On 23 January 2015, and following a lengthy consultation process, the Legislative Council of Hong Kong published the Clearing and Settlement Systems (Amendment) Bill 2015 (the "Bill") which proposes a new regulatory regime for stored value facilities (SVF) and retail payment systems (RPS) in Hong Kong. This article provides a high-level overview of some of the proposed changes to Hong Kong's payments regulatory landscape.
- Multi-purpose stored value cards (MPCs): Multi-purpose stored value facilities (SVFs, defined below) are used as a means of payment for goods and services which are offered by a card issuer and other participating third parties. Hong Kong's Octopus card is an example of an MPC.
- Non-device based SVFs: These have their stored value on a computer or mobile network-based account instead of on a physical device. For example an electronic wallet is a non-device based SVF.
- Retail payment system (RPS): An RPS is a payment system that usually handles the transfer, clearing and settlement of small-value transactions, e.g. credit card schemes and debit cards.
- Single purpose SVFs (SPSVFs): These can only be used to purchase goods and services offered by the issuer of the SPSVF, for example, a card issued by a coffee chain which can only be used to buy coffee from that chain.
- Stored Value Facility (SVF): Generally, means a facility (other than cash) which can be used for storing a sum of money paid into it and used to pay for goods and services or for payment to another person. There are two types of SVFs; device-based (e.g. store cards) and non-device-based (e.g. electronic wallets).
Current regulation of MPCs, SVFs and RPS
Multi-purpose stored value cards (MPCs)
Under The Banking Ordinance (Cap. 155) (BO) the Hong Kong Monetary Authority (HKMA) has the power to regulate the issue of MPCs in Hong Kong. For example, Octopus, the smart card payment system, is authorised by HKMA as a deposit taking company. Banks, under the BO, are deemed to have approval to issue MPCs. The BO does not regulate single purpose value cards (e.g. stored value cards issued by a coffee chain which can only be used to purchase the issuer's products and services).
MPCs are device-based SVFs, however, non-device-based SVFs -- which have their stored value on a computer or mobile network based account instead of on a physical device -- are not currently subject toany regulation. The lack of regulation of these payment systems and services puts Hong Kong's payments legislation out of sync with those of other major financial centres such as the UK and Singapore. These jurisdictions both have established legislation regulating non-device-based SVFs.
Retail Payment System (RPS)
HKMA requires that RPSs such as credit and debit card schemes self-regulate. This informal approach is largely targeted at payment cards and the eight payment card scheme operators (which include VISA, Mastercard, Amex, etc.) have adopted a voluntary code of practice endorsed by HKMA.