Many tend to confuse those ‘e-wallet’ operators in the market require ‘e-wallet’ license. That’s not quite true, in fact an incorrect terminology. There is no ‘e-wallet license’ per se. Those ‘e-wallet’ brands that we have heard, or even using, such as Touch and Go, GrabPay or MPay, are more accurately known as issuer of e-money / e-money issuer (“EMI”).
On 11 June 2021, the Central Bank of Malaysia issued an Exposure Draft on Electronic Money (E-Money), seeking feedback from the public and industry players on the proposed content to be adopted in the Exposure Draft, and also to replace the existing Guideline on Electronic Money which was issued in 2008 back then.
For explanation purpose, the terminology of naming it as ‘Electronic Money’ is simply because it is a payment instrument that contains monetary value paid in advance by the user to the operator. Therefore, e-money is simply a hard cash that has been ‘converted’ into electronic form and stored in the electronic wallet which could be used for purchases of goods and services. E-money is not cryptocurrency, digital asset or digital token. It is merely Ringgit Malaysia in electronic form.
The Exposure Draft could be found here.
Exposure Draft At-A-Glance
The Central Bank seeks to classify EMI into four categories, namely (i) Eligible EMI; (ii) Standard EMI; (iii) Non-Bank EMI and (iv) Limited Purpose EMI.
1st Category: Eligible EMI
An Eligible EMI could be said as the highest ranked EMI, where it shall fulfill either one of the three criteria:
- having at least five hundred thousand (500,000) users with at least one transaction for six consecutive months; or
- 5% market share of total e-money transaction volume or value for a given year since 2007; or
- 5% market share of outstanding e-money liabilities for a given year since 2007.
It appears that the Central Bank seeks to impose a higher standard and level of regulatory control onto an Eligible EMI, where an Eligible EMI is expected to comply with additional compliance requirements.
In the Exposure Draft, ‘Outstanding E-Money Liabilities’ means amount of e-money yet to be used by the users and the used amount but pending payment to merchants.
2nd Category: Standard EMI
Standard EMI is more relaxed compared to Eligible EMI. A Standard EMI would be an EMI that does not fulfil the criteria in relation to Eligible EMI.
3rd Category: Non-Bank EMI
The classification of Non-Bank EMI is fairly straightforward and simple. Any EMI who is not a licensed financial institution (bank) would be defined as Non-Bank EMI. As mentioned above, those brands like GrabPay and Touch and Go are Non-Bank EMIs. A Non-Bank EMI could also be an Eligible EMI or Standard EMI.
4th Category: Limited Purpose EMI
This is a newly defined category, or rather an abandoned category that now receives attention and recognition from the Central Bank. A Limited Purpose EMI does not require to fulfil legal requirements to be approved as an EMI under the guideline. However, a Limited Purpose EMI would only be considered as a limited purpose EMI only if fulfils the given definition:
- only used in ‘closed-loop network’;
- used for cash rewards or loyalty points;
- used for refund purposes; or
- used as mobile prepaid airtime to purchase digital contents.
Further Explanation on Limited Purpose EMI
This article intends to zoom into Limited Purpose EMI as this category is indeed appearing to be more relevant with many enterprises out there in the market.
Branded stores such as Starbucks and Coffee Bean & Tea Leaf for example, offer and provide service to top up membership card with cash by way of prepaid which is then linked to and shown as ‘wallet’ in the mobile application and the stored value thereof could be used to purchase products in the store.
Therefore, would Starbucks or Coffee Bean & Tea Leaf be considered as an EMI because the store takes real hard cash and then ‘convert’ it into electronic form stored in the card or wallet. The existing guideline on e-money does not define and make distinction on such circumstance.
With the introduction of the Exposure Draft, the Central Bank has considered such services that provide by Starbucks or Coffee Bean & Tea Leaf as a Limited Purpose EMI.
What is Closed-Loop Network?
The Appendix 2 of the Exposure Draft made a good effort to classify ‘closed-loop network’ into three definitions:
1. goods or services that under a network of merchants that belong to a single business network and operates under single brand:
This is where Starbucks or Coffee Bean & Tea Leaf would fit into this category because the electronic money that stored in the membership card or wallet could only be used in respective Starbucks or Coffee Bean & Tea Leaf stores, which all are essentially under the same brand.
2. goods or services within a physical premise:
This sub-category is further classified into the following:
i. where the e-money is accepted by a merchant occupying a single premise:
Often than not, this is much similar to a pet accessories or bakery store on the street where it offers membership to the customer to become a member and top up the membership card for subsequent purchases, however the key word is only a merchant in a whole single premise, but not other premises even it is the same merchant.
ii. where the e-money is accepted by multiple different merchants occupying a single premise:
This is definitely very similar to the 1Pay offered by the One Utama shopping mall to the patrons. 1Pay is linked to the One Card, which is well known to One Utama patrons where the patrons could accumulate points by spending in the shopping mall. 1Pay could be used for purchases in all participating outlets in One Utama, which is essentially fits into the definition of multiple merchants occupying a single premise.
Despite this classification, 1Pay is a service offered by Bandar Utama City Centre, which is one of the EMIs regulated by the Central Bank currently.
iii. a limited range of goods or services within a closed community:
This classification is quite similar to multiple merchants within a single premise, such as the canteen and bookstore in a learning institution, or meant for students within the school, or even residents within an apartment for spending or purchases of goods or services.
Notwithstanding all these classifications, a Limited Purpose EMI should also fulfil the requirements below in order to be exempted from procuring approval from the Central Bank:
- the e-money shall only meant for payment of goods or services in Malaysia;
- at all times the maximum amount in the wallet shall not exceed RM250;
- the e-money cannot be used for funds transfer;
- the e-money cannot be redeemed for cash except withdrawal to the user’s own bank account, and nothing more; and
- the total e-money issued by a Limited Purpose EMI shall not exceed RM1 million in terms of average daily outstanding e-money liabilities and average monthly payment transaction value.
Therefore, as much as those Limited Purpose EMI out there wanted to fulfil the requirements, but the limitation on the amount of total e-money issued not exceeding RM1 million would be a general obstacle. In another word, if the closed-loop network type of EMI has exceeded the prescribed limitation, it would therefore not qualify to be exempted and ought to apply approval from the Central Bank to continue to operate as an EMI.
What is Usage for Cash Rewards or Loyalty Points?
The Exposure Draft seeks to define this as a payment instrument that stores cash rewards or loyalty points that are money’s worth either funded by the EMI or any person having an arrangement with the EMI. Under this classification, the Central Bank seeks to introduce that the e-money could only be used to make payment to any person other than the EMI itself.
However, the e-money cannot be redeemable for cash. The closest example on this classification would be Bonus Link, where the accumulated ‘points’ are money’s worth and could be used to make purchases of goods or off-set certain amount of value of goods upon purchasing.
The Bonus Link ‘points’ would also fulfil the requirement that such reward is arising from the purchase of goods provided any person having an arrangement with the EMI, for example Shell petrol station where the consumer will obtain Bonus Link points upon purchasing petrol from Shell.
E-Money for Refund Purposes
Under this classification, such e-money is intended to be refunded to the user and could be used as means of making payment of goods or services within the EMI’s merchant network, other than the EMI itself.
The daily outstanding e-money liabilities shall not exceed RM1 million.
E-Money as Mobile Prepaid Airtime for Purchase of Digital Content
The keyword is obviously clear, which is to be used for purchase of digital content. Under this classification, the e-money that stored in the wallet issued by the EMI could normally be used to make payment for telecommunication related services provided by the EMI, and also could be used to purchase low transaction value related items such as games and online movies.
This would benefit telecommunication company especially entertainment based or related telecommunication company where it can offer e-money service for the users to top up the prepaid airtime and to purchase digital contents. Major telecommunication companies that offer prepaid sim card service would meet this classification.
Other Prescribed Requirements
A Limited Purpose EMI shall notify the Central Bank on annual basis on the product features, the description that demonstrates how the EMI has fulfilled the definition and conditions determined by the Central Bank together with an undertaking that the EMI is qualified to be exempted.
In relation to the governance of the EMI, the EMI shall also submit to the Central Bank all relevant statistics such as the total outstanding e-money liabilities, number of registered and active users, total transaction volume and total transaction value. Such statistics must be attested by an external auditor on annual basis. The external auditor must be an auditor of a public interest entity with the Audit Oversight Board (AOB).
A Limited Purpose EMI shall also notify to all users that it is exempted from requiring approval under the law in clear and prominent manner, where no fine print is allowed.
In a nutshell, this Exposure Draft sets out the expectation of the Central Bank against all the existing and future EMI players. It has provided greater clarity on the Limited Purpose EMI as public appears to have confused or unsure with the requirements to be exempted from procuring Central Bank’s approval to issue e-money.
A PDF format of this article could be found here
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