Full report
· The recommendations of the report, which is being published as part of the process to advance the payment and settlement systems in Israel, focus on steps to encourage new solutions for promoting the use of advanced means of payment, through regulating an appropriate infrastructure, and serve as an outline for the general direction of payment system activity in the future, both in the area of payment systems and in the area of advanced means of payment.
· The implementation of the recommendations is expected to encourage the use of advanced means of payment by the public, to increase the market’s efficiency, to bolster its stability, and to allow the entry of new players thus increasing competition in the clearing and settlement market.
The Joint Committee[1] for Promoting the Use of Advanced Means of Payment in Israel was established in March 2014 with the goal of regulating the advanced means of payment sector. The Committee was established in accordance with the recommendations of the Committee on Reducing Use of Cash in Israel (the Locker Committee), which indicated that there is a need to promote the use of advanced means of payment in Israel, to serve as an alternative to paper-based means of payment (cash and checks). In November 2015, the Committee published an interim report, which was compiled after conducting an extensive examination intended to promote the use of advanced means of payment in Israel.
Beginning from the publications date of the interim report, the Committee worked to advance the main recommendations published in the report—some of the Committee’s recommendations were advanced successfully and others are in various stages of implementation. Likewise, various work teams were set up to implement the recommendations of the interim report, and the Committee also held several hearings with relevant entities in the payments system, with the understanding of the importance of dialogue with the various players and of understanding the market’s needs.
The implementation of the recommendations allows the building of the required infrastructure to promote the use of advanced means of payment in Israel through the legal, technological, and consumer tracks, and thus lead to reduced use of paper-based means of payment and expanded use of advanced electronic means of payment, similar to processes in various other countries, and will make it possible to develop payment services including e-wallets, payment applications and contactless means of payment.
The Committee’s final recommendations are:
1. Set up central settlement infrastructure and secure national communication infrastructure for executing payments using advanced means of payment. In accordance with the recommendation of the Committee’s interim report, in January 2016 an internal team was set up at the Bank of Israel, which examined the issue with an emphasis on learning and reviewing fast retail payment systems around the world, learning what the Israeli consumer market needs from a fast retail payment system in Israel, and outlining the various alternatives to promoting the recommendation.
The establishment of a central clearing system in Israel will allow high accessibility for carrying out advanced payments (24/7 to the extent possible); increased competition in the payment system by having access to payment systems in Israel expanded to entities that are not banking corporations and by expanding the types of activity that can be executed without use of a payment card; expanding the efficiency of the payment process in Israel; increased redundancy of the retail payments systems.
2. Formulate a law to regulate payment services, payment account and settlement and issuance services. In accordance with the recommendation of the Committee’s interim report, in March 2016 a subcommittee was established, led by the Bank of Israel and with the participation of the Ministry of Justice, Ministry of Finance, and the Israel Antitrust Authority. Over the course of the subcommittee’s discussions, principles were formulated for regulating payment services based on, among other things, European regulation in the area of payment services—the PSD (Payment Systems Directive), with adjustments for the domestic market. The goals of the law are enhanced competition in the payment services markets by opening the market to nonbank entities, maintaining the stability of the payment system, providing consumer protections to payment service providers’ customers; and promoting technological and business innovation. These principles[2] were published for comment by the public in October 2016 and they serve as the basis for writing the draft payment services law currently being formulated
3. Adapt the current legislative infrastructure to activity involving advanced means of payment. Adjusting the legal infrastructure is necessary for advancing and developing new advanced means of payment in Israel while maintaining the stability of the payment system in Israel and reducing the various risks inherent in use of such means of payment.
4. Promote an infrastructure that allows the execution of contactless transactions at Point of Sale (POS) terminals. In accordance with the recommendation of the Committee’s interim report, in May 2016 the Banking Supervision Department published Proper Conduct of Banking Business Directive 472—Acquirers and payment card transaction acquiring[3], which refers to, among other things, the requirement to support contactless transactions at new terminals. The alignment of physical and technological infrastructures for support of contactless transactions in businesses will make it possible to develop electronic wallets and wider implementation of payment cards including a component for carrying out contactless transactions, which will make it possible to carry out payments in a more convenient and rapid manner at businesses primarily for low value payment transactions.
5. Increase the efficiency of the transaction execution chain of a digital payment instruction. In accordance with the Committee’s recommendation, in January 2016 an internal team at the Bank of Israel was established, which carried out a preliminary examination of “digital payment instructions” including reference to the transaction execution chain in means of payment and an examination of the Israeli market’s needs. The internal team recommended promotion of the digital payment instruction as it will be able to maintain, to the extent possible, the advantages of the traditional check and reduce the disadvantages incorporated in it. Recently, a joint legal team was established with the goal of examining whether there is a need to create a legal framework adjusted to digital payment instructions. In addition, the Bank of Israel is currently working together with the banking system to implement the Electronic Check Clearing Law and in parallel is advancing a reform in the activity of the Paper-based (checks) Clearing House, including clearing checks that were deposited by mobile application, cancelling the manual clearing session and truncation of collection vouchers. The main goal of these steps is the switchover to full digitalization of all paper-based payment instructions
6. Promote consumer education and generate consumer trust in advanced means of payment. The Committee is of the opinion that the process of promoting the use of advanced means of payment must be done with the accompaniment and support of financial education and information to the public at large.
The Bank of Israel and the relevant entities will continue to monitor the development of advanced means of payment in Israel’s payment system.
Committee Chairperson, Ms. Irit Mendelson, said, “The implementation of the report’s recommendations will lead Israel’s payment and settlement system into the future, where advanced means of payment and payment solutions will be an inseparable part of the financial activity of Israeli citizens, similar to other advanced economies in the world. The implementation of the report’s recommendations will increase the efficiency and competition in the payment and settlement system by, among other things, the entry of new players, while maintaining the stability of the payment and settlement system.
I would like to thank my colleagues, the Committee members, for their professional work that contributed to formulating the final recommendations of the Committee as well as to all the entities that appeared before the Committee members and contributed from their experience and time.”
[1] The Committee was chaired by Ms. Irit Mendelson, the Director of the Accounting and Payment Systems Department at the Bank of Israel. Committee members included representatives of the Bank of Israel, the Prime Minister's Office, the Israel Money Laundering and Terror Financing Prohibition Authority, the Israel Tax Authority, the Ministry of Justice, the Israel Antitrust Authority, the National Cyber Bureau, the National Information Security Authority, State Attorney’s Office, Israel Police and the Ministry of Finance.