Digital payments are enabling a raft of new ways to buy goods and services and do business. They are taking over from more traditional forms of physical cash and allowing virtual banks to make ground against traditional rivals.
As with any technology-driven change, there is a slight lag before regulation catches up. But it’s essential that it does so to ensure digital payment services are governed in the same stringent way as existing financial services.
There is a growing number of efforts being made by governments and regulators to ensure digital payments can continue to grow and offer new services in a way that reduces any potential risk to consumers and businesses.
More appropriate regulation also bridges the gap between traditional financial services and the expanding digital ecosystem, meaning the wider financial sector operates consistently and fairly.
Here are some examples from around the world of work being done to ensure digital payments and associated services are regulated in the right way.
In the UK, the Financial Conduct Authority is taking steps to change the way payment services and e-money issuers not currently authorised by the Financial Services and Markets Act 2000 (FSMA) are regulated.
The regulatory regime for these providers is currently quite light-touch under the Payment Services Regulations 2017 and Electronic Money Regulations 2011.
The former gave the FCA powers to extend the general regulatory framework to a broader range of payment service companies, including registered account information service providers and electronic money institutions.
The FCA now plans to use these powers and has published a consultation paper with proposals to extend the Principles for Businesses and associated guidance to payment services and issuance of e-money (where not already regulated).
No transition period is planned following the publication of the final rules, so firms will be expected to comply immediately. This approach should quickly flush out any providers operating in a way that the FCA believes is detrimental to consumers or inconsistent with the general principles that firms should comply with.
According to the FCA, the current lack of consistency between regulations creates opportunities for payments firms to carry out misleading practices or communicate with customers without sufficient clarity or transparency.
In Singapore, a country that is well on the way to becoming a cashless economy, legislation to evolve payment services regulation so that it reflects the growth of digital payments is currently being considered.
The Payment Services Act will bring in a new regulatory framework to expand the scope of regulated activities to include traditional and newer payment service providers.
According to the Monetary Authority of Singapore, the changes will mitigate risks for businesses and consumers across the payments value chain, and create an environment that is more conducive to payment services innovation.
Reflecting the greater range of payment activities and approaches, a key change on the proposed licensing framework is that payment service providers will only need a single licence to conduct multiple payment activities.
In Kuwait, the government is working on digital payment regulations to help drive the growth of the country’s digital economy.
The aim is to increase transparency and boost consumer confidence in digital banking by requiring all service providers to register on a central digital payments system. The Central Bank of Kuwait announced in September that all service providers have 12 months to ensure their digital payment transactions are in accordance with the bank’s approved standards.
Like in Singapore, the move to regulate digital payments is also intended to limit potential risks for online payment methods, but also ensure financial stability. The use of online payments and e-commerce in the country is expected to increase significantly as a result.