OFX's UK electronic money license features relatively slow Australian fintech laws

The ASX listed online exchange service provider ASX will publish a commercial update along with Tuesday's annual general meeting, and is part of its aspirations to be a fintech player on a global scale.

A central element of this vision is the ability to expand its range of payment services.

And so his announcement last week that he acquired an "electronic money license" from the Financial Conduct Authority, the UK regulatory authority, was meaningful to OFX (formerly known as OzForex). It also reveals how progressive UK regulators are encouraging fintech innovation in the payment system.

The Uber tour sharing company applied for a license for electronic payments in the Netherlands in March. The scheme allows technology companies to offer full payment services without being considered banks.

  OFX allows sellers of US, UK and European products on Amazon to hold receipts in a foreign currency abroad for ...
OFX allows US, UK and European sellers to sell receipts in Amazon is a foreign currency to save forex expenses, but Australian regulation prevents flexibility for local sellers.

Laurent Delhourme

As the speech by treasurer Scott Morrison and the Commission on productivity competing in the financial system on Friday demonstrated, Australia needs to rethink how it regulates whether it will create an environment in which players fintech will thrive locally and compete globally.

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The Innovation Summit of the Australian Financial Review last week heard how the global payments landscape is moving at the speed of light. OFX, which has been around for 20 years and listed on the exchange in 2013, has adapted.

He worked closely with Amazon to develop a new product to provide sellers on the platform with flexibility to repatriate revenues from offshore sales.

Now has an electronic money license, OFX can offer sellers in the UK and Europe the ability to keep receipts in a foreign currency and then use them later to make payments in that currency. The separate US laws allow it to do the same thing there.

But in Australia, regulation is more stringent. Under the terms of the OFX license with the Australian Securities and Investments Commission, funds received from Australian sellers on Amazon or other foreign exchange platforms must be returned to Australia within 30 days.

This means that local small businesses are hitting with exchange fees to bring home money, and then again it should need to relocate it to the country where sales are made, pay suppliers or taxes or any other thing.

"The environment is evolving rapidly and we want Australian SMEs to take advantage of it, and we can help." We want to be able to deliver a better payment product for the Australian business, "said OFX CEO Skander Malcolm.

The government wants fintechs to be regulated so that they can compete as the nation tries to create the businesses of the future. For example, the PC report on Friday marked the expansion of the ASIC "sandbox of regulations" to allow products to test start-ups without the burden of regulation.

The licensing regime for electronic money does not concern the exemption from regulations by technology companies; indeed, it has strengthened customer protection and requires many security measures, including two-factor authentication. OFX claimed to have passed "a high degree of control with the FCA's approval".

But the regulation means that the new product of OFX for Amazon is not considered a banking system. Therefore OFX avoids expensive capital requirements of the type required for back deposits.

The electronic money regime also places the regulation of payments under one single regulatory ceiling: the FCA. This contrasts with the Australian approach, in which the Reserve Bank, ASIC and APRA all have different tentacles in the payment system. As implemented by the PC report, simplification is needed.

Australia raided creating a new licensing regime for start-up banks. But it is only a matter of providing a short-term limited license before requesting a complete one – completely appropriate for containing customer deposits.

But in Europe, the "neobanks" are already turning into something much more about payments and helping customers move money around. Many customers who use them continue to hold deposits in traditional bank accounts linked to fintechs, just as do OFXs.

The challenge for regulators in the new economy will ensure that the rules are flexible enough to be quickly integrated with changing business models while ensuring customer protection.

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