The global regulatory landscape has not kept up to speed with payments innovation. Banks are stewards of the global payments system, but find their incumbent position being challenged by competitors, according to a report by Celent.

"Rapid innovation in digital payments poses new challenges for regulators and those responsible for managing payments risks," says Zilvina Bareisis, senior analyst with Celent's Banking Group and author of the report. "While this report does not call for any specific regulations to be introduced in any given country, the proposed framework and principles should be helpful for banks and regulators around the world as they engage in understanding and managing risks in digital payments."

Key findings of the report include:

• Payments is a large, important, and fast-changing industry. A web of regulations underpins the delivery of payments, enforced by multiple regulators on a country-by-country basis. Even markets with relatively well developed regulatory frameworks, such as the United States, have gaps and ambiguities in digital payments regulation.

· Advances in digital payments have resulted in increased risks, while leaving global regulatory systems behind. Payment landscapes in countries around the world differ widely based on the mix of payments, existing regulatory structure, and specific regulations, as well as the approach to digital payments regulation. The risks are becoming more complex to manage, while the players do not always compete on a level playing field.

Celent recommends that the banks engage with regulators today to ensure they do the following:

1) Use our proposed taxonomy of digital payments to categorize any new payment offerings and rapidly determine the most critical risk and regulatory implications.

2) Follow the principles outlined in this document when developing any new regulations. We believe these principles are universal, despite differences in specific payment systems and regulations by country.

3) Focus on activity-based regulation; in other words, focus on a specific activity performed by the payments provider in the end-to-end payments value chain, rather than provider's legal structure.

4) Apply the regulations consistently for offerings deemed material and in the manner proportionate to the risks inherent in any given activity.

5) Ensure the overall package of regulations delivers on the core regulatory objectives of protecting consumers, promoting a vibrant payments ecosystem, and safeguarding broader societal interests across all types of payments.

"Banks should lead the industry dialogue with the regulators to better understand and manage risks in digital payments. And the time to do so is now," the report concludes.

http://www.celent.com/reports/managing-digital-payments-risks-regulatory-perspective

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