An article in Bloomberg punctuates the trend towards the nationalization of payment networks. This follows an article written just yesterday that my colleague Steve Murphy wrote regarding the Canadian B2B solution running on Interac’s (the domestic debit network) e-Transfer network. This could have been created on one of the global networks’ well developed debit push payment solutions. Nations not only want to keep profits within their own borders, they prefer to have oversight of payment networks as a matter of national security.
Iceland is the latest example. They now building its own network for retail payments. Here’s the rationale:
Scarred by the financial crisis and reminded by the pandemic that the world is a precarious place, Iceland’s central bank wants new domestic retail payment tools that would reduce its reliance on global card giants.
The Reykjavik-based Sedlabanki wants to add a solution to the interbank system to let banks offer retail payment tools to customers for seamless transactions with shops and service providers, Deputy Governor Gunnar Jakobsson said in an interview. He named Sweden’s mobile payment app Swish as a model.
The primary driver is national security so that we have domestic instant payment solutions if for some reason Visa and MasterCard could not or did not want to service the Icelandic market,” Jakobsson said.
Visa and MasterCard stopped using the Icelandic krona in the settlement of credit cards in 2008, when Iceland was forced to turn to the International Monetary Fund for help, according to a report by the Bank for International Settlements published last year.
The clearing of credit card payments “would have seized up with drastic consequences for the Icelandic payment system” if Visa and Mastercard had not accepted the assurances from the central bank after it declined to provide a blanket guarantee, it said.
“Debit cards are now cleared on the Visa and MasterCard infrastructure,” Jakobsson said. “So if the same situation would arise as in 2008, where it looked like credit cards could not be used in Iceland, we could in the worst possible scenario be in a situation where neither debit or credit cards could be used.”
The vulnerability has increased since the crisis, as the clearing of Icelandic debit card payments that was previously handled domestically is now done offshore.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group
