Hong Kong’s new e-money ordinance will help further develop the retail payment services market in the SAR and enhance public confidence in using such products, according to experts in the banking, financial and legal sectors. However, the high capital requirement for a licensed operator may be a barrier for startups to enter the market.
The global retail payment landscape is changing rapidly as we see a growing number of new and innovative payment products and services. E-money or stored value facilities (SVFs) is one of them. It allows users to store pre-paid money on smart cards, mobile phones or Internet-based payment accounts and use them to pay for goods or services.
Apart from banks, non-banks like telecom operators, e-commerce companies, technology solutions providers, FinTech startups and alike are moving into the retail payment market especially in the Internet and mobile spaces.
New e-money regulatory framework
Enacted on November 13, the Payment Systems and Stored Value Facilities Ordinance (PSSVFO) puts into effect a new regulatory framework for stored value facilities (SVF) and retail payment systems (RPS).
Compared to RPS, SVF has aroused interests and concerns among industry players and the public.
Under the Ordinance, the Hong Kong Monetary Authority (HKMA) is empowered to implement a mandatory licensing system for multi-purpose SVFs. One-year grace period is allowed for existing SVF issuers or new market operators to apply for a license from the HKMA.
From 13 November 2016 onwards, it will be illegal for any issuers, unless exempted, to issue or operate any SVFs without a license.
The Ordinance covers both device-based (card-based or physical device-based) and non-device based (Internet-based or mobile accounts) multi-purpose SVFs.
The only device-based SVF that is already regulated is the Octopus card, which is licensed under the Banking Ordinance. Banks licensed under the Banking Ordinance will be deemed to be licensed to issue and operate SVFs.
Exempted SVF types include single-purpose SVF such as prepaid cards or loyalty cards; bonus and loyalty point schemes such as airline mileage programs; and SVFs used for purchasing digital products through electronic devices.
“We started seeing a lot of e-money products — online and mobile, but they were not captured by our regulatory regime. We saw the need to expand the scope to cover those products,” said Li Shu-pui (photo left), head of financial infrastructure development division at the HKMA at the Hong Kong International Computer Conference last November.
He added, “We carried out consultation with industry players. They wanted us to expand the scheme because they can see the benefit of being regulated by HKMA. It provides confidence to users. As a result we expanded the Clearing and Settlement Systems Ordinance to an amended ordinance which is now called PSSVFO.”