The Hong Kong Legislative Council passed the Payments System and Stored Value Facilities (SVF) Ordinance and has since come into effect on 13 November.
Under this ordinance, the Hong Kong Monetary Authority (HKMA) will be regulating all multi-purpose SVF (MPSVF), which are basically device or non-devices based SVF that allows the use of cards or devices to pay for goods and services from third parties. This does not include SVFs such as Starbucks cards or bank cards.
Therefore, MPSVF such as Alipay, PayPal, and Hong Kong’s contactless smart card for electronic payments – Octopus Card, are required to apply for licenses in order to legally operate in Hong Kong.
These services will be given a one-year transitional period to apply to the HKMA for the license, which will cost them HKD$100,000 annually. After the one-year period (on 13 November 2016), it will no longer be legal for any issuers to operate without a license unless they are exempted under special circumstances.
Due to the proliferation of payments systems nowadays, this step isn’t as bad as fintech startups view it to be, because it:
1) Ensures financial soundness
- HKMA has decided to take the step to establish proper regulations and legislations for new services coming into the space. The Deputy Chief Executive of the HKMA, Mr Peter Pang also said that this will assist in ‘promoting the stability and integrity of the financial system and the relevant payment infrastructure.’
2) Increases public confidence
- With proper regulatory systems in place, users can now feel more confident adopting new payment systems as this step helps safeguard their rights and monitors the stability of the businesses. Authorities have also arranged for public education materials to ‘enhance public awareness about the use of payment products or services.’
3) Provides opportunities for payment systems
- As new payment systems are rolling into the space globally, it is time for regulatory authorities to look at this development more seriously and take some form of action in regulating it. For instance, Alipay has entered the Hong Kong shores, and this regulation, though it seems unnecessary to begin with,
4) Encourages development and innovation in the fintech space
- With the recognition of authorities on fintech businesses, it gives fintech startups the boost of encouragement for them to further innovate and develop their ideas. While entrepreneurs will now need to be scrutinised under regulations, they should see it as a form of support from the government and utilise this opportunity to better handle their operations.
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