The Bank of Israel are actively taking steps to improve not only the efficiency and adoption of digital banking but to increase competition within the region’s financial landscape. The implementation of new measures will put the country and its economy far ahead in the race to become digital.
The Israeli Government’s Banking Supervision Department has become increasingly aware of the difficulty occurred in establishing a new bank. The Bank of Israel has, in recent years, worked to advance competition in the financial system. So to encourage the establishment and growth of new competitors, it recently chose to standardise and simplify the process, removing entry barriers to the banking system; creating regulatory certainty at an early stage of the process for any entrepreneur interested in establishing a bank.
Removing entry barriers for new banks is expected to increase and diversify the number of competitors in the market, upping the competitive threat to existing participants.
In regards to the removal of red tape within the financial sector, the Supervisor of Banks Yair Avidan commented: “This recent launch of the digital banking pilot stage is a significant step towards establishing a new bank in Israel. It’s a further element that’s part of the measures being promoted by the Bank of Israel to increase competition in the financial system. We have guided the bank through its establishment, we will continue to do so, and we will help any other initiative that wishes to establish a bank in Israel.”
In addition, the Banking Supervision Department wants to leverage the far-reaching technological developments and changes in consumer behaviour of recent years, to establish new digital banks with a narrow expense structure that will contribute to increased competition, and has initiated a series of leniencies in the supervision directives to enable full digital banking activity without needing to go to a bank branch.
In an additional step towards digital banking and the adoption of smart payment systems, the implementation of the first milestone in the Europay, MasterCard, and Visa (EMV) framework, which was set out by the Governor of the Bank of Israel, has recently been concluded. Based on data from Shva (Automated Banking Services Ltd.), as of the end of January 2021, smart terminals make up 54% of all terminals in Israel, and the number of smart transactions is about 23% of all transactions. About 67% of the smart transactions are contactless, whether by credit card or by smartphone.
The number of smart terminals and the number of smart transactions is expected to continue to increase in the coming period as well, with the end of the lockdown and the renewal of commercial activity, and in accordance with the next stages of the framework for adopting the standard in 2021.
The Bank of Israel urges merchants that have not yet completed the switch to EMV to contact their merchant acquirer or hardware supplier, in order to complete the switch before the determining date and thus join the payment revolution in Israel, benefitting from secure and more advanced transactions.
By July 2021, many additional businesses will have joined the advanced payment method, ahead of the next significant milestone on July 31, 2021, when the acquiring of transactions at all businesses, other than exceptional cases, will only be possible via the EMV standard.
“The framework that the Bank of Israel is leading to shift payment card activity in Israel to EMV, is in line with advanced economies worldwide and makes new and innovative value proposals in Israel possible” comments the Bank of Israel’s Payment and Settlement Systems Department Director Mr. Oded Salomy.
“The progress in integrating the terminals allows an advanced and innovative customer experience, such as contactless payment via the payment card and via digital wallets that make it possible to pay via a payment application by bringing the device close to the terminal in the store. We already see several digital wallets that have begun to operate in Israel in recent months, and a number of additional entities, domestic and international, are expected to enter this field in Israel this year. The Bank of Israel will continue to promote the use of advanced means of payment in Israel for the benefit of businesses and customers” he continues.
Among the payment possibilities offered by the EMV standard, interest in contactless capabilities remains high. Benefits will include contactless payment for transactions up to NIS 300, use of secret codes for approval of payments above this figure, payment via digital wallets and wearable accessories (such as watches), and payment via an application from domestic and international entities.
Customers who do not remember the secret code for their card will also be able to recover it or switch it rapidly and easily through various means.
Within the framework of the economic plan to deal with the coronavirus crisis, a plan was launched by the Small and Medium Business Administration at the Ministry of the Economy and Industry and by the Ministry of Finance, to help in integration of acquiring via the EMV standard. The plan makes it possible to get back up to 80% of the cost of implementation.
“In recent years, the Bank of Israel has been leading many steps to promote innovation and competition in the financial market, including in the payments market” the Supervisor of Banks Mr. Yair Avidan added. “The market’s switch to the EMV standard is an additional infrastructure step, which will enable the various payment service providers in the economy to develop advanced and innovative payment services for the Israeli consumer. In parallel, we are leading additional processes that will soon be completed, to upgrade the use of digital means of payment to improve the welfare of the customer, chief among them the open banking project and the project to switch banks easily. This range will bring the financial system in Israel, and at the centre the Israeli customer, to a new era of opportunities.”