LEGAL MATTERS A mobile payment plan
The mobile payments market is set for impressive growth and businesses looking to get into this sector should fully understand the changing nature and implications of EU policy, writes Martine Nathan, Partner at Teacher Stern Solicitors.
Martine Nathan E
lectronic money, or ‘e- money’, is growing rapidly and mobile payment technology is at the forefront with mobile phone operators, banks, credit card companies, major retailers and e-players bringing new means of making electronic payments to market on a seemingly weekly basis. It has led Paypal, a market leader in e-money, to exclaim that by 2015 digital currency will be accepted everywhere and consumers will no longer need to carry a wallet.
Opportunities for new entrants The statutory regime in the UK is governed by the Electronic Money Regulations 2011 (the Regulations) which were implemented on 31 April 2011 in direct response to a 2009 EU directive designed to increase competition and reduce barriers to entry. There are now two ways in which a company can become an e-money institution (EMI): authorisation and registration.
Authorisation
Large businesses looking to be authorised by the Financial Services Authority will have, among other
things, to produce a business plan, show evidence of initial and ongoing capital and have measures for safeguarding funds. In a change which should benefit new entrants the minimum capital requirement for businesses wishing to be authorised has been reduced from one million euro to 350,000 euro. Similarly, in a break from the previous statutory regime, the Regulations now allow EMIs to undertake mixed business activities such as unrelated payment services and other unregulated business rather than simply issuing and administering electronic money, or storing data.
It is thought that these changes will encourage mobile phone operators to enter the market and Orange is one such new entrant having released its Quick Tap system with Barclays last summer utilising the Near Field Communication (NFC) capability of its smartphones to allow customers
to pay for goods and services in an increasing number of retail outlets. Authorisation also offers flexibility for businesses wishing to operate across the European Economic Area (EEA) as any company authorised to provide e-money issuance in one EEA state can provide services in another EEA state subject to certain conditions.
Registration
One of the most significant changes brought about by the Regulations is that small businesses with an average total amount of financial liabilities less than five million euro can apply to be registered as a ‘small EMI’ with associated lower capital requirements. A further benefit of registration is a lighter regulatory regime and a cheaper and more straightforward registration process. However an EMI is regulated all EMIs will be required to safeguard funds. In practice this means cash must be invested in secure, liquid low risk assets held by
The mobile payments market will continue to grow
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a custodian or placed in a segregated account or the EMI must hold an insurance policy or bank guarantee. EMIs will also have to have regard to UK money laundering legislation.
The future
In the UK the Olympics are expected to herald an increase in contactless technology with every venue ‘wave and pay’ enabled. Most commentators are confident that the mobile payments market will continue to grow in the next few years. Google estimates that by 2014 50 per cent of new smart phones will be NFC enabled, and KPMG believes that mobile payments globally will grow 97 per cent per year over the next three years to $945 billion by 2015. Businesses looking to get into the sector should be alive to the changing nature of EU policy.
An EU consultation on an integrated European market for card, Internet and mobile payments has only recently finished and it may be the case that there are further directives in the coming months.
To find out more please contact
m.nathan@
teacherstern.com
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