The National Payment System Act 2021 – Paving the way for innovation and financial inclusion in Fiji
Technology advances mean there are now more ways than ever to facilitate payments. For retail customers, the use of mobile wallet technology to facilitate payments can enhance financial inclusion, particularly to remote parts of Fiji (and also the Pacific). But regulation is needed to provide a safe and predictable framework to enable payment systems to operate.
On 12 February 2021, the Fijian Government passed the National Payment System Act 2021 (Act).
When the Act comes into force, it will serve as the umbrella legislation for all payment services and systems operating in Fiji.
The Act grants the Reserve Bank of Fiji (RBF) the regulatory powers needed to develop and implement a national payment system to promote the stability, safety, efficiency and competitiveness of the Fijian financial system.
Previously, Fijians were reliant on banks and money remitters for processing monetary payments – for anyone familiar with banking in the Pacific this has typically meant long stuffy lines and lots of paperwork!
Now with new technology, Fijians are being offered diverse products that allow for increased financial inclusion. However, new technologies can expose the public to heightened risks such as financial scams. This is particularly the case as Fijians and the government face increased levels of economic vulnerability created by the pandemic.
The Act will serve as the umbrella legislation for all payment systems operating in Fiji to mitigate both systemic risk and the risks associated with customers using non-traditional means of payment.
What is a payment system and how is it useful?
Under the Act, a “payment system” is broadly defined as systems that enable the processing, clearing or settlement of funds, while a “payment service” enables a person to conduct transactions, for example cash deposits or withdrawals and the execution of a payment transaction. Typically, larger transactions in Fiji are effected using FijiClear and SWIFT whereas smaller payments use a number of other types of payment systems.
For example, several banks have online payment platforms and apps which enable the transfer of funds and in late 2019 Vodafone launched the M-Paisa service providing Fijians with the ability to instantly transfer money and make other types of cashless payments through a mobile wallet platform. However, these systems allow a very limited level of interoperability, excluding the possibility to transfer values across the various entities.
What does this all mean for retail customers?
From a practical perspective the use of these digital services greatly reduces the amount of time taken to transfer money and through mobile technology allow for greater financial inclusion. This is particularly relevant for people in remote areas of Fiji, who will now be able to use their mobile phones to make and receive payments, avoiding the costs of visiting the nearest city or town.
Further, as Fiji is experiencing its ‘second-wave’ of COVID, providing cashless and contactless payment methods has been a useful and safe way for Fijians to make payments and pay bills in a ‘socially distanced’ manner – in fact, the Fijian Government just used M-Paisa and other e-wallet services to deliver $90 payments to Fijian families who have been stuck in containment zones and have been adversely impacted by COVID.
From a legal and policy standpoint, the reforms will provide a safer, more predictable framework in which consumers can make payments.
The Act creates a reliable framework by requiring any person seeking to provide a payment service or operate a payment system to be licensed by the RBF. The Act, also requires the approval of the RBF to outsource functions and the use of agents . Further, customers are afforded a range of protections when using payment services by providing rules on:
the transparency of contractual terms of electronic fund transfers;
allocation of responsibility in case of error or fraud; and
guarantee protections against the misuse of information.
The Act also creates a process for aggrieved customers whose financial transactions are routed through a payment system. These protections will operate in addition to other statutory and common law consumer protections available in Fiji.
These reforms are also significant for Fiji as they bring the country more in line with advanced financial markets around the globe. The International Finance Corporation (the private banking arm of the World Bank) under the request of the government has led the charge in developing the suite of reforms. IFC Resident Representative to Fiji, Kiribati, Samoa, Tonga and Tuvalu, Mr. Deva Da Silva commented:
“The modernization of Fiji’s financial system has come at a critical time when the country is continuing to confront the impacts of COVID-19, The National Payment System Act will enhance the efficiency and stability of Fiji’s financial system and broaden the range of payment instruments and services, boosting financial inclusion for everyday Fijians including those who are either underserved or completely locked out of the current financial system.”
What is the outlook for payment technology in Fiji?
More jurisdictions around the world are turning to innovative ways to make seamless payments, through for example, blockchain technology, e-wallets and a set of new digital assets. Currently, the Act contemplates the use of digital wallets and “electronic money”.
Under the Act “electronic money” means “electronically stored monetary value as represented by a claim on the issuer, which is issued on receipt of funds for the purposes of making payment transactions and which is accepted as a means of payment by the person to whom the payment is being made to”. This definition would appear to cover forms of electronic money which are underpinned by funds and convertible to some form of monetary value.
Crypto-assets, under certain circumstances can arguably be characterised as a form of electronic money, because they exist as electronic stores of monetary value and claims may be made against the issuer (the decentralised network) for the purpose of conducting transactions which are recorded on the blockchain.
However, section 49 of the Act sets out some further requirements around the issue of e-money including that:
(a) electronic money must be issued in exchange for equivalent of Fijian dollars or highly liquid assets acceptable by the Reserve Bank of Fiji;
(b) the scheme must be able to provide sufficient and reliable information to the Reserve Bank to monitor and control the quantity and velocity of the electronic money supply in the economy;
(c) issuers are obliged to redeem electronic money value in Fijian dollars, at par, on requires;
(d) the management of the underlying float and the redemption of the electronic money must be clearly defined;
(e) issuers are obliged to open custodian accounts with banks to the benefit of customers and to ensure traceability of money of each of their customers.
Cryptocurrencies are likely to find difficulties being recognised as e-money under the Act because:
they are rarely directly convertible to Fijian dollars, especially unpegged assets such as Bitcoin, Ether or Dogecoin, while pegged assets (e.g. Dai or xDai) are usually only referable to USD;
while blockchain provides a good method of record keeping, there is a level of anonymity in transactions which likely won’t comply with the Reserve Bank’s information requirements; and
a decentralised network acts as the issuer and also verifies every transaction in a blockchain meaning the issuer of a cryptocurrency likely lacks the requisite abilities to be obliged to redeem crypto for Fiji dollar, manage an underlying float (if any), and open custodian accounts with licensed financial institutions.
In Fiji and indeed other parts of the Pacific, the use of cryptocurrency has been discouraged due to issues around its volatility and cybersecurity and regulators have encountered issues with online crypto scams targeting vulnerable citizens.
That being said, in other parts of the Pacific blockchain and cryptocurrencies have been managed and used to ‘do good’. Sempo is a start-up who has partnered with Oxfam and provides a token-based cashless payment system to ensure donor funds get to and can be used by people in disaster affected areas. As COVID continues to impact people around the Pacific, blockchain and other digital payment systems may provide a viable solution for NGOs and governments to deliver aid more effectively.
Sempo’s founder Tristan Cole commented:
“Sempo is excited to be working with Oxfam and 19 consortium partners to roll-out Unblocked Cash, an innovative, open-source blockchain-based payment system. Unblocked Cash enables up to 96% faster cash aid delivery for humanitarian relief and provides transparent, efficient and empowering assistance for those most in need. Since piloting in 2019, the program has now scaled up to reach over 20,500 beneficiaries and 341 vendors across 13 islands with $2.6M AUD distributed (as of April). Unblocked Cash continues to be piloted in new countries across the Pacific and around the world.”
Whether the Act will be a catalyst for further fintech law reform in areas like crypto and blockchain remains to be seen.
When in force, the Act provides the framework for a range of reforms by the RBF to modernise Fiji’s national payment system laws. The Act will impose conditions on payment service operators, providers, and financial institutions.
The suite of reforms will provide the legal framework to allow consumers to use more innovative technologies and payment services in Fiji, which in turn will further promote financial inclusion. It remains to be seen whether these types of reforms will extend to other forms of fintech, for example blockchain and cryptocurrency.
In Fiji, as we experience a second wave of COVID, this framework will support the development of safe, predictable and very welcome contactless payment methods.
National Payment System Act 2021 section 4(a).  World Bank, ‘Digital Dividends Overview’, World Development Report (Report, 2016) <http://documents1.worldbank.org/curated/en/961621467994698644/pdf/102724-WDR-WDR2016Overview-ENGLISH-WebResBox-394840B-OUO-9.pdf>  Ibid section 13.  Ibid s 48.  Ibid s 25.  Ibid s 28.  Ibid section 51.