Nina Stoyanova: The future of money
Speech by Ms Nina Stoyanova, Deputy Governor and Head of the Banking Department of the
Bulgarian National Bank, at the Manager Magazine Fourth Banking and Finance Forum "The
Future of Money", Sofia, 20 October 2021.
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Thank you for inviting me to open today's fourth Banking and Finance Forum on the topic of The
Future of Money.
New technologies are changing the financial sector today and leading to the offering of
increasingly diverse and convenient payment products in a highly competitive environment. The
policies of the European Commission, the European Central Bank and national regulators are
aimed at catalysing this process, to exploit more fully the potential offered by technology and to
achieve cheaper, safer and more accessible payment solutions. The dynamics of the processes
in Europe is also fully valid for our country.
Data on payments processed by payment systems in our country show a significant growth. For
the first six months of 2021, the value of payments made through the BNB-operated Real-time
Gross Settlement System in BGN (RINGS) increased by 30% compared to the first half of 2020,
while for the same period the value of payments in euro through the national component system
of the large-value payment system in euro - TARGET2-BNB increased by 65.7%. I would like to
touch briefly on some of the recent technological developments in the field of payment services
in the European Union and in our country.
Security of payments
The rapid development of e-commerce in recent years and the increased use of electronic
channels to initiate payments pose new challenges related to ensuring the security and
customers' data. As of September 2019, it has become mandatory in Europe to implement
strong customer authentication. This means that when an electronic payment is initiated, at least
two independent elements from different categories - knowledge, possession and inherence -
must be used in the process. In the case of remote payment transactions, e.g. via internet, an
additional requirement is introduced to perform so-called dynamic linking - linking the code for
each transaction to a specific amount and a specific payee. These requirements are
implemented by the payment service providers in our country.
For the practical implementation of these regulatory requirements, new technologies are again
coming to the rescue. Recently, biometric authentication has shown great potential by providing
verification of elements characterising the user: fingerprint, iris scanning, facial recognition, etc.
Many payment service providers in Bulgaria have already introduced similar customer
identification methods using mobile banking applications. Apart from convenience, this leads to a
significant increase in the security of the payment process, allowing the use of biometric data for
customer identification.
On the occasion of the forthcoming review of the Second Payment Services Directive, a
comprehensive assessment of the impact of strong customer authentication on the level of
payment fraud is to be carried out. Opportunities are also being explored for the use of electronic
identification and certificate-based solutions to meet the requirements for strong customer
authentication at account login and initiation of payment transactions.
Mobile technologies
With the advancement of technologies, the smartphone is being established as an increasingly
universal tool capable of combining a wide variety of functions. Nowadays the smartphone is also
becoming a tool for initiating payments. This is possible thanks to services like digitalisation of
payment cards, the use of digital wallets, and mobile banking applications.
In recent years, work has been done towards the potential use of smartphones as devices for
receiving physical card payments. This has become possible due to technical
1 2
standards developed by the Payment Card Industry Security Standards Council. These
standards allow the use of NFC-enabled mobile devices, such as smartphones and tablets, for
accepting contactless payments and also for the payer to enter a PIN code on the screen of the
mobile device. Thus, mobile devices are becoming a sort of software POS terminals capable of
accepting payments with payment cards and other payment instruments integrated into the
mobile phone. We also already have payment service providers that offer this software POS
service. This will make contactless payments easier and more convenient to the customers and
merchants in Bulgaria.
Another new possibility is a payment transfer via telephone conducted between accounts with
payment service providers where a mobile telephone number is indicated instead of an account
number, based on a technology that allows linking the telephone number to the IBAN account
number. This service is also already offered on the Bulgarian market. All this follows the trend of
increased usage of mobile payment solutions in Europe.
Open banking
The new payment initiation and account information services, regulated by the Second Payment
Services Directive, create conditions for implementing the so-called 'open banking'. This allows
the entry of new participants in the payments market and the development of innovative services
as well as value-added customer solutions.
In order to comply with the regulatory requirements, the banks in Europe, including those in
Bulgaria, preferred to choose the development of dedicated interfaces, known as 'application
programming interfaces' or 'APIs', to the possibility of modifying their client interfaces for access.
The advantages of dedicated interfaces are considerable - they have a higher degree of security,
speed and are capable of accepting a large number of simultaneous requests. However, the use
of dedicated interfaces also presents a great deal of challenges - their development is a costly
and complicated process which requires coordination between various units of the banks, their
external developers, and the providers of the new services. Main priority is ensuring the security
of the processes, without compromising their functionality.
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Insofar as the legal provisions of Delegated Regulation (EU) 2018/389 are more general, its
practical application raises many issues that require additional clarification. To this end, in 2019
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the European Banking Authority (EBA) established a Working Group on APIs under PSD2.
Within this group, representatives of the EBA, the national competent authorities, the European
Commission, and the European Central Bank consult the market participants (banks, third party
providers and industry organisations) and identify potential practical implementation problems
and possible solutions thereof.
Based on the consultations, by 31 July 2021 the EBA has published clarifications on 31 issues
relating to the practical application of the requirements for APIs. With the aim of converging the
supervisory practices among the Member States of the European Union, in June 2020 the EBA
published its Opinion on obstacles under Article 32(3) of the regulatory technical standards on
strong customer authentication and common and secure open standards of communication
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(EBA/OP/2020/10) . The work on the raised issues is still going on via the Q&As published by
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the EBA .
The Bulgarian National Bank, in its capacity as a regulator, has active communications with the
market participants with the aim of improving the functionality of the dedicated interfaces already
built by the banks in the country. The process is developing in line with the European progress
and in compliance with the legal framework, the opinions and clarifications published by the EBA.
The first authorised in Bulgaria providers of the two new payment services started their activities
in 2020.
In conclusion, we can sum up that the trends in Europe are related to the development of a single
European payments infrastructure based on common standards and instruments, aiming to
ensure a pan-European scope and reach. Instant payments, which are in a process of
introduction also in Bulgaria, open banking, and the increasing use of mobile technologies are
topical issues both in the country and in the European Union, issues that we will continue to talk
about. The payment services in Bulgaria are evolving in line with the dynamic processes in
Europe, gathered around digitalisation, new technologies, and the ensured security of the
payment process.
1
Contactless Payments on consumer off-the-shelf devices (COTS) and Software Based PIN Entry on COTS
2
Payment Card Industry Security Standards Council (PCI SSC)
3
Commission Delegated Regulation (EU) 2018/389 of 27 November 2017 supplementing Directive (EU)
2015/2366 of the European Parliament and of the Council with regard to regulatory technical standards for
strong customer authentication and common and secure open standards of communication (RTS on SCA and
CSC)
4
www.eba.europa.eu/regulation-and-policy/payment-services-and-electronic-money/eba-working-group-on-apisunder-psd2
5
Opinion of the European Banking Authority on obstacles under Article 32(3) of the RTS on SCA and CSC
6
www.eba.europa.eu/single-rule-book-qa