Episode 111: Understanding Digital Money: E-Money vs. D-Money

Episode 111 of the Fintech Garden podcast, hosted by Igor Tomych, features a compelling discussion with fintech expert Jonny Fry, delving into digital currencies and exploring their implications for the future of payments.

Defining Digital Currency: What is the Difference Between E-Money and D-Money?

Igor begins by addressing a common misconception: people frequently believe they’re already using digital money because they have banking apps and digital wallets. Jonny clarifies this misconception by differentiating electronic money (E-money) and digital money (D-money).

E-money is essentially traditional money managed by banks electronically, existing in digital bank ledgers. It relies on fractional reserve banking, meaning banks use the deposited funds to lend out multiple times. Jonny illustrates this point with historical financial failures, referencing examples like Shearson-Lehman, Flow Bank, and First Republic Bank.

In contrast, D-money leverages blockchain-based technologies, allowing money to exist as tokens that can be instantly and securely transferred between parties. D-money is typically backed by tangible assets such as central bank reserves, money market funds, real estate, or gold. Jonny emphasizes that while this involves cryptographic technology, he is not referring to volatile cryptocurrencies like Bitcoin, Ethereum, or Solana.

Real-World Implications and Benefits of D-Money

Jonny describes D-money as providing significant advantages in terms of settlement speed, security, and transparency, highlighting how atomic swaps could replace the current prolonged clearing systems of E-money. He explains that traditional payment networks and banks often introduce multiple-day settlement delays. With digital money, transactions can be executed immediately, creating real-time “delivery versus payment.”

The discussion also emphasizes programmable payments, enabled by smart contracts and IoT devices, facilitating automated transactions based on predefined conditions. Examples provided include payments automatically triggered when a ship arrives at port or upon confirmed delivery of goods. This type of smart money integration could revolutionize international trade and streamline business operations.

Challenges and Concerns with Digital Currency

One potential issue raised is privacy. D-money transactions leave clear digital fingerprints, allowing easier tracking and tracing compared to cash. Jonny acknowledges that, while useful for regulatory oversight, this feature could raise privacy concerns for consumers.

Another notable challenge mentioned is regulatory uncertainty, especially regarding stablecoins and Central Bank Digital Currencies (CBDCs). Regulatory frameworks for these digital currencies are currently incomplete in many countries, including the UK, leaving the fintech industry navigating in uncertain waters.

Impact on Banks, Card Networks, and the Global Economy

Jonny predicts substantial changes in the banking and payment industries as D-money grows. He highlights the historically high profitability of traditional payment networks such as Visa and MasterCard, noting how digital currencies could disrupt this landscape by offering cheaper, more efficient alternatives. Banks, particularly legacy institutions, may struggle unless they adapt to these rapid technological advancements and shift towards more decentralized systems.

Furthermore, Jonny notes a broader societal shift toward digitization, pointing out that approximately 1.4 billion unbanked individuals worldwide already possess mobile phones. This presents tremendous opportunities for fintech companies to drive financial inclusion and innovation globally.

The Future of Money and Payments

Looking forward, Jonny forecasts significant efficiency gains and cost savings from wider D-money adoption. Real-time settlements and transparent tracking would reshape auditing processes, risk assessments, and overall economic flow. Although digital money isn’t expected to completely replace traditional cash or checks overnight, Jonny suggests a significant shift within the next five years, driven by AI integration and increasingly intelligent payments.

Book Recommendations from the Episode

Closing the podcast, both Igor and Jonny shared thoughtful book recommendations that offer fresh perspectives aligned with the themes discussed:

• Igor Tomych’s Pick: “Tower of Babylon” by Ted Chiang, a thought-provoking sci-fi novella exploring alternate interpretations of a well-known historical narrative, encouraging readers to challenge conventional perceptions.
• Jonny Fry’s Pick: “Breathe” by Jason Nestor, an insightful exploration into the essential practice of breathing. Fry draws parallels between breathing and payments—both fundamental yet often overlooked—emphasizing the importance of mastering basic practices to enhance overall efficiency and health.

This engaging conversation on Fintech Garden underscores the evolving nature of money, highlighting significant differences between electronic money and true digital currencies. Embracing these changes promises a more efficient, secure, and inclusive financial future.