On November 22, 2010 in the conference hall Sofiivsky Grand Hall of the Premier Palace Hotel a round table "Impact of regulation on the development of electronic payments market: what are the prospects?" took place. During the round table experts presented results of the research about regulation system of electronic payments in Ukraine, its impact on competition in this sector and economic development of Ukraine.
Participants of the round table:
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experts of the Institute for Economic Research and Policy Consulting;
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members of banks, investment, consulting, and insurance companies, business-associations, research institutions, and experts;
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members of state authority (Committee on Finance and Banking, Antimonopoly Committee of Ukraine, Ministry of Finance of Ukraine, Committee for European Integration, National Bank of Ukraine, Ministry of Economy of Ukraine).
Analytical report for public discussion you can find here: Analytical report - ua.
Also, you can find a presentation - ua.
Executive summary
In 2010, the revision of existing regulation in the sphere of electronic payments has intensified in Ukraine. Since April, the National Bank of Ukraine (NBU) has adopted several decrees that significantly enhance its role as a regulator of electronic payment systems in the country. There has also been passed the concept regarding the introduction of payment systems oversight. In late September 2010, the Cabinet of Ministers adopted a decree that obliged companies working in the field of trade and services to population to provide an opportunity to pay for goods and services with special payment instruments (see Section 3.2).
However, the most important changes in legislation are envisaged in draft laws No.6465 and No.6466 submitted to the Parliament in June. These drafts are aimed at regulating payment systems activities and, if passed, could change existing balance on the market of non-cash retail payments in Ukraine fundamentally.
Analysis of already implemented and planned changes showed that some of them could lead to substantial restriction of competition, which, in turn, would hinder the development of electronic payments and adversely affect the country’s economy as a whole. Moreover, some of the changes proposed do not meet the international obligations of Ukraine, in particular to the WTO (see Sections 3.2.2 and 4.1.2).
Draft law provision requiring the clearing to be implemented only by a resident of Ukraine seems to be the most problematic as it directly discriminates international players and limits competition on the domestic market. Moreover, costs of the initiative for the economy in general and the sources of its funding remain unclear. In addition, proposal to devolve regulatory authority to establish rules of conduct and monitoring operations with the use of electronic payment instruments to a collective body is high questionable as this agency doesn’t ensure equal representation of all electronic payment market players. These initiatives will result in artificial barriers to competition, thereby violating the rights of consumers for access to a wide range of quality payment services, and directly contradicting the national economic interests.
If the proposed legislative initiatives are implemented, Ukraine will not be able to take full advantage of benefits arising from widespread use of electronic payments in the economy. It should be noted that the development of electronic payments leads to the increase in domestic consumption, the development of electronic sales and tourism. It also augments the liquidity of the banking system, reduces the costs of maintaining the payment system, decreases the shadow economy and increases tax revenues (see Section 2). Moreover, electronic payment instruments can be applied to address social problems of the state effectively.
Analysis of international experience (see Section 4), specific features of the electronic payments market in Ukraine (see Section 3.1) and current regulation (see Section 3.2) allows us to offer an alternative legislative changes aimed at maximizing benefits from wider use of electronic payments in the country (see Section 5).
The first direction of change is fostering a competitive environment on the electronic payments market. This will include the provision of guarantees of free access to the market for payment systems and payment systems participants, as well as granting the right to payment systems and payment systems participants to choose mechanism of payments processing freely.
The second and third directions are the fight against shadow economy and the reduction of cash payments. This can be achieved through lowering the minimum threshold for the primary financial monitoring and establishing control over requirements compliance for electronic terminals in retail trading networks. Fiscal incentives encouraging consumers to use electronic payment instruments rather than cash can also be useful.
The fourth direction of change is the improvement of the mechanism of consumer rights protection in the electronic payments market. An important step in this direction may be to establish legal restrictions on responsibility for payments, which were not authorized by the holder of an electronic payment instrument. In addition, awareness of holders of electronic payment instruments should be improved and a ban on charging holders of electronic payment instruments with additional fees in retail trading networks should be established. With the development of credit card transactions, the improvement of consumer protection with respect to loans obtained in this manner should also be on the agenda.
Proposed legislative changes will improve market regulation promoting wide dissemination of cashless payments among companies and households. They will also provide a reliable mechanism to oversee activities of market players aiming for maximum protection of consumer rights in services quality, protection from fraud, full awareness on conditions of payment instruments use, and right to choose payment systems and payment instruments freely.
