Full report (Hebrew)

The report includes recommendations
for increasing competition, efficiency, and stability in the advanced means of
payment market and in payment and settlement system infrastructures as well as an
outline for the general direction of payment and settlement activities in the
future.

·        
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.

[2] http://www.boi.org.il/en/NewsAndPublications/PressReleases/Pages/5-10-16.aspx

[3] http://www.boi.org.il/he/BankingSupervision/LettersAndCircularsSupervisorOfBanks/HozSup/h2498.pdf (in Hebrew)