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Advancing the modernization and integration of payment systems in the Western Balkans

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Modern payment systems, which ensure the smooth flow of money between relevant parties, are essential to achieving sustainable economic growth in the six Western Balkan economies: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. At the national level, they can promote financial inclusion, reduce the use of cash, expand payment products and services, and stimulate the development of financial technology. Furthermore, at the cross-border level, these systems can promote interoperability and reduce the cost and transaction times of trade and remittances within the Western Balkans, as well as with the European Union (EU).

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

Western Balkans Payments Modernization Project, sponsored by the European Commission (EC). This project aims to help the economies of the Western Balkans achieve tangible progress in line with the key objectives of the regional common market, the economic investment plan and the new EU growth plan for the Western Balkans.

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

Another pillar focuses on establishing fast payment systems that enable instant fund transfers around the clock, also through innovative features such as QR codes. Additionally, interoperability between different payment service providers can facilitate cross-border trade, improve competitiveness, reduce trade costs and reduce the cost of remittances, among other benefits. To inform the design choices and features of rapid payment systems in the Western Balkans, World Bank Group knowledge resources FASTT project are also used.

Expected benefits

Currently, Western Balkan economies have to pay six times more than their EU counterparts to settle their international payments. Joining SEPA and modernizing payment systems can greatly facilitate cross-border trade and expand business in the Western Balkans. Additionally, the adoption of digital payments can allow businesses to access more detailed and accurate information, thereby simplifying reconciliation processes. Fast payments can also help alleviate the problem of late payments, thereby improving cash flow for businesses operating in the Western Balkans.

Additionally, modern payment systems can provide migrants with more accessible and affordable solutions to send and receive funds through formal channels. This could potentially reduce the cost of remittances to Western Balkan economies, which currently account for 6.71% of total transactions (according to the World Bank). Remittance prices worldwide), far exceeding the global target of 3% set by the Sustainable Development Goals. By reaching this target, economies could save around half a billion euros according to World Bank calculations.

Additionally, advances in digitalization and innovation have significantly simplified and reduced the cost of accepting payments, especially compared to traditional cash transactions. Digital payments are traceable and transparent, which not only facilitates tax collection but also helps fight corruption and crime. Research shows that a mere 10% increase in the share of digital payments results in around a 2% reduction 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, Unlike the 99% in the Eurozone, digital payments can help reduce costs and expand access to financial services to around 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 help close gaps such as gender and urban-rural disparities, thereby helping to reduce inequalities.

The path to follow

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

To take full advantage of these opportunities, it is crucial that regulators, providers and governments in the Western Balkans come together and implement the necessary reforms. By embracing modernization and fostering cooperation, Western Balkan economies can expand the range of services available to end customers, thereby positioning the region as a dynamic and competitive player in the European financial landscape.

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