Electronic money discussed in Estonia

TALLINN - First there was cash. Then there were checks, credit cards and debit cards. Now, something called e-money is making its way into the Estonian economy.

E-money is a voucher that can be stored either on a smart card - like a regular bank card or a phone card (hardware-based) - or as normal files on computer software. Users can transfer money from their regular bank accounts to smart cards, buy the cards with cash or purchase a computer disk that stores e-money and then install it on a computer to use.

Smart card holders can cash the money in ATMs, pay in regular stores and online shops with the cards. To pay in online shops, however, a user must have a special device called a card reader into which the smart card is inserted.

One of the most useful features of the smart card is that the sum on it is limited. In Luxembourg, for example, you can only store up to 200 euros ($170). Henrik Orup, international account manager of Proton World, a Belgian developer of e-money, said this makes people feel more secure.

"If you lose a smart card, you lose only an inconsiderable amount of money. If you lose a bank card, you may lose all your savings," he said.

The Bank of Estonia held a conference Sept. 19-20 on the new form of cash, in cooperation with TAIEX, a technological assistance organization under the enlargement service of the European Commission.

A discussion on the usability of smart cards was one of the conference's hottest at the conference. David Hagen, IT audit manager from Luxembourg's financial sector supervisory commission, enthusiastically defended the cards, stressing their security.

"Besides, smart cards remarkably end the responsibility of banks. A person is absolutely responsible for his smart card, and the e-money stored on the card has no connection with any demand account," Hagen said.

Vahur Kraft, president of the Bank of Estonia, opened the conference, asking: "Could an early and successful adoption of the e-money have a positive impact on the societies of the transaction countries as a whole?"

Estonia and other countries on track for EU membership are studying the directives of the Central European Bank regarding e-money, according to Kristiina Leola from the Bank of Estonia.

Between 1994 and 1998, almost every EU country developed and put into practice different kinds of smart cards. Over the last few years, some say, probably too much has been expected of e-money.

According to Hagen, Estonia should follow the experience of other countries. "If a country does nothing, and then tries to make up for lost time, the result will be pitiful," said Hagen.

"The real-life advance of e-money has been much slower than initially expected. The problem is the limited (integration) of the various technologies used by different providers of e-money related services," Kraft said.

It took three years to develop e-money usage in Luxembourg after the country got an EU directive to do so.

So far, the most successful country using e-money is Belgium. First issued in 1995, smart cards under the name Proton are now in the pockets of eight out of 10 Belgians.

In Estonia, where the average salary barely exceeds 5,000 kroons ($272), the maximum sum stored on a smart card should be much less than in Western Europe.

Specialists from the Bank of Estonia are now waiting for EU's guidance. Sven Meimer, head of the payment systems' development division of the Bank of Estonia, said the bank will consider the question of using smart cards more seriously when it has received the relevant EU directive this month.

Eero Raun, PR manager of Eesti Uhispank, said the smart card has the potential to receive international acclaim, and may become a popular alternative to carrying hard cash in Estonia as well. "But a year and a half ago the smart card was much more discussed than today. It means that new mechanisms of payment appear every year, and older ones are somehow forgotten."

Finnish bank Merita predicted a positive future for smart cards in Estonia.

Juhani Seilenthal, a board member of Merita bank's Tallinn branch, said that if a smart card was supported by the pan-European credit card system Europay, it would certainly have a future in Estonia, because all the banks here support the system. He added that smart cards are safer as their technology is 20 years newer.

Hagen suggested the problems of e-money in Estonia and his country, Luxembourg, are very similar: "Both countries and both markets are small."

Another question is that of culture - some people still do not believe in the good old debit or credit cards.

"For example, e-money met with difficulties in France, where checks are popular. If people are used to the fact they can touch money or checks, they will hardly welcome the e-money soon," Hagen said.