Ownership: These rules (or provisions in the scheme by-laws) specify who owns the scheme; how ownership can change in the future; and how the scheme board operates.
Membership: Rules (or provisions in the scheme by-laws) specify who may join the scheme as a participant. There may be requirements for capital adequacy or other provisions intended to ensure that a participant can meet its obligations under scheme rules. Some schemes create classes or tiers of membership, most notably the ability for indirect participation, in which case a direct participant will assume responsibility for the indirect participant. Country law and regulation may govern which types of entities are allowed to participate as members in a scheme. For example, participation may be limited to banks, or to institutions which qualify for a national standard as a “payments institution.”
Voting Rights on Operating Rules: How participants approve new or changed operating rules. This is a highly sensitive issue as rule changes can drive major investment or may affect revenue. The basic approach to these rules by schemes is to establish either a “one vote per participant” rule, or to weight voting rights (entirely or in part) by some measure of participant size or use of scheme. Sometimes different categories of rules have different formulas for calculating voting rights. In some cases, founders may have different voting rights from post-founding participants. This is a difficult issue to get right: many schemes have gone through changes to voting rights through the years. There is a trade-off between creating a “level playing field,” allowing all participants to benefit equally from the scheme, and a desire to recognize the larger financial contribution (either in terms of early investment, or ongoing higher volumes) of major players.
Ongoing Investment in the Scheme: The operating rules may specify how long-term investment decisions for improvement of the scheme are made and funded.
Scope of Rules: Some schemes have rules which cover how participants establish accounts with their end-party customers, such as a credit card account. Other schemes have rules which are limited to only the payments transactions which go through the scheme. A significant issue is whether the rules require that a participant who is the provider for both the sending end-party and the receiving end-party (so-called “on-us” transactions) be either physically passed through the scheme switch and settlement processes, or not; in the latter case there may be a requirement that participants report on the volume of such transactions to the scheme.
Rules Application: Most typically the rules bind only the direct participants, but they may, for example, require that participants only use an operator or processor who is in compliance with the rules – even if that entity is not directly bound by the rules.
Rules Enforcement: There will be directions on what the scheme can do if a participant is not complying with the rules, or is using a processor or third party who is not complying with the rules. The rules may create requirements for participants to report on or warrant their compliance with rules on a periodic basis. Rules may create requirements for participants to acknowledge or explain their compliance (or lack thereof) in the event of a report or complaint.
The Financial Inclusion Perspective
Rules on ownership, membership and voting rights should foster broad participation by established as well as new entrants in digital financial services: this will support on overall lower cost base, may crowd in greater innovation, and thereby enable broader adoption and lower end-user prices.