Payments in wartime: the story of the National Bank of Ukraine

Russia invaded Ukraine on 24 February 2022. Ever since, martial law has made ensuring the country’s economic and financial stability a challenge for the National Bank of Ukraine (NBU). European Payments Council interviewed the Director of Payment Systems and Innovation Development at the NBU, Andriy Poddyerogin, to learn more about this experience.

What has been war’s impact on Ukraine’s payment systems? What were the new challenges facing the central bank in wartime?

For almost a year and a half now, Ukraine’s financial system has had to operate under martial law. But we have been able to successfully overcome all challenges.

At the onset of Russia’s full-scale invasion, we activated contingency plans for the banking system’s uninterrupted operation. The regulator and the banks had made these plans in 2014, when Russia annexed Crimea.

As a starting point, we did not even consider imposing restrictions on card-based transactions in retail outlets. What’s more, we recommended that stores, pharmacies, and petrol stations give preference to cashless payments. We constantly communicated with market players and retailers about the need for and the importance of cashless payments. Cashless payments were vital because they reduced people’s demand for cash.

At the same time, to prevent panic, we limited cash withdrawals to UAH 100,000 (ca. EUR 3,000 in March 2022) but made no restrictions on cashless transactions.

The NBU launched POWER BANKING, a nationwide network of banks that became the response to the challenges caused by Russia’s missile attacks. This is a joint network of bank branches that spans all of Ukraine and that can operate and render banking services to clients even during a long-term blackout. The branches making up the joint network have alternative energy sources, backup communication channels, enhanced cash collection capabilities, and additional staff.

POWER BANKING consists of more than 2,370 branches in about 390 cities and towns throughout all of Ukraine’s oblasts.

Could you tell us more about how Ukrainian payment service providers ensured business continuity during this time, both for digital and cash payments?

When the full-scale war broke out, the NBU passed a resolution to enable Ukrainian banks to use cloud services based on hardware located in the European Union (EU), the United Kingdom (UK), the United States, and Canada.

This capability would allow the banks to quickly restart routine operations and save all the necessary information if physical infrastructure in Ukraine was destroyed.

As a result, despite hostilities, missile terror, and electricity supply disruptions, Ukrainians continued to actively make cashless payments throughout 2022. In Ukraine and beyond, cashless transactions increased by 4.1% in terms of quantity and 56.9% by amount, compared to May–December 2021.

Although the war grinds on, the share of cashless card-based transactions increased to 69% of the total amount of card-based transactions in Ukraine in May–December 2022 (compared to 60% over the same period in 2021). Their share in the total number of transactions was almost 93% (up from 90% in May–December 2021).

We have also ensured the smooth operation of the NBU’s System of Electronic Payments (SEP). The SEP is an RTGS-class (Real Time Gross Settlement-class) systemically important payment system that ensures both large-sized settlements and retail interbank payments by clients. All in all, the SEP has been processing more than 98% of interbank payments in Ukraine. Since 24 February 2022, it has been working as reliably as before the full-scale war. On average, more than 1.5 million payments take place via the SEP on a single business day, but the system has the capacity to process ten times as many transactions.

The war has not prevented us from taking care of the system’s development. A new-generation SEP has been in operation since 1 April 2023. The system is now functioning according to the ISO 20022 global standard and operates message schemes that are based on the SCT scheme, on a 24/7 basis. The transition to this operating mode marks one of the biggest migrations ever undertaken by Ukraine’s financial institutions. I am convinced that this shift will give a powerful boost to the future development and modernisations of IT systems at Ukrainian banks and financial institutions.

What was the role of digital technologies in allowing citizens and enterprises to keep accessing banking and payment services?

At this time, the need to use tools for the remote identification and verification of clients has grown significantly. The largest public system for the remote identification of individuals in Ukraine is the NBU’s BankID system. It has been providing millions of people with uninterrupted access to important public and financial services since martial law was imposed.

First, the system has been used to provide public services with authentication in the Diia mobile app and on the ID.gov.ua website. This gave citizens access to digital versions of their identification documents, which are valid in Ukraine and abroad. Thanks to this capability, individuals can apply for payments under the eSupport program, file for internally displaced status, and receive many other services.

Second, the system has been used for the remote opening of accounts. This is particularly important for citizens who have no way of coming to bank branches because they have been  displaced or because the bank is unable to provide onsite services in wartime.

The NBU team has received international recognition for its efforts to develop financial innovations, and more than 99% of Ukrainian banks’ retail clients have access to the NBU’s BankID system. 

Could you tell us more about the recent steps towards open banking services in Ukraine?

The Law On Payment Services laid the groundwork for open banking in Ukraine. The law stipulates that open banking will be operational from August 2025.

Work to find an optimal model for the introduction of open banking began before the war, and recently we have stepped up these efforts. Together with working groups made up of market participants, the NBU has already created an Open Banking Concept that identifies directions of development, charts the roadmap, and sets key requirements for the implementation of open banking in Ukraine. This concept will soon be unveiled to the public.

At the same time, the NBU started work to draft the necessary legislation that will govern the operation of open banking in Ukraine. In addition, efforts to develop technical specifications are already ongoing. The basis for their development is the Berlin Group’s technical specifications.

Could you tell us more about the expected evolution of Ukraine’s payments system?

Our priorities for the near future are to continue to digitalise the banking system and proceed towards EU accession.

First, Ukraine is transitioning its payment infrastructure to the ISO 20022 international standard, as are the EU and the rest of the world.

Second, the NBU is currently working to launch instant payments in Ukraine. Feedback, both from payment market participants in Ukraine and international partners, indicates that the NBU is finalising business requirements for instant payments and has started their development based on the NBU’s new-generation SEP. The introduction of instant payments, according to the NBU’s strategic documents, should take place by the end of 2024. All of this is important for Ukraine’s EU accession, which includes joining the  (Single Euro Payments Area). Since Ukraine received EU candidacy status, the work in this direction accelerated significantly.

Third, while making progress towards European integration, the NBU plans to align the NBU BankID system with the requirements for electronic identification schemes of average assurance level. To do this, it is necessary for the system to undergo a compliance assessment by an authorised body and include the NBU BankID system in the public register of electronic identification schemes. We also plan to have the NBU BankID system recognised as an electronic identification scheme at the EU level. We expect to have a compliance assessment done by an independent authorised European auditor, and subsequently, after Ukraine’s accession to the EU, to have the NBU’s BankID scheme included in the EU register of notified electronic identification schemes. This system will make it possible for Ukrainian users to receive remote services from EU-based providers, and for non-resident users to receive similar services from Ukrainian companies and state institutions.