Transcript The role of Hong Kong Monetary Authority in
The role of Hong Kong Monetary Authority in supporting retail payments Cartes Asia 2014
Mr. Esmond Lee Executive Director Financial Infrastructure Department Hong Kong Monetary Authority 20 March 2014
Efficient electronic retail payments stimulate the real economy
“Migration to electronic retail payments spurs overall economic development, consumption and trade. Among different payment instruments, this relationship is the strongest for card payments.
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Source: Working Paper Series, NO 1572 / august 2013 “Retail payments and the real economy”, European Central Bank
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Increasing acceptance of cards in retail payments in EU
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The HKMA’s role in retail payment
Promote confidence in Hong Kong's monetary and financial systems through active participation in international financial and central banking forums Promote market development initiatives that help strengthen the international competitiveness of Hong Kong's financial services Maintain and develop Hong Kong's financial infrastructure 4
Users’ expectation on payment instruments Confidence
: high level of security
Convenience
: easy to use
Cost effectiveness
: low transaction cost 5
The HKMA’s approach Laws and regulations
Provide adequate regulations on new payment instruments to protect users
Standards and guidelines
Facilitate the development of secure and interoperable market solutions to enhance the user experience
Infrastructure development
Develop core infrastructure for market participants to connect 6
Laws and regulations Regulatory framework for stored value facilities (SVF) and retail payment systems (RPS)
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Underlying rationale for the new legislation
Safety and efficiency Protect and enhance the benefits of the users (especially the float in the case of SVF) Foster innovation and competition Development perspective for the overall benefit of the economy 8
Legislation to meet future developments/challenges C-2-B B-2-B C-2-C Status quo
Regulation covers only device based SVF (such as cards) Stored value limit is a constraint
Future development
Regulation to be extended to cover non-device based SVF More flexible for network accounts Implication on AML Know your customer for stored value larger than HK$3,000 9
Proposed legislative approach Proposed regulatory regime Existing regulatory regime Multi-purpose stored value card regime under Banking Ordinance Amend the CSSO to cover the regulatory regime for SVF and RPS Device-based SVF Licensing Regime Non-device based SVF Designation Regime RPS CSSO Large-value payment systems
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Licensing regime for SVF Mandatory licensing regime
It is an offence to issue SVF without a SVF licence in Hong Kong
Licensing criteria
A company incorporated under the laws of Hong Kong Principal business in the issuance of multi-purpose SVF On-going minimum (paid up) capital requirement of HK$25 million
In line with current practices of Banking Ordinance
Licensed banks deemed to be licensed Single-purpose SVF not required to be licensed Exemption of certain SVF from licensing 11
Designation regime for RPS Eligible systems:
Operate and provide retail payment services in Hong Kong; or process Hong Kong dollar or other prescribed currencies (e.g. RMB, USD)
Designation criteria:
A RPS may be designated if any disruptions to the RPS have implications to the monetary or financial stability of Hong Kong; public confidence in payment systems or the financial system of Hong Kong; or day-to-day commercial activities in Hong Kong
Potential coverage:
Credit card schemes Debit card schemes Merchant acquirers Payment gateways 12
Standards and guidelines Best practice for NFC mobile payment
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NFC mobile payment overview Hong Kong possesses good market conditions for NFC mobile payment
High acceptance of contactless payments non-cash transactions are already contactless – 85% of High smartphone penetration rate – 90% of mobile phones shipped to Hong Kong in 2013 are smartphones Increasing availability of NFC-enabled phones – over 40% of smartphones shipped to Hong Kong in 2013 are NFC-enabled 14
Development objectives The HKMA promulgates four development objectives to enable the public to benefit from the innovative services and at the same time to enjoy safety and security:
Ability to download multiple payment services onto a single NFC-enabled phone Payment service continuity despite switching from one mobile network operator to another operator Payment service continuity despite changing one’s NFC-enabled phone High level of security in line with international standards and relevant regulatory requirements 15
Our approach
The HKMA supports a market-driven approach for shared infrastructure development as it suits the Hong Kong market: Services can be launched more quickly More receptive to stakeholders The HKMA has worked with the Hong Kong Association of Banks to develop a set of standards and guidelines for the industry to follow. They include: Technical standards Security requirements Operational processes 16
Latest market update Issuance side
HSBC, Hang Seng Bank, Bank of China(HK) and Citi Bank launched NFC mobile payment services in 2013 Octopus launched “Octopus SIM” (a stored value card resided on SIM card) and “Octopus Online Payment” services using NFC mobile phones
Acceptance side
Contactless card readers, supporting multiple card schemes (e.g. Visa payWave, MasterCard payPass) are being installed in merchant shops 17
Infrastructure development E-cheque clearing platform
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Paper cheque Basic features and benefits
As good as cash – Dishonoured cheques of over HK$50,000 will attract summary judgement from High Court in Hong Kong Right of payers and payees are protected by the Bills of Exchange Ordinance Payment can be accompanied by related transactions documents Not necessary for payees to disclose account information to payers 19
Disadvantages of paper cheque
Paper based Physical delivery and presentment Not environmental-friendly Resource intensive and costly for banks to process cheques (Hong Kong banks need to spend HK$1.7 billion a year on processing cheque) 20
Key features of e-cheque
Bill of exchange under the Bills of Exchange Ordinance In electronic form using pdf format Digitally signed by payer and certified by payer’s bank Support HKD, USD and RMB denominated e-cheques Payer’s Signature Bank’s Signature Serial Number 16-digit Unique Cheque ID (YYYYMMDDnnnnnnnn) Additional Payee’s Identifier (Input by corporate payers only, optional) Unconditional Payer’s Reference / Remarks (Free text for payer, optional) 21
Benefits of e-cheque
e-cheque retains all basic features and benefits of paper cheque and with the following additional benefits: remove the need for physical delivery and presentment as in the case of conventional paper based cheque carries enhanced security features remove the costly and cumbersome manual processing of cheque (especially valuable to those account holders who are residing outside Hong Kong or Hong Kong residents on frequent travelling) 22
Payment Services (4-party Model)
Issuance Issuer Acquirer Consumer Merchant
Business model: Payment services
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Payment Services (3-party Model)
Issuance Non-bank payment service provider Consumer Merchant
Business model: Payment services, fund pool and information pool
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To summarise: The HKMA is supporting the development of retail payments in HK Users Market solutions Infrastructure development Standards and guidelines Laws and regulations HKMA
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Thank you!
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