eMoney Directive

The federal government has quite a few things to worry about in today’s world.   Not only must the U.S. tend to its own house but it must watch its European neighbors to ensure that small countries such as Greece do not collapse resulting in further pain to the financial system.

Maybe Marx was right when he said that globalization, unfettered capitalism and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct.  While it may sound like an astonishing claim, let’s not forget that the early part of the last century almost witnessed the collapse of our financial system.

History has a humorous way of repeating itself.

We may be in the throes of another revolution.  Look around: the Arab Spring; riots in London; Israel’s middle-class protests against high housing prices and an inflationary squeeze on living standards; protesting Chilean students; the destruction in Germany of the expensive cars of “fat cats;” India’s movement against corruption; mounting unhappiness with corruption and inequality in China; and now the “Occupy Wall Street” movement in New York and across the United States.

There seems to be a general discontent by the majority against the ‘bourgeois” minority.  Some of the reasons are well founded, but others are due to the law of supply and demand.  More people in the world and less opportunity equals a surplus of workers.  Europe responded to such factors in the early part of the last century by letting the government become the provider of macroeconomic stability.

The European welfare-state worked so long as there was a healthy and large middle class.  All was fine for about three decades but growth was not one of its tenets.  As a remedy, during the Reagan–Thatcher era in the 1980s, the Western financial system saw massive deregulation. Deregulation was a response to the failures of the welfare-state model and a need for increased growth.

Growth did most certainly occur. The past three decades has created the wealthiest generation in history.  It has also created massive inequality due to deficits and lack of regulatory policies.  Governments will surely take notice and remedy any future mishaps through stricter regulations to rein in runaway inflation and create stability.  The result will surely be that mobile payments will be looked at with a sharper lens.

With this onset of mobile financial services, the U.S. will need to create a regulatory environment that will allow financial institutions and mobile carriers to be able to compete and ensure the security of all parties involved.  The current laws regarding financial institutions may work but this is muddied by the fact that wireless carriers will need to act like banks.  Is that in the best interest of Verizon, et al?

The interest of wireless competitiveness conflicts with the continued applicability of financial constraints.  Wireless carriers will do whatever it takes to create revenue so long as there isn’t more regulation. They are perfectly fine with private market regulation but government agency regulation may bring about the same stagnant growth that happened with the European welfare-state.

Even with today’s European troubles, it may serve the U.S. well to look across the pond to our European brethren for an answer to our own regulatory conundrum.  Europe has implemented a system that allows wireless carriers to become “e-money” providers.  As a provider, the carrier would be licensed and regulated like a bank on a federal, not state, level.

In the U.S., for a company to be part of a payment network the provider has to be a federally or state-charted financial institution.  In Europe, to offer payment services, a provider can also be a member of the Visa or MasterCard networks.  The U.S. may want to adopt such a system for non-financial institutions so that wireless carriers may be able to offer mobile payment services without having to adopt burdensome financial regulations.  Even more so, according to the U.S. Bank Holding Company Act of 1956, if a wireless carrier were to acquire a bank to offer mobile payment services, all of it business activities would have to be banking activities or closely related to banking activities.  This is obviously not possible.

The mobile payment business model is quickly evolving.  If the U.S. were to implement a similar structure to the eMoney Directive adopted by the European Commission, wireless carriers would be able to sidestep state regulations and could operate in an environment where they would not have to be a financial institution to offer mobile payment services.

It may be worth a look, but let’s wait to see what happens with Greece and Spain and Ireland and…well you get the idea.

read @ mobilepaymentstoday.com

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