1. What are the sources of payments law in your jurisdiction?
Until recently, there was no specific legislation regulating all the aspects of payments in Israel, although there were several laws and regulations which handled certain fragments or types of payment services.
On January 2019, the Knesset (the Israeli Parliament) enacted the Payment Services Law, 5779-2019, which was supposed to become effective on January 2020 but its validity is likely to be postponed until July 2020.
Until the Payment Services law is effective, the regulation of payments is based on the current existing laws:
- The Charge Cards Law, 5746-1986 which deals with the relationships between holders of charge cards (credit cards, debit cards, payments cards and bank (ATM) cards) and the issuers thereof. It grants several consumers protections and imposes several duties on the issuers including, among other things, a requirement for a written agreement, disclosure requirements, protection against fraud and unauthorized use and rights regarding card-notpresent transactions. The said law also regulates the termination of charge card agreements.
- banking regulations: since many payment services are provided by banks, the regulation applicable to banks are relevant to payments. The Banking (Services to Customers) Law, 5741-1981 and the regulations promulgated thereunder define general disclosure and contractual requirements relating, among other things, to payment services. In addition, the Banking Ordinance, 1941, and the "Proper Conduct of Banking business" ("PCB") directives which the Bank of Israel issued pursuant to the said ordinance relate to certain payment services: (i) standing orders [PCB no. 439]; (ii) use of ATMs [PCB no. 442]; and (iii) charge cards [PCBs no. 470, 471 and 472].
- The Payments Systems Law, 5768-2008: this law is not a "payments law" but rather regulates the authorization of controlled payment services. Nonetheless, the said law determines the finality an irrevocability of payment made in a controlled payment system. The "Zahav" payment system, which provides RTGS services in Israel, was authorized as a Designated Controlled Payment System pursuant to the said law. The rules relating to the operation thereof are set forth in the agreement between the Bank of Israel and the operator of the Zahave system (which was appointed by the of the Bank of Israel) – the Tel Aviv Stock Exchange Settlement System. [In order to support the finality of the Zahav System and the stability thereof, the members of the Zahav system are required to keep at all time sufficient liquidated funds (cash or governmental bonds) securing their gross liabilities.
- Masav's internal regulations: non RTGS domestic electronic funds transfers are performed using the services of "Masav" – the Interbanking Settlement System. Masav is a corporation owned by the various banks in Israel and provides services to the entire banking system and to private parties. The internal regulations of Masav were examined by the Bank of Israel and by the Antitrust Commissioner.
- SWIFT and CLS internal regulations: international funds transfers are mainly performed using the SWIFT system and CLS and is therefore subject to their internal regulations. CLS was declared as a Controlled Payment System pursuant to the Payments Systems Law detailed above. It is also worthwhile mentioning, that the infrastructure for communication among issuers and acquirers of charge cards and merchants in Israel is managed by a public company called "Shva", which is partially owned by banks. This company is also partially regulated, in accordance with the 'Shtrum Reform", as set forth in the Law for the Increase of Competition and Decrease of the Centralization in the Banking Market in Israel (Legislation Amendment), 5777-2017. Shva was defined as an Interface System pursuant to the said law.
- The Bills Ordinance [New Version], which is not a "payments law" but rather deals with three main types of bills: bills of exchange, cheques and promissory notes and It regulates the transferability of bills, their validity and more. There are some regulations and directive relating to the clearing and settlement of checks.
- The Supervision of Financial Services (Regulated Financial Services) Law, 5766-2016 (the "RFS Supervision Law") is mainly designated to regulate the licensing of payment services providers but also includes certain provision relating to disclosure, fair treatment and consumer protection.
- AML/ CFT regulations: the Prevention of Money Laundering Law, 5760-2000 (the "AML Law") and the order issues thereunder by the various regulators, including the Bank of Israel and the Supervisor of Regulated Financial Services, affect the provision of payment services, including the initial registration of clients and the monitoring and supervision of the performance of payments.
As noted above, The Payment Services Law, 5779-2019, is expected to become effective in 202. The said law is the Israeli equivalent to the European PSD 2 and set forth similar (although not identical) requirement regarding , disclosure obligations and other obligations on the payment service providers (vis-à-vis either the payer or the beneficiary of the payments). It also includes provisions regarding means of identification of users, and provisions regarding cancelation of payments due to fraud, unauthorized use, card-not-present transactions and other types of transactions. The Payment Services Law also regulate standing orders. The definitions in the Payment Services Law relate to any type of means of payments and is not limited to charge cards.
2. Can payment services be provided by non-banks, and if so on what conditions?
Yes, non-banks are allowed to provide payment services
Until the year 2018, ther was no license requirements of providers of payment services, except where the services provided by such providers required registration pursuant to the AML Law (e.g. in case of cross-border payments, conversion of currencies, conversion between cash and non-cash). From the year 2012, acquiring of transactions made with charge cards requires a license pursuant to the Banking (Licensing) Law, 5741-1981 (the "Banking Licensing Law") but the license of acquirers is not a banking license (and in fact, according to the "Shtrum Reform" large capacity banks are not not entitled to control licensed acquirers).
From 2018, providers of payment services which are not regulated by other laws (e.g. banks, insurance companies, acquirers, pension funds, etc.)
The license requirement pursuant to the RFS Supervision Law only applies if the service providers actually handles funds (including holding and management of funds, transfer thereof or conversion thereof) and there is no license requirements for PSPs or facilitators which do not actually "touch" the money. Additionally, the RFS Supervision Law imposes a license requirements on issuers of credit cards. As noted above, the license requirements pursuant to the RFS Supervision Law do not apply to regulated entities.
A license for acquirers is granted by the Bank of Israel and is subject to a thorough examination, including a comprehensive "fit&proper" check of both the controlling shareholders and the officers of the acquirer, minimum capital and compliance with the regulations of the Bank of Israel. The are some exemptions for small acquirers (whose acquiring volume is less than ILS 1Bn (approximately USD 285M) per annum.B. a license for other payment services or for issuance of credit cards is granted by the Supervisor of Regulated Financial Services at the Ministry of Finance/ Capital Markets Authority. A "basic" license is limited to a business revenue of ILS 30M (approximately USD 8.5M), and requires equity of ILS 300K (approximately USD 85K). There is a fit&proper check of the controlling shareholders of the service providers and the officers thereof. An "extended" license is not limited to any revenue and also requires corporate governance mechanism and a detailed business plan.
It should be noted that due to the fact that the RFS Supervision Law came into effect recently and about seventeen hundred license applications were filed, there is a material lag in the examination of applications and the time required to obtain a license may be relatively long.
3. What are the most popular payment methods and payment instruments in your jurisdiction?
According to reports of the Bank of Israel for the year 2017, the volumes of transactions in each of the payment instruments were:
Checks: ILS 885 Bn (approximately 104 million checks and paper based payments).
Domestic non RTGS ETFs (Masav): ILS 3,149 Bn (approximately 371 million transactions).
Domestic RTGS ETFs (Zahav, excluding CLS): ILS 3,597 Bn (approximately 966K transactions).
Domestic RTGS CLS ETFs (Zahav): ILS 955 Bn (approximately 12K transactions). This activity is basically inter-banking activity only.
Credit card transactions: ILD 272 Bn (8.2 million active charge cards).
* please note that the Zahav RTGS system also serves payments in other payment systems (ILS 2,934 Bn in the year 2017) and payments of the Bank of Israel itself (ILS 140,460 Bn in the year 2017).
** Standing orders are usually cleared using Masav ETFs or credit card clearing.
*** the information does not include payments within the stock exchange settlement system.
Please note that these numbers refer to the total number and volume of the transaction in each payment system. These figures include inter-banking transactions. In many cases, a transaction in one type of payment means will trigger payment in other payment means as well (for instance: Masav ETFs among private users may trigger a Zahav ETF among the relevant bank; acquiring of credit card transaction will also lead to ETFs among the various participants (issuer, acquirer, card holder, merchant and their respective banks)).
The reports of the Bank of Israel indicate that since the year 2015 there is an increase in the volume of transactions made using charge cards and Masav ETFs, and a decrease in the use of checks and Zahav ETFs.
Until the year 2016 there was a moderate increase in the use of cash but this trend changes in 2017. In the year 2019, the Law for the Decrease of Use of Cash, 5778-2018 came into effect. This law limits the amounts that can be paid in cash among individuals and among merchants and is likely to decrease the use of cash even more.
4. What is the status of open banking in your jurisdiction (i.e. access to banks' transaction data and push-payment functionality by third party service providers)? Is it mandated by law, if so to which entities, and what is state of implementation in practice?
The open banking reform has not yet reached Israel. Most of the IT systems of banks are not adapted to it and there are no regulatory demands in this direction. We see publications of the Bank of Israel that may indicate its intention to consider applying this reform and understand that there are draft directives which are discussed internally but were not published to the public's comments so far. We expect the Bank of Israel to circulate a draft to the public in the next few months. We also assume that the Bank of Israel will allow a long organization period.
As part of the "Shtrum Reform", banks will be required to allow their clients access to aggregated information of all their credit cards (whether or not issued by the same bank). Additionally, banks will be required to allow access to information providers of banking-cost-comparison services
Additionally, The Bank of Israel will force Shva to allow any entity that meets Shva system requirements to connect to the system and actually use its protocols and infrastructure. This requires Shva to publish its list of requirements.
Today, most of the commercial banks in Israel allow limited API access for very specific modules of them. Most banks allow access to a securities trading system via the API some allow also for foreign currency trading and some also allow API access for limited-scale information.
The core computer systems of many banks is proprietary and relatively old and the support of open-banking will require such banks to invest in substantial IT developments.
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Originally Published byLegal500
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.