What it means
The category spans several very different things that share one property: the balance exists as a record. A bank deposit is a claim on a commercial bank, e-money in a payment app is a claim on that provider, a stablecoin is a claim on a token issuer, and a central bank digital currency would be a direct claim on the central bank.
Those distinctions decide what happens to your money if the issuer fails. For a business the appeal is speed and reach.
Digital balances can move between accounts, countries and counterparties in minutes rather than days, they can be split into very small amounts, and they can be automated so that payments trigger from a system rather than a person. That shortens the working capital cycle and reduces the cash tied up in transit.
The costs are easy to underestimate because they arrive in several forms: a fixed fee per transfer, a percentage of value, a foreign exchange spread and sometimes a float cost while funds sit with an intermediary. Comparing payment rails properly means adding all four for a realistic payment size rather than reading the headline fee.
On high-volume, low-value payments the fixed element dominates; on cross-border transfers the currency spread usually does. The main nuance is settlement finality and counterparty risk.
Money in an insured bank account behaves differently from money in a payment app or a stablecoin, where balances may be held with third parties and protection can be limited or absent. Treasury policy should state which forms of digital money the business may hold, in what amounts and for how long.
Accounting treatment follows the substance. Bank balances and most e-money sit in cash and cash equivalents, while crypto-assets and some tokens are usually not treated as cash and are measured under a different standard, which affects both the balance sheet and the reported cash flow statement.
In practice
Real-world examples.
Example
A freight forwarder pays 60 overseas agents each month. Moving from bank wires at roughly $170 per payment to a digital provider at roughly $42 cuts its annual payment costs from about $122,400 to about $30,240.
Example
A ride-hailing platform pays drivers daily into e-money wallets rather than weekly by bank transfer. Driver satisfaction improves, and the company holds a smaller payables balance because obligations are settled almost immediately.
Example
A manufacturer's treasurer sets a policy capping balances held with any single payments app at $250,000 and sweeping the excess to an insured bank account overnight. The rule accepts slightly higher fees in exchange for lower counterparty exposure.
Formula
Calculation
Total cost of a digital payment = Fixed fee + (percentage rate x payment value) + currency spread.
A business needs to send $5,000 to an overseas supplier and compares two routes.
Traditional bank wire: fixed fee $45, plus a 2.5% foreign exchange spread.
Spread cost = $5,000 x 2.5% = $125.
Total = $45 + $125 = $170.
Digital payments provider: fixed fee $2, plus a 0.8% spread.
Spread cost = $5,000 x 0.8% = $40.
Total = $2 + $40 = $42.
Saving on this payment = $170 - $42 = $128, a reduction of $128 / $170 = 75%. Across 200 such payments a year the saving is 200 x $128 = $25,600. That figure should be weighed against the counterparty risk of holding a balance with a payments provider rather than a bank.Case study
Seen in the real world.
Meridian Craft Exports is an illustrative, fictional business sourcing goods from four countries and selling into two. It was making about 180 supplier payments a year through its bank at an average all-in cost of $165 each, roughly $29,700 annually, with funds typically arriving in two to three working days.
After a review, Meridian moved routine supplier payments to a licensed digital payments provider, cutting the average cost to about $45 and settlement to same day, saving roughly $21,600 a year and letting it negotiate a 1% early-settlement discount on around $2,000,000 of purchases, worth a further $20,000. To manage the risk of holding balances outside the banking system, treasury capped the provider balance at one week of payments and kept the bank relationship open as a fallback.
The illustrative point is that the saving came from two places, direct fees and faster settlement enabling supplier discounts, and that the risk control mattered as much as the saving.
Watch out
Common mistakes.
- Assuming all digital money is equally safe, when a bank deposit, an e-money balance and a stablecoin carry very different protections.
- Comparing payment providers on headline fees while ignoring the foreign exchange spread, which is usually the largest cost on cross-border transfers.
- Recording crypto-asset holdings as cash on the balance sheet, when accounting standards generally do not treat them as cash or cash equivalents.
Questions
People also ask.
Is digital money the same as cryptocurrency?
No, cryptocurrency is one small subset; most digital money is ordinary bank deposits and regulated e-money.
What is a central bank digital currency?
It is digital money issued directly by a central bank, making it a claim on the central bank rather than on a commercial institution.
Does holding digital money reduce fraud risk?
It changes the risk rather than removing it, replacing physical theft with payment fraud, account takeover and authorised push payment scams.
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