Directions of development of the payment system in Poland

The success and changes in the monetary structure and payment system are determined both by the supply manifested in the attractiveness of forms of money visible in their features (e.g. security, ease of use, interest rate) and the attributes of individual payment methods (speed of use, convenience, price, etc.), as well as and demand determined by the tendency of entities to choose certain forms of money as assets and the tendency of entities to use payment methods. The demand for money (its various forms) and payment habits evolve along with changes in the economy caused by, among others, by war (or its threat), regulatory tsunami or digitalization and the development of artificial intelligence.

Private entities (such as banks, payment institutions and payment organizations), but also regulators who create law and supervise the market, play an important role among supply-creating factors. One of them is the central bank as the monetary authority standing at the higher level of the two-tier banking system. The central bank can be an architect that actively responds to changes in the environment and is ready for various scenarios.

Cash status and free choice of payment method

The Polish central bank reacted at the right time by preparing the National Cash Transaction Security Strategy, aimed at ensuring universal acceptance and availability of cash. Work on it continued during the COVID-19 pandemic. NBP published the final document in 2021. At that time, an amendment to the Payment Services Act obliging merchants to accept payments in NBP currency also came into force.

It is worth noting that, regardless of the Polish central bank, the European Commission (EC) had a similar approach, which in 2020 announced the Retail Payments Strategy as part of the digital finance package. Although this Strategy, in line with the EC's priorities, focuses on electronic payments, instant payments as a new standard in Europe (the so-called new normal) and other innovations that are intended to support the EU payments market, there is a place for cash in it. It was assumed that the universal acceptability and availability of cash should be ensured. Appropriate provisions strengthening the status of the physical euro as legal tender are included in the proposed EC regulation of June 2023.

Although cash in today's turbulent times is still treated as a desirable means of accumulating savings, and therefore its value in circulation is often increasing in many countries, banknotes and coins are losing their importance in terms of transactions. In Poland, the share of cash payments in stationary stores dropped from approximately 80%. in 2012 to below 50 percent in less than a decade. The share of cash in the transaction value is even lower. According to ECB data (SPACE study), in the euro zone the share of cash in the number of payments in 2022 was 59%. and since 2019 it has decreased by as much as 13 percentage points. There are countries where cash is still relatively often chosen in payments (such as Austria, Germany, Malta, Slovenia, Italy), but at the other extreme there are Scandinavian countries where it plays a small role in transactions.

In a situation where cash is naturally rapidly being replaced by cards and other non-cash instruments, it seems pointless to accelerate this process, and it is even appropriate to defend its status. Paper money has many advantages – it is tangible, easy to use, allows for better control of expenses, and is issued by the central bank – the institution with the highest credibility in the financial system. Anonymous cash also serves as a safety valve in situations of excessive state interference in a citizen's private sphere, which is possible thanks to cashless transactions or CBDC, which has already been tested in some countries in the model of fully controlled programmable money (e.g. China, India, Russia). Physical cash is also an element of the freedom of companies to conduct business activities.

The vector of impact of AML and CFT legislation aimed at limiting money laundering and terrorist financing is opposite to the above-mentioned actions defending the position of cash. Currently, it is likely that a uniform limit on cash payments of EUR 10,000 will be introduced in the EU. In the past, AML regulations severely limited the anonymity of electronic money – the third form of money next to cash and non-cash money existing within national (official) currencies, even though the market desired this feature for electronic money. It is worth considering the balance of costs and benefits of introducing cash limits, especially since illegal activities in the gray zone and money laundering, according to research results, take place in cash to a lesser extent than one might expect (compare, e.g., Seitz, Reimers, Schneider 2018 and 2020, Schneider 2018), most of them take place in non-cash money, cryptocurrencies and using electronic payment methods. Recently, the scale of fraud committed digitally using non-cash instruments to the detriment of customers of financial institutions has been increasing significantly around the world.

In Poland, by law, sellers with a cash register will be obliged to accept cashless payments in 2022. In practice, it mainly comes down to accepting payment cards. In recent years, also as a result of the Cashless Poland Program, the network of payment terminals has grown significantly, increasing the usability of cards. The freedom to choose between cash and non-cash payments brings benefits to Poles.

Instant payments

At the same time, in line with development trends, the choice of payment instruments with features desired by consumers and enterprises may become even wider. The statistics of the BLIK payment system show how willing Poles are to make instant payments via phone, settled in a few seconds. Also in other countries, such as Great Britain, Sweden or outside the EU – India and Brazil, one can observe the rapid development of real-time payments made directly between payment accounts (the so-called account-to-account, A2A payments).

European Union by appropriate regulation of 2024 (Instant Payments Regulation, IPR) implementing the priority objective of the EU Retail Payments Strategy, accelerates the development of instant transfer orders in euro (SCT inst standard), introducing an obligation for payment service providers (banks and payment institutions) offering transfer orders in euro to also enable the collection and sending of transfers instant loans in euro. Pursuant to the regulation, such instant, settled 24 hours a day (24/7) max. 10 seconds, transfers in euro will not be more expensive for payers than regular transfers. At the same time, payers will receive a new, additional service to verify the recipient's account number (IBAN), which is intended to reduce the risk of fraud and mistakes in money transfers. The IPR Regulation also opens the way to equal conditions of competition for banks and non-bank payment service providers by enabling the latter to have direct access to designated payment systems.

Poland will have to adapt to the provisions of the regulation regarding euro transfers, but Polish banks and payment institutions may successively make major changes in the coming years, which will also cover PLN transfers. These changes would require significant investments, which is why even innovative Polish financial institutions, already heavily burdened with regulations, do not always respond enthusiastically to such a proposal. Interestingly, however, in war-torn Ukraine, money transfers have already accelerated significantly and intensive work is underway to make instant payments in hryvnia a standard – as in the case of the euro.

Poland's own currency has the advantage of allowing for a flexible monetary policy, better suited to the economic situation in the country. However, the fact that Poland has its own currency does not exclude openness to changes and readiness for greater integration within the EU, naturally in those areas where such integration is reasonable and beneficial. Payment and financial services seem to be such an area.

Central Bank Digital Money (CBDC)

We can also watch closely the plans to introduce a digital euro. The next phase of this project is currently underway. Although in June 2023 the EC has already prepared a proposal for a regulation on the digital euro, the decision to introduce it will only take place in the future. The digital euro would be of a retail nature, i.e. be widely available to the public and circulate as legal tender alongside the physical euro. Although nothing has been decided yet, the broader model currently being tested by the ECB in cooperation with the financial sector is an intermediate model in which commercial banks (and possibly other payment institutions with access to the central bank infrastructure) would distribute the digital euro and operate digital wallets. . The amount of the wallet balance would not exceed a certain limit (EUR 3,000 in the proposed regulation). The digital euro would not bear interest so as not to create competition for bank deposits. The Eurosystem also recognizes the advantages of technologies such as: blockchain (blockchain) that could potentially be used to distribute the digital euro in the form of tokens.

CBDC has already been introduced in some countries – in the Bahamas (Sand Dollar) and Jamaica (Jam-Dex), in Nigeria (e-Naira). Two projects failed in the implementation phase, in Ecuador Dinero Electrónico and in Venezuela Petro (although it was not a classic CBDC, but a national cryptocurrency created to avoid US sanctions). Other projects are at an advanced stage of implementation (e-Yuan, e-Rupia, or e-Rubel). Already 130 central banks are exploring the possibilities of CBDC. The motivations for introducing a CBDC are various. In the Caribbean and Nigeria, it is mainly about increasing financial inclusion, developing electronic payments and improving the efficiency of settlements. In Russia, India and China, these aspects are also important, but an important motivator is the potential of CBDCs to exercise control over citizens. Therefore, in these countries, CBDC is to have the characteristics of programmable money, which will facilitate the conduct of micro-targeted monetary policy. Programmable money may have various attributes, e.g. limited validity, the ability to spend on specific goods or interest. In the euro zone and the USA, central banks categorically deny that the digital euro and digital dollar, if introduced, will have the characteristics of programmable money. These central banks articulate the position that CBDC cannot be a tool for surveillance and limiting citizens' freedom, and therefore it must be designed with full respect for their right to privacy.

Poles and residents of other EU countries appreciate the advantages of cash, including the fact that it is an obligation (liability) of the central bank, and therefore has the highest credibility. The indirect CBDC model is easier to implement because it relies on payment service providers who already have experience in providing payment services on the market, but the direct CBDC model gives greater independence to the central bank and is more similar to a physical cash system. Suffice it to mention that the group advising the European Commission representing consumers – users of payment services (Financial Services User GroupFSUG) in its opinion on the digital euro strongly supported the model of a direct CBDC, independent of commercial banks and other financial intermediaries and replicating the features of physical cash to the greatest possible extent.