In our daily lives, we tend to think about the importance of payments only when something happens and payments are no longer possible. While everything runs smoothly, we take it for granted that physical or electronic payment cards in smart devices can be used to make any purchase quickly, securely and without difficulty. However, with increasing reliance solely on digital solutions, we become dependent on external factors such as internet and power connections.
Several recent developments like the invasion of Russia in Ukraine, various climatic events in Europe and elsewhere, and power supply interruptions in the Southern Europe make us reconsider the resilience of our payment options. Latvijas Banka and the former Financial and Capital Market Commission started focusing on these matters more than five years ago, and in 2023, considering the current issues, the list of critical financial services to be provided by commercial banks with the largest market share (AS Swedbank, AS SEB banka, AS Citadele banka, and the Latvian branch of Luminor Bank AS) was reviewed.
The purpose of critical financial services is to give the public access to their money and enable payments during emergencies and crises (of late, this is understood as a war, but crises can vary, for example, floods, power supply disruptions). We invite everyone to read the section on critical financial services on Latvijas Banka website. Please do that before an emergency or a crisis strikes to reflect on what you and your family will do and how you will prepare for potential challenges.
Though the share of cash in daily payments in Latvia is 26%, we are well aware of its importance in the context of economic security. As a result, in recent years its access infrastructure, i. e. the network of ATMs, has been strengthened. ATMs of critical importance have been established: they will have continuous power supply and communications, and in case of a crisis, will be replenished with cash as a priority. However, as we have also seen in Ukraine, reliance on just cash alone will not suffice when a large or prolonged crisis strikes as transporting the cash and accessing ATMs can become dangerous. Thus, backup digital solutions are also needed.
In this regard, Latvijas Banka has outpaced other central banks by introducing offline card payments in cooperation with market participants and providers of critical services. This will allow to pay for basic goods to specific merchants even during temporary disruptions of the payment card infrastructure. However, this option will be available only if the card is physically inserted in a payment terminal and a PIN code is entered. Thus, Latvijas Banka still recommends to keep the payment card handy and use it occasionally rather than solely rely on mobile solutions. Currently, we continue to engage with retail and pharmacy networks (the necessary action has already been taken in petrol stations) to ensure reasonable availability of this service across the entire territory of Latvia.
From the point of view of payment resilience, it is natural that a wider choice of options increases public security. The range of options can also be expanded individually by relying not only on centralised solutions, but also by maintaining sufficient cash reserves to be able to purchase staples for the family for several days. At the same time, a physical payment card should also be kept handy. For security reasons, accounts can be opened with several payment service providers (for example, in multiple banks). The digital euro is one of alternative future solutions – its main purpose is to strengthen payment resilience.
In developing the digital euro, resilience-by-design was defined as one of the principles of the European Central Bank (ECB). If the decision to introduce the digital euro is made, it is expected that the digital euro will also be available for offline use to store the funds in a smart device (for example, a smart phone or smart card) and to make instant payments. It is planned that the offline payments with the digital euro will be enabled by the Near Field Communication (NFC) technology. This would be an advantage over currently offered solutions that require a physical insertion of a payment card in a payment terminal.
It is important to note that the digital euro would be stored in the Eurosystem (the ECB and the national central banks) infrastructure and that individuals would not be bound to a single bank or payment service provider. If one bank becomes unavailable, the user would be able to access their money in the Eurosystem infrastructure and use it for purchases via another intermediary by providing technical proof or a "password".
It is almost impossible to accurately forecast future emergencies and crises, their nature, and their impact on various areas of life, including payments. From the point of view of the central bank, the best approach to preparing for them is to develop several alternative crises solutions. Whereas residents are invited to explore these solutions to be able to make more informed and prudent decisions when the chaos and perturbation strike.