywhere banking facility.