The European Union has woken up and realised that old rules and legislation dating back to 2000 have hindered the take-up of the electronic money market and have hampered technological innovation.
EU Internal Market Commissioner, Charlie McCreevy, has proposed a new framework that will allow new providers to enter the market and contribute to an industry whose volume could reach €10bn by 2012.
“The e-money industry has significant untapped growth potential. I believe that the new rules will accelerate the up-take of electronic money in Europe,” McCreevy said yesterday.
“These modern rules will foster competition and innovation, while ensuring market confidence and a high level of protection for consumers. This will be an important contribution to our broad objective of creating a single market for electronic payments,” McCreevy added.
The proposal provides for a modern and coherent legal framework for issuing electronic money, with the aim of promoting the emergence of a true single market for electronic money services in the EU.
The proposals call for a technologically neutral and simpler definition of ‘electronic money’, covering all situations where the payment service provider (an e-money institution or a credit institution) issues a pre-paid stored value in exchange of funds.
Electronic money is therefore defined as monetary value stored electronically on receipt of funds, and which is used for making payment transactions. This definition covers e-money held on payment devices in the holder’s possession (pre-paid cards or electronic purse), or stored remotely at a server (network or software money).
McCreevy has called for a new prudential regime, ensuring greater consistency between prudential requirements of electronic money institutions and payment institutions under the Payment Services Directive 2007.
The new prudential requirements include an initial capital of €125,000, enabling market entrance for smaller players, and a new formula to determine ongoing capital.
The waiver regime, according to which small entities can obtain derogation for some of the authorisation requirements, is aligned with that of payment institutions under the Payments Services Directive, and anti-money laundering requirements are updated.
McCreevy also proposes a clarification of the application of redemption requirements, with special reference to their application to mobile telecommunications.
Consumers would have the right to claim back their electronic money at any moment, under conditions laid down by the new rules.
The original E-Money Directive 2000 sought to facilitate access by non-credit institutions to the business of e-money issuance. However, electronic money is still far from delivering the full potential benefits that were expected at the time of its adoption, and is not yet considered a credible alternative to cash.
Figures on the limited number of fully licensed electronic money institutions or on the low volume of electronic money issued demonstrate that electronic money has not yet really taken off in most of the member states.
An evaluation of the directive has shown that some of its provisions appear to have hindered the take-up of the electronic money market, hampering technological innovation.
The proposal aims at enabling new, innovative and secure electronic money services to be designed, providing market access to new players and fostering real and effective competition between all market participants.
As all provisions have been amended and the structure was revised, it is proposed to repeal the existing E-Money Directive and replace it with a new directive. The proposal has now passed to the European Parliament and the Council of Ministers for consideration.
By John Kennedy
