Denis Y. Lysenko & Yulia Kyrpa
The last decade is featured by rapid development and implementation of electronic payments, facilitated by prompt progress in the area of IT-technologies and growth of financial markets.
Although nowadays electronic payments are less popular in Ukraine, compared to the EU and USA, the turnover of domestic and cross-border electronic transactions involving Ukraine is constantly increasing. Obviously, emergence of new payment instruments in the financial market is a trend evoked by a high demand as to efficiency and reliability of payments.
Electronic money existed and was used in Ukraine without the necessary regulatory framework for quite a long time. The first attempt of the National Bank of Ukraine (the “NBU”) to regulate the area of electronic money was made in 2008. Despite a slight progress of regulation since 2008, it remains underdeveloped primarily due to a rather restrike NBU approach reflected in the existing normative acts, lack a special law governing the activity of domestic and foreign electronic money systems in Ukraine, and absence of the required provisions in the Ukrainian legislation on bookkeeping and taxation of electronic money payments received by goods and services vendors.
CURRENT LEGISLATIVE FRAMEWORK
As of today the legislative framework governing the issuance and circulation of electronic money consists of : (I) the Law of Ukraine “On Payment Systems and Money Transfer in Ukraine” No 2346-III as of 05 April 2003, as amended (the “Payment Systems Law”), (II) the NBU Regulation No 481 as of 04 November 2010 “On Amendments to Certain Legislative Acts of the NBU in respect of Regulation on Issuance and Circulation of Electronic Money” (the” E-Money Regulation”), and (III) the NBU Regulation No 223 as of 30 April 2010 “On Performance of Transactions Utilizing Special Payments Instruments”.
The above legislative framework stipulates below key principles of electronic money systems operation in Ukraine and sets forth a number of requirements applicable thereto.
Particularly, in accordance with the Payment Systems Law and E-Money Regulation, electronic money is defined as units of value, which are stored on an electronic device, computer memory, etc, represent a certain monetary undertaking of the issuer and are accepted as payment instruments by the parties other than the issuer. Practically electronic money can be distinguished as “hardware-based” and “software-based” depending on the technology of their storage.
Electronic money can be issued solely by banks, however can be distributed by agents authorized to perform certain functions on servicing the systems under the respective agreement entered into with the issuer. Electronic money can be issued in the national currency of Ukraine only (“UAH”). The amount of electronic money stored on one electronic device, which cannot be refi¬lled is limited by UAH 2,000 and the amount of money stored on an electronic device which is subject to replenishment shall not exceed UAH 8,000. In accordance with the applicable legislation, banks, being e-money issuers, are obliged to redeem such money (i.e. to effectuate electronic money exchange back into cash or non-cash monetary funds) if they are requested to do so by electronic money users (i.e. private persons or legal entities utilizing such money for settlements). It should, however, be noted that according to the Payment Systems Law private persons are entitled to obtain and redeem electronic money in exchange of cash or non-cash funds and to utilize such money for purchasing goods and services or to transfer it to other private persons. Legal entities, in their turn, are allowed to use non-cash funds only-for obtaining or redeeming electronic money and are prevented from transferring the electronic money to third parties for any purposes other than purchase of goods or services from the vendors.
Unfortunately, current legislative framework appears to be rather restraining and is holding back the potential development of e-money and e-commerce in Ukraine. In particular, the Payment Systems Law contains only few clauses devoted to issuance and circulation of e-money in Ukraine. The said law, together with the above NBU regulations, stipulates the following provisions signi¬ficantly complicating the Ukrainian legislation compared to EU Directive 2000/46/EC as of 18 September 2000 “On the Taking Up, Pursuit of and Prudential Supervision of Business of Electronic Money Institutions”: of Business of Electronic Money Institutions”:
the requirements as to a special status of e-money issuer (which must enjoy the status of a banking institution), that essentially narrows down the circle of potential issuers;
the requirement to obtain the NBU approval in relation to the rules of each particular e-money system prior to issuance of any electronic money by a bank (such rules must include a detailed chart of all transactions to be performed in the system, risk management and security instruments of the system, etc.); and
certain limitations in the area of e-money utilization, in particular, prohibition for unified tax payers to accept any other payment instruments except for monetary funds in cash or non-cash form established by the Tax Code of Ukraine and impossibility to use electronic money for paying state duties and levies, etc.
RECENT TRENDS IN THE UKRAINIAN FINANCIAL MARKET
Despite certain imperfections and flaws of the legislation discussed above, electronic money keeps expanding the sphere of its utilization in Ukraine. For instance, the recent legislative novelties set forth certain grounds for performance of payments via mobile phones or other wireless devices serviced by mobile operators (the “Mobile Devices”), which is becoming a recent trend in the Ukrainian ¬financial market. In particular, such Mobile Devices provide access to a bank account of a user through various channels of telecommunication networks of the operator or through no-contact tools. Mobile operator, in its turn, is allowed to distribute scratch-cards for replenishment of Mobile Devices with the electronic money, acting as an agent of electronic money issuer. When effectuating payments via Mobile Devices, users are obliged to observe the rules of the respective payment system, bank rules and regulations, terms and conditions of the agreements with the bank and the mobile operator, as well as the requirements of the Ukrainian legislation governing this area.
Fortunately, mobile payments, being a cutting-edge technology in the West, are also becoming more and more popular in Ukraine. Currently a number of Ukrainian banks are focused on developing innovative mobile payment instruments, allowing smart-phone users to significantly facilitate the payment process. For instance, groundbreaking technologies released in the end of 2012 created a possibility to take a picture of the check in the supermarket or a restaurant by a smartphone and to pay-up the said check via such smartphone within one or two minutes. Needless to say that mobile applications for smartphones, ensuring possibilities for money transfers to various accounts worldwide, open up vast unexplored markets for banking services providers, bringing banks and their clients much closer to each other.
PROSPECTS FOR DEVELOPMENT OF E-MONEY SECTOR IN UKRAINE
Although a part of Ukrainian e-money sector has already been occupied by international payment systems established by foreign companies, there is still a significant niche in this market, having large-scale potential for development. Apparently, simplification of the Ukrainian legislation in this area and bringing it in line with the equivalent EU regulations could substantially speed-up this process. Particularly, adoption of a separate law governing e-money payments, including those performed via Mobile Devices would be an enormous step forward.
Moreover, extension of the circle of electronic money issuers by enabling not only banks but other companies, meeting the criteria as to minimum capital requirements, IT-systems and business reputation, to issue electronic money, as well as allowing utilization of e-money in all area of settlements between legal entities, private persons as the state, would create a vast number of opportunities for the development of this sector.