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Business calls for easing regulatory pressure on non-bank financial institutions

24/ 04/ 2023
  On 1 May 2023, the licenses of non-bank financial institutions for transfers in the national currency, issued by the National Bank of Ukraine before the enactment of the Law of Ukraine On Payment Services will expire. To continue operations after this date, such financial institutions must undergo the authorization procedure for their activities as determined by the National Bank.  The European Business Associations experts note that non-bank financial institutions that plan to continue activities of transferring funds without opening accounts risk not obtaining authorization by May 1 due to the prolonged period of document review and the complex re-licensing procedure for existing market participants.  The National Bank reportedly is currently delaying the review of submitted document packages and requesting additional documents not provided for by legislation and original documents in written or electronic form, which can be problematic during wartime. Financial institutions are extremely concerned that the deadline for obtaining new licenses will expire at the end of next week. However, as of now, the National Bank has not issued any licenses. Non-bank financial service providers in Ukraine may face license expiration, causing payment market disruptions and a decrease in non-cash transactions. It could impact the cashless economy the National Bank has been working to develop in recent years. According to the Associations experts, there may be a 35-40% decline in the non-cash payment market. Today, due to the established payment infrastructure, the population can purchase goods and services online. If the regulatory pressure on this segment of the financial market is maintained, there will be a significant reduction in online services and trade, which will have a negative impact on the countrys economy in general. According to the NBU, online payments for goods and services continued to grow from May to December 2022. By the end of the year, they accounted for more than a quarter (28%) of all non-cash operations with payment cards in terms of quantity and almost one-fifth (18%) in terms of value. The average amount for an online payment transaction was 424 UAH, compared to 328 UAH for transactions in physical stores. Thus, in Ukraine, there is a trend of giving preference to online payments among users of payment services. In addition, the war has had a negative impact on the state of the payment infrastructure for accepting payment cards. The number of active payment terminals in trade and service networks decreased by 6.5% in 2022 (with up to 15% of terminals not working in some months), and the number of ATMs decreased by 15% (up to 20% in April 2022). It is since a significant number of such payment devices are located in areas where active hostilities are taking place or in territories that are temporarily not controlled by the Ukrainian authorities. Also, not all trading enterprises have resumed operations in areas liberated by the Armed Forces of Ukraine.  Therefore, the payment infrastructure for online businesses is critical both for the daily payments of the countrys population and for special charity projects, and the state as a whole. It is worth noting that 94% of transfers within Ukraine in 2022 were made through money transfer systems set up by non-bank institutions. Thus, the retention of the possibility of making payments using the services of non-banking financial institutions is vital for maintaining the indicators of non-cash payments and ensuring access to financial services for customers (especially since the number of issued payment cards increased by 20% in 2022). The European Business Association has repeatedly addressed the regulator on this issue. Although the maximum re-licensing deadline was extended by three months in 2022, the business proposals to reduce pressure on market participants remained unconsidered. Given this, the business is calling on the National Bank to optimise the re-licensing procedure for successful non-bank payment service providers to reduce pressure on market participants and promote the implementation of technological innovations as envisaged by the Law of Ukraine On Payment Services. 

On 1 May 2023, the licenses of non-bank financial institutions for transfers in the national currency, issued by the National Bank of Ukraine before the enactment of the Law of Ukraine “On Payment Services” will expire. To continue operations after this date, such financial institutions must undergo the authorization procedure for their activities as determined by the National Bank. 

The European Business Association’s experts note that non-bank financial institutions that plan to continue activities of transferring funds without opening accounts risk not obtaining authorization by May 1 due to the prolonged period of document review and the complex re-licensing procedure for existing market participants. 

The National Bank reportedly is currently delaying the review of submitted document packages and requesting additional documents not provided for by legislation and original documents in written or electronic form, which can be problematic during wartime. Financial institutions are extremely concerned that the deadline for obtaining new licenses will expire at the end of next week. However, as of now, the National Bank has not issued any licenses.

Non-bank financial service providers in Ukraine may face license expiration, causing payment market disruptions and a decrease in non-cash transactions. It could impact the cashless economy the National Bank has been working to develop in recent years. According to the Association’s experts, there may be a 35-40% decline in the non-cash payment market. Today, due to the established payment infrastructure, the population can purchase goods and services online. If the regulatory pressure on this segment of the financial market is maintained, there will be a significant reduction in online services and trade, which will have a negative impact on the country’s economy in general.

According to the NBU, online payments for goods and services continued to grow from May to December 2022. By the end of the year, they accounted for more than a quarter (28%) of all non-cash operations with payment cards in terms of quantity and almost one-fifth (18%) in terms of value. The average amount for an online payment transaction was 424 UAH, compared to 328 UAH for transactions in physical stores. Thus, in Ukraine, there is a trend of giving preference to online payments among users of payment services.

In addition, the war has had a negative impact on the state of the payment infrastructure for accepting payment cards. The number of active payment terminals in trade and service networks decreased by 6.5% in 2022 (with up to 15% of terminals not working in some months), and the number of ATMs decreased by 15% (up to 20% in April 2022). It is since a significant number of such payment devices are located in areas where active hostilities are taking place or in territories that are temporarily not controlled by the Ukrainian authorities. Also, not all trading enterprises have resumed operations in areas liberated by the Armed Forces of Ukraine. 

Therefore, the payment infrastructure for online businesses is critical both for the daily payments of the country’s population and for special charity projects, and the state as a whole.

It is worth noting that 94% of transfers within Ukraine in 2022 were made through money transfer systems set up by non-bank institutions.

Thus, the retention of the possibility of making payments using the services of non-banking financial institutions is vital for maintaining the indicators of non-cash payments and ensuring access to financial services for customers (especially since the number of issued payment cards increased by 20% in 2022).

The European Business Association has repeatedly addressed the regulator on this issue. Although the maximum re-licensing deadline was extended by three months in 2022, the business proposals to reduce pressure on market participants remained unconsidered.

Given this, the business is calling on the National Bank to optimise the re-licensing procedure for successful non-bank payment service providers to reduce pressure on market participants and promote the implementation of technological innovations as envisaged by the Law of Ukraine “On Payment Services”. 

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