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

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.
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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
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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
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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
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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
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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
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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
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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
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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
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11. NFC mobile payment
a new lifestyle
(Mobile phone as a communication ID card)
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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
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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
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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
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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
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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
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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
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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
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19. Thank you!
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