After a decade of launching regulations for branchless banking that enabled the entry of telecommunication companies into the arena of banking and payments, SBP recently launched regulations for Electronic Money Institutions (EMIs). The document outlines objectives and scope of regulations, licensing procedure, governance arrangement, Capital Requirement, funds safeguarding arrangements, customer due diligence use of agents and interoperability. The regulations also cover other regulatory requirements including outsourcing activities, AML/CFT, consumer protection, complaint handling mechanism, oversight and regulatory reporting etc.
The launch of EMIs regulations was the first step of SBP’s strategy towards embracing technology and innovation in digitizing banking & payments. The launch may prove to be a game changer for promoting e-commerce and digital economy in Pakistan. The launching of this new category of institutions which will complement the efforts of government in creating an enabling environment to empower stakeholders in trade and commerce and transformation of Pakistan into a knowledge economy by making Information Technology one of the top contributors in Pakistan’s economy and job creation besides producing world-class knowledge workers in sync with international market trends.
Payment Systems and Electronic Funds Transfer Act, 2007 defines e-money as monetary value stored on an electronic device or payment instrument issued on receipt of funds and accepted as a means of payment by entities other than issuer. E-money globally is widely used for making retail payments in an economy and has played a crucial role in digitizing different types of payments in various countries. Electronic Money Institutions (EMIs) are entities that offer innovative, user-friendly and cost-effective low value digital payment prepaid instruments like wallets, prepaid cards, and contactless payment instruments including wearables. Globally, these innovative payment instruments have been instrumental in promoting cashless payments like merchant checkouts, e-commerce, transportation and toll payments etc. Traditionally, payment instruments in Pakistan are issued by banks without participation of non-banking entities. New technological innovations are now enabling non-banking sector to deliver innovative and efficient payment services to consumers at much lower cost. These regulations are primarily aimed at removing entry barriers for non-banking entities by providing them a guiding as well as an enabling regulatory framework for the establishment and operations of EMIs in Pakistan. These regulations also address potential risks in order to ensure consumer protection in line with legal framework of the country while promoting digital payments and financial inclusion.
Objectives of the regulations
These regulations are being issued with the following objectives:
- To provide regulatory framework for EMIs desirous of offering innovative payment services to the general public.
- To prescribe minimum service standards and requirements for EMIs to ensure delivery of payment services in a safe, sound and cost-effective manner.
- To outline the permissible activities that can be carried out by an EMI and its agents’ network.
- To provide a baseline for protection of EMI’s customers.
- To achieve the SBP’s objective of digital payments and financial inclusion.
Scope of activities of EMIs
I. EMIs may engage in the following activities:
- Issue e-money payment instruments.
- Distribute e-money payment instruments.
- Redeem e-money payment instruments.
- Acquire payment instruments of other EMIs and banks/MFBs.
- Multilateral routing, switching and/or processing of payment transactions.
- Any other activity permitted by SBP.
E-Money platforms shall only be used for permissible activities.
- E-money shall be used to make payment services i.e. payments for goods and services, bill payments, fund transfers and cash deposits and withdrawals from e-money accounts.
- EMI shall not conduct the business of banking including the acceptance of funds from public for the purpose of lending, investments or any speculative activity.
- EMI shall take approval from SBP before offering cross-border e-money products/services.
- EMI shall neither pay interest/returns to customers nor offer anything that adds to the monetary value of e-money, however, EMI may offer discounts etc. on goods and services provided such discounts are not linked to the amount or length of time e-money is held by the customer.
- EMI shall not issue e-money payment instruments at a discount i.e. issue e-money payment instruments that has a monetary value greater than the funds received from customers. The existing PSOs/PSPs authorized under the Rules for PSOs/PSPs who intend to function as an EMI may upgrade their PSO/PSP authorizations to EMI license after fulfilling necessary conditions laid down in these Regulations.
- SBP may require the applicant to establish a separate subsidiary/entity for the purpose of EMI business.