E-wallet – a legal overview – Lexology

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INTRODUCTION
Money has been considered to be the most crucial aspect of one’s life since the times of early civilizations not only economically but also in non-economical ways. The first of such type started with the barter system wherein a good or commodity was brought in exchange of another good or commodity. With the evolution of time, coins came into existence and later on came the paper notes which consequently gave rise to banks. The next generation of money transfers focused less through deposit accounts and more through electronic platforms. Such platforms have prevented the overcrowding and overburdening of the banks at large giving rise to digitalization and automatic money transfers through just few clicks on the World Wide Web.
This change on a global level has led to smooth and easy flow of world trade and commerce. Industrial revolution has emerged by easing with the monetary exchange systems and payment systems rapidly. It can be argued that just like earlier our parents used to give us pocket money on a monthly basis, a new and modernized concept of payment system has arisen over the internet by revolutionizing the movement of money both nationally as well as internationally.
This article identifies the definition of e-wallet along with its key features. Another part of it pertains to legal issues involved along with regulatory statutes followed by international cooperation.
WHAT IS E-WALLET?
E-wallet is the process of transferring money through medium of electronic communication and doing away with the conventional methods of payment services. There is no particular definition of e-wallet per se but it can be ascertained that it is the money which moves electronically and can be stored by the consumer in the form of a smart card such as debit cards or credit cards. Such a payment method is advantageous because it is password protected and can only be accessed by the owner of the card.
With the ever growing popularity of e-wallets in today’s times, almost every shop from smallest to the biggest is accepting money through these methods of online payments making it faster and more reliable. Carrying cash is being reduced to a very great extent since the mobile phone is sufficient to perform all those functions. More value is added and available to the consumer now.
KEY ELEMENTS OF E-WALLET
Generally e-wallet is a substitute for paper money and is replacing the ancestral way of money exchange and payment receipt. Bigger values can be stored in the plastic card through specialized software and technologies as prepaid values. The microprocessor chip is the one which stores all the information and allows or denies access to the same since it is the sensory part of the card.
This money can be easily transferred from one place to another. Such money transferred is also recorded properly with the bank account linked to it and can be easily seen by the consumer on his storage devices or even through pass books.
At a point of time, a number of parties can be involved in such e-transactions from the side of the parties as well as from the side of the bank. However technical glitches are common to occur during this process due to internet network issues but human errors are prevented to a very large extent which is the most common problem in paper based transactions.
LEGAL ISSUES INVOLVED IN E-WALLET
Security is a major concern while accessing e-wallet facility because anything and everything on the internet is exposed to the risk of being hacked. This further gives rise to other issues such as piracy, integrity, authentication, etc. Security issues will not only result in financial profits but also disturb the system as a whole by creating and instilling a bug in it. Such a breach can be done with serious criminal intent, by usual hackers and also by setting up such a system with is full of flaws and breaches security.
A well potential system which is fit for the required purpose should be developed which restricts the access to its authorized users only with authenticated identity of them. Secrecy of their data and information should be maintained along with denial of unauthorized access to the bank’s central system.
Privacy has to be practiced in a very sound manner so that wherever and whenever such a breach has occurred, the system developed has the ability to track and verify such parties involved in the transaction. With the advent spread and growth of e-wallet internet related crimes are most likely to rise resulting in increased transmission of consumer’s financial information. Money laundering over the World Wide Web is also an emerging issue. Rules governing the prevention of such misuse of e-wallets should be made aware to the consumers.
Out of the above mentioned issues, the most important one is the legal risk involved in e-wallet. Such legal actions arise from money laundering, customer disclosures, privacy protection, and the like. When legal rights and obligations of the parties are well established such as contractual relationships, breach can occur at any point of time and liability can be imposed during such events like fraud, counterfeiting, default, and the like.
Legal issues on regulation of e-wallet would include management of monetary policy, supervision of payment system and promulgating appropriate regulations for looking after the banking system as a whole. Demand for bank reserves and the capacity of the central bank to provide with such reserves at the correct time is troublesome. Issues also arise in credit facility when a credit card is issued and withdrawal is made to its utmost limit but is not yet returned back to the bank. In such cases debit card facilities are much better and secure. Other issues may range from fighting the problem of improper use of e-wallet, clearing, settlement, liquidity and stability issues.
Crypto-currency is digital form of currency which is another emerging issue on the online platforms wherein such currency is brought in the form of bit-coin in return of different values. Value of such bit-coins keep on increasing or decreasing based upon the demand. This was mainly established to create a fully digital system. But very often hacking and tampering has been detected since identity of no user is revealed. This is a part of cyber crime and cannot be declared illegal but only regulated. Legal aspects of crypto-currency range from decentralized nature, absence of well-defined legal framework, instability in market and economy, managed by independent wallets, tax evasion for hiding assets and money laundering.
STATUTES REGULATING E-WALLET
The Payment and Settlement Systems Act, 2007 came into force for supervising and regulating payment systems in India. Such payment system includes operations like credit card, debit card, smart card, money transfers, and the like.
The RBI Master Circular “Policy Guidelines on Issuance and Operation of Pre-paid Payment Instruments in India” laid down a comprehensive set of rules and regulations for prepaid payment instruments in India. This also identifies three types of payment instruments such as closed system payment instruments, semi-closed system payment instruments and open system payment instruments. Certain eligible banks who comply with all the required terms and conditions given under the guidelines can use such a scheme.
Other acts like Information Technology Act, 2000 and Indian Penal Code, 1860 are few laws which govern cyber crimes committed over the internet through e-banking. Punishments and penalties in the form of civil as well as criminal are imposed by the former act while the latter act imposes criminal liability only upon cheating, forgery, fraud, counterfeit currency, etc.
Right to Privacy has been considered to be a Fundamental Right under Article 21 of the Indian Constitution. In view of the same, Personal Data Protection Bill, 2019 has been proposed and is waiting to be passed by the Parliament. This law will not only protect personal data of individual concerns with other countries but also maintain and uphold the integrity and sovereignty of the nation. India’s lacks on data privacy laws since a very long time which might be overcome by introduction of this new law. However few information can be passed on with prior permission of the consumer which will act as an exception to this.
INTERNATIONAL COOPERATION
E-wallets have been conceptualized not only nationally but also internationally for supervising and regulating financial crisis, credit mismanagement and NPAs. Indian banks are said to be linked internationally with other banks on a global platform. Liquidity crunch occurs between banks when a bank which has borrowed money from another bank is unable to return the money. In such a case, money is infused in the banking system by reducing bank’s funding, credit risk and liquidity risk. Consequently, deposits are encouraged along with borrowing from the market.
In view of the above problem, Basil Committee gave its own opinions which were to be followed by those who gave their consensus. India has also accepted such norms with the objective to focus on bank risks and financial systems, ensuring that financial institutions have enough capital in order to meet obligations and absorb unexpected losses.
These norms also aim to establish minimum supervisory standards, improve effectiveness of technique and supervise international banking business, exchange information on national supervisory arrangements, setting up bodies for securities and insurance industries, supervisory standards and guidelines. In this way no foreign bank can escape supervision and consistent and adequate supervision can be maintained across member countries.
CONCLUSION
Framing of proper regulations for e-wallet requires a very neutral approach with proper supervisions and protections. A number of different risks are involved in undertaking such activities. But with the passage of time such laws are coming into force which are stricter in terms of imposing liabilities.
However the best way to regulate this issue of e-wallet and give it a positive push is to promote its use more often so that people may develop confidence in such system. Regulations are there and with time when new problems arrive so will its solutions. There are people who still do not trust this online system of e-wallet.
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