When is e-money not e-money? When it stays on your mobile phone

For years now, the mobile phone industry has been trying to get us to think of our phones as electronic wallets. Now, just as that is starting to happen, an EU Directive from last year is about to put the kibosh on it, at least for prepay users.

It all hinges on the definition of e-money. In UK law, it is 'monetary value stored on an electronic device, issued on receipt of funds, and accepted as a means of payment by persons other than the issuer.' The Directive seeks to regulate its use, to protect consumers and prevent it being used for money laundering.

The problem is that the £10 top-up you put on your prepay account this morning could also be covered, because the UK government's Financial Services Authority categorises as e-money any payments that you make out of your credit to buy things that aren't consumed on the phone. So you are OK buying ring-tones and the like, but not paying for parking, subscribing to a website or entering prize competitions.

And the FSA wants the value of all e-money held by the mobile networks to be placed in trust. That's not just the amount spent on external goods and services - if some prepay credit can be spent that way, then it all counts as e-money.

Needless to say, the network operators are not thrilled by the prospect of placing the £millions currently stored on prepay accounts into trust - that money is too useful as a cash float. But they can carry on selling their own premium rate services, and of course contract users are unaffected.

The people who are really unhappy are the companies that provide reverse-SMS payment services. "At the moment, the response from the network operators is that they are choosing not to issue e-money," says Craig Barrack, UK country manager at Netsize. "It limits how much of the market we can reach."

Frankly the whole thing is absurd. What is the likelihood of Mafia bosses laundering money through premium rate calls at £1.50 a pop? And if callers need protection from the unscrupulous, why leave contract users unprotected, when they have more to lose?

Making it even dafter is that definition of consumed on the phone: it's e-money if you subscribe to a mucky website and view it on a PC connected to a landline of some sort, but it's not e-money if you subscribe to the same website and view it on the same PC connected via your mobile phone.

The FSA has an e-money consultation paper out at the moment, but if you want to comment, you will need to hurry as the consultation period ends today. ®