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BRIEFJanuary 25, 2024

Advancing the Modernization and Integration of Payment Systems in the Western Balkans

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Modern payment systems, which ensure that money flows smoothly between the parties involved, are essential for achieving sustainable economic growth in the six Western Balkan economies - Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia. At a domestic level, they can promote financial inclusion, reduce cash usage, expand payment products and services, and drive the development of financial technology. Furthermore, at a cross-border level, these systems can foster interoperability and reduce the cost and transaction time of trade and remittances within the Western Balkans, as well as with the European Union (EU).

The Western Balkan economies are making significant progress in aligning their national payment systems with EU standards as part of their accession goals, with support from the World Bank. However, progress has been uneven across the region, with sub-par levels of access and usage of transaction accounts and digital financial services.

Project Actions

To address these gaps, the World Bank, in collaboration with the Regional Cooperation Council (RCC) and Central European Free Trade Agreement (CEFTA) Secretariat, is implementing the Western Balkans Payments Modernization Project, sponsored by the European Commission (EC). This project aims to support Western Balkan economies to make tangible progress in line with the key objectives of the Common Regional Market and the Economic Investment Plan and the EU New Growth Plan for the Western Balkans.

One pillar of the project focuses on adopting EU payment regulations and other requirements to enable Western Balkan economies to join the Single European Payments Area (SEPA), which will help increase market access and promote economic integration within the region and with the EU.

Another pillar focuses on the establishment of Fast Payment Systems that enable instant fund transfers 24 hours a day, also thanks to innovative functionalities like QR codes. In addition, interoperability among different payment service providers can facilitate cross-border trade, enhance competitiveness, reduce costs for business trading and reduce the cost of remittances, among other benefits. To inform design choices and features of Fast Payment Systems in the Western Balkans, knowledge resources from the World Bank’s Project FASTT are also utilized.

Expected Benefits

At present, the Western Balkan economies must pay six times more than their EU counterparts to settle international payments. Joining SEPA and modernizing payment systems can greatly ease cross-border trade and enhance business in the Western Balkans. Furthermore, embracing digital payments can provide businesses with access to more detailed and accurate information, simplifying the reconciliation processes. Fast payments can also assist in alleviating the issue of late payments, ultimately improving cash flows for businesses operating in the Western Balkans.

Moreover, modern payment systems can offer migrants more accessible and affordable solutions to send and receive remittances through formal channels. This has the potential to reduce the cost of remittances to the Western Balkan economies, which currently amount to 6.71 percent of the total transaction (according to the World Bank Remittance Prices Worldwide), significantly exceeding the global Sustainable Development Goal target of 3 percent. By meeting this target, the economies could save approximately half a billion euros according to World Bank calculations.

In addition, the advancement of digitalization and innovation has greatly simplified and lowered the cost of accepting payments, especially when compared to traditional cash transactions. Digital payments are traceable and transparent, which not only facilitates tax collection, but also helps in combating corruption and crime. Research shows that a mere 10 percent increase in the share of digital payments leads to a reduction of about two percent in the size of a country’s shadow economy.

In the Western Balkans, where only 76 percent of adults have a transaction account according to the Global Findex, in contrast to the 99 percent in the euro area, digital payments can help decrease costs and expand financial access to approximately 1.9 million people. Transaction accounts, which can be used to make or receive payments, serve as a gateway for individuals and businesses to access other financial services, even without a relationship with a bank. Digital payments can facilitate access to finance and contribute to closing gaps such as gender and urban-rural disparities, thus contributing to the reduction of inequality.

The Way Ahead

Looking ahead, the current conditions in the Western Balkans present a unique opportunity for the region to strive towards cost-efficient domestic and cross-border payments, with a focus on SEPA integration. The modernization of payment systems will play a vital role in ensuring the financial sector remains effective, responsive, and aligned with the needs of enterprises, entrepreneurs, and society.

To fully capitalize on these opportunities, it is crucial for regulators, providers, and governments in the Western Balkans to come together and implement the necessary reforms. By embracing modernization and fostering cooperation, the Western Balkan economies can expand the range of services available to end clients, ultimately positioning the region as a dynamic and competitive player in the European financial landscape.

The Western Balkans Payment Modernization project is supporting Albania to formalize and further develop our economies, align with European practices to achieve our shared and central objective of EU integration, and enhance trade exchanges within our six economies and with the European Union. Among many concrete actions, we believe that with the support of this important project, SEPA accession of our countries and the implementation of Instant Payment infrastructures will mark a significant development with tangible results for our citizens, economies and the region.
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Ledia Bregu
Director of Payment Systems and Accounting at the Bank of Albania
The project has had a very important role in strengthening the capacity of central banks. It offers purposeful technical support to the Western Balkan countries in order to achieve the necessary reforms for the integration of their payment infrastructures with the EU and to build innovative payment systems which ultimately brings many benefits to legal entities and individuals of each individual economy.
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Halid Tvico
Head of Oversight and Development of Payment Systems at the Central Bank of Bosnia and Herzegovina
The Western Balkans Payment Modernization project, led by the World Bank, is playing a crucial role in aligning the payment systems of the region with EU standards. Despite capacity constraints and rapid advancements in information technology, the unwavering support from the World Bank team is driving Kosovo's payments market towards significant digital transformation, integration with the EU and the region, and legal harmonization. The establishment of a common infrastructure in the region for payment services will also contribute to breaking down barriers and increasing cooperation in other areas.
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Lumni Rustolli
Acting Director of the Payment Systems Department at the Central Bank of the Republic of Kosovo
The Central Bank of Montenegro firmly believes that the synergy between the EU institutions and international financial institutions in candidate countries contributes to accelerating the critical reforms needed for successful EU integration. The Western Balkans Payment Modernization project is a successful example of such coordinated efforts between the EU, the World Bank and RCC in helping Western Balkan countries establish linkages within their payment systems and with the EU, promoting cost-efficient cross-border payments. Over the past two years, this project has significantly contributed to the cohesion of the WB6 efforts in achieving both goals, and we strongly support the continuation of this project in supporting the Common Regional Market Action Plan.
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Andrija Jovovic
Director of Payment Systems at the Central Bank of Montenegro
The project enhances the regional cooperation and supports a faster integration of the Western Balkan countries within SEPA which is expected to bring benefits for companies and citizens in terms of cheaper, faster and more convenient cross border payments in EURO.
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Igor Velickovski
Manager of the Payment Systems Department at the National Bank of the Republic of North Macedonia
Like real industry or trade, payments also need continuous enhancement and integration. Over the years, the National Bank of Serbia has created a modern national payment system and payment infrastructure. We also pay great attention to the international dimension that is crucial in order to create the best possible environment for international payments with primary focus on their efficiency that would bring benefits to end users – citizens and economy. This is exactly where the Western Balkans Payment Modernization project steps in, as a cornerstone of regional and European cooperation in the payments ecosystem.
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Nenad Petrovic
Acting General Manager of the Payment System Department at the National Bank of Serbia