Innovatice payment methods in Poland

Where law
meets technology

We live in real time, the world around us evolves so as people’s needs. At every turn we see some new technology, solutions design to facilitate our daily life. This includes also innovations in payments. Alongside the evolving technology awareness and expectations of clients change. Consequently, banks and other financial institutions are forced to seek new services and/or new innovative solutions for existing services.

Several years ago people paid their bills rather at the post office than via bank transfer. Today, banks compete with each other on the level of technical and organisational solutions. The more innovative method and client-friendly solution the more clients and turnover.

In Poland, as in most developing countries, banking is no longer closed in a building (branch). Banking services are available at home, on every smartphone and other mobile, more and more at the automated stations – classic ATMs are being replaced by virtual branches. Transactions are faster and easier. We have e-banking, mobile banking and m-payments (normal debit or credit card is insufficient anymore). We have also immediate bank transfers and immediate payments.

Below you will find brief information how it works in Poland.

The Payment Services Directive (PSD) was mostly implemented in Poland in 2011 (Act of 19 August 2011 on payment services). This piece of legislation reduces market entry barriers, and changes traditional clearings. It removes many of information asymmetries that existed between banks and their customers: it requires faster payment clearing, and establishes obligations that will require real-time processing. Banks just had to adapt.

Immediate payments

Immediate payments have been introduced in Poland some time ago by technology companies starting from supporting pre-paid services, e.g. Bluemedia with their service “Blue Cash”, and PayU belonging to the Polish biggest online auction site – Allegro[1]. Usually immediate payment systems are add-ons to the regular electronic bank transfer system, relying on two features: (i) a simple solution – a payment provider has an open bank account in each bank “belonging” to a system; plus (ii) internal transfers between accounts in a particular bank are usually immediate.

In June 2012 Krajowa Izba Rozliczeniowa S.A. (KIR) – an intermediary institution in inter-banking settlements (a crucial element of the banking infrastructure in Poland) introduced its own instant bank transfer system called Express Elixir. At the beginning only three banks accessed the solution, another bank decided to join the system later and two more players joined in November 2012. Most likely Express Elixir will in time win the market, as it is based on the native functions of the existing banking system in Poland and it does not create an extra risk of an intermediary – contrary to the model described in the previous paragraph.

The immediate payment uses real-time technology and operations to bring an instantaneous online payment experience to customers. The core features of such services include: (i) 24/7 operation, (ii) immediate delivery, (iii) immediate confirmation. But, such transaction is also irrevocable. Currently Polish banks and technology providers discuss potential systemic risks of immediate payments. The formal recommendation of the XVII edition of the Conference IT in the Financial Institutions of the Gdansk Academy of Banking – the meeting forum for technology suppliers and banks with the longest tradition[2] is to continue such analysis and to look for appropriate safeguards against potential abuses of emerging new functionalities of the banking system.

Mobile banking and m-payments

M-banking solutions are growing very rapidly. No doubt that mobile banking as once e-banking is the next stage of development and most of the players trying to adjust to it its offer. You can see it from the existing offering of Polish banks: more and more offer fully-fledged mobile services (one of the first were Raiffeisen Polska, Pekao, Citi).

M-banking in Poland was at the time limited to transfers and checking status of a bank account. To this effect a simplified website was sufficient. Then we had SMS-payments which suddenly gave a chance for easy retrieval of small fees for participation in quiz shows and competitions and for transmitted information and other Internet services. Mobile payments have become more popular. Later the time came for mobile applications which allowed to initiate transactions directly from our phone and of course contactless stick-on debit card. Such services are now provided by most of the Polish banks. However the needs of Polish consumers evolve, so as the banking services. We have more and more solutions that require cooperation between the bank and telecom institution which may be called m-payments in the full sense of this term. The Near Field Communication technology (NFC) allowed to combine payment card with a mobile phone. Such solutions have been introduced in Poland in October 2012 by two telecoms: (i) mWallet developed by T-mobile and Polbank and (ii) Orange Cash proposed by Orange together with mBank and MasterCard. There are also other commercial mobile payment systems available in Poland, also such  using P2P, C2C and C2B transfers.

PKO BP – the leader of the Polish retail banking introduced recently a new service called IKO. It is a fully operational mobile payment solution which allows for comfortable and mobile life without a wallet. IKO allows customers for: (i) making payments in traditional and online stores and online, (ii) withdrawals from ATMs without a card, (iii) transferring money to a phone number without the need to enter an account number, (iv) generate checks that allow paying in shops or withdrawing money from ATMs without the need to carry a phone, (v) quick searching for the nearest points of sale and ATMs, (vi) checking balances and account transaction history plugged to support applications without the need to enter login and password for online transaction, and few other banking activities. IKO is available to all types of mobile phones, not only smart phones. PKOBP’s communicated intention is to curve out a share from payment cards market. Maybe this is a future of Polish m-payments…

As in case of immediate payment there are advantages and disadvantages of such new technology solutions. There are new risks relating to safety of m-transaction, but is it really so different than risks relating to payment with your credit or payment card? The legal frames are strict and clear since payment services are regulated on the European level. The problem seems to be the client’s awareness and the fact that Polish regulations still needs to be adjusted to the UE one.

Polish Financial Supervision Authority (PFSA) also noticed increasing importance of new technologies for the Polish banking system. In the new Recommendation D adopted in January 2013 on information technlogy and informaiton and communicaiton security in banks, PFSA recommends co-operation and exchange of information among banks so to identify breaches of CIT environment safety and development of common IT solutions (the recommendation does not limit to internal banking systems or transactional platforms, therefore this includes also every other solution or tool used by banks – also mobile banking and m-payments).

E-banking

Internet banking is a predecessor of mobile payments, but also in this area banks still seek and implement new, more advanced solutions. Until recently, most banks had in their offer within e-banking only internet transactional systems. Now, most of those systems evolved, and it is possible to buy new banking services fully online. Few years back Polish banking sector, just like their Western counterparts, started to introduce fully internet banks. Now we have few players which allow to open an account, deposit, buy units of participation and even draw a credit fully online. What is interesting, such possibilities are available not only for current but also for new clients. This requires implementation of proper technical and organisational solutions (creation of electronic documents, signing with electronic signatures and “secure” online banking system), and also finding legal regulations that allow to implement such services. E.g. currently the most popular way of identification of a client for the purposes of remotely entering into a bank account or credit agreement is a bank transfer made from other bank or credit institution operating in Poland (solution from anti-money laundering regime).

Electronic form of banking documents and identification and verification of a client (without visiting a branch) is a relative novelty on the Polish market, but it seems that the concept is acceptable for clients and for the regulators (PFSA and General Inspector of Financial Information). Polish civil law requires a written form for a number of contracts, that becoming more and more of a problem for “Internet economy”. Banks, thanks to special regulations contained in the Polish Banking Law and in the said anti-money laundering regulations are fortunately in a privileged position.

Biometrics

It’s also worth mentioning that we see lately more and more advanced solutions of clients’ identification with use of technology that few year ago no one would connect to banking. Biometrics offers the highest level of security. The combination of biometrics and microprocessor technology provides maximum protection for both financial data and operations in the transaction system, as well as the personal information. Biometrics authentication is a great way because they are universal (everyone has this feature as to permit identification), unique (no two people have identical characteristics), persistent (do not change over time and unable to identify), defined (can be described in a quantitative way), and the forging is impossible. At present, biometric solutions have been introduced by a number of Polish cooperative banks. As far as we are aware biometric solutions are being developed also by retail banking leaders in Poland, however these projects are still confidential.

[1] PayU is an equivalent of PayPass and Allegro is an enhanced equivalent of eBay, beating in Poland eBay on most levels.

[2] The recommendations (in Polish) are available here: http://www.gab.com.pl/strony/it2013/?v=prezentacje.

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Ilustracja do „Cyberiady” Stanisława Lema, Daniel Mróz ©za zgodą Łucji Mróz-Raynoch
Ilustracja do „Cyberiady” Stanisława Lema, Daniel Mróz ©za zgodą Łucji Mróz-Raynoch