[Dave Birch] Like many of you, I imagine, I’ve been reading through the H.M. Treasury document on “Laying of regulations to implement the new E-Money Directive” (October 2010). It’s written for lawyers, not for normal people, but as far as I can make out, the issues that are worth thinking about are things like the “ring-fencing” of electronic money funds — discussed by John Casanova and William Long from Sidley & Austin in the September issue of E-Finance & Payments Law & Policy — as well as the exemption for small issuers, the meaning of the “limited network” exemption. I rather liked the mention of the idea of introducing the test for “fit and proper” persons to run electronic money schemes, the same definition that has proved so successful for banks, football clubs and so forth.

The HMT documents contains some interesting statistics. It says that the UK has 96 non-bank e-money issuers and 16 bank and building society issuers. The outstanding value of regulated e-money in issue at the end of 2009 is estimated to be more than £300 million. This is around 0.5 per cent of the value of notes and coins in circulation. This still small, but it’s growing. The relative size of the regulated and unregulated markets is also interesting. The (regulated) non-bank issuers sold an estimated £1 billion of e-money in 2009. But the unregulated non-bank issuers (ie, exempted from the need for e-money licences) sold twice as much, mainly in the form of closed prepaid cards. Examples include single-retailers’ cards, petrol cards, telephone cards, parking cards, public transport cards, insurance payout cards, membership cards, canteen cards, meal and other vouchers.

The HMT document says something else in the summary that deserve amplification. It says — and I strongly agree — that e-money is not a surrogate for cash and that prepaid cards are not direct substitutes for debit or credit cards. We’ve long been of the opinion that better prepaid card services (I’ll blog about this soon) will lead to a substantial increase in the market. I don’t carry a Thomas Cook prepaid euro chip & PIN card because I don’t have a debit card, but because I find it convenient (see the discussion of my wallet’s contents!).

But back to the point: armed with a Payment Institution (PI) licence and an Electronic Money Institution licence (ELMI), any reasonable enterprise in Europe ought to be able to launch and operate a digital money business even before the next round of regulatory harmonisation between the PSD and EMD. But why would they want to do this? What is noticeable, studying successful examples from around the world, is that their is a significant difference between businesses that found their business models on earning revenues from the transactions themselves, and businesses that earn their money in other ways: the telco that uses e-money to cut to churn, the transit operator that uses e-money to cut ticketing costs, the retailer that uses e-money to avoid to card fees.

This train of thought would suggest that the organisations most likely to benefit are not banks but other kinds of businesses: the online game that wants it’s currency to extend across real and virtual boundaries, for example. In fact, this is a fun example to look at. I was (politely) criticised for using the example of online games at a recent roundtable discussion, but as I blogged about the virtual economy last week, look at the figures!

The U.S. virtual goods market is expected to grow to $2.1 billion in 2011, about half of which are items purchased in popular Facebook games. With over 80 million active users, FarmVille is currently the most popular online game on Facebook, but it is just one of many online games in which thousands of players can interact and spend real money on virtual goods.

[From The Rise of Virtual Economies | Max Miller | Big Think]

The amounts of money flowing through the World of Warcraft has long been a source of fascination (at least on this blog) and when I caught up with Aleks Krotoski at a recent Real-Time Club meeting she reminded me that when I organised a CSFI roundtable on this sort of thing with her and Richard Bartle the attendees were very literally open-mouthed with astonishment at what was going on in Norrath. Well, it’s got bigger since then.

Over 200 million people around the globe play Facebook games each month, and millions more play online role playing games like World of Warcraft or interact in the virtual world Second Life. And as our social lives become more and more virtual, retailers and advertisers are betting there will be increasing demand for virtual goods as well. In the future, gaming and retail will be a fully integrated experience.

[From The Rise of Virtual Economies | Max Miller | Big Think]

That’s a really interesting point, and I think its significance is not yet recognised: gaming and retailing will be “fully integrated”. There is every reason for players in this space to go beyond the basic level of e-money issuing (think, for example, of the Monetise/Carphone announcement, and into areas where the strategic use of their own money leverages a significant business.

Monitise has launched the Mobile Money Network to act as a one-stop shop for mobile services.
The joint venture between Morse spin-off Monitise and Best Buy Europe has the personal backing of Charles Dunstone, founder of the Carphone Warehouse.

[From Monitise launches The Mobile Network – 16 Nov 2010 – CRN UK News]

I think with hindsight we can see that the mobile operators should have worked with the original EMD instead of lobbying so hard to be excluded because they ought to have viable e-money businesses in place by now. Instead, it looks as there are other players who could outflank them in this area.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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