The Financial Stability Council (Council) of the Magyar Nemzeti Bank (MNB) discussed and approved the 2020 Payment Systems Report. The Council found that the domestic financial market infrastructures overseen by the MNB operated efficiently and safely in 2019 as well, and with their high availability supported the functioning of the money and capital markets, thereby contributing to the strengthening of financial stability. The improvement of the electronic payment infrastructure and the spread of digitalisation continued in 2019 as well, as a result of which the number of electronic payment transactions once again rose considerably, thereby further reducing the ratio of cash transactions. The successful launch of the instant payment service on 2 March 2020 – which may be regarded as the start of a new era in domestic payments – may considerably contribute to the further support of the trend.
In 2019, the development of the payment infrastructure was characterised by an increase in the number of payment accounts accessible online, further penetration of the contactless technology in the area of payment cards as well as by a major growth in the number of virtual merchant outlets and cards registered in mobile wallet applications. In addition, the steady rise in the number of electronic transactions also continued, exceeding 1.4 billion, with payment card purchases remaining the main driver. The successful launch of the instant payment service on 2 March 2020 and the fact that after 1 January 2021 the vendors that use online cash register on a mandatory basis will be obliged to provide the option of electronic payment, may facilitate further penetration of electronic payments.
The overseen financial market infrastructures operated efficiently and safely in 2019. The value of turnover in the domestic systems rose by 9.8 percent, while the number of transactions was up by 6.7 percent. In 2019, there was no significant central bank or financial market event with a major impact on the liquidity of payment systems participants. Payment system participants had ample liquidity to conduct the increased volume of payment transactions.
The instant payment system has been operating adequately since the start, properly managing the sending and receiving of transactions. In the first three months, already more than 27 million interbank credit transfers were carried out in a total amount of almost HUF 4,000 billion. The transactions were carried out successfully almost without exception, moreover, almost 94 percent of them were executed within 2 seconds.
In 2019, the MNB completed 9 regulatory payment inspections, and imposed payment penalties in the total amount of HUF 135.8 million. The general experience gained from the completed payment inspections is that the operation of the inspected payment service providers is essentially adequate, nevertheless, irregularities were identified in all cases. The most frequent error is the failure to credit the payment transactions immediately, followed by the omissions linked to the rectification of payment transactions and by the omissions of providers related to the liability and compensation rules. The focus of the inspections in 2019 was primarily on the rules of the new Payment Services Directive (PSD2), which will continue to receive special attention in the future as well. In 2020, the MNB will inspect the proper functioning of the application programming interfaces (APIs) prescribed by PSD2 at sector level.
As a result of the MNB’s previous measures, some of the payment service providers already offer package-based payment account products, in case of which no fees per transaction are charged for credit transfers. However, the MNB continues to pay special attention to the Hungarian banks’ pricing practices, since the majority of customers typically still have access to payment services at a high cost and in a complicated fee structure. This is also suggested by the fact that the Hungarian banking sector’s revenues from payment services were dominated by items linked to credit transfers in 2019 as well. At the same time, the widespread use of payment account products applying favourable package-based pricing could substantially foster the penetration of electronic payments. The main expectation of the MNB is that a wide range of customers should have a favourable payment account package in case of which no extra fees are charged for credit transfers.
PSD2 – the last detailed rules of which must be applied by the banking sector on a mandatory basis from 14 September 2019 – contributes to the more efficient protection of customers and to the market entry of new payment service providers. PSD2 prescribes two-factor strong customer authentication, in order to enhance the security of electronic payments. This was already in place in the domestic credit transfers, but in the area of e-commerce payments carried out by cards the sector needs to take further measures by the end of 2020. In addition, the provision of third party service providers with APIs must be also improved, since the MNB identified shortcomings in this area.
From an international perspective, it can be observed that the penetration of fintech service providers in the payments sector is increasingly intensive. It can be observed in Hungary as well that an increasing number of innovative actors appear primarily in the area of cross-border payment services, mobile payment solutions and the issuance of electronic payment instruments, which generates fierce competition for the banking sector.
The Hungarian financial market infrastructures managed the impacts of the coronavirus on the payment and securities turnover, and the substantially higher volume of electronic payment transactions properly. On 20 March 2020, the MNB called upon the sector to raise the limit in terms of the mandatory PIN code entry in case of contactless payment card purchases from HUF 5,000 to HUF 15,000, which later on was also confirmed by a Government Decree, thereby indirectly reducing the risk of spreading the virus. In addition, the operators of the overseen systems took important measures to maintain their key role in the economy at the same time preserving the health of their employees. The MNB supports the availability of ample liquidity in the payment systems by a variety of measures, and thus the smooth management of the turnover is not jeopardised by the epidemic.