How governments are accelerating digitization of payments in CEMEA
COVID-19 is accelerating payment digitization in CEMEA as more consumers and merchants turn to eCommerce and touchless contactless payments. Amidst the changing landscape, Visa CEMEA’s Salvador Perez-Galindo, Vice President of Government Engagement, explores how governments are implementing policies and regulations to accelerate the move to digital, and what happens next.
If Visa’s discussions with policymakers on digital payments once used to explore what they were about and what they could offer economies, the focus today of our conversations is on how to accelerate payments digitization and how Visa can support this. That’s the message from Salvador Perez-Galindo, who leads Visa’s government engagement efforts across Central Europe, Middle East and Africa (CEMEA). “Fifteen years ago, we were discussing with governments the benefits of electronic payments,” he says. “Now, every country already has this in mind.”
A major UN report 1 released last September calling on governments to embrace digitization to support development has focused attention, as has the impact of COVID-19, which saw governments looking for ways to generate resiliency in their economies. Government actions vary across CEMEA: Saudi Arabia’s Vision 2030 strategy2 sets out a goal of 70% cashless transactions by 2030; while the Kenyan Central Bank is reviewing the need to improve interoperability as part of 2021-2025 National Payments Strategy 3. What is shared in all cases is the recognition that payments digitization is top of the agenda for all governments.
Governments taking new roles
As a result, the role of governments is evolving. Historically, governments engage with digital payments first as regulators, but Salvador sees an important role as enablers, as they strive to meet their societies’ digitization goals. Governments can also have a powerful impact as users of digital payments: In Russia, the government’s efforts in enhancing acceptance along with digitization of disbursements to citizens has also contributed to increased usage and, according to official figures, 70% of payments in the retail sector were cashless in 2020.4 “It illustrates how important it is that there is coordination to ensure the government is not only acting on the regulatory side,” says Salvador.
So, if governments have an opportunity to play many roles, what are some of the interventions and efforts being pursued to encourage digitization?
Several governments have implemented top-down directives to foster more rapid acceptance of digital payments. In Saudi Arabia, beginning with fuel stations, all economic sectors started accepting digital payments over 2019-2020. As a result, Saudi increased its POS (point of sale) infrastructure by 65% last year.5 In Russia, since 2014, the Consumer Protection Law requires companies with annual sales over a certain threshold to accept digital payments (as of July 2021 it will be the equivalent of around US $278,000).6 More recently, at the end of 2020 Moldova approved an acceptance mandate for merchants with annual sales volume exceeding USD 29,000 (500,000 lei).7
Separately, over the past few months other countries have been implementing regulatory and monetary incentives for acquirers. In Ghana8, Oman9 and Pakistan10 central banks have released guidelines for simplified Know Your Customer requirements for small merchant on boarding, while the Central Bank of Egypt is granting a US$64 million subsidy to triple its POS infrastructure, helping acquirers to build this outside of the bigger cities.11 “Right now, we have a marketing campaign to support the efforts of acquirers there,” says Salvador. “It's an ambitious agenda – and we're part of that.”
Supporting usage at the point of sale through tax incentives to motivate both merchants and consumers to replace cash with digital payments is another measure that has been used in Korea, Latin America and more recently even in in Europe.12 “Particularly where there's still a very important cash-centric culture, you need to provide some incentives,” says Salvador.
Central banks are increasingly recognizing the benefits of developing contactless infrastructure. Specifically, many central banks need to ensure there is an enabling regulation for contactless transactions, leading in some cases to establish, through regulation, a standardized cardholder verification method (CVM) limit. Furthermore, central banks in CEMEA have been reviewing and increasing these CVM limits, allowing higher value transactions to go through without the need of a PIN or other means of verifying the cardholder. During COVID-19 we saw more than a dozen countries taking action in this regard, ranging from the Seychelles to practically all countries in the Arab Gulf Cooperation Council (GCC). [See Figure #1]
It should also be noted that in some countries, like Pakistan, central banks have just decided for the first time to allow contactless transactions without a second authentication factor. Unfortunately, we still have some central banks that are reluctant to allow contactless without PIN due to fraud concerns and we as an industry need to continue explaining how to mitigate fraud better and protect consumers while reassuring them that contactless transactions are not only a convenient but secure way of paying.13
Source: Country-specific regulations, with conversions to USD done by Visa
Ecosystem oversight and supervision
As digitization of payments becomes more critical for building more economic resilience, regulators are embracing Fintech, expanding payment services and reviewing the roles and responsibilities in the payments chain. “The new reality is that you have many more players and there is an increasing trend to define the rules of the game for them,” notes Salvador.
During the last year, we have seen important efforts to expand the participation of fintechs and non-financial institutions in a diverse array of countries and regions, ranging from Ethiopia to Georgia and the Middle East. In Saudi Arabia, the central bank extended 15 new licenses for fintechs during 2020 alone.
Open banking and expanding digital payment offerings
Central banks around the globe are also establishing new Open Banking regulatory frameworks in different shapes and forms, creating challenges and opportunities for incumbent players and new entrants. In general, Open Banking frameworks aim to enhance competition, innovation and consumer choice by facilitating connectivity between financial institutions and fintechs. In CEMEA alone, during COVID-19, we have seen important announcements and policy definitions taking place in Nigeria, Russia, Saudi Arabia, South Africa and the United Arab Emirates.
In parallel to Open Banking, central banks are now expanding to the direct provision of new digital payments services through real time payments (RTP) and potentially with new central bank digital currencies. Albeit still in early stages of development, these trends have accelerated under the global pandemic and will shape the industry in the years to come.
Public-private collaboration as the key for success
Given these trends, Visa is actively engaging with governments in the region, as well as around the globe, to provide support and develop partnerships. “There is not a one-size-fits-all, silver-bullet approach to payments digitization,” says Salvador. “It requires a level of understanding and dialogue, between the central banks and the industry, so that we all work more constructively with governments. Digitization is here to stay. Now more than ever, it is important to engage with authorities to make sure that we can build together more resilient economies and livelihoods.”
1 The United Nations Secretary Generals Task Force on Digital Financing of the Sustainable Development Goals, Final Report, August 2020: https://digitalfinancingtaskforce.org/downloads/
2 Saudi Arabia, Vision 2030, Financial Sector Development Program: https://www.vision2030.gov.sa/en/programs/FSDP
3 Central Bank of Kenya, Kenya National Payments System, Vision & Strategy 2021 - 2025: https://www.centralbank.go.ke/wp-content/uploads/2020/12/CBK-NPS-Vision-and-Strategy.pdf
4 Bank of Russia, National Payment System: http://www.cbr.ru/eng/Psystem/
5 SAMA, Saudi Central Bank, Monthly Statistics, 28 February 2021: https://www.sama.gov.sa/ar-sa/EconomicReports/Pages/MonthlyStatistics.aspx
6 Russia’s Consumer Protection Law, Article 16.1: https://cis-legislation.com/document.fwx?rgn=1600
7 The Republic of Moldova, Amendments to Regulations, 16 December 2020: https://www.legis.md/cautare/getResults?doc_id=124566&lang=ru
8 Bank of Ghana, New Merchant Account Categories, December 2020: https://www.bog.gov.gh/notice/new-merchant-account-categories/
9 Central Bank of Oman, January 31 2021: https://cbo.gov.om/news/228
10 State Bank of Pakistan, November 2019, New regulations for digital on boarding of merchants: https://www.sbp.org.pk/bprd/2020/CL1-Annex-A.pdf
11 Daily News Egypt, Central Bank of Egypt allocates EGP 1bn to deploy 300k POS nationwide, December 2020: https://dailynewsegypt.com/2020/12/07/central-bank-of-egypt-allocates-egp-1bn-to-deploy-300k-pos-nationwide/
12 Visa, Review of tax incentives: https://usa.visa.com/visa-everywhere/global-impact/accelerating-electronic-payments-worldwide.html European Payments Council, Greece’s steady progress towards a cashless society, November 2019: https://www.europeanpaymentscouncil.eu/news-insights/insight/greeces-steady-progress-towards-cashless-society
13 As a reference, on March 3 the United Kingdom’s government announced that an increase in the CVM limits from £45 to £100. This followed a proactive engagement from Visa and the industry to reassure authorities that this would not increase fraud risk, demonstrating how the initial increase to £45 in April 2020 did not lead to any change in fraud levels. Furthermore, evidence along the same lines was provided for other countries such as Singapore, Canada and Australia, where CVM limits had already been increased to values above £100
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