Payment Apps Will Enter Small Businesses

Bank of Israel published a position paper with respect to the activity of banks’ payment apps in the B2C market. The position paper is the conclusion of a long battle waged by credit card companies against the banks.

The position paper establishes a hybrid policy. On one hand, it permits the existing payment apps (owned by the banks) to operate in the small business sector, thus allowing those businesses to receive electronic payments without the need for acquirers. On the other hand, the constraints on the turnover to be processed by the payment apps protect the credit card companies from facing real competition in the area of payment services from banks.

The position paper limited the business turnover of each of the apps to NIS 2 billion in 2019, NIS 2.5 billion in 2020, and to NIS 3 billion in 2021.

The position paper is a temporary instruction based on the assumption that by 2021 the EMV standard will be integrated at least in the POS terminals of large businesses, and wherever EMV is implemented, use of payment apps may be offered without any restriction.

In addition, in the next three years the Bank of Israel will act together with the Ministry of the Finance to promote the possibility of originating payments directly from bank accounts through open technology. This will allow new entities to enter the payment system.

Such commitment is the central promise of the position paper. To the extent the Bank of Israel follows through on its promise, the Israeli payment market will indeed be able to advance and close gaps compared to the rest of the world. Promoting open access, along with the implementation of the EMV standard, will enable new players to enter the market and offer innovation and true competition, rather than leaving the field open only to existing players.