Bank of Israel Expands “Identification Code” in Payment Systems: Latest Measure to Increase Competition and Open Up the Financial Market
Summary
1. The Announcement and Its Backdrop – The Bank of Israel announced the expansion of the payment-system identification code from two digits to three, a change that removes the technical cap on the number of entities able to connect directly to payment systems and enables nonbank players to hold accounts and transfer funds independently of banks.
2. Promoting Competition in the Financial Market – The move builds on recent reforms opening supervised payment systems to licensed nonbank entities, and is expected to significantly expand the pool of direct participants, deepen competition, and broaden the range of payment and financial services available to the public.
3. Looking Ahead: Market Implications – The Bank of Israel plans to publish implementation timetables during 2026, against the backdrop of a shift toward modular financial consumption, in which customers use different providers for payments, deposits, and other services rather than relying primarily on banks.
4. Strategic Preparations – The change is expected to accelerate the transition to a more open payments market, prompting existing and prospective players to prepare in advance by addressing regulatory approvals, infrastructure readiness, business models, and risk management in anticipation of expanded access.
The Announcement and Its Backdrop: Removing the Limit on Number of Players
The Bank of Israel recently issued a press release announcing its decision to expand the identification code used by banking corporations and nonbank entities to connect to payment systems from two digits to three digits. While ostensibly only a technical change, in practice it is a significant step that will enable financial entities to hold accounts and transfer funds for customers directly and independently, without relying on existing banks.
For decades, Israel’s payments systems allowed banks to connect and execute money transfers using a two-digit “Bank Code” (Bank Leumi – 10, Bank Hapoalim – 12, Israel Discount Bank – 11, etc.). But limiting the code to two digits allowed payment systems to support direct connectivity for only up to a maximum of 99 entities.
Promoting Competition in the Financial Market
As part of a string of measures to increase competition in the payment market, and concurrent with the inception of the Regulation of Payment Services and Payment Initiation Law, the Bank of Israel expanded access to supervised payment systems (such as SHVA and MASAV) beyond banks to new players. These include payment service providers, licensed financial asset service providers, and licensed credit and deposit service providers. (See our July 2024 update about obtaining access to payment systems.)
To date, dozens of such licensees and financial entities, including local players providing nonbank payment services (such as Tranzilla, Gamma, etc.) and international players (such as Revolut and Remitly), have received identification codes and direct access to payment systems.
The new three-digit code is expected to significantly increase the number of players able to connect to payment systems as direct players and service providers, potentially broadening the range of financial services available to the public and enhancing competition and efficiency in the market.
Looking Ahead: Implications and Recommendations
In its press release, the Bank of Israel noted that it reached its decision after a prolonged review process and consultations with various parties in the financial system, and that it expects to publish the timetables for implementing the three-digit code during 2026.
Assessments suggest that the Israeli public will consume more modular financial services in the future (for example, a payment account with one entity, a deposit account with another, and foreign currency services with a third), rather than primarily through banks as is the case today. Accordingly, the high potential for new players in the market necessitated expanding the identification code in the payment systems to three digits.
Strategic Preparations for a More Competitive Market
This change has broad implications for the structure of the payments market and the financial system in Israel. It is expected to accelerate the transition to an open and competitive market. This means more options for connecting to payment systems, changes in competition patterns, and reduced dependence on banks as intermediaries. In light of this, the change may justify early preparations, including examining regulatory, strategic, and technological aspects, such as strengthening infrastructures, assessing new business models, and managing risks.
At the same time, entities looking to enter the market should precisely map approval procedures for obtaining an identification code and connecting to payment systems, build an independent operational infrastructure, and formulate a value proposition for the local market. Early preparations at this stage may enable both existing and new players to leverage the expected change, map business opportunities, plan risk mitigation strategies, and integrate seamlessly into the emerging market structure ahead of publication of the implementation timetables in the coming year.
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Adv. Efrat Cohen is a senior partner in our firm’s Regulation Department.
Barnea Jaffa Lande’s Regulation Department is among the leading financial regulation teams in Israel, providing comprehensive advice across a broad range of regulatory areas that intersect with our clients’ business activities. We guide local and international corporations, investment funds, financial institutions, technology companies, and industrial companies in navigating complex and evolving regulations.