Emerce reports that Moxmo, the small e-money issuer that has been operational for 2,5 years, has gone bankrupt. This is the second failing e-money startup who focused on the mobile phone as a payment mechanism. The first one was Digipay.
Now was their business assessment to focus on the mobile phone as a payment mechanism wrong? No. The market for ringtones, premium services, ticket sales is huge and getting a slice of that at provision percentages (10 %) well below those of mobile operators (30 to 40 %) attracted quite some investors.
What did go wrong was the legal part. The start-up were held to comply with supervision law, given that their payment mechanisms was e-money. And they assumed, given the EU-regulation on e-money, that any player who was operating a similar scheme would be held to the same standards. After all, the regulation clearly aimed at a functional approach; the supervision would apply regardless of technology.
Unfortunately, the functional approach was one bridge too far in practice. The Dutch supervisors did not dare to apply the e-money law to the incumbents in the mobile payment market (5 operators, generating hundreds of million euro in the third-party PRS-market). So during two years, the supervision of these players was stalled. Which was just long enough to wear out the new startups who had betted on equal supervision for all e-money players in the market.
It is only too sad that it took the Dutch supervisors two years to formally recognize that mobile phone operators that allow third-party payment from their pre-paid accounts are indeed e-money institutions that need to be supervised. Even sadder is the fact that we will most likely need some 2 more years of European and national discussion before the whole market is properly supervised.
So in the Netherlands I would like to close the chapter on innovation and regulation with the following hypothesis:
The succesfull innovation of new payment schemes in a previously unregulated market depends not so much on the existence of regulation, but mostly on the willingness/boldness of the supervisor to ensure compliance with the rules, regardless of size and power-position of the supervised.