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
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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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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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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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Multi-purpose stored value card regime under the BO
CSSO
Proposed Legislative Approach (cont’d)
SVF
Payment
Systems
Existing regulatory regime Proposed regulatory regime
Licensing Regime
Designation Regime
Amend the CSSO to cover the regulatory regime for SVF and RPS
Device-based SVF
Non-device based SVF
RPS
Large-value payment systems
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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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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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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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Consultation Exercises
• Soft consultation
• Conducted in H2 2012 to sound out major industry players on regulatory
proposals
• Industry consultation
• Conducted between December 2012 and January 2013
• Over 40 industry stakeholders including the consumer council consulted,
feedbacks generally supportive
• 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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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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NFC mobile payment
a new lifestyle
(Mobile phone as a communication ID card)
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NFC technology in daily lives
NFC devices &
Infrastructure
Store e-boarding pass for
automatic flight boarding
Access to buildings
Pay for goods with a tap on the Point of Sale
(POS) by deducting value from e-purse
Exchange business cards
Read smart posters
to get the latest
promotion
Collect and store
e-coupons
Pair up devices for
file transfer
Possibilities for using NFC technology in our daily lives are numerous
Collect transit tickets
on the phone
PaymentsTransit ticketing
Identity
authentication/
Access controlData exchange
Marketing &
PromotionCheck-in hotel online with
electronic room key
provisioned over the mobile
network to the phone
Purchase items by
tapping on the NFC
tags or smart posters
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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 NFC-
enabled
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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
Certain stakeholders
considered building their
own NFC infrastructures
Increasing demand for a
shared infrastructure
platform
Announcements of two NFC
mobile payment services
Study completed
Growing number of NFC
mobile payment services
under development
Planning of building shared
NFC infrastructure by the
market participants
Public anticipation of the
advent of different NFC
payment services
Q3 2012 Q4 2012 Q1 2013
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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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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 NFC-
enabled 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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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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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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Thank you!
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