Mary Altaffer / PA

If you love shopping as much as I do, you probably don't need any help spending money. Yet we're set to receive it anyway, with the impending launch of new e-money 'wallets' in the UK.

So how will it work and what are the security risks?


Google announced the launch of Wallet, an app that allows people to pay for products with their mobiles, in the US this week. It is reported that before the year is out, mobile phone customers won't need cash and credit cards at all, thanks to a new breed of mobile electronic wallets.

Of course, these new accounts are expected to filter through to Britain soon, yet watchdogs are warning that customers should not expect the same level of protection from e-money as they are used to when shopping with, for example, their credit cards.

Emma Parker, a spokesman for the Financial Ombudsman Service, told the Daily Telegraph: "We are not saying e-money is a bad thing. It can be very convenient. But we are seeing a steady stream of complaints, because people do not always understand what they are getting involved with. We fear this number could explode when the market opens up to the mobile companies later this year."

Neil Aitken, a spokesman for the Payments Council, warned consumers to do their homework carefully before signing up. "The consumer protections you are used to, such as money-back credit card guarantees, won't necessarily apply," he said. "Different providers may offer different safeguards. It is a case of buyer beware. You must read the terms and conditions carefully."

Consumer complaints
Recent stats show consumers are losing out in seven out of 10 complaints relating to e-money accounts dealt with by the ombudsman – in comparison to winning more than half for other financial disputes. The watchdog received 1,600 complaints last year about e-money accounts, although four out of five were resolved informally.

Companies other than banks have been able to offer e-money services for the first time since May following a law change, and mobile phone companies have been the most enthusiastic about the service.

O2 has applied for an e-money licence so it can offer customers an e-wallet app, and trials of Google Wallet are due to begin shortly. The services will allow customers to load cash plus details of all plastic and loyalty cards onto their smartphones. To make a payment, they wave it in front of a payment point or touch a pad. They will also be able to text cash to friends.

Most worryingly at the moment, is that unlike bank accounts, e-money customers are not protected by the Financial Services Compensation Scheme if an e-money firm goes bust - although account holders' cash must be held separately from company money as a safeguard.

Will you be opening an e-money account? Share your thoughts in the comments.