Electronic Money & Electronic Money Institutions 1.1a2, Association of E-money Institutions in the Netherlands Simon Lelieveldt (secretary)

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Simon Lelieveldt Postbank ( ) –project manager/strategy planner retail payments De Nederlandsche Bank ( ) –BIS 1996: security of e-money –Supervision e-money (Chipper / Chipknip) –BIS Retail Payments Reports (1999, 2000) –BIS Electronic Money (Dutch overviews) –European Payment Systems Observatory Independent consultant ( )

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Outline About 1.1a2 Position paper on Electronic Money E-money : a functional approach Premium Rate SMS in the Netherlands Conclusions

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 About 1.1a2 Draft supervision law: January 2002 Role for representative organisation –discussion of supervisory rules/regulations Consideration: Distinct issues / problems for new players may require independent organisation Established: June 10, a2: article that defines emi-institutions Banks set up NVEGI (for 1.1a1 & 1.1a2 issuers of e-money)

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Goals of 1.1a2 Information provision: –to share knowledge between members and with interested organisations/institutions on regulatory and market developments with respect to e-money Representation : –to act as the representative organisation as defined in the supervision law –to represent the interests of electronic money institutions (1.1a2) vis á vis the public, parliament, regulators, supervisors in general

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Members of 1.1a2 (3) All are operational since Spring 2002 –pre-paid m-payment solutions –also focused on paying for digital content 2 larger e-money institutions: –Global Payways / Moxmo –Digipay Nederland NV 1 smaller (technology provider): –New Media Communications Amsterdam

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Activities of 1.1a2 so far Informative seminar –E-money (institutions) / legal implications Website for information distribution – Comments on: –e-money consultation Dutch supervisor (DNB), FATF (review 40 rec); e-payments ECB Position paper of November 15, 2002 –Electronic Money & Electronic Money Insititutions

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Position paper: background Practical concern of members of 1.1a2 –Will server-side pre-paid M-payments be considered E-money in UK (or any other EU country) but banking in NL ? If so, that would (negatively) affect the comparative business case and require reconsideration of business decisions (technical set-up, location of business, legal status … )

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Electronic money The definition of e-money as: –a monetary value / claim on the issuer –on an electronic device –issued on receipt of funds –accepted as a means of payment by others than the issuer allows many implementation choices

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Implementation choices All issuers of e-money decide in detail on: –their business model and market focus –the product features –the technical architecture As a consequence the outward appearance of products may vary significantly ….. but the functional blueprint is quite similar

2. Paying/receiving e-money Acquirer 1 1-Loading the E-purse Clearing and settlement domain Issuer / System Operator I. Receiving pre-payment consumers Acquirer n ……. Consumer Merchant Issuing/acquiring/ operating domain Retail domain IV. Receiving claims 3. Redeeming e-money III. Operating the e-money system II. Managing/ administering the float V. Paying the merchant E-purse applications E-money

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Implementation choices Business model & market focus –separate payment services or part of banking? –market focus (digital content, POS, etc.) –home country and expansion strategy Product features –branding, use of identifiers, risk limits, contract terms, instructions for use, equipment (PC, phone, mobile phone), integration in back-office, link to financial system (clearing and settlement).

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Main technical choices How to represent e-money? –coins, cheque, balance On what kind of device(s)? –IC-card, SIM-card, network table, server- wallet? What is the architecture choice? –application and e-money on single device OR –centralised e-money record and diversity of applications on multi channel infrastructure TREND

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002

Premium Rate SMS in NL - 1 Dutch SMS market 2002: –4,500,000,000 SMS messages per year –230,000,000 premium SMS messages to buy logos ringtones, vote interactive tv, etc. ; charged on postpaid bill or deducted from pre-paid funds 2/3 of Premium SMS market is prepaid: –154,000,000 SMSs from pre-paid phones – 76,000,000 SMSs by deferred payment

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Buying and paying by SMS - 2 Two delivery models for premium SMS: –delivered by telco operators themselves (54 M) –delivered by 3rd party content providers (100 M) (Chipknip payments in 2002: 80 M transactions) Combining pre-paid telephony with third party billing facilitites (SMS, MMS, 0900 ….) turns pre-paid telco funds into e-money as defined in the definition of the EMI-directive

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Position of mobile operators.... Informal statements of European Commission may suggest different regulatory treatment of functionally similar companies: issuing monetary value on electronic device, allowing acceptance of that value (and subsequent redemption) by third parties by using an SMS-message infrastructure All animals are equal……. ?

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Options for mobile operators A part of the business falls under the e- money definition and regulation Pragmatic solutions can be envisaged…. –stopping third party billing for pre-paid clients –allowing prolonged time period to comply with rules and to separate business processes –buy on the fly …. etc … but we should stick to the functional approach to ensure the level playing field

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 Conclusions Consider the use of a functional approach to identify the nature of payment systems and market players Try to agree on this approach on a European level in order to achieve a technology-neutral level playing field in Europe Allow the telcos time for migration, but stick to functional approach

© S Lelieveldt, 1.1a2 Financial Services Authority December 16, 2002 More information: Homepage: Position paper: Secretariat: