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 cashMoney in physical form such as banknotes and coins. More could be a SARS-CoV-2 virus’ potential transmission vector.

• As currency manager, the NBU would quarantine cash, storing it in its vaults for at least 14 days and treating it with thermal stress.
• The NBU recommended businesses and citizens to “resort to noncash settlements, contactless and mobile payments, […] avoid visiting bank branches and opt for remote servicing.” The NBU also recommended Ukrainians reduce cash withdrawals from ATMs.
• The NBU suspended the fees it charged commercial banks for using its System of Electronic Payments (SEP).

A Digital-First Financial InclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More Strategy

Cashless transactions multiplied in Ukraine throughout 2020 and 2021. In 2020, paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More 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 instrumentDevice, tool, procedure or system used to make a transaction or settle a debt. More in the country.

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

• 62.9% of Ukrainians (age 15 and older) had an account at a financial institution.
• 49.4% of Ukrainians owned a debit card, and 26.7% had a credit card.
• 60.7% of Ukrainians had made or received digital payments.
• 18.1% of Ukrainians used a mobile phone or the internet to access a financial account.

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

• There were 129.3 mobile cellphone subscriptions per 100 Ukrainians. The number decreased slightly to 129.3 in 2020.
• 70.1% of the population used the internet.

Ukraine had 9,400 point-of-sale (POSAbbreviation for “point of sale”. See Point-of-Sale terminal. More) 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 currencyThe money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. More (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 currencyA currency established as money, often by government regulation, without an intrinsic value, unlike a precious metal or a merchandise. It was a development step from the use of a commodity money More 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.

• Mobile operators including Vodafone, Ukrtelecom and Kyivstar announced they would provide services to users even if they had no funds on their accounts. At the same time, operators have blocked access to their networks to subscribers in Russia and Belarus.
• On February 26, SpaceX owner Elon Musk said that his Starlink satellite internet service was active in Ukraine. The Russian invasion shut down internet connectivity in southern and eastern areas of Ukraine, where fighting is most intense.

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:

• “Everybody is at the ATM trying to withdraw cash but banks are not opening. MoneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More is running out at the ATM and you can’t do app transactions anymore,” said Nigerian medical student Anjola-Oluwa Ero-Phillips in Lviv.
• A woman sheltering in a subway station in Kharkiv told CNN she grabbed “documents and some money, and mostly we can’t [sic] take cash because I’m not sure that I can pay by card now.”
• In a video call, Ashish Chandra, 22, an Indian medical student in Zaporizhzhia, told his parents in Indore that food and cash are scarce, and shopkeepers refuse to accept card payments.
• “As long as digital payments are working, it makes sense to use them. I think it is a question of when rather than if, the system crashes […] People are hoardingThe term refers to the use of cash as a store of value. However, the term has a negative connotation of concealment, and is often used in the context of the war on cash. See Precautionary Holdings. More cash in anticipation. It is a strange application of Gresham’s law. People spend the ‘bad’ digital money and store ‘good’ cash.” said Guillaume Lepecq, chair of CashEssentials.

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