The Bank of Israel’s activity in the area of advanced means of payment against the background of the Reducing the Use of Cash Law

The Reducing the Use of Cash Law​, 5778–2018, was legislated in the Knesset in March 2018. In January 2019, restrictions applying to the general public regarding payments by cash and checks will go into effect, and additional provisions of the Law that apply to banking corporations and concern payments by check will go into effect in July 2019.

 

The law sets out that the banks, the Postal Bank, and those holding licenses for the provision of deposit and credit services shall not pay out checks where one of the following conditions is present (other than the exceptions that appear in the law):

 

1.      The name of the payee is not indicated on the check.

2.      A check that is transferred more than once, and bears a sum in excess of NIS 10,000.

 

The Bank of Israel is collaborating with the banking system to implement the sections of the Law that relate to the payment of checks, and in this context is taking the following actions:

a.       To avoid confusion that is liable to cause the check-using public to violate one of the sections of the Law, the Bank of Israel is updating the standard for printing checks in Israel, so that on a check that is printed from the outset without limited negotiability (without “for beneficiary only” on the check) there will be a table on the back of the check that will guide the payer or the recipient regarding the information they have to note on the back of the check.

b.      The Bank of Israel is updating the reporting between banks so that checks that will be deposited for custody prior to the effective date of the Law, and will be presented for collection after the effective date of the Law, will not be returned even if they do not meet the provisions of the Reducing the Use of Cash Law.

 

In addition, over recent years, the Bank of Israel led and promoted many issues in the payments system, some of which serve as a substitute for anonymous paper-based means of payment that are limited in use by the Law:

1.    Debit card (immediate debit card)—The Bank of Israel imposed an obligation on banks to offer a debit card to all customers with a current account, prohibited the charging of fees in respect of debit card transactions, prohibited the charging of fees for the card from customers that have a credit card (for three years), and established that the card fees are to be lower than those charged for a credit card. Recently, the Bank launched a public awareness campaign with the goal of increasing the accessibility of the debit card as an advanced electronic means of payment, and to explain to the public the advantages of the card and its ability to serve as a proper substitute for cash. The Bank of Israel is working to remove the barriers and create the infrastructure that will make it possible to carry out both debit and deferred-debit activities (use of an integrated card) by giving the customer the control to choose the transaction type.

2.   The Bank of Israel led the legislation of the Electronic Check Clearing Law, 5776–2016, as well as the implementation of the law, which went into effect in November 2017. The law enabled the banking system to offer its customers advanced check depositing options, such as via cellular, at reduced fees, and thus enhanced the attractiveness of checks as a cash-substitute means of payment. In addition, the law simplified the manner of handling returned checks.

 

The Bank of Israel continues to promote reforms in the payments system, and takes other fundamental steps whose impact will be felt in the coming years. As such, the Bank of Israel is promoting the establishment of an infrastructure for immediate clearing of retail payments, which will enable customers to carry out payments to customers and companies via electronic wallets. The immediate payment is a new means of payment in Israel, in which the payment initiator is debited immediately for the amount of the payment and the payment recipient is credited with the amount immediately, similar to paying via cash—and in contrast to most other common means of payment. Such a system will contribute to the payments system in Israel in various ways:

 

  •      It will assist in enhancing competition in the payments system by expanding access to the payment systems in Israel to payment service providers, and the types of transactions that can be executed without a payment card;
  •      It will contribute to increasing the efficiency of the payments system in Israel by providing a response to the existing needs in the Israeli payments market, with the providing of the possibility to execute and receive immediate payments in a convenient manner, including payments of small values between individuals or between individuals and companies. Those same small companies will benefit from being able to reduce credit financing costs that are intended to bridge the gap between the transaction being carried out and its final settlement;
  •     It will expand the redundancy in the retail payments system by adding to the overall payment and settlement systems operating in Israel;
  •       It will improve the service to the end customer by enabling the payment recipient to make use immediately of the amount that was credited to the account, with full availability 24/7 and with very low transaction costs.

 

In the coming weeks, a document is expected to be published, that the Bank of Israel compiled on the issue, in continuation to the examination of the proposals and discussions during the hearings held at the Bank of Israel since the publication of a Public Consultation document in November 2017.