Mobile operators, providers of premium rate services and others involved in m-commerce are being asked for their views on the extent to which pre-paid mobile transactions should be regulated under the EU's electronic money regime. The consultation by the European Commission follows more than a year of uncertainty over whether transactions for goods and services funded by pre-paid mobile balances should be subject to strict rules initially devised to catch more conventional e-money schemes. Businesses have until 16 July to make their views known and influence the Commission's policy on this critical issue.
Why is this an important issue?
The e-money issue is a matter of life or death for emerging mobile payment schemes. Whether or not a particular transaction is deemed to involve e-money for the purposes of EU rules has enormous commercial implications for the business deemed to be the issuer. These include authorisation, reporting, money-laundering and liquidity requirements. Issuers are also obliged to redeem unused e-money balances into cash on request, and are restricted in terms of the other business activities that they may undertake. In short, compliance with this strict regime could make much existing and planned m-commerce unviable.
Background
The EU's E-Money Directives came into force in Member States, including the UK, two years ago. The rules are designed to protect consumers by imposing strict prudential and solvency requirements on institutions issuing electronic money. Issuing e-money without authorisation or in breach of any of the other rules carries severe penalties. For these purposes, "electronic money" is defined as monetary value stored on an electronic device, issued on receipt of funds of an amount not less in value than the monetary value issued and accepted as a means of payment by undertakings other than the issuer. There are some exemptions -- for example for "small issuers" who issue e-money below a certain threshold -- but these exemptions are very narrow.
Mobile-payment models have evolved considerably since the legislation was formulated, with the result that certain new transaction models not contemplated by the legislators now risk being caught by the regime. The transactions potentially affected are those involving a tripartite contractual relationship between the phone user, operator and third-party supplier of goods or services -- for example suppliers of ring tones, logos or news, or physical goods such as CDs, provided these are paid for by pre-paid credit. Premium rate services ("PRS") are also potentially caught in certain circumstances.
Enforcement of the rules is carried out at national level, with national regulators adopting diverging approaches to these more complex scenarios. Controversy arose in early 2003 when the UK regulator the Financial Services Authority proposed to revise its own guidance on the scope of e-money so as to bring certain pre-pay transactions within the ambit of e-money. Months of discussion between national regulators, the mobile industry and the European Commission have now culminated in the publication by the Internal Market Directorate on 10 May of its consultation paper "Application of the E-Money Directive to Mobile Operators." This draws on recommendations by the Commission's Banking Advisory Committee.
What are the Commission's proposals?
The Commission has come under pressure to clarify the application of the law to new technological developments. The Commission's stated aims in publishing this consultation are to: widen the debate and deepen the analysis of m-payments, gain insights into the regulatory and commercial consequences of applying the regime, and to seek industry's views on "proportionate and pragmatic" ways forward.
The bad news is that the Commission's starting point is as follows: "the e-value stored on mobile pre-paid cards that is used to pay [for] third party products and services is indeed likely to be e-money". However, the good news is that the Commission acknowledges the potentially damaging implications of applying the e-money regime to such transactions and takes the view that a more detailed analysis of the payment models involved is needed before firm guidance can be given. It is therefore calling on industry to provide facts and figures to inform its approach.
