Navigating Payments and E-Money Regulation in Europe

Two important new EU directives are encouraging new and significant competition in consumer payments. The transposition of the 2nd E-money Directive into the laws of individual EU states must be completed by the 30th of April this year. The Payment Services Directive has already been transposed. Both directives are lowering the barriers to entry for non-banks such as high street retailers and mobile operators. In fact, any organisation that wants to offer payment services can now do so. Navigating this regulation and understanding how to leverage its benefits is a challenge for many firms. New entrants see opportunities in issuing of prepaid cards or credit cards and in the provision of short-term credit to consumers. According to a study eleased on March 1st by the Network Branded Prepaid Card Association (NBPCA) the average prepaid customer is 27 and sees no reason to choose a traditional bank account. The implication is that independent firms offering transaction accounts can meet their needs as readily as banks. This underlines the significant opportunity for new entrants with e-money and payment services authorisation to compete for this market against existing players such as banks and mutual societies.

The e-money economy is growing exponentially. According to the European Central Bank, €2.6 Billion of electronic money was in circulation across Europe as of January 2011. This is up from €645m in January 2008. What’s clear is that there has never been a better time for new types of organisations to get involved in the provision of payments services. However, the two directives are not clear cut in what benefits each offers to different business models. The challenge is establishing if your business needs to be regulated as an e-money institution or a payments institution or even both.