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New rules put more money in e-wallets

Consumers who use electronic wallets will be able to spend more money when shopping online under new regulations governing the use of e-money, says Nick Huber.

The rules, which were announced last week by City regulator the Financial Services Authority, mean that companies that issue e-money will be able to increase the funds held in consumers' online wallets from the previously proposed limit of £250 to £1,000.

However, analysts said the new framework will provide only a limited boost for the online payment market, pointing out that many retailers do not accept payments from e-wallets.

E-wallets act as a virtual purse that sits on a user's computer. Customers store money in them and top them up by transferring funds from their bank accounts.
Although the technology offers a way of paying for goods without putting bank or credit card details on the Internet, analysts believe e-money will not take off unless more retailers get on board.

"It needs retailers to accept it," said Daniel Mayo lead analyst in Datamonitor's financial services group. "There have been pilots in certain areas but no critical mass." He added that e-wallets were ideal for low-value payments, providing an alternative to payment by credit card.

In order to protect the consumer, the Financial Services Authority regulations require e-money issuers to have a minimum capital base, internal controls and systems that are "sound".

Issuers of e-money must also ring-fence their e-money activities from other areas of business risk.

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