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     FrontPage Edition: Sat 21 Jan 2006

MAS liberalises multi-function stored-value card market



The Payment Systems (Oversight) Bill
Second Reading Speech by Mr Tharman Shanmugaratnam, Minister For Education and Deputy Chairman, Monetary Authority of Singapore
Mr Speaker Sir, on behalf of the Senior Minister, I beg to move. "That the Bill be now read a second time."
Sir, the purpose of this Bill is to introduce a new framework for the oversight of payment systems.
The framework also covers the regulation of stored value facilities (SVF), which refer to prepaid cards and other payment instruments used for the purchase of goods and services.
MAS has consulted the industry and the public on this framework and the feedback received has indicated broad support for it. MAS has incorporated the feedback received into the Bill, where practicable and where they are in line with its objectives.
Let me now set out the rationale for a new regulatory framework for the oversight of payment systems and SVF in Singapore. I will start with payment systems.
Payment Systems
In Singapore, we have a well-developed payment system industry, consisting of a wide-ranging spectrum of payment systems to cater to a variety of purposes.
These payment systems can be broadly categorised into three tiers.
The top tier comprises Singapore's large-value payment system, the MAS Electronic Payment System (MEPS).
Currently, MEPS is owned and operated by MAS, and functions as the main payment system for settling large-value financial transactions between financial institutions. MEPS is also linked to an international grid of large-value payment systems via the Continuous Linked Settlement (CLS) system, which is a global foreign exchange (FX) settlement system. The values settled in MEPS in 2004 exceeded 70 times Singapore's GDP so it is easy to see how a disruption in MEPS can have a systemic impact on the financial system and the economy.
The middle-tier comprises Singapore's cheque-clearing systems and the Interbank GIRO system.
While these systems process payments that are lower in value compared to MEPS, the values involved are not insignificant, and the payments comprise important business and retail transactions such as salary and bill payments. As they are closely tied to a wide range of economic functions, the safety and efficiency of these systems are important for maintaining a high level of public confidence in Singapore's financial system.
The third tier is made up of retail payment systems that handle the majority of payment transactions in Singapore in terms of transaction volume.
These include systems such as debit and credit card systems, ATM networks, as well as mobile and internet payment systems. As such systems generally process low-value retail transactions, they have lesser impact on financial stability. Efficiency and innovation for retail payment systems are essential if we are to keep our economy vibrant and meet consumer needs
Taken as a whole, the payments infrastructure forms a critical part of our financial system and economy. It is therefore important that we ensure that payment systems operate in a safe and efficient manner, while encouraging market competition and technological innovation to serve businesses and consumers better.
MAS and the industry have been involved in several projects to enhance the safety and efficiency of payment systems in Singapore.
In 2002, MAS implemented legislation to provide for the finality of transactions within large and systemically important systems such as MEPS and CLS.
The industry also implemented several initiatives aimed at improving the efficiency of the Interbank GIRO and cheque-clearing systems, such as the eGIRO system in 2001 and the Cheque Truncation System in 2003, both of which eliminated inefficient manual processes.
A new regulatory framework for payment systems is needed for two reasons. First, MAS' current oversight framework for payment systems relies on legislation introduced on a piecemeal basis and an informal and cooperative arrangement with the industry.
From the industry's point of view, a more formalised and comprehensive approach would provide greater consistency and clarity in MAS oversight objectives and policies. Second, the existing framework worked well when financial institutions were the traditional payment service providers, but has become less effective now that payment service providers which are not financial institutions are becoming increasingly common.
Sir, the Bill will establish a new regulatory framework for payment systems that will provide MAS with a comprehensive and consistent basis to effectively oversee the payments infrastructure in Singapore, while promoting a competitive marketplace among payment service providers.
A number of jurisdictions, such as Australia and Canada have introduced comprehensive legislation for the oversight of payment systems a few years ago. Hong Kong did so about a year ago.
Stored Value Facilities
Sir, I will now speak on SVF. These are prepaid payment instruments, most commonly used for low-value retail payments.
In Singapore, there are two nation-wide SVF, namely the NETS Cashcard and the ez-link card, and several smaller-scale SVF such as gift cards and store vouchers.
SVF can be categorized as either single-purpose or multi-purpose.
Presently, only banks are allowed to issue multi-purpose SVF, that is, instruments which can be used to purchase goods and services provided by third-party merchants other than the issuer.
However, multi-purpose SVF when operated on a small scale present low risk in terms of potential loss of stored value to their users. The existing regulatory regime is therefore unnecessarily restrictive. We should give the market more flexibility to meet consumers' needs, and encourage competition and innovation among different providers.
The Bill introduces a new regulatory regime that liberalises the multi-purpose SVF market.
Any entity will be allowed to issue multi-purpose SVF to consumers and to hold the stored value, as long as the amount of stored value does not exceed a stated threshold.
Where the stored value is above the threshold, the holder of the stored value must be approved by MAS and a bank licensed by MAS must also be approved to be fully liable for the stored value. In this respect, users of these larger SVF schemes, which the Bill terms widely accepted SVF, will benefit from some protection on their stored value.
MAS does not intend to subject single-purpose SVF to the stated threshold. They will not need MAS' approval to issue the SVF and to hold the stored value. This is also the current position under the law.

Source: News 16 Jan 2006

Related Article:
- MAS sets up payment systems for liberalised stored-value card market

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