14.02.2023.
The NBS, as the regulator in the payment services market acting in the citizens’ interest to be properly informed, has the obligation to respond and point to a few facts regarding the data on cashless payments recently published on the occasion of presenting the results of the study “The Impact of an Increase in Cashless Payments on the Shadow Economy“ as part of the National Cashless Payment Initiative “Better Way“ – that is, regarding the interpretations that were by no means corroborated by facts
Regarding the statement –“The development of cashless payments is also measured by the number of payment cards per capita, where we rank low on European level. Namely, with an average of 0.73 cards per capita in Serbia – there are fewer cards only in Albania“ – we point out that, according to the quarterly data submitted to the NBS by banks and other payment service providers, the total number of cards at the start of 2023 stood at 10,759,656. Compared to end-2016, the number of cards rose 54.47%.
We also note that payment cards are not the only payment instrument for payment at physical and online points of sale. Thanks to the setting up of the instant payments system, both citizens and corporates are able to initiate, via mobile banking apps, instant payments with domestic merchants, at physical and online shops. Currently over 3 million citizens and corporates use mobile banking apps that enable a series of innovative services such as the already mentioned payments at points of sale, but also payment of monthly bills by scanning the NBS IPS QR code, or transfers to solely based on knowing the payee’s mobile phone number.
All these services that were made available to our citizens are not yet accessible in a great number of countries, including some of the advanced countries as well. Thus, selective and ungrounded statements about payment cards do not paint a true picture of the current status of our payment system, which according to all applied standards and infrastructure measures up to the payment systems of the most advanced European and world economies.
On the abovementioned occasion, it was also stated: “The criterion of development is also the number of POS terminals, with only Albania, Slovakia, Romania and Moldova ranking poorer than Serbia and another measure is also the value of transactions, where we are also low-ranked; CEE average is some 15 percent and in Serbia in 2019 it was 8 percent of GDP.“
It is important to note that the isolated data on the number of POS terminals can by no means be the basis for assessing the degree of development of cashless payments in a country. The focus of activities and initiatives in the area of cashless payments cannot and must not be purely on broadening the infrastructure for acceptance of cashless payments at any cost. The mere existence of acceptance devices does not mean a lot if cashless payments are unacceptable cost-wise, i.e. too expensive for merchants. The reason lies in the fact that at points of sale there are numerous POS devices installed which are actually inactive (according to the data available, there are around 25% of such devices in the Republic of Serbia). Having that in mind, one wonders about the purpose of piling up inactive devices and what market players (apart from the NBS) are actually doing to reduce the costs of acceptance of cashless payments. Accordingly, the focus should be on activities that will increase the usage and acceptance of cashless payments – which is better reflected in the number of transactions and not in the number of acquiring (e.g. POS) devices which bring benefits only to sellers/renters of such devices. The strongest contribution to a greater use and acceptance of cashless payments would come from a reduction in costs which are generated mainly by foreign card brands. To better understand the essence, let us underline that based on NBS research, over a five-year period, from 2016 until 2020, the total fees that Serbian banks paid to foreign card systems were by more than thirty times higher than the expenses toward the domestic DinaCard system, though the turnover by foreign cards was only three times higher.
The NBS has significantly contributed to lowering the payment card acceptance costs by capping the multilateral interchange fees and through activities aimed at increasing the use of the national payment card, but we cannot impact the fees charged by the international card systems.
Also, in the era of digitalisation and important technological advancements, POS devices are not the only devices accepting cashless payment instruments. Actually, in technical terms, they rank among the worst solutions. Therefore, it remains unclear who is persistently insisting, through different “national“ initiatives, exclusively on disseminating POS devices – instead of broadening the acquiring network itself, which includes different types of devices with a variety of features, frequently lowering merchant-borne costs.
Despite outstanding results accomplished by the Republic of Serbia in the field of cashless payments in the last ten years, there is always room for improvement. What matters, however, are the activities that will contribute to the long-term promotion of cashless payments – primarily through activities aimed at further reducing the costs of cashless payments. This is a key problem when it comes to their acceptance by merchants, especially small merchants.
Let us recall that in the prior period the NBS took a number of measures and activities that served as a strong fillip to cashless payments in the Republic of Serbia, but also led to their cheapening. This relates primarily to normative activities, such as the drafting of the Law on Multilateral Interchange Fees and Special Operating Rules for Card-based Payment Transactions (Law) which regulates card business, but also to infrastructure activities, such as development of the instant payments system or the use of the national DinaCard payment card which involves by far the lowest cost for merchants.
Owing to the application of the Law and the lowering of average interchange fee – from over 1% to 0.2% of the value of executed transaction for debit cards and 0.3% for credit cards, merchant fees have decreased considerably. Namely, since the adoption of the Lawthe merchant fee has been practically halved: from over 2% on average to around 1% of the transaction amount for payment card acceptance at physical points of sale (POS terminals) and from 2.3% on average to 1.15% for acceptance at online points of sale. It is important to note that after the Law entered into force, three new payment service providers (banks) started providing the service of payment card acceptance, which significantly increased competition among acquiring banks, to the benefit of merchants and the market in general. All of this has had a positive effect on the number of payment card payments, but also on the expansion of the overall acquiring network, including the said POS terminals, whose number has been on a constant rise since the start of application of the Law.
Now that interchange fees have been significantly reduced as a result of NBS regulatory measures, it is critical that other actors in the market engage in activities that will contribute to a further rise in cashless payments in Serbia. This relates above all to the institutions competent for the assessment of competition and concentration in the market of devices for the acceptance of payment cards and other payment instruments at points of sale. The problems of concentration and lack of competition have a negative impact on the development of the payment instrument acquiring network in the country because merchants and payment service providers are unable to choose from a variety of technical solutions of different IT providers. Such practice discourages innovation, limits the choice and increases the price of using infrastructure for cashless payment instrument acceptance. In such a situation, giving up on the acceptance of card and other cashless payments seems to be the only reasonable option for merchants, especially small.
Given that the said institutions failed to respond, the NBS, within its remit to ensure smooth and efficient functioning and development of payment systems, seeks to ensure to businesses a selection of optimal solutions for payment instrument acceptance. In the course of introduction of the instant payments system, we certified several different solutions for the acceptance of instant payments at points of sale (e.g. solutions integrated with fiscal cash registers, mobile apps) which entail low implementation costs for merchants and low costs of payment execution. The NBS regulatory sandbox within the NBS IPS system is available to all merchants and providers of technical services for testing the designed technical solutions. It is therefore essential that the initiatives to introduce cashless payments – particularly those aspiring to be national – should enable as many diverse technical solutions for merchants as possible. For it is only such an approach that can contribute to the development of the payment system in the long run and to curbing the grey economy in our country.
Finally, we cannot overestimate the importance of dodging the threat of misinterpretation based on reports and studies motivated by commercial interests of individual market players. With this in mind, and in order to protect the public interest reflected in providing true and objective information, the NBS invites all parties interested in cashless payments to rely primarily on official data and press releases that are published regularly on our website www.nbs.rs.
Payment System Department
