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The Bank of Israel (BoI) has enabled new domestic and international non-bank participants to access supervised payment systems, where previously this access was only granted to banks. This is a part of the central bank’s drive to expand the country’s payments ecosystem, a move that was codified under the Payment Services and Payment Initiation Law 5783-2023, which was officially published in June 2023 and took effect in June 2024.
Non-bank participants are now able to interact directly with the country’s real-time gross settlement (RTGS) infrastructure (ZAHAV), the payments card infrastructure (SHVA), and the credit, debit and FAST payments infrastructure (MASAV).
To date, the Israel Securities Authority (ISA) has granted authorisation to a few large international payment service providers including Revolut, Grow Payments, Global Remit - Currency Services and Ofek Cooperative Credit Society, among others.
The bigger picture
The new law is influenced by the EU’s revised Payment Services Directive (PSD2) in that it aims to promote competition within the payment services ecosystem. This is a significant departure for Israel, where the payments market has traditionally been controlled by banks and credit card companies.
The BoI has also set other payments innovations in motion:
- A majority of merchants have been transitioned to standards set by Europay, Mastercard and Visa (EMV), assisting in the improvement of the use of contactless payments.
- The broader Payment Services Law also covers payments initiation, suggesting the BoI will likely continue developing its domestic open banking framework.
- Under the new law, the payments market will now be open to gift card providers and consumer loyalty clubs, which use closed loop payments models.
Why should you care?
Under the new model, non-bank payments providers, including domestic and international fintech companies, now have the opportunity to apply for a licence to the ISA and join the core systems of Israel’s financial sector. The BoI has also published a helpful access guide to supervised payment systems in Israel, including timelines and authorising entities.
What’s next?
Non-bank payments providers looking to take advantage of the changes in regulations in Israel should note the following:
- Foreign payments corporations: The regulations have set some exemptions for foreign corporations from licensing requirements if they wish to provide payments services in Israel, provided they meet certain criteria:
- Incorporated in the US, UK or an EU country.
- Hold a licence from a supervision authority in one of these countries, and provide one of the following payment services: acquiring of a payment transaction; managing a payment account for the benefit of a beneficiary or payer; or issuance of means of payment.
These entities must submit an application to the ISA and receive their acknowledgement by September 2024 to be able to continue providing these services.
- Entities with acquirer licences: Entities with an acquirer licence issued by the BoI until now and not providing prudential payment services must issue notice to and receive approval from the ISA by December 2024.
- Entities engaging in basic payment initiation services: These entities must obtain an approval from their current regulator by December 2024 after submitting a licence application for the provision of basic payment initiation services.
Entities managing payment accounts for customer loyalty clubs: These entities will receive an exemption until December 2024, after which they must submit a licence application in accordance with the exemption regulations.
*Access may be geo blocked in select geographies. The unofficial English translation of the Law is attached.
