23 June 2020
Introduction
Businesses are adapting to survive in this ongoing global health crisis by employing among others, online business models. This growth of digital economy and e-commerce business has led to an increase use of online payment settlement instruments and devices worldwide. In Lao PDR, although the authorities had previously taken a rather conservative stance on digital cash and online payment services, on 17 March 2020, the Bank of Lao PDR (“BOL”) issued the Decision on Payment Services No. 288/BOL (“Decision No. 288”), demonstrating the willingness of BOL to support the development of electronic payment instruments and relevant services. The decision is promulgated in Lao Official Gazette on 27 March 2020, thereby becoming effective since 12 April 2020.
This article will discuss changes introduced by Decision No. 288 and their impacts on the online payment industry.
Current Regulatory Environment
Prior to the adoption of Decision No. 288, the payment settlement market was in a regulatory vacuum. The Law on Payment System No. 32/NA dated 7 November 2017 (“Law on Payment System”) is the main regulation governing all activities in the sector. In addition to limiting activities of payment system operators and service providers in private sector to only minor or securities system, they are also required to secure an operation license before conducting any form of payment settlement services. However, the main uncertainty in fact lies with the lack of clarity in the process, especially on the requirements that applicants shall meet.
An example is the requirement for joint investment in case of foreign investors. The Law on Payment System does not specifically regulated shareholding structure and minimum registered capital for payment system/services operators. In 2019, BOL issued a Decision on Minor Payment Settlement System No. 293/BOL dated 1 April 2019 (“Decision No. 293”) to supplement the Law on Payment System with regards to private payment system operator. The decision imposes clearer requirements in the application process for operation license in payment system industry. This includes the requirements of 10% Lao shareholdings, the appointment of a Lao director and minimum registered capital requirement in the range of LAK10–40 billion, depending on activities.
Nevertheless, Decision No. 293 only governs the operations of inter-institution fund transfer system, payment card network and settlement system. These activities are usually carried out by multinational enterprises or banking institutions. Operators in other areas outside of the remit of the Decision, such as digital remittance or electronic money services, are thus left unsure as to how to comply with license requirement.
The Developments in Decision No. 288
To further support the implementation of the Law on Payment System in relation to the operation license requirement, BOL, via Decision No. 288, now addresses the issue relating to establishment and operations of payment services enterprises, more specifically card payment services, electronic money services, electronic acceptance services and electronic money transfer. For the incorporation of payment services company, Decision No. 288 divides payment services enterprises into three categories, depending on the scale and impacts to market of payment services operations. For payments services of large scale with extensive impacts both domestically and internationally, an operation license would be required. Operations with limited impacts will only be subjected for a requirement for certification while those with only minor impacts on domestic markets are only required to notify their incorporation and operations to BOL.
In the event that license is required, the payment services provider must meet the conditions on Lao equity holding and the appointment of a Lao director, similar to the ones imposed on payment system operators under Decision No. 293. Nevertheless, the level of minimum registered capital required for the establishment of payment services operations is generally lower in comparison to the requirements that is applicable to payment system operators, ranging from LAK1 billion to LAK20 billion relative to scope of operations of service providers.
It is important to note however that commercial banks that intends to launch payment services operations are not subject to the minimum registered capital requirement and conditions relating to shareholding structures and appointment of a Lao director under the Decision No. 288. This is probably due to the fact that commercial banks are already subjected to a stricter incorporation requirement under the Amended Law on Commercial Bank No. 56/NA dated 7 December 2018.
For payment services that only need to apply for a certificate, the same requirements for the issuance of operation license is repeated, with the exception of minimum registered capital requirement. Lastly, the main requirement for operators in this category who are required to notify BOL, is to have one Lao director on the board.
Management and operations of payment service providers are also regulated under Decision No. 288 to ensure adequate level of financial stability, internal management, risk management and security control, customer protection of operators and competition in the market. However, although the operational control provisions are of general application, for service providers whose services is only subjected to notification of incorporation, they may apply for an exemption from some or all of the management and operational control provisions for consideration of specific approval on case-by-case basis by the BOL.
Potential Impact of Decision No. 288 to the Payment Settlement Industry
On the plus side, Decision No. 288 provides more certainty in the establishment and operations of payment service company and electronic monetary transaction, which is a growing sector in Lao PDR. It also promotes participation of small investors outside of the banking industry in utilising alternative payment devices in business operations and activities by requiring relatively low minimum requirement and imposing license requirement based on the scale of business. Overall, this decision is a laudable effort by the regulators, as it will help in supporting the current focus on the development of online payment services and markets in Lao PDR.
However, Decision No. 288, similar to Decision No. 293, is limited due to its applicability to certain products or service in payment settlement sector. Although the decision permits supervisory authority, the Department of Payment Settlement Management of BOL, to add more services to the regulation, considering that this sector is highly volatile and fast-moving, the question is whether Lao payment settlement sector has a complete set of regulation in place for business. This is attributed to the fact that some requirement, including minimum registered capital, are rather specific to certain business model. One would thus expect that more regulations of are similar nature may have to be introduced to the industry, given that the sector will continue to evolve.
Conclusive Remark
Decision No. 288 clarifies the process for investment of an investor in the payment service sector, especially in relation to license requirement for operations in electronic money services. With this increase level of clarity, investors are likely to find Lao payment service market more attractive than how it previously was. Given the current increasing need for online payment services due to the growth of e-commerce activities and the ongoing pandemic, the adoption of Decision No. 288 could be one tool that may support Lao economy. Nevertheless, one question remains on whether the introduction of specific piece meal regulations, such as Decision No. 288, is suitable for this fast-moving industry.
For more information, please contact:
Tuchakorn Kitcharoen, ZICO Law
tuchakorn.kitcharoen@zicolaw.com
