„By next autumn, the Republic of Moldova could submit the application for joining the Single Euro Payments Area (SEPA), says the deputy governor of the NBM, Arcadie Albul, in an interview for the IPN Agency. SEPA eliminates the differences between national and cross-border payments. SEPA was operational in the euro currency area by 2014 and in EU countries outside the euro currency area by 2016. In the Republic of Moldova, accession preparations have recently begun, and the National Bank of Moldova will represent the local financial community in this process. Chisinau will host a conference to discuss the current status and next steps. In the interview for IPN, the deputy governor of the NBM explained the stages, challenges and benefits of the future accession. Payments in euros will become faster and more cost efficient. Moreover, Arcadie Albul elaborated on how the Fintech trends will encourage the local financial system undergo a through a digital transformation…”
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IPN: Mr. Deputy Governor, how exactly do the NBM’s plans regarding the accession of the Republic of Moldova to SEPA look like? How could we get to the waiting room? When might accession actually happen?
Arcadie ALBUL: The accession of the Republic of Moldova to SEPA is a country project and a step expected by Brussels from an EU candidate country. It is a complex process, which requires joint activities and efforts by all relevant Moldovan authorities. The National Bank plays a key role in the coordination among authorities by delivering on its core mandate related to the development of payment systems infrastructures. In order to join SEPA, it is necessary to meet the certain criteria. The state authorities, guided by the NBM, are working on the accession application file. Assuming everything goes as planned, we expect to submit the SEPA application by the fall of 2023. Contingent on a positive answer to our application, being actually able to make SEPA payments in Moldova will become a reality after the local banks and non-bank payment service providers will also perform their part related to the technical interconnections.
IPN: The SEPA geographical area is vast, it includes all the member states of the European Union, but also several states outside the EU, for example Iceland, Norway, and Liechtenstein. How do you estimate the interest that exists in the Republic of Moldova for this accession?
Arcadie ALBUL: The National Bank of Moldova put forward a questionnaire addressed to banks and non-bank payment service providers, i.e., to those who de-facto will offer the population the possibility to pay in euros to the SEPA area and vice versa. The questionnaire showed a high degree of interest towards the accession of the Republic of Moldova to SEPA. The economy of our country is closely linked with European Union, therefore, payments in euros are very common. The same fact probably determined the accession of the countries that you mentioned, since these also have economies strongly linked with the European Union and to payments in euros.
IPN: How would you explain to people who do not read economic publications very often and are not entrepreneurs - what will they personally or their country gain if the Republic of Moldova gains access to this unique cashless euro payment system?
Arcadie ALBUL: The main benefits for the Republic of Moldova by joining SEPA are that euro payments become faster, safer and more cost-efficient for everyone. I will make an analogy with paper letters and email messages. A communication sent by email reaches the recipient faster, while a letter on paper has a longer path and has the disadvantage that it might be lost, which is far less likely for an email. By analogy, a payment message is a communication sent between financial institutions. Let’s admit that this payment message, although electronic, got “lost”. Today it might take more time for it to be found, however, the likelihood of this happening once we are in the SEPA area is far less. Execution speed is another analogy– an email is instant compared to a letter. While a SEPA credit transfer doesn’t arrive instantly, it does it much faster than a cross-border euro payment does today. The letter needs a stamp, which has a cost, while emails are cheaper having mostly indirect infrastructure costs. In conclusion, in the SEPA world both our citizens and businesses will be able to make faster, cheaper and safer euro payments.
IPN: Who, however, will primarily benefit - consumers or public administrations? Corporations or small businesses? Credit institutions or banks?
Arcadie ALBUL: All parties that will make payments in euros from the Republic of Moldova to the SEPA area and vice versa will benefit from the infrastructure offered by SEPA participants. That is why SEPA is considered a common country project. Banks and non-bank payment service providers also benefit from it by modernizing and switching to international payment standards, which are already a standard practice in the European Union. Citizens will also benefit from it as their ability to receive and transfer payments to the EU improves. We all know the economic realities of the Republic of Moldova, where part of the population works outside the country. Directly or indirectly, participation in SEPA will reduce financial intermediation costs. During these uneasy economic times, these cost reductions should encourage switching from the informal cash remittances to euro remittances via authorized financial intermediaries.
IPN: What are the most important benefits though - will transactions be cheaper? Will they be safer? Will they be faster? Which one would you rank first?
Arcadie ALBUL: By joining the SEPA area we expect a significant reduction in transaction costs, both from and to the Republic of Moldova. In respect of security standards, I will go back to the “letters versus emails” analogy used earlier. If a letter is lost, the process of finding it has a limited chance of success. Likewise, if today you send a payment to the SEPA area, to Iceland for example, and there is an issue in the intermediary banking chain between Moldova and Iceland, it will probably take some time for the Moldovan sending bank to identify where the payment is being withheld. By contrast, in the SEPA area finding the same payment will take less time, the path from Chisinau to Reykjavík being clearer to all the intermediaries involved. In respect of the speed: the payment will arrive in a up to one day. Currently, when the payment is sent, the execution time is not guaranteed, there is no certainty of time the transaction will be completed. This issue will be resolved in SEPA.
IPN: What fees are generally charged for SEPA transfers?
Arcadie ALBUL: In a SEPA transaction banks charge a fee roughly similar to the cost of a local payment or charge no fees at all. The same thing will happen in the case of the Republic of Moldova.
IPN: Do you also consider SEPA Instant payments, which reach the recipient within seconds?
Arcadie ALBUL: To bring more clarity on this matter, I will first explain what SEPA Instant payment mean: it is just one of the payment schemes available to participants in the SEPA area. Two other payment schemes examples are SEPA credit transfer and SEPA direct debit. If we talk about the method of transfer to which the Republic of Moldova intends to join, it is SEPA credit transfer. Usually, this is what our citizens commonly mean by a “transfer” payment. In the first stage the payments will not be instant, but they will be much faster than the current transfer methods. SEPA instant is a separate payment scheme where the transfer takes less than 10 seconds. Once we join SEPA we can also consider the SEPA instant payment option.
IPN: NBM shall organize a public event in Chisinau dedicated to SEPA on 17 November. If we understand correctly, it is a kind of "getting in sync" moment between public institutions that must be involved in the preparations. Is much harmonization needed to the legal framework and to the technical infrastructure?
Arcadie ALBUL: The conference will take place as part of the Twinning project and will aim to address the main benefits of the Republic of Moldova's accession to SEPA, the strategy for compliance with the EPC Criteria (for accession to SEPA), as well as reviewing efforts and progress made in this regard by the Republic of Moldova. Foreign experts, payment service providers community (banking and non-banking), as well as the relevant authorities will participate. I should specify that Twinning is a method of offering technical assistance financed by the European Union. The NBM has benefited in the past and is still benefiting from this project to strengthen several of our core functions. Preparing the SEPA application file is just one example of this partnership. Coming back to the event, we can really regard this this as a ”get in sync” moment for all parties involved. Likewise, the EPC (European Payments Council from Brussels), the organization that will decide on our accession to SEPA, will also participate. We are honored to have the EPC President, Mr. Etienne Goose as a speaker. Etienne will tell us more about SEPA and the benefits of the country's membership. It is a unique opportunity to have in the same room both authorities represented at the highest level, international organizations, and representatives of the local financial sector.
IPN: Let us talk about Fintech. It is an increasingly important field at the international level, which falls under your direct responsibility at the NBM. It is obvious that IT accelerates processes and shifts paradigms in the financial and banking sphere. How would you explain what it could change in the financial-banking system in the Republic of Moldova?
Arcadie ALBUL: Fintech is exactly what the word suggests: a congruency of two broad fields – the Finance part – “Fin” and the Technology part– “tech”. If we look back 15 years, many of the technologies that today seem commonplace, such as mobile messenger applications that bring communication at almost no cost, online shops, the ability to order transport services to your door with a click, the ability to order food deliveries - all were either unavailable or limited to a narrow segment of the tech-savvy population. Therefore, the Tech part moved very well and swiftly. The digitization of classic services, sometimes existing for hundreds of years, has changed the way we consume and live, especially in the urban environment. Today this global trend of Tech is also coming to the field of financial services in various shapes and forms. The number and diversity of Fintech companies worldwide is growing exponentially. They are coming to compete and bring technological progress to the world of financial services. I will give some specific examples related to payments, the champions of Fintech. This is to showcase the citizens experience in countries that serve as a models of success for me. In Sweden, it is more difficult today to pay in cash than with a mobile phone. Most Swedes have an application with which they can make instant payments. In China, one can go to an agricultural market and instead of paying in cash one can scan a QR-code that a farmer has printed in front of the stall, and you can pay in just few seconds via an app. In Brazil, it takes few seconds to transfer money to another person once you have their mobile number. In Switzerland, one can pay for parking directly from the mobile phone from using money directly in a bank account in a matter of seconds. The time has come for Moldova to encourage more the development of local financial services.
Therefore, the number one objective of the newly created unit within the National Bank is to facilitate the emergence of new financial services that also have a digital component. In all of the countries mentioned above, this success has come from innovations made by the private sector. One of the aims of the unit is to support and facilitate the development of existing actors, but also to facilitate the emergence of new ones that will develop innovative financial solutions, with an emphasis on the field of payments that offers most opportunities. NBM also aims to develop the concept of financial inclusion - because Fintech comes to provide users with direct access to payment accounts and financial services through a simple, easy-to-use tech developments. We also aim to give an incentivize payment service providers to adopt digital innovations for their customers. At the same time, the NBM aims to facilitate cooperation between regulators, state institutions, investors and market participants in the digital transformation in order to facilitate the emergence of new business models in the field of financial and payment services.
IPN: Have you made a list - what innovative and convenient solutions would bring benefits here and now, but unfortunately are still missing in the financial and banking system of the Republic of Moldova?
Arcadie ALBUL: I should mention that even currently NBM, as a regulatory and supervisory authority, does not hinder the implementation of the new innovative solutions as long as the payment service providers carefully assess and mitigate risks. Looking forward, the NBM sees three solutions that will help bringing the payment system of the Republic of Moldova to the next level of development: Instant payments, Open Banking and the SEPA accession that I have touched upon earlier. Open Banking is the legislation which aims to facilitate competitiveness in the financial sector with a focus on development of payments. This piece of legislation implements an European Union directive – PSD2. I will now explain the instant payments in more details. This is a technology that allows payments to be carried out in a very short time, less than 10 seconds, which operates 24 hours, 7 days per week. NBM is now building a new central element of the payments systems infrastructure which is meant to enable instant payments. In the countries mentioned before as successful, this element of infrastructure was fundamental to the success that was achieved. The infrastructure is only a mandatory condition, but not a sufficient one for the citizen to have access to new services. In successful countries, the biggest contribution to innovation comes from the private sector – either from traditional actors such as banks, or from new smaller start-up actors that focus on mobile applications that are extremely easy to use. That is why the new unit from the NBM – Fintech is expected to work side by side with the private financial sector. Paradoxically, but in order to achieve success and new apps, from the experience of other countries, the most important element is to have an open and honest communication of all parties rather than the latest piece of technology. The ability to have productive discussions that find the right balance between innovation and risk management is key. There is a sweet spot that benefits all citizens. International development partners are also watching closely this space. I would take the opportunity to thank them for their support and flexibility. For instance, USAID offers at the moment full financial support for the participation of six colleagues from NBM in a SupTech program at the University of Cambrige, UK.
IPN: How would you assess the current situation – how advanced is the digital transformation of the banking sector? How far are we from the global trends?
Arcadie ALBUL: The digitalization of the national financial and banking system is a continuous process, in which the NBM is actively involved. There are two NBM projects that lay a solid foundation for everything to be built in terms of payments: the recently completed ones – the implementation of the PSD2 directive and the switch to the ISO 20022 standard for payment messages, and the ones upcoming in the pipeline– the creation of the secondary regulatory framework for PSD2 implementation, SEPA accession and the national instant payments project. Thus, the NBM undertakes the necessary actions to develop and bring new opportunities in the field of payments following the international trends, all of which would enable the sector to implement new services and payment instruments. All these, taken together, will allow us to offer greater protection for our citizens’ money, but also to make cashless payments widely used in the Republic of Moldova.
