How Ukraine Develops Payment Market Amidst War: Top Five Deliverables

Andriy Poddyerogin, Director of the Payment Systems and Innovative Development Department at National Bank of Ukraine

Andriy Poddyerogin, Director of the Payment Systems and Innovative Development Department at National Bank of Ukraine

Despite the war's challenges, Ukraine's payment market is developing rapidly. The National Bank of Ukraine (NBU) has developed a clear plan to improve the payment services market in synergy with the private sector. This will improve the general public's lives, businesses, investors, and the state.

Our team’s deliverables and future directions:

First, the Regulator Revised the Law

The Law of Ukraine On Payment Services came into effect on 1 August 2022. The Law implements PSD2 and expands the capacities of nonbank payment service providers. Nonbank PSPs were granted authority to manage the payment accounts of both individuals and business entities and relieved of the requirement to be a payment system participant to execute payment transactions.

Also, Ukraine has standardized the numeration of payment accounts of nonbank PSPs based on the singe national IBAN standard—each account is opened using an ID code of the financial institution provided by the NBU. The code is uniform for both banks and non-bank PSPs. This significantly simplifies operating processes related to using payment accounts, both in the private and public sectors.

As of 1 April 2023, the NBU launched the new generation of the NBU's System of Electronic Payments (SEP), which operates 24/7 and is based on ISO 20022. From a technological point of view, SEP is an RTGS, but in terms of business purposes, it is a universal system meant to deliver large amounts of retail payments. At present, payments between SEP participants are transacted 24/7.

SEP Upgrade Impact on the Payment Market

Practically, SEP is the sole АСН in Ukraine, providing 98% of interbank payments in the country. Based on ISO20022, SEP has the function to process credit transfers similarly to the SEPA Credit Transfer scheme. Each credit transfer is processed promptly in SEP. SEP can also process transactions by payment account numbers with nonbank PSPs (according to the NBU ID of a financial institution), providing similar convenient terms for using accounts for bank customers.

Implementing ISO20022 in SEP resulted in:

● Applying the structured block “Payment details” for paying taxes and duties to expedite automated crediting, reduce time for processing, and minimize possible errors

● Delivering electronic payment orders in SEP (from the collector to the payment service provider) for mandatory direct debiting (charging) funds from the payer’s account to streamline the charging procedure

● Upgraded scheme for delivering gross payments (e.g., salary) to retail accounts

Furthermore, as of 1 January 2025, a requirement comes into effect to credit funds to the payee’s account within one hour 24/7.

Introducing the ISO 20022 standard created the technological foundations for further development of cross-border payments and integration of Ukraine’s payment infrastructure into SEPA payments infrastructure.

The NBU draws up documents to apply for SEPA accession to the European Payments Council on behalf of Ukraine.

Digitalizing the Payment Market

In 2020, the NBU introduced uniform rules for generating and using QR codes for credit transfers. As of the end of 2023, 74% of current account holders can scan a QR code generated according to these rules with their banks' mobile apps.

The digitalization of all aspects of Ukrainian society and the rapid development of e-commerce, accelerated by the COVID-19 pandemic, contributed to the popularity of QR codes among Ukrainian users in various situations. Users perceive scanning codes to deliver payments as a familiar and convenient alternative to using payment cards.

At present, individuals can open accounts with both banks and non-bank financial institutions remotely due to the widespread of remote identification methods, including:

● Sharing a digital copy of an identification document using the Diia mobile app

● Video verification (verification of a person via video broadcast in compliance with NBU requirements)

● NBU BankID System (receiving data on an individual from a bank that has identified and verified the individual when being present).

As of the end of 2023, 29 banks were remotely opening accounts to individuals (46% of operating banks in Ukraine). The availability of a remote customer service system has become a standard for financial institutions: More than 98% of banks provide this service to legal entities and 86% to individuals. As a result, about 80% of bank customers have remote access to their accounts via mobile apps.

"Considering the wide use of mobile apps well beyond the financial area, introducing open banking will mostly result in creating new services for customers using account information and the option to initiate payment transactions. "

This has laid the groundwork for increased competition in the retail payments market, which should facilitate, among other things, new methods of settling invoices and delivering payments to individuals.

Implementing Open Banking

To cut costs on implementing open banking, which will become mandatory in Ukraine as of 1 August 2025, market players set up working groups to develop uniform АРІ specifications. Currently, the regulator cooperates with the working groups, and all deliverables will be the basis for the national АРІ standard that the NBU will approve.

Considering the wide use of mobile apps well beyond the financial area, introducing open banking will mostly result in creating new services for customers using account information and the option to initiate payment transactions. According to the working group participants, simultaneous introduction of instant payments in Ukraine will promote deploying open banking for development of payment card alternatives to pay for goods and services, and account payables.

Route to Instant Payments

The NBU is driving Ukraine's transition to instant payments via the SEP system, slated for 1Q 2025. With technical specifications in place and successful testing involving 76% of SEP participants, progress is underway. Despite the popularity of IBAN–IBAN transfers, promoting instant payments requires addressing challenges and fostering competition. The regulator's strategy includes ensuring accessibility, preventing discrimination, and creating a uniform user experience. Drawing inspiration from successful models like Swish, BLIK, and Pix, the NBU aims to make instant payments ubiquitous. However, implementing this in Ukraine poses unique challenges due to market specifics, limited private-sector ACH experience, and the necessity for compromise. Nonetheless, the endeavor represents a significant opportunity for advancement in Ukraine's payment landscape.

Andriy Poddyerogin

Director of Payment Systems and Innovative Development Department of the National Bank of Ukraine since December 2020.

Andriy Poddyerogin has worked in the Ukrainian banking sector for more than 30 years and has developed extensive expertise in the payment market.

All his professional activities are closely connected with developing cashless settlements, payment systems, and card products at several large banks in Ukraine, namely Sberbank JSC (2009–2020), Prominvestbank PJSC (1996–2009), and INKO JSB (1991–1996).

Mr Poddyerogin also engaged in public activities and took an active part in the EMA Ukrainian Interbank Payment Systems Member Association's work, including being the deputy chair of the association’s council since 2010.

In 1992, Andriy Poddyerogin graduated from Vadym Hetman National Economic University of Kyiv (Department of Finance and Economics) with a major in Finance and Credit. He also studied at Sheffield University Management School (UK).