mCMO Conference 2013 - Mobile, Internet-based and Electronic Payments – Initiatives and Regulations

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Keynote speech by Mr. Esmond Lee, JP …

Keynote speech by Mr. Esmond Lee, JP
Executive Director (Financial Infrastructure), Hong Kong Monetary Authority
Speech topic: Mobile, Internet-based and Electronic Payments – Initiatives and Regulations

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  • 1. Mobile, Internet-based and Electronic Payments – Initiatives and Regulations mCMO Conference 11 October 2013 Mr. Esmond Lee Executive Director Financial Infrastructure Department Hong Kong Monetary Authority
  • 2. Contribution of retail payment systems to the economy • Enhance consumers’ convenience when spending on goods and services. • Facilitate merchants to collect payments effectively. • Contribute to economic growth as transaction costs can be reduced. 2
  • 3. HKMA’s role in retail payment initiatives • As a regulator – preparing the Clearing and Settlement Systems Amendment Bill (CSSAB) to include retail payment systems into the designation regime and devise a licensing regime for stored value facilities. • As a facilitator  E bill presentment and payment platform : HKMA develop the platform for bill presentation by merchants through the banks  E cheque : HKMA develop the platform for e-cheque issuance and presentment, and the clearing and settlement use the existing platform for conventional cheques  NFC Mobile payment : HKMA promulgates a set of guidelines and standards 3
  • 4. Proposed legislative approach Policy objectives • Strengthen the safety and soundness of the operation of Stored Value Facilities (SVF) and RPS in Hong Kong • Protect the float of SVF • Foster innovation and development of retail payment products and services by providing clarity in the laws and an effective regulatory regime Proposed legislative approach -- amend the CSSO in order to: • Establish a licensing regime for SVF • Empower the HKMA to designate certain RPS to be subject to its supervision • Empower the HKMA to perform on-going supervisory and enforcement functions Legislative timeline • Planned to introduce amendment Bill to LegCo in H2 2014 for scrutiny • Expect enactment of new legislation in 2014-2015 legislative year Note: The multi-purpose stored value card regime under the BO will be incorporated into the amended CSSO 4
  • 5. Proposed Legislative Approach (cont’d) Existing regulatory regime Multi-purpose stored value card regime under the BO Proposed regulatory regime Amend the CSSO to cover the regulatory regime for SVF and RPS SVF Device-based SVF Licensing Regime Non-device based SVF RPS Payment Systems Designation Regime CSSO Large-value payment systems 5 5
  • 6. Licensing Regime for SVF Mandatory licensing regime • It is an offence to issue SVF without a SVF licence in Hong Kong Licensing criteria • Physical presence: The company must be incorporated under the laws in Hong Kong, with a local registered office • Principal business: Principal business must be the issuance of multi-purpose SVF • Adequate financial resources: On-going minimum (paid up) capital requirement of HK$25 million • Other licensing conditions: e.g. fit and proper requirements on management and ownership, prudential and risk management requirements, anti-money laundering and counter-terrorist financing requirements, purpose and soundness of scheme, etc • Licensing conditions may be attached: e.g. restrictions on business, higher capital requirements, etc 6
  • 7. Licensing Regime for SVF (cont’d) In line with current practices of the Banking Ordinance • Licensed banks deemed to be licensed • Single-purpose SVF not required to be licensed • Exemption of certain SVF from licensing if it poses minimal risk to the users or the payment and financial systems of Hong Kong Management of the float: • Float must be segregated from the SVF issuer’s own funds and at least 100% protected by safeguarding measures, e.g.: • Guarantee from a licensed bank in Hong Kong; or • Establish a trust account with a licensed bank in Hong Kong • To discuss investment of float with the HKMA in advance Maximum amount to be stored on a SVF: • The HKMA may impose a limit on the maximum value that can be stored on a SVF on a case-by-case basis by attaching a licensing condition 7
  • 8. Designation Regime for RPS Eligible systems: • Operates and provides retail payment services in Hong Kong; or process Hong Kong dollar or other prescribed currencies (e.g. RMB/USD) Designation criteria: • A RPS may be designated if any disruptions to the RPS have implications to the monetary or financial stability of Hong Kong; public confidence in payment systems or the financial system of Hong Kong; or day-to-day commercial activities in Hong Kong Potential coverage: • Credit card schemes • Debit card schemes • Merchant acquirers • Payment gateways • Mobile payment infrastructures RPS outside HK • Exemption of designated RPS established outside Hong Kong from certain requirements if it is already subject to adequate supervision by the home regulator 8
  • 9. Consultation Exercises • Soft consultation • • Conducted in H2 2012 to sound out major industry players on regulatory proposals Industry consultation • • Over 40 industry stakeholders including the consumer council consulted, feedbacks generally supportive • • Conducted between December 2012 and January 2013 Comments incorporated in public consultation paper where appropriate Public consultation • Conducted between 22 May and 22 Aug 2013 • Feedbacks from both industry players and general public indicated general support • Comments being analysed and processed, consultation results to be published in due course 9
  • 10. Legislative Timeline • Preparatory work for legislative amendments in progress taking into account comments received from public consultation • Planned to introduce amendment Bill to LegCo in H2 2014 for scrutiny • Expect enactment of new legislation in 2014-2015 legislative year • Transitional period of 12 months for existing SVF issuers to apply for SVF licenses and adapt to new regulatory framework 10
  • 11. NFC mobile payment a new lifestyle (Mobile phone as a communication ID card) 11
  • 12. NFC technology in daily lives Store e-boarding pass for automatic flight boarding Pay for goods with a tap on the Point of Sale (POS) by deducting value from e-purse Collect transit tickets on the phone Purchase items by tapping on the NFC tags or smart posters Transit ticketing Payments NFC devices & Infrastructure Data exchange Identity authentication/ Access control Pair up devices for file transfer Access to buildings Marketing & Promotion Exchange business cards Read smart posters to get the latest promotion Check-in hotel online with electronic room key provisioned over the mobile network to the phone Collect and store e-coupons Possibilities for using NFC technology in our daily lives are numerous 12
  • 13. NFC Mobile Payment Overview Hong Kong possesses good market conditions for NFC mobile payment • High acceptance of contactless payments – 85% of non-cash transactions are already contactless • High smartphone penetration rate – 90% of mobile phones shipped to Hong Kong in 2013 will be smartphones • Increasing availability of NFC-enabled phones – over 40% of smartphones shipped to Hong Kong in 2013 are expected to be NFCenabled 13
  • 14. HKMA facilitates the development of innovative services NFC study commenced  Aroused interest of the market and the public in NFC mobile payment services  Planning of isolated NFC projects in progress Study in progress Study completed  Certain stakeholders considered building their own NFC infrastructures  Growing number of NFC mobile payment services under development  Increasing demand for a shared infrastructure platform  Planning of building shared NFC infrastructure by the market participants  Announcements of two NFC  Public anticipation of the mobile payment services advent of different NFC payment services Q3 2012 Q4 2012 Q1 2013 14
  • 15. Going forward: our approach • The HKMA supports a market-driven approach for shared infrastructure development as it suits the Hong Kong market: • Services can be launched more quickly • More receptive to stakeholders • The HKMA is working with the Hong Kong Association of Banks to develop a set of standards and guidelines for the industry to follow. They include: • Technical standards: to ensure interoperability • Operation guidelines: to enhance user experience • Security requirements: to protect users • To be promulgated in November 2013 15
  • 16. Development objectives The HKMA promulgates four development objectives to enable the public to benefit from the innovative services and at the same time to enjoy safety and security: • Ability to download multiple payment services onto a single NFCenabled phone • Payment service continuity despite switching from one mobile network operator to another operator • Payment service continuity despite changing one’s NFC-enabled phone • High level of security in line with international standards and relevant regulatory requirements 16
  • 17. Latest NFC Market Update Issuance side • Two major banks have launched the NFC mobile payment services. A few more are planning to launch the services by end of 2013 • Apart from credit cards on mobile phones, stored value cards on mobile phones will also be available Acceptance side • Different card schemes are promoting NFC mobile payment. Contactless card readers, supporting multiple card schemes, are being installed in merchant shops 17
  • 18. How does NFC fits into the new legislative approach? NFC is a communication devise – it all depends on what type of payment systems NFC is serving: • Debit card facilities – subject to designation regime • Credit card facilities – subject to designation regime • Stored value facilities – subject to licensing regime 18
  • 19. Thank you! 19