Electronic Money &
Electronic Money Institutions
1.1a2, Association of E-money Institutions
in the Netherlands
Simon Lelieveldt (secretary)
Simon Lelieveldt

Postbank (1989-1995)
– project manager/strategy planner retail payments

De Nederlandsche Bank (1995-2001)
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BIS 1996: security of e-money
Supervision e-money (Chipper / Chipknip)
BIS Retail Payments Reports (1999, 2000)
BIS Electronic Money (Dutch overviews)
European Payment Systems Observatory
Independent consultant (2001- .. )
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Outline
About 1.1a2
 Position paper on Electronic Money
 E-money : a functional approach
 Premium Rate SMS in the Netherlands
 Conclusions

© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
About 1.1a2
Draft supervision law: January 2002
 Role for representative organisation

– discussion of supervisory rules/regulations

Consideration:
Distinct issues / problems for new players may
require independent organisation
Established: June 10, 2002
 1.1a2: article that defines emi-institutions

Banks set up NVEGI (for 1.1a1 & 1.1a2 issuers of e-money)
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Goals of 1.1a2

Information provision:
– to share knowledge between members and with
interested organisations/institutions on regulatory
and market developments with respect to e-money

Representation:
– to act as the representative organisation as
defined in the supervision law
– to represent the interests of electronic money
institutions (1.1a2) vis á vis the public, parliament,
regulators, supervisors in general
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Members of 1.1a2 (3)

All are operational since Spring 2002
– pre-paid m-payment solutions
– also focused on paying for digital content

2 larger e-money institutions:
– Global Payways / Moxmo
– Digipay Nederland NV

1 smaller (technology provider):
– New Media Communications Amsterdam
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Activities of 1.1a2 so far
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Informative seminar
– E-money (institutions) / legal implications
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Website for information distribution
– http://www.11a2.nl
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Comments on:
– e-money consultation Dutch supervisor (DNB),
FATF (review 40 rec); e-payments ECB

Position paper of November 15, 2002
– Electronic Money & Electronic Money Insititutions
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Position paper: background

Practical concern of members of 1.1a2
– Will server-side pre-paid M-payments be
considered E-money in UK (or any other EU
country) but banking in NL ?
If so, that would (negatively) affect the
comparative business case and require
reconsideration of business decisions (technical
set-up, location of business, legal status … )
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Electronic money

The definition of e-money as:
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–
–
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a monetary value / claim on the issuer
on an electronic device
issued on receipt of funds
accepted as a means of payment by others than
the issuer
allows many implementation choices
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Implementation choices

All issuers of e-money decide in detail on:
– their business model and market focus
– the product features
– the technical architecture

As a consequence the outward appearance
of products may vary significantly
….. but the functional blueprint is quite similar
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Clearing and settlement domain
I. Receiving pre-payment consumers
II. Managing/
administering
the float
V. Paying the merchant
Issuer / System Operator
IV. Receiving
claims
Acquirer 1
III. Operating the
e-money system
Issuing/acquiring/
operating domain
…….
Acquirer n
2. Paying/receiving e-money
1-Loading
the E-purse
E-purse applications
3. Redeeming
e-money
E-money
Consumer
Consumer
Merchant
Retail domain
Implementation choices

Business model & market focus
– separate payment services or part of banking?
– market focus (digital content, POS, etc.)
– home country and expansion strategy

Product features
– branding, use of identifiers, risk limits, contract
terms, instructions for use, equipment (PC,
phone, mobile phone), integration in back-office,
link to financial system (clearing and settlement).
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Main technical choices

How to represent e-money?
– coins, cheque, balance
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On what kind of device(s)?
– IC-card, SIM-card, network table, server- wallet?

What is the architecture choice?
TREND
– application and e-money on single device
OR
– centralised e-money record and diversity of
applications on multi channel infrastructure
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Premium Rate SMS in NL - 1

Dutch SMS market 2002:
– 4,500,000,000 SMS messages per year
– 230,000,000 premium SMS messages
• to buy logo’s ringtones, vote interactive tv, etc. ;
• charged on postpaid bill or deducted from pre-paid funds

2/3 of Premium SMS market is prepaid:
– 154,000,000 SMS’s from pre-paid phone’s
– 76,000,000 SMS’s by deferred payment
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Buying and paying by SMS - 2

Two delivery models for premium SMS:
– delivered by telco operators themselves (54 M)
– delivered by 3rd party content providers (100 M)
• (Chipknip payments in 2002: 80 M transactions)

Combining pre-paid telephony with third party
billing facilitites (SMS, MMS, 0900 ….) turns
pre-paid telco funds into e-money as defined
in the definition of the EMI-directive
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Position of mobile operators ....

Informal statements of European Commission
may suggest different regulatory treatment of
functionally similar companies:
• issuing monetary value on electronic device,
• allowing acceptance of that value (and subsequent
redemption) by third parties
• by using an SMS-message infrastructure
All animals are equal……. ?
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Options for mobile operators
A part of the business falls under the emoney definition and regulation
 Pragmatic solutions can be envisaged….

– stopping third party billing for pre-paid clients
– allowing prolonged time period to comply with
rules and to separate business processes
– buy on the fly …. etc

… but we should stick to the functional
approach to ensure the level playing field
© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
Conclusions
Consider the use of a functional approach to
identify the nature of payment systems and
market players
 Try to agree on this approach on a European
level in order to achieve a technology-neutral
level playing field in Europe
 Allow the telco’s time for migration, but stick
to functional approach

© S Lelieveldt, 1.1a2
Financial Services Authority
December 16, 2002
More information:
Homepage:
http://www.11a2.nl
Position paper:
http://www.11a2.nl/docs/empp1511.doc/
Secretariat:
© S Lelieveldt, 1.1a2
+31 20 644 1807
[email protected]
Financial Services Authority
December 16, 2002