Oded Salomy and Yoav Soffer spoke at an international Fintech conference

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Link to a video of the conference

Presentation by Oded Salomy, titled “Breakthroughs and Innovation in the Global Payments Industry: Where Does Digital Currency Stand?” is attached.

Salomy explained that most of the payment methods currently in use by the public, with the exception of cash, are digital (slide 2), with checks also migrating to the digital realm. Almost all digital payments are made through payment systems, with payment service providers (PSPs) playing a critical role as intermediaries for payments between the two parties to a transaction, the payer and the payee (slide 3 ). With the exception of cryptocurrencies, almost all innovation in digital payments takes place on existing payment systems, using bank accounts, settlement systems, payment card infrastructure, etc. (slide 4).

Salomy reviewed the ongoing reforms in Israel, some of which are already implemented and others are planned for the future (slides 5 and 6). He explained that while banks control a wide range of segments in the payments world, the trend in recent years has been for fintech companies to enter narrow niches, with each company typically specializing in one niche. and trying to bring value to clients in a specific area of ​​specialization. This trend separates financial products and services. Due to the resulting fragmentation, the number of collaborations between fintech companies and banks is increasing. (Slide 8).

Salomy described a business model for the payments industry. The number of transactions made by a typical consumer or business using advanced payments is huge, the number of transactions using current accounts is smaller, and the number of transactions using credit is much smaller (slide 9). In contrast, from an income and profitability perspective, the pyramid is reversed (slide 10), with the profitability of credit being the highest and the profitability of prepayments being the lowest. And yet, advanced payments provide financial players with a high-level opportunity to engage with consumers, providing data to manage risk and identify selling opportunities, as well as upselling and cross-selling opportunities for other products. financial products such as credit, as well as non-financial products. .

Salomy presented a distinction between three main types of digital currency (slide 11): central bank digital currencies (CBDCs), which are issued by a sovereign monetary authority and hold a stable value; Stablecoins, which are backed by stable assets and thus retain a stable value, but are issued by private entities; and cryptocurrencies, which are issued programmatically, have no intrinsic value and are generally volatile. Due to their high volatility and the fact that they are not ubiquitous, they have so far not generally been used as a means of payment, but rather as investment assets (slide 12). Salomy presented some of the regulatory challenges presented by cryptocurrencies and provided a brief overview of the potential uses of crypto technologies in the world of payments (slide 13).

Later, Oded Salomy and Yoav Soffer focused on central bank digital currencies (CBDC) and the Digital Shekel project under review at the Bank of Israel. Soffer explained that the public currently uses two main types of means of payment: cash, which is issued by the central bank and exists in the physical realm, and an account in a commercial bank, which is managed digitally and forms the basis of the various means of payment – checks, transfers, credit cards, payment applications, etc. The CBDC could offer the public the security, immediacy and liquidity that exist with central bank money, as well as the benefits of the digital dimension.

Soffer reviewed global trends in this area. While no advanced economy has yet decided to issue a CBDC, more and more central banks are working on the issue, with an increasing likelihood from year to year that they will issue digital currencies within a few years. .

Salomy explained that with the advancement of the payment system in Israel, the need for a digital currency is now a relevant issue. Soffer added that given the risks inherent in such a process, the potential benefits need to be thoroughly considered. A report released by the steering committee for a potential issue of a digital shekel outlined six possible motivations for the Bank of Israel to issue a digital currency:

1. A competitive alternative to existing means of payment, as well as to new ones in the digital sphere.

2. Encourage innovation in the world of payments and adapt the payment system to the needs of the digital economy.

3. Increase the redundancy of the payment system and its resilience to failures.

4. Make cross-border payments cheaper and more efficient.

5. Maintain the possibility of confidentiality when making a digital payment, as long as the payment is made legally.

6. Support government policy against the underground economy.

Soffer noted that while it is possible that no single motivation will be enough for the Bank of Israel to decide to issue a digital currency, the critical mass of all the motivations put together could in the future tip the scales in the future. favor of such a decision.

In summary, MM. Salomy and Soffer called on entrepreneurs around the world to consider the possibility of initiatives in the payments world in Israel, given the accelerated developments and digitization processes that the Bank of Israel is pushing forward in the payments ecosystem.