Member Article

February 2007 UK retail sales rose 0.6% on a like-for-like basis against a weak comparative in February 2006, when sales had fallen. The three-month trend rate of growth weakened in February to 0.9% from 1.1% in January for like-for-like sales, but rose to 4.2% from 3.6% for total sales, reflecting the continued growth of retail space.

Clothing and footwear were still difficult but food sales improved, helped by Valentine’s Day, after a flat January. Consumer confidence is still weak and shoppers remain wary of committing to larger housingrelated purchases. 

According to figures from the Interactive Media in Retail Group (IMRG), web sales now account for 10% of retail sales. £19.2bn of goods were sold through the internet in Britain in 2006, an increase of 34% over the previous year and up from just £800m in 2000. IMRG is forecasting that internet sales will rise by another 36% in 2007 to around £26bn.

The EU has introduced a Directive to facilitate and regulate the use of e-money to allow retailers to experiment and innovate with e-money products without the need to be licensed or authorised by the Financial Services Authority (the FSA). The Directive was implemented in the UK on 27 April 2002 and since then the e-money revolution has slowly gathered speed.

E-money is defined as “monetary value stored on an electronic device, issued on receipt of funds, and accepted as a means of payment by persons other than the issuer”, and is effectively a mechanism whereby consumers can pre-pay a certain value onto a card which may then be used as a means of payment in future retail transactions. This electronic “purse” can exist as either “closed loop”, for example, all Starbucks outlets in the UK and abroad or “open loop”, for example, any retailers who decide to participate in a given scheme.

The concept is similar but not identical to a credit card arrangement whereby a card may be used by any retailer participating in a scheme.

What are the principal benefits to retailers of E-Money?
E-money is not credit it is stored value, and this is one reason why retailers benefit from a less vigorous compliance regime. Freed from the chains of the Consumer Credit Act 1974, retailers should enjoy greater flexibility when it comes to marketing, promotion and operation of the scheme. E-money issuers are also exempt from the need for a banking licence issued by the FSA. The result is a more level playing field between non-bank and bank issuers of e-money - the latter being entitled to issue e-money under the Banking Consolidation Directive provided the FSA has granted permission to do so.

Who can issue E-Money?
Whereas banks may issue e-money pursuant to the Banking Consolidation Directive, e-money issuers which are not a bank/building society will require permission from the FSA to do so. When considering an application to issue e-money, the FSA must be satisfied that the prospective issuer can meet and continue to meet the minimum standards (“Threshold Conditions”) and that the persons running the potential issuer are fit and proper. The Threshold Conditions take into account the legal status of the issuer, location of its offices, its close links with other firms or individuals, finance and management resources and the suitability of management. The firm will also need to abide by the FSA’s Principles for Business and prepare a business plan setting out the planned activities and related risks, budget and resources.

Are there any special arrangements for smaller scale E-Money issuers?
There is a special waiver for small scale implementation with the result that small e-money issuers are excluded from the FSA regulated activity of issuing e-money. To benefit from this exemption the e-money “purse” is restricted to a storage amount of €150. Retailers are slowly waking up to the significant retail advantages and exciting possibilities that e-money offers and the future is certainly very bright for this form of “currency”.

Stephen Dawson
08700 868335
[email protected]