The Bank of Israel publishes recommendations and measures to introduce debit cards in Israel and to increase competition in the payment card industry

The Bank of Israel is adopting measures to expand the distribution and use of debit cards, which is expected to lead to increased competition in the payment card industry and to savings for merchants and households, as well as a reduction in the use of cash:

 
·         The Governor of the Bank of Israel will declare the interchange fee for immediate debit transactions to be a controlled fee, and it will be set at a maximum of 0.3 percent (compared to the current average fee of 0.7 percent), for a period of one year.
·         The Supervisor of Banks will set out directives for the distribution of debit cards to bank customers, as well as disclosure rules and rules for immediate settlement for transactions carried out through debit cards.
·         In parallel, the Bank of Israel will publish a draft directive for the implementation of the EMV card security standard, on both the issuing side and the acquiring side.
 
The Bank of Israel is adopting measures to expand the distribution and use of debit cards, for the following reasons: to promote competition in the payment card field; to reduce the use of cash and make electronic means of payment accessible to the general public; to expand the variety of payment solutions for households and merchants; and due to potential savings for merchants (cash handling costs, financing costs and acquiring fees) and households (card fees, cash withdrawal fees, and cash handling costs). The measures to increase the use of immediate debit transactions (debit card transactions and prepaid card transactions) will be implemented in parallel with the continued use of deferred debit products, in view of its advantages for households and merchants.
 
In April 2014, the Ministerial Committee on the Cost of Living, Concentration and Competition in the Economy, chaired by Economy Minister Naftali Bennett, decided to request the Bank of Israel to assess a series of actions in the payment card field, particularly in regard to increasing the use of immediate debit transactions. In addition, Bank of Israel representatives were members of the Committee to Examine Reducing the Use of Cash in Israel's Economy, which was chaired by the Director General of the Prime Minister’s Office, Mr. Harel Locker. The objective of the Locker Committee was to examine limiting the use of cash as a means of payment in the Israeli economy in order to reduce the shadow economy, to fight crime and money laundering, and to encourage the use of advanced and efficient means of payment. The Committee also recommended promoting the use of debit cards, which would serve as an alternative to the use of cash and would be broadly distributed to the general public. The Committee’s recommendations were approved by the government in October 2014.
 
The Bank of Israel is taking a series of measures to promote the use of debit transactions, including:
-          A debit card has been defined as a standard banking product, and is an integral part of current account management. Acquainting the market with the immediate debit product must be done through a separate designated card, and not one that integrates various types of payment methods. This solution maintains the cardholder’s freedom to choose the type of payment.
-          It is prohibited to charge a customer-executed transaction fee for any use of a debit card.
-          The interchange fee for immediate debit transactions (transactions by debit card and by prepaid card) will be declared as being under supervision, and its price will be set at a maximum of 0.3 percent, for a period of one year.
-          A draft guideline has been published requiring the banks to contact all existing customers with current accounts to offer to issue them debit cards, within a defined timeframe. Customers that hold a deferred debit card from the bank will be able to receive a debit card without additional card fees, at least during the initial card holding cycle (the first 3–4 years). The banks will also be required to offer the debit card to any customer opening a current account.
-          A draft directive has been published to regulate the fund transfer dates for immediate debit transactions, such that the entire payment chain from debiting the card holder to crediting the merchant will be executed close to the date of the transaction, and not later than three business days after the transaction is presented.
-          A draft has been published regulating disclosure of debit card transactions as part of the listing of transactions in the card holder’s current account (disclosure of each transaction separately, noting the date and amount of the transaction and the merchant’s name).
 
Reducing the cost to merchants by way of a separate and reduced interchange fee for debit transactions is essential for the success of the expanded distribution and use of debit cards and prepaid cards. In view of the importance of the process, and in order to prevent significant delay, the Governor has decided to exercise her authority based on Sections 9k and 9l of the Banking (Service to the Customer) Law, 5741–1981, and to set a maximum price for the interchange fee for debit transactions for a period of one year. During this year, the powers of the Anti-trust Commissioner to set a separate interchange fee for debit transactions will be anchored in accordance with a draft bill to reduce the use of cash.
 
The Bank of Israel will monitor the issue and use of debit cards in order to assess the need to take further measures.
 
In parallel, the Bank of Israel is promoting additional measures to increase competition, innovation and security in the payment card industry, including:
-          Promotion of the implementation of the use of EMV (Europay, MasterCard, Visa) standard on both the card issuance and on the use of supporting technology at points of sale (POS). Accordingly, a draft directive has been issued for the implementation of this standard.
-          Promotion of competition in merchant acquiring: Promotion of a legislative amendment that will make it possible to connect licensed nonbank merchant acquirers to the payment card switch operated by Shva (Automated Banking Services) and regulating the date of monetary transfers between the issuer and merchant acquirers for deferred debit transactions. These measures come in addition to other actions to create the infrastructure for the entry of competition from new merchant acquirers, such as the publication of a framework for obtaining a merchant acquirer license and improvements in Shva’s technological system, the objective of which is to enable the provision of service to new merchant acquirers.
-          Regulation of disclosure on merchant acquirer services, particularly in relation to debit transactions.
 
Supervisor of Banks David Zaken said: “The Bank of Israel has made a professional in-depth assessment of the payment card market, following which a number of measures have been formulated to increase the effectiveness of competition in the payment card field, and which will lead to the broad distribution of debit cards while reducing costs to businesses and households, without negatively impacting the consumer’s ability to choose the most appropriate payment channel for his needs.”