Interview with Mrs. Nina Stoyanova, BNB Deputy Governor in charge of Banking Department, for bTV, 22 February 2022
Payments in Bulgaria are already effected within an hour, what are the next innovations that the businesses and users will face?
Indeed, a significant change is underway in the payment infrastructure in Bulgaria that allows for considerable reduction of the time for execution of customer payments, and the results of this will be felt in 2022.
These infrastructure projects have had their effect in reducing payment completion time for customer credit transfers. Since the end of January this year, customer transfers have been executed using a new technology that allows the time for receiving the transfer to be reduced to less than an hour. In practice, this is done by changing the settlement mechanism. Whereas previously it was three times a day, in the morning, at midday and in the afternoon (at 10:00, 13:30 and 16:00 respectively), and the final time of receipt of the transfer depended on this, now in practice settlement takes place throughout the day and transfers are received with effect close to instant, in less than an hour. This is a project that significantly improves the financial infrastructure and its efficiency.
There is another following step, one additional project, which is for instant payments in BGN. It has also been prepared, the infrastructure for it is set up. Already 3 banks and 1 non-bank institution (non-bank payment service provider) are participating in it. More banks are expected to join this year and this will allow, in practice, transfers between their customers to take place really instantly - in about 10 seconds, 365 days a year, 24 hours a day.
The lead institution for these projects has been BORICA, the operator of the client payments system. The whole banking community is involved in them as well as the Bulgarian National Bank, as the operator of the RINGS payment system and the regulator, and I really hope that this year the effects will be felt.
What is the total amount of money that has been paid out via Internet in 2021, given the pandemic that has made us shop more from home?
According to the latest public data available to us, which are prepared according to the methodology of the European Central Bank's (ECB) payment statistics, for the first six months of 2021 about BGN 270 billion were paid through electronically initiated cashless transactions (editor’s comment: payments ordered via the Internet, through electronic or mobile banking). If we look at it in dynamics – the first half of 2021 to the first half of 2020, we have a 22% growth in electronic cashless payments. Another interesting fact is that when we compare this data with the European Union (EU) statistics, the growth rate of cashless payments in Bulgaria has outpaced the EU average in recent years. This in itself testifies to the dynamics of these processes and to the qualitative development in cashless payments and payment infrastructure in our country, which makes it more attractive to the customers.
How prepared are the payment systems in Bulgaria if, say, we adopt the euro tomorrow?
Since 2010, the BNB has been operating a component system in the European real-time gross settlement system in euro TARGET2. This system is, in principle, a euro area one, but it is also open for participation of non-euro area banks, and we have made use of this opportunity. This allows the Bulgarian banking community to make transfers in euro within the country and within the European Union via TARGET2 even now. This infrastructure is complemented by the BISERA7-EUR payment system for customer payments in euro, operated by BORICA, which, through the reachability and connectivity that has been established with other similar systems in Europe, enables customer-level transfers to reach other European banks and for such transfers to be received by Bulgarian customers.
What the public sees in the new projects is speed, but behind that speed there is a certain technology. The change in the technology for executing transfers that I mentioned was in practice the result of the completed migration of customer credit transfers in BGN to the SEPA standard, which is a prerequisite for the future processing of these payments as payments in euro. From a technical point of view, customer credit transfers in BGN already meet the technical and business requirements of the SEPA transfer standards. In the case of eventual introduction of the euro, we will be able to change the payment currency and, with some technical adjustments, the transition will be easy.
There is one last part left in this infrastructure and it is related to public sector payments, to budget transfers, which are also to be migrated to SEPA standards. This is also included as an activity in the plan for the introduction of the euro in Bulgaria. This activity is to be carried out jointly by the Ministry of Finance, the banks in the country, BORICA and with our participation. It is not necessarily and invariably linked only to the euro area accession. These projects would have been done either way, because they are a next step in the development of the payment infrastructure. We can say that if the introduction of the euro were to happen, in a short period of time, the payment system could be transformed and will start settling all payments in euro. Only the project of migration of the budget credit transfers remains to be implemented.
What needs to be changed in the legislation in the area of activity of the Banking Department regarding payments so that we meet the euro area requirements?
The plan for the introduction of the euro provides for drafting of the so-called 'euro law', which should regulate at a general level all matters relating to the currency conversion, the dual display of prices, the dual circulation period of the two currencies and all other such issues that concern the entire society and can be resolved in a regulatory manner that is universal for all and does not require individual changes.
Perhaps what is most important in terms of payments is that the real-time gross settlement system RINGS will cease to function, as it is designed to operate in the national currency only. All payments will be switched to TARGET2 for processing and settlement, which will also require legislative amendments.
Do you think that the adoption of the euro and the related technical transformations could have an impact on the price level in Bulgaria?
The experience of other countries that have joined the euro area in the last ten years shows that there is no such effect. All these measures and mechanisms that are envisaged in the plan for the introduction of the euro in our country, following the experience of other countries, ensure this. One such measure is, for example, the double display of prices, which will be over a long period of time. The communication campaign, the oversight that will be carried out by the consumer protection authorities, also comes into this context. So there is no room for concern that the euro itself will cause any inflation or price change.
Could you tell us what exactly open banking, which is gaining popularity, means and how it will help to facilitate the activities of businesses and consumers?
Open banking means two new types of payment services: account information and payment initiation services. These are executed entirely electronically. What is actually different from the so far existing services is that they can be executed from a single entry point, from a single platform, through which the customer or legal entity is able to see all their accounts and all the movements on them as well as to order payments. In addition to the convenience of seeing the information in one place, this makes it possible to build up additional services based on the analysis of the information thus collected, for example investment services, services related to accounting activities, financial analysis and so on.
With open banking, companies can, for example, provide access to their accounts of their accounting offices, who can see bank statements and transactions, and the accounting office can order transfers from a single point, regardless of which bank and which account is concerned, depending on how it manages cash flows.
Will the information from open banking help build a consumer's credit file to facilitate borrowing?
Yes, because it will show balances, movements, payments and when this is added to other financial information it can give a good analytical result. Also, it is important to say that apart from this upgrade in terms of additional services, open banking will enable the development of the payment infrastructure. For example, if open banking services are combined with instant payments, which are gaining momentum, with the scanning of QR codes as a means of initiating payments, we get a new ecosystem, and this has a future in Europe and in our country. In Bulgaria, these services have already got some development. At the end of 2019, their first two providers were licensed. In 2019, the interfaces of the banks were built, respectively the exemption from the fallback mechanism where applicable, so that the providers of these new services can access the bank data through these interfaces. This was an important technological change that required conducting a separate procedure for each bank. In 2021 and 2022, this process is being finalised, in line with the requirements and opinions of the European Banking Authority on removing obstacles and problems with the interfaces. In 2022, we expect these mechanisms, with our active assistance, to be fully functional and deliver their full potential to the public.
Is there interest?
Yes, there is interest. These services have a great future and the "third party" providers of the new services have their customers. The operation of the services depends on the technical infrastructure to function completely unobstructed and this will be the case within a few months.
Will the NRA be able to access this data from open banking, bypassing bank secrecy?
Access to these accounts, through these new providers, through open banking, can only be based on a contract between the customer and the provider that operates such a platform. The NRA has other ways of accessing information described in their legal framework. The BNB has had a register of bank accounts and safe deposit boxes in operation for 5-6 years, but without data on the balances in these, and public investigative bodies, including the NRA, have access to this register. However, in order to obtain information on account transactions and balances, disclosure of bank secrecy is necessary.
What is the mood of central banks in Europe about cryptocurrencies and cryptoassets – rather to regulate them or to ban them?
Both opinions exist. This year, a new European regulation with the acronym MiCA is expected to come into force, which will regulate cryptoasset markets, including cryptocurrencies. This is perhaps the most far-reaching regulation that has ever been made regarding cryptocurrencies. This regulation will govern cryptocurrencies, their issuers, trading platforms. It divides cryptocurrencies, or cryptoassets, into different categories, depending on their functionalities, and they can be separated into two broad groups – those cryptoassets that have a peg of their value to the value of other currencies or assets – the so-called ‘stablecoins’, and the other category are assets that do not have such a peg. A classic example is Bitcoin.
The regulation requires more information for investors. This is the so-called 'white paper' in which information will have to be provided on the type of asset, its features, the risks it entails, so that investors can be fully informed before making such a purchase. Projects to regulate the trading of cryptoassets are also being discussed in the US and the UK, again with a focus on investor protection and awareness.
In your opinion, is it possible that holders of cryptoasset wallets are obliged to declare them in some way?
The MiCA regulation does not reflect on the tax side of the matter, but there is such a side and like any asset, they should be subject to tax regulation. I think they are subject even now, even as we get into the subject gradually with the other part of the countries that are banning, there are countries, such as Russia and India, that are trying to restrict the cryptocurrency trade precisely through high tax rates. There are also other countries that ban them completely. One such very interesting example is China, which used to be at the forefront, or even first in the world, in mining ('digging') cryptocurrencies, but has banned them completely, both from being mined and from being traded.
This means we are moving towards regulation?
Yes, definitely. We cannot solve the problems related to such infrastructures simply by banning them. The way out is regulation.
In this line of thought, will a digital euro be a euro based on blockchain technology or something else, let us say a few words on this topic, for example some basic differences (from cryptoassets).
No institution stands behind cryptoassets, no central bank, no country or some other regulator. Their supporters could even perceive this as a plus. Another difference is that cryptoassets may be accepted as a medium of exchange but they are not universal legal tender.
The European Central Bank prepared and published a report on the topic of digital euro in 2020, followed by a public consultation on this issue. At the end of last year it was announced that an investigation phase starts which would take two years. This investigation phase will answer all questions, primarily at the technical level, such as how a digital euro could be designed, what could be the ways for distribution to the accounts of various persons, where these accounts will be held, what would be the impact on financial markets and intermediaries, what the risks will be, etc.
Thereafter, a final decision will have to be made. Actually, central bank digital currencies emerge as a result of several factors. First, we are witnessing how digitalization is affecting more and more all spheres of life, especially the payment sphere. This is becoming increasingly evident year after year. Second, the global trend is the decreasing use of cash as a means of payment and digital channels are preferred more and more, and the public demand for such new digital means creates the need for new developments. Last but not least, a role to play has also the entry of new technological companies, including cryptocurrencies, which are trying to offer an alternative to traditional types of payment and investment.
Will the digital euro look like a stablecoin?
I would not say so. What should be noted about the digital euro, and about central bank digital currencies in general, is that they are a digital alternative to cash and they would complement cash, without replacing it. They provide additional means and ways of making payments and storing value, but they are a digital analogue of paper money. Therefore, we cannot say that this is a stablecoin because the currencies of central banks are backed by their own foreign exchange reserves, their reputation, the country as institutions and credibility, while cryptocurrencies are backed by none of that.
What is more likely to happen – we will see a digital lev or Bulgaria will directly move to a digital euro?
Bulgaria, as a member of the European Union, adheres to and uses the mechanisms offered by the ECB. As yet, the ECB has not made a decision on the launch of a digital currency, but if such a decision is made and we have joined the euro area - yes.
Last week the International Monetary Fund issued a report on central bank digital currencies and it states that nearly 100 countries are at various stages (investigation, experimental, tests, or even full scale launch) of exploring possibilities of issuing their own digital currency. The report was presented by Ms. Kristalina Georgieva (editor’s comment: IMF Managing Director) in a speech entitled ‘The Future of Money’. For example, China has undertaken a pilot for a digital yuan, and the digital yuan has been issued in 10 bigger cities and regions.
What are the other challenges facing the Banking Department headed by you in the medium term, apart from the projects we talked about?
This year, in November, the BNB is going to join the ECB’s new consolidated platform for TARGET Services. It will include three services. The first one is the real-time settlement service in euro - TARGET2, in which we are already participating but we will migrate to the next level.
The second service is the securities settlement platform in euro ‘TARGET2-Securities’ which used to be a separate system, and now it is being integrated with the new TARGET Services platform. We are working to join this platform, together with the Central Depository and a team of the ECB. As a result, Bulgarian government bonds will be available for transfer via TARGET2-Securities platform, completing both legs of the operation – the cash one, related to the transfer of money, and the transfer of securities. Thus Bulgarian government bonds will be more easily accessible to investors across the European Union.
And the third service in this new consolidation platform is TIPS. These are instant euro transfers, and we are supposed to join this service as well when we join the euro area in the future.
Another big project that I want to mention is named ‘AnaCredit’. It is in the area of statistics and in fact will allow reporting entities to report all the information on loans and credit risk through a single-entry point, here at the BNB, through a single platform. The platform may be used not only for statistical purposes, but also for the needs of the banking supervision, loan restructuring, and economic analyses. Thus, reporting entities will report via one system and according to common standards for Bulgaria and the EU, which will reduce their workload and will improve the quality and consistency of the collected information. At the same time, the continuous development of the legal framework and the technical requirements which our country must meet as a member of the EU, and the BNB as a participant in the European System of Central Banks, as well as the challenges related to our future accession to the euro area, require very high professionalism and responsibility, on which I would like to congratulate our employees.
