Payments and the E-Money

Turning now to the concept of e-money, fi rstly the 2000 directives and then the 2009/110/EC directive set out a defi nition of e-money. Th ey established that e-money is the result of a process of exchange from bank- based money as well as coins and notes to an electronically “stored mon-etary value” conferring on the holder a claim over the issuer. E-money products must meet the following requirements:

– the process of conversion must be “reversible”, namely, “upon request by the electronic money holder, electronic money issuers redeem, at any moment and at par value, the monetary value of the electronic money held.”

– being accepted as a means of payment by natural or legal person other than the issuer,

– being issued for the value of the funds exchanged or less.

Th e point is the following: when mobile operators allow their custom-ers to make payments, and the same mechanism is used as when the client buys airtime, are they issuing e-money according to the above-explained defi nition? Should they therefore, be authorized as e-money institutions?

Th is is a critical issue. Indeed, issuing e-money is a regulated activ-ity and may be carried out only by the properly authorized legal enti-ties. Authorization enables these institutions to operate their business, with or without a branch, throughout the European Union according to the European principles of the single licence and home country control.

However, the authorization process compels a legal entity to meet a set of legislative and regulatory requirements, basically comparable to those laid down for payment institutions and they are subject to prudential supervision (preamble n. 9, 2009/110/EC Directive.).

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Th e 2009/110/EC directive also defi nes the scope of e-money institu-tions. In addition to issuing e-money, the e-money institutions may also be authorized to provide payment services in compliance with the spe-cifi c framework, either as a “pure” or as a “hybrid” institution. ¹⁷

To make a choice, one might consider the way in which the clearing and settlement activities are carried out.

One might assume that the mobile operator opens a pooling account with a bank in its own name on behalf of the users where the funds received by the customers to make the payments are stored. Th erefore, the mobile operator becomes a trustee of the customers. In this case, the clearing and settlement activities are performed through the banking system.

Alternatively, one might assume that the mobile operator operates a closed-loop system and peer-to-peer payment transactions, performing the clearing and settlement activities with no connection with the bank-ing system.

However, the issue of who is responsible for the clearing and settle-ment activities is not as persuasive an argusettle-ment as it seems to be. Indeed, also conventional e-money institutions usually take part indirectly in the clearing and settlement structures, through credit institutions.

Th e main point at issue is whether the pre-paid balances, already used for buying airtime, can be considered as e-money under the defi nition set in the 2009/110/EC directive.

Considering them both, the redeemability of e-money seems to be the distinguishing feature. In fact, unlike e-money does, mobile pre-paid bal-ances are not per se wholly or partially redeemable at par value and at any time, upon request by the holder when redemption is requested before the expiry of the contract.

Lastly, the application of the e-money directive to m-payments is strongly infl uenced by the established list of exemptions.

In addition to the general exemption based on the average amount of e-money outstanding, there also is a specifi c exemption. Like PSD, the e-money directive exempts from the institutional framework for e-money institutions any instance in which electronic monetary value is used to

17 With regard to “hybrid” entities, see, art. 16 PSD.

purchase digital goods or services, and “by virtue of the nature of the goods or services” the telcos and MNOs “add intrinsic value to it”. Th is extra-value may be represented by access, search or distribution facilities given that the goods to be bought or the services to be enjoyed can only be used by a digital device, such as mobile devices. Th us, even if the user has no direct or indirect relationship with the supplier, and the funds for payment of the price of the service are received from the MNO, the MNO is deemed not to perform a merely intermediary function. In fact, the product is something more than a payment transaction and belongs to a diff erent market.

Conclusions

Drawing conclusions, this analysis has underlined the positive synergy between self-regulation and the institutional legislative actions.

Concerning self-regulation, the EPC is entrusted with carrying out a tricky task within the SEPA, namely, to reach an agreement on m- payment schemes in order to provide, in the future, a set of regula-tory and technical standards. As underlined at the international level, the standardization process can bring about an increase in the level of interoperability and this can, in turn, pave the way for a more competi-tive context. However, the protection of customers’ data and funds as well as the soundness of the fi nancial system fall outside the main objec-tives of eff orts at self-regulation.

Coming back to the institutional framework, joint analysis of the PSD, the draft PSD2 and the e-money directive has outlined how the concepts of payment services and e-money can be considered the bench-mark for the regulation of m-payments within the EU framework. Th e European policymaker is trying to manage the technological fragmenta-tion of the payment chain. Indeed, the concept of “payment service” has gone beyond being simply a matter of possessing users’ funds to cover also the mere possession of user data for payment accounts. Might this change improve the “eff et utile” of the EU framework? Wider protection can spur the fi nancial inclusion process, but it needs to be traded off with a set of regulatory exemptions which rarely achieve great consistency.

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References

Committee on Payments and Market Infrastrcuture (CPMI), Th e World Bank Group. (2015, September). Consultative report. Payment aspects of fi nancial inclusion . 1–77. Retrieved from http://www.bis.org/cpmi/publ/d133.pdf Committee on Payments Settlement Systems (CPSS). (2012, May). Innovations

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European Payment Council. (2012, October 18th). White Paper. Mobile payments .

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Krueger, M. (2001). Th e future of M-payments: Business options and policy issues . Electronic Payment Systems Observatory, Institute for Prospective Technological Studies, Joint Research Center, European Commission, Report EUR 19934 EN, August 2001, 1–24. To download from epso.jrc.es/Docs/

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Malaguti, M.  C. (2009). Th e payment services directive. Pitfalls between the Acquis communautaire and national implementation. ECRI Research Report, 9 , 1–32.

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Vandezande, N. (2013). Mobile wallets and virtual alternative currencies under the EU legal framework on electronic payments. ICRI Working Papers, 16 , 1–28.

© Th e Editor(s) (if applicable) and Th e Author(s) 2016 89 G. Gimigliano (ed.), Bitcoin and Mobile Payments, DOI 10.1057/978-1-137-57512-8_5

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