The Bank of Israel’s position with regard to developments in the area of payments and digital wallets: Update following the completion of work by the internal committee on mobile payments
In order to examine this matter, the Governor of the Bank of Israel, Prof. Amir Yaron, established an internal committee for mobile payments, headed by Deputy Governor Andrew Abir. The committee published a Public Consultation document to receive information from the public in June 2021 on the use of information gathered from the wallets and the possibility of creating an interface between applications (P2P apps). Seventeen responses were received from the public and following that discussions were held with various bodies. The committee also monitored the numerous changes taking place in this market, including the recent entry of global players into the area of digital wallets in Israel.
Following is the position of the Bank of Israel with respect to the matters considered by the Committee:
· The fundamental approach of the Bank of Israel to the issue of information created and gathered by financial entities about a customer is that this information belongs to the customer, such that it is the customer’s right to decide to whom the said information can be exposed and what uses can be made of it. This approach is not merely a statement of principle, but rather is a matter of practice that the Bank of Israel has been promoting for a number of years. This is part of the bank’s efforts to develop the world of open finance—both by promoting the implementation of the open banking project in the banking system and by its active professional involvement in the formulation and legislation of the Financial Information Service Law, 5782-2021. This approach is also based on a broadly based view of the privacy protection laws.
· In accordance with this approach, the Bank of Israel is of the view that financial entities should be allowed to use information they have obtained with the consent of their customers and for the purposes they have agreed to, subject to law.
· Information that is gathered from P2P services provided by bank payment apps has competitive value in the case of information on payments to purchase goods and services from businesses, though it has low competitive value when it concerns transfers between private individuals.
· In this context, it should be noted that the volume of activity in payments to businesses by means of P2P is particularly low relative to other means of payment, to the point that intervention in this market is not called for at this time.
· Another measure that is expected to promote the access to information created by the use of payment apps—thus reducing the dominance of the existing players in the market—and which is linked to the open banking reform is the new Proper Conduct of Banking Business Directive being formulated by the Banking Supervision Department. According to this directive, information existing in the banking apps—whether it concerns transfers between individuals or payments to businesses—will be part of the open banking information baskets and as such will also be accessible to third parties. This will be according to the timetables set out in the relevant legislation.
· With respect to the services of entities offering digital wallets that involve the tokenization of credit cards issued by other financial entities, the use of information accumulated in such activity will be subject to—apart from the consent of the customer—a contract signed between the entity offering digital wallets and the card issuer. At this stage, the Bank of Israel does not intend to intervene in this market due to the marginal volume of activity of the banks operating such wallets.
· Finally, since the matter of information is a complex one that is being discussed worldwide and in the context of various business sectors, it is worthwhile that an economy-wide examination be carried out of all sectors and that the various questions that arise with respect to the gathering of information by various entities on their customers be considered. These include the need to amend the Privacy Protection Law and its adjustment to what is accepted practice in Europe; the clarification of questions with respect to general and specific consent; the conditioning of service provision on a requirement for the approval of information gathering, etc.
Creation of a database for interfacing between payment accounts
· A dominant player has emerged in the P2P services for transfers between individuals. In order to increase the sophistication of the market in this aspect, the Bank of Israel is of the view that there is a need to encourage the market and the participants within it to create an infrastructure in the form of a database that will allow the transfer of money and the execution of payments between the various types of payment apps and accounts. The database will connect a mobile telephone number (or some other identifier such as an email address) with the details of the means of payment to be credited (such as a payment account).
· Such a database will contribute to the development of the market in general and to competition within it in particular and will make things simpler for existing players to offer additional services to their customers. It will also facilitate the entry of new players into the market who will be able to offer innovative and advanced customer experiences with relatively greater ease and a more convenient interface to many potential customers.
· There are various examples worldwide of infrastructure for interfacing between payment apps. They can be based on a central database, a connection between existing databases or a type of connection or interface service where the identification of customers is always unambiguous, such as for example a unique identification number (such as an ID Number) or a telephone number. The considerations that should be taken into account in creating an optimal infrastructure include the ease and speed with which it can be done, its fit to the various players in the market, and the speed with which the infrastructure can be installed and be made ready for use, subject of course to ensuring standards of responsibility, information security and privacy of end users.
· In this context, a database has several advantages over a technological interface between payment apps, primarily the simplicity of interfacing with the database, the cost of its establishment and its potential for innovation.
· It should also be noted that in parallel to the activity of the Bank of Israel committee, a joint team has been created, with representatives of the Ministry of Finance, the Israel Securities Authority, the Capital Market Authority, the Competition Authority and the Bank of Israel. It is carrying out an in-depth examination of various issues related to the aforementioned infrastructure.
The Bank of Israel will continue to advance the payments market and to monitor its development, including a consideration of open questions related to information, as discussed above.