Concern over plans to regulate cyberbanking

Date: 27/06/1996

By Fiona McHugh

PLANS to ensure the orderly emergence of the EU's plastic money market are causing problems even before they have been published.

In a discussion paper due out before the summer break, the European Commission is expected to recommend the introduction of tough Union-wide rules to govern the brave new world of cyberbanking.

But the Union's financial institutions are already up in arms. They say the draft laws are unnecessary and will smother new banking services at birth.

While Europeans still use cash most of the time and conduct the best part of their banking business through conventional means, that is set to change in the coming years.

Before the end of the century, consumers should be able to transfer a set amount of money, say 10 ecu, from their account on to a prepaid card or 'electronic purse'. No longer weighed down by pockets full of change, they could then use their plastic purses to pay for anything from a hair cut to a carton of milk. Shops would debit the cost of the goods or service in question from the card.

Also in the pipeline is a new service known as PC-banking. This allows customers to lodge, withdraw or transfer money from one account to another via their computers using a special secret code.

Like cashpoints before them, these revolutionary banking services should make life a lot easier for European citizens. But, in some ways, they could also make it a lot worse.

Thieves, for instance, could hack into customers accounts, steal their money and make a quick getaway across invisible computer boundaries. Given these nightmare scenarios, it is little wonder that novel banking services have attracted the glare of regulatory attention.

Under pressure from consumer groups, the Commission is likely to recommend that banks be made responsible for money stolen from accounts or electronic purses, but only if they have been notified of

the card theft or account irregularity in question.

Financial institutions would also have to obey a long list of rules aimed at ensuring that new electronic banking systems are sufficiently transparent.

Aware of the potential pitfalls of the new banking era, consumer organisations have warmly welcomed the Commission's move to discipline the sector, but are calling on it to produce concrete measures rather than essentially voluntary recommendations.

However, moves towards a tougher legislative environment are causing some nervousness within the banking sector. Industry officials say that, given the nascent nature of these services, the Commission would be groping in the dark.

“It would be premature to regulate electronic purses and PC banking when neither has got past the testing phase,” says Caroline von Richthosen of the European Savings Bank Group.

She says that if the Commission must apply rules to new services, then it should at least get them right. It should not, for instance, simply extend existing laws governing traditional payment cards such as Visa and American Express to new prepaid cards.

“Electronic purses will usually contain 12 or 18.5 ecu while credit cards can be worth 124,000 ecu or more,” says von Richthosen. “You simply cannot treat them in the same way. If, for example, customers have to sign a contract every time they want to buy a 12 ecu purse, then they probably will not bother.”

Similarly, laws governing plastic cards cannot be used to govern electronic banking systems such as PC-banking.

“You lose cards, but you do not lose computers or phones, so how can you subject them to the same rules?” says Richtosen.