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Ukraine: Cashless Payments in Times of Crisis

Categories : Cash and Crises, Cash is a contingency and fall-back solution, Cash is available to all users
February 28, 2022
Tags : Cash and Crises, Central Bank, Digital payments, Financial inclusion, Ukraine
Cash remains the most widely used payment instrument in Ukraine. The country's central bank has promoted cashless payments during the Covid-19 pandemic and the Russian invasion, despite their vulnerabilities in times of crisis.
Manuel A. Bautista-González

Ph.D. in U.S. History, Columbia University in the City of New York

Post-Doctoral Researcher in Global Correspondent Banking, 1870-2000 – South America, University of Oxford

This post is also available in: Spanish

NBU Pursued “Switch to Noncash Settlements” Against Covid-19

In March 2020, shortly after the World Health Organization declared Covid-19 a global pandemic, the National Bank of Ukraine (NBU) implemented measures guided by the (now disproven) belief that cash could be a SARS-CoV-2 virus’ potential transmission vector.

A Digital-First Financial Inclusion Strategy

Cashless transactions multiplied in Ukraine throughout 2020 and 2021. In 2020, payment card transactions (including cashless payments and cash withdrawals) increased 18.6% in volume and 10.6% in value. The share of cashless payments in card transactions increased from 70% in 2015 to 87% in 2020, and their value increased from 35% in 2015 to 55.8% in 2020.

This accelerated adoption led to an increase in financial cybercrimes. The average amount of fraudulent transactions (per million card transactions) went from UAH48 in 2020 to UAH65 in 2021. In 2021, cybercriminals stole more than UAH193 million through “sales of non-existent goods, pseudo-prizes, phone frauds, phishing schemes to collect users’ data, and users’ impersonation on social media.”

The NBU launched a Financial Inclusion Strategy later in 2020, with support from the International Finance Corporation (IFC) of the World Bank Group, the Swiss State Secretariat for Economic Affairs and the U.K.’s Good Governance Fund. The central bank has been planning to develop an instant retail payments system since 2020.

“In Ukraine, there already is demand from the public for instant payments. For example, 43% of the total amount of cashless card-based transactions are card-to-card payments. At the same time, the pandemic has accelerated the introduction of cashless payments and made the issue of their cost particularly acute,” said Andrii Poddieriohin, director of the NBU Payment Systems and Innovations Department.

Financial Inclusion in Ukraine

 “Our goal is maximum access to financial services and products for all Ukrainians. […] Our joint efforts will define what country will we live in the future: a convenient, financially inclusive, and modern, or a country where a part of the population is in fact excluded from the national financial system,” said Kyrylo Shevchenko, NBU Governor.

Although 49% of Ukrainians said they were ready to abandon cash in the future in a June 2021 Mastercard survey, it is pertinent to remember that debit and credit cards are not the most widely used payment instrument in the country.

According to the World Bank’s Global Findex Database, in 2017,

According to the World Bank’s World Development Indicators, in 2019,

Ukraine had 9,400 point-of-sale (POS) terminals per million residents at the beginning of 2021. The geographical distribution of the POS network is uneven: Kyiv, Dnipropetrovsk, Odessa and Kharkiv regions have more POS; Zakarpattia, Chernivsti, Ternopil, Luhansk and Donetsk have fewer POS.

NBU Experiments with the E-Hryvnia

The NBU began considering the potential adoption of a digital currency (the electronic hryvnia or e-hryvnia) in 2016. In 2018, the NBU launched a pilot project to issue e-hryvnias for retail payments.

In 2021, the NBU surveyed payment experts on possible use cases for the e-hryvnia. Per the survey, the e-hryvnia was most promising in retail cashless payments (P2P transfers and e-commerce) and cross-border payments (mainly P2P).

NBU Suspends E-Money and Promotes Cashless Payments during the Russian Invasion

The NBU said “all cashless payments shall be made without limitation” after Russian forces began invading Ukraine on February 24. Under martial law, the NBU also suspended “issuing e-money, the replenishing of e-wallets with e-money, and e-money distribution.” E-money “most likely refers to fiat currency in digital form, such as that held in a PayPal account or a cash app digital bank,” wrote CoinDesk’s Jamie Crawley.

Later, the NBU reiterated there were no restrictions on cashless payments and emphasized that “cashless is the safest and most reliable way to pay for goods and services in the current conditions.” The central bank said its System of Electronic Payments (SEP) operated without disruptions.

How Resilient Are Cashless Payments During a War?

On February 27, NBU governor Kyrylo Schevchenko said the central bank’s priority was to preserve the continuity of the payments system:

“I call on all operators of retail chains and gas stations, large and small: do NOT decline cashless payments. Because if you do, you will put Ukraine’s people under additional threat. Under martial law, both cash use and cash collection, which are linked inextricably to cash circulation, pose additional risks to everyone. The banking system continues to provide all the necessary infrastructure and technological solutions for use of POS terminals in payments. Refusing to accept payment cards is unpatriotic and unforgivable. Especially now that Ukraine is showing the world an unprecedented example of heroism, courage, and unity in the face of evil.”

However, cashless payments in Ukraine remain highly vulnerable to cyberattacks, power and internet outages, and the destruction of critical infrastructure.

Ukraine was fifth place on the Merchant Machine’s list of top 10 countries most reliant on cash in 2021. Civilians rely on the resiliency of cash in times of crisis:

This post is also available in: Spanish

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