TAKING INTO ACCOUNT THE RAPID PACE OF THE TECHNOLOGICAL DEVELOPMENT, COMPETITION IN THE FINANCIAL MARKET AND CURRENT CONSUMER DEMANDS, OPEN SECURE INTERACTION BETWEEN THE PARTICIPANTS OF THE FINANCIAL MARKET AND THIRD-PARTY SERVICE PROVIDERS, AS WELL AS CROSS-INDUSTRY DATA SHARING AND THE DEVELOPMENT OF SECURE DIGITAL FINANCIAL SERVICES ARE KEY TECHNOLOGICAL SOLUTIONS IN BUILDING A SUSTAINABLE DIGITAL FINANCIAL ECOSYSTEM WITH INNOVATIVE DIGITAL PROJECTS, WHICH WILL INCREASE THE AVAILABILITY AND FUNCTIONALITY OF FINANCIAL PRODUCTS AND SERVICES.
In order to achieve such objectives, the Republic of Kazakhstan is implementing a number of systemically important infrastructure projects aimed at strengthening financial stability and developing healthy competition. Such projects include:
Implementation of these initiatives will enable the formation of a single payment space for consumers, unhindered access to their own funds and personal data management, and the architectural principle of «equal accessibility» will ensure the possibility of providing financial services in a digital format for all participants of the market.
Not long ago the National Bank of the Republic of Kazakhstan launched two infrastructural solutions, which are important for the financial market.
Instant Payment System (IPS). The service is quite in-demand as in three month since its launch Kazakhstani citizens carried out transfers totaling over 1.6 billion tenge (more than 18.000 transactions). This largely new mechanism for online-transfers and payments of individuals has three important advantages.
Firstly, it is the possibility of payments and transfers to clients of other banks based on simplified invoice data. Previously, it was also possible, but only if both the sender and the recipient were clients of the same bank. Now simplified invoice data (e.g. telephone number for transfers and QR-code for payments) has become available for clients of different banks. Secondly, it is maintaining the usual standard of service – 24/7. Thirdly, it is speeding up settlements between different banks – now the money will be in the recipient's account in just a few seconds. Let us remind you that we are talking about settlements between clients of different banks. Thus, IPS has improved the quality and speed of transfers.
Interbank system of payment cards (ISPC).
This system made it possible to localize the processing of card payments in tenge and ensure fail-safe and secure card settlements within the country.
The essence of localization is to relocate to Kazakhstan the processing of those card payments and transfers that take place within the country. For instance, client of bank «A», holding a payment card of that bank, pays for goods or services in a point of sale, where a POS-terminal of Bank «B» is installed. Earlier the processing of transactions between banks A and B was carried out by the operational centers of the international payment systems Visa, MasterCard and Union Pay, located outside the country. With the full launch of the ISPC, processing of such transactions will be provided by the operational center in Kazakhstan.
At the same time, interaction with global payment systems will continue, and this business model already includes key conditions for such interaction. Firstly, ISPC, as an operational, clearing and settlement center of international payment systems in Kazakhstan, will process tenge transactions carried out using cards of these payment systems, issued by Kazakhstani banks within the country. Of course, transactions made by clients of Kazakhstani banks who pay abroad will still be processed in the centers of international payment systems. Secondly, Kazakhstani banks will retain full access to innovative services and new technologies offered by international payment systems. Primarily these are the so-called «tokenized payments» (for example, secure payment in online stores and through Apple Pay and Google Pay services), as well as risk-scoring and settling of disputable situations on card transactions. Thirdly, all international payment systems will retain equal competitive conditions for work in the Kazakh payment market.
At present, all necessary agreements with international payment systems Visa, MasterCard and Union Pay to transfer Kazakhstani traffic to ISPC have already been signed. ISPC has successfully passed international security certification PCI DSS and all Kazakhstani banks, which provide card payment services, are already connected to ISPC. The high security of the instant payment system for both legal entities and individuals was also confirmed after testing the service in the pilot zone.
So far, two basic services are implemented trough IPS: transfers between individuals and non-cash payment at retail outlets by QR code. The former is available for the clients of nine banks; the latter will soon be launched.
The National Bank of Kazakhstan will not keep individual clients accounts and is not going to enter the market with its own payment service. All customer base, services, mobile application support, payment card issuance and tariff setting remain the banks’ responsibility. The NBK's functions here are processing and transferring payment messages between banks, conducting online clearing and guaranteeing settlements.
Instant payment system should become one of the drivers of fintech industry in our country, which will be possible due to support and proactive role of the banks of Kazakhstan. Currently, almost all banks that issue payment cards have already signed participation agreements.
As the experience of other countries shows, the maximum systemic effect in the use of IPS is achieved with the participation of a large number of banks. In Great Britain, India, Australia and Thai land, IPS has become the growth driver of the non-cash payment industry. Overall, similar systems have already been implemented or are at the stage of implementation in 50 countries of the world. In the Republic of Kazakhstan, the volume of non-cash transactions of individuals is also growing quite dynamically: over the past five years, it has increased almost by 25 times, and now Kazakhstanis carry out an average of 13 million transactions worth 197 billion tenge a day.
At the same time, the demands of clients themselves, who want to receive services «here and now», are also changing: requirements for speed, availability of payment services and, of course, for security are increasing. In strategic terms, the launch of IPS and ISPC lays the foundation for building a modern digital financial infrastructure in Kazakhstan, which in the future will allow all market participants, without exception, to create fast, inexpensive and innovative financial services. The scaling of these services will also consolidate the efforts of market participants, allowing them to interact more closely with each other, providing their clients with more opportunities and not limiting clients to the infrastructure of a single bank.
It is paramount to maintain growth dynamics of non-cash payments and set the development vector of this industry. In this regard, the role of the NBK consists in ensuring that with the growth of the industry the payment infrastructure is adequately developed. Here it is important to note that the National Bank of Kazakhstan recently published an overview report «Development of Open API, Open Banking and ecosystem of digital financial services in the Republic of Kazakhstan», which presents the conceptual directions of creation and functioning of the digital financial market in Kazakhstan.
Overall, the active digitalization of national economies all over the world is associated with the development and implementation of digital and technological solutions, the increase in the number of financial market participants as well as the emergence of alternative business models, which enhance the availability and quality of digital financial services for citizens and businesses. A new generation of clients is actively using mobile applications and services for financial and non-financial services, moving away from traditional ways of interaction with financial institutes and market. This creates a certain trend in digital innovations in the form of the introduction of platform solutions for the consolidation of cross-industry financial and non-financial services and active data and information exchange.
The fintech industry is growing rapidly as well. Acting as the third-party service providers, new fintech companies and startups are creating innovations in finance, increasing their usability and attractiveness through end-to-end technologies and speed of adaptation. The appearance of fintech companies in the sphere of financial services is especially prominent in regions with highly developed digital markets such as China, the EU and the USA. Nevertheless, leading tech companies such as Google, Meta, Amazon, Alibaba, Tencent are shifting their focus on developing countries.
Such development throughout financial industry raises the overall level of competition in the market, forcing traditional financial institution to re-examine their development approaches with a focus on open, technological and equally accessible integration and partnership. Thus, a new stage of financial market development is taking shape, characterized by regulatory harmonization, inclusion of new players, and strengthening consumer protection.
At the same time, one of the modern trajectories of digital development of financial institutions is the concept of Open Banking, which is the creation of technological and regulatory conditions that allow customers to transfer their data safely and efficiently between financial institutions and authorized third parties (third-party service providers) to obtain new consumer benefits. In other words, open banking is aimed at using the customers’ financial data with their consent by third-party service providers to expand the availability of financial services and create new, personalized services and products.
In relation to financial industry development, it is worth mentioning another strategically important project for the Republic of Kazakhstan called «Digital tenge». At the moment, testing of the digital tenge platform is continuing, and the Digital Tenge Hub platform is actively developing. Second-tier banks have already joined the testing, and the system is ready to accept other participants in the research project. Perhaps at the next meetings of the IBC we should consider testing and implementation of digital currencies by central banks of various countries or the issues of digital financial infrastructure, touching primarily on such topics as the regulation and development of digital financial platforms and the requirements for its participants.
Speaking about modern mechanisms of interbank settlements, it should be noted that in the Republic of Kazakhstan the main operator of the payment system is the Kazakhstan Interbank Settlement Center (KISC), which carries out interbank payments and money transfers in national currency between banking and non-banking financial institutions of Kazakhstan.
The KISC acts as an operator of the Identification Data Exchange Center (IDEC), designed to identify customers based on biometric indicators, and the System for Transfer of Financial Messages (SPBS), which provides two-way messaging with the System for Transfer of Financial Messages (SPFS) participants upon registration of the SPBS user as an SPFS participant.
The main directions of the KISC’s activity are:
In order to continue the systematic and gradual development of digital transformation of the financial sector with a focus on ensuring technology and consumer protection, the National Bank of the Republic of Kazakhstan together with the Agency for Regulation and Development of Financial Market (ARDFM) with the participation of the Agency for Protection and Development of Competition (APDC) developed and approved the Concept of Development of Open API and Open Banking in the Republic of Kazakhstan for 2023–2025.
The Concept envisages the formation of a systemic approach to the development an open, technological and secure financial market, the development of digital financial services and platforms through a sustainable digital financial infrastructure. It is proposed to develop an Open API platform with optimization and strengthening of the interaction of the aforementioned infrastructure elements.
It is worth noting that that such infrastructural development forms an entire Open API ecosystem with its multi-service platform, standards, registries and developed requirements, where the main participants of the Open API ecosystem will be regulators (NBK, ARDFM, ARDC), operator, API suppliers, API users and clients. Thus, the most significant initiatives for the development of Open API and Open Banking in Kazakhstan, carried out through the joint efforts of regulators and financial market participants, include the development of the target operating model, the list and standards of Open API, modernization and creation of common elements of the Open API platform infrastructure, as well as updating the regulatory and legal framework.
Taking into account the results of digital development of Kazakhstani financial organizations, public interest and demand for innovations in the sphere of payments, financial services and products, as well as key infrastructure initiatives implemented by the NBK, such as instant payment infrastructure and interbank digital user identification service, the development of Open API and Open Banking will allow achieving a qualitatively new state of the financial services market, optimally meeting the prospective needs of building a modern and high-tech financial industry of the Republic of Kazakhstan based on the maximum balance of interests of market participants, consumers and the state.
- national payment system (instant payment system and interbank system of payment cards), which provides online payment and transfer services;
- national biometric identification platform, allowing the use of biometric data in the provision of financial and non-financial services;
- Open API platform, which provides secure information interaction between payment service providers based on open interfaces.
Implementation of these initiatives will enable the formation of a single payment space for consumers, unhindered access to their own funds and personal data management, and the architectural principle of «equal accessibility» will ensure the possibility of providing financial services in a digital format for all participants of the market.
Not long ago the National Bank of the Republic of Kazakhstan launched two infrastructural solutions, which are important for the financial market.
Instant Payment System (IPS). The service is quite in-demand as in three month since its launch Kazakhstani citizens carried out transfers totaling over 1.6 billion tenge (more than 18.000 transactions). This largely new mechanism for online-transfers and payments of individuals has three important advantages.
Firstly, it is the possibility of payments and transfers to clients of other banks based on simplified invoice data. Previously, it was also possible, but only if both the sender and the recipient were clients of the same bank. Now simplified invoice data (e.g. telephone number for transfers and QR-code for payments) has become available for clients of different banks. Secondly, it is maintaining the usual standard of service – 24/7. Thirdly, it is speeding up settlements between different banks – now the money will be in the recipient's account in just a few seconds. Let us remind you that we are talking about settlements between clients of different banks. Thus, IPS has improved the quality and speed of transfers.
Interbank system of payment cards (ISPC).
This system made it possible to localize the processing of card payments in tenge and ensure fail-safe and secure card settlements within the country.
The essence of localization is to relocate to Kazakhstan the processing of those card payments and transfers that take place within the country. For instance, client of bank «A», holding a payment card of that bank, pays for goods or services in a point of sale, where a POS-terminal of Bank «B» is installed. Earlier the processing of transactions between banks A and B was carried out by the operational centers of the international payment systems Visa, MasterCard and Union Pay, located outside the country. With the full launch of the ISPC, processing of such transactions will be provided by the operational center in Kazakhstan.
At the same time, interaction with global payment systems will continue, and this business model already includes key conditions for such interaction. Firstly, ISPC, as an operational, clearing and settlement center of international payment systems in Kazakhstan, will process tenge transactions carried out using cards of these payment systems, issued by Kazakhstani banks within the country. Of course, transactions made by clients of Kazakhstani banks who pay abroad will still be processed in the centers of international payment systems. Secondly, Kazakhstani banks will retain full access to innovative services and new technologies offered by international payment systems. Primarily these are the so-called «tokenized payments» (for example, secure payment in online stores and through Apple Pay and Google Pay services), as well as risk-scoring and settling of disputable situations on card transactions. Thirdly, all international payment systems will retain equal competitive conditions for work in the Kazakh payment market.
At present, all necessary agreements with international payment systems Visa, MasterCard and Union Pay to transfer Kazakhstani traffic to ISPC have already been signed. ISPC has successfully passed international security certification PCI DSS and all Kazakhstani banks, which provide card payment services, are already connected to ISPC. The high security of the instant payment system for both legal entities and individuals was also confirmed after testing the service in the pilot zone.
So far, two basic services are implemented trough IPS: transfers between individuals and non-cash payment at retail outlets by QR code. The former is available for the clients of nine banks; the latter will soon be launched.
The National Bank of Kazakhstan will not keep individual clients accounts and is not going to enter the market with its own payment service. All customer base, services, mobile application support, payment card issuance and tariff setting remain the banks’ responsibility. The NBK's functions here are processing and transferring payment messages between banks, conducting online clearing and guaranteeing settlements.
Instant payment system should become one of the drivers of fintech industry in our country, which will be possible due to support and proactive role of the banks of Kazakhstan. Currently, almost all banks that issue payment cards have already signed participation agreements.
As the experience of other countries shows, the maximum systemic effect in the use of IPS is achieved with the participation of a large number of banks. In Great Britain, India, Australia and Thai land, IPS has become the growth driver of the non-cash payment industry. Overall, similar systems have already been implemented or are at the stage of implementation in 50 countries of the world. In the Republic of Kazakhstan, the volume of non-cash transactions of individuals is also growing quite dynamically: over the past five years, it has increased almost by 25 times, and now Kazakhstanis carry out an average of 13 million transactions worth 197 billion tenge a day.
At the same time, the demands of clients themselves, who want to receive services «here and now», are also changing: requirements for speed, availability of payment services and, of course, for security are increasing. In strategic terms, the launch of IPS and ISPC lays the foundation for building a modern digital financial infrastructure in Kazakhstan, which in the future will allow all market participants, without exception, to create fast, inexpensive and innovative financial services. The scaling of these services will also consolidate the efforts of market participants, allowing them to interact more closely with each other, providing their clients with more opportunities and not limiting clients to the infrastructure of a single bank.
It is paramount to maintain growth dynamics of non-cash payments and set the development vector of this industry. In this regard, the role of the NBK consists in ensuring that with the growth of the industry the payment infrastructure is adequately developed. Here it is important to note that the National Bank of Kazakhstan recently published an overview report «Development of Open API, Open Banking and ecosystem of digital financial services in the Republic of Kazakhstan», which presents the conceptual directions of creation and functioning of the digital financial market in Kazakhstan.
Overall, the active digitalization of national economies all over the world is associated with the development and implementation of digital and technological solutions, the increase in the number of financial market participants as well as the emergence of alternative business models, which enhance the availability and quality of digital financial services for citizens and businesses. A new generation of clients is actively using mobile applications and services for financial and non-financial services, moving away from traditional ways of interaction with financial institutes and market. This creates a certain trend in digital innovations in the form of the introduction of platform solutions for the consolidation of cross-industry financial and non-financial services and active data and information exchange.
The fintech industry is growing rapidly as well. Acting as the third-party service providers, new fintech companies and startups are creating innovations in finance, increasing their usability and attractiveness through end-to-end technologies and speed of adaptation. The appearance of fintech companies in the sphere of financial services is especially prominent in regions with highly developed digital markets such as China, the EU and the USA. Nevertheless, leading tech companies such as Google, Meta, Amazon, Alibaba, Tencent are shifting their focus on developing countries.
Such development throughout financial industry raises the overall level of competition in the market, forcing traditional financial institution to re-examine their development approaches with a focus on open, technological and equally accessible integration and partnership. Thus, a new stage of financial market development is taking shape, characterized by regulatory harmonization, inclusion of new players, and strengthening consumer protection.
At the same time, one of the modern trajectories of digital development of financial institutions is the concept of Open Banking, which is the creation of technological and regulatory conditions that allow customers to transfer their data safely and efficiently between financial institutions and authorized third parties (third-party service providers) to obtain new consumer benefits. In other words, open banking is aimed at using the customers’ financial data with their consent by third-party service providers to expand the availability of financial services and create new, personalized services and products.
In relation to financial industry development, it is worth mentioning another strategically important project for the Republic of Kazakhstan called «Digital tenge». At the moment, testing of the digital tenge platform is continuing, and the Digital Tenge Hub platform is actively developing. Second-tier banks have already joined the testing, and the system is ready to accept other participants in the research project. Perhaps at the next meetings of the IBC we should consider testing and implementation of digital currencies by central banks of various countries or the issues of digital financial infrastructure, touching primarily on such topics as the regulation and development of digital financial platforms and the requirements for its participants.
Speaking about modern mechanisms of interbank settlements, it should be noted that in the Republic of Kazakhstan the main operator of the payment system is the Kazakhstan Interbank Settlement Center (KISC), which carries out interbank payments and money transfers in national currency between banking and non-banking financial institutions of Kazakhstan.
The KISC acts as an operator of the Identification Data Exchange Center (IDEC), designed to identify customers based on biometric indicators, and the System for Transfer of Financial Messages (SPBS), which provides two-way messaging with the System for Transfer of Financial Messages (SPFS) participants upon registration of the SPBS user as an SPFS participant.
The main directions of the KISC’s activity are:
- conducting interbank payments and money transfers, as well as interbank clearing in accordance with the legislation of the Republic of Kazakhstan;
- maintaining the operability of hardware and software complexes ensuring uninterrupted operation of the KISC;
- solving the issues related to ensuring security of the payment systems, including those related to the availability of relevant hardware and software;
- provision of secured information exchange services, guaranteed message delivery and processing via information data transmission channels;
- certifying that the public key of an electronic digital signature corresponds to its private key;
- carrying out activities related to the use of cryptographic protection of information, distribution and authentication of cryptographic keys; organization and functioning of retail payment systems.
In order to continue the systematic and gradual development of digital transformation of the financial sector with a focus on ensuring technology and consumer protection, the National Bank of the Republic of Kazakhstan together with the Agency for Regulation and Development of Financial Market (ARDFM) with the participation of the Agency for Protection and Development of Competition (APDC) developed and approved the Concept of Development of Open API and Open Banking in the Republic of Kazakhstan for 2023–2025.
The Concept envisages the formation of a systemic approach to the development an open, technological and secure financial market, the development of digital financial services and platforms through a sustainable digital financial infrastructure. It is proposed to develop an Open API platform with optimization and strengthening of the interaction of the aforementioned infrastructure elements.
It is worth noting that that such infrastructural development forms an entire Open API ecosystem with its multi-service platform, standards, registries and developed requirements, where the main participants of the Open API ecosystem will be regulators (NBK, ARDFM, ARDC), operator, API suppliers, API users and clients. Thus, the most significant initiatives for the development of Open API and Open Banking in Kazakhstan, carried out through the joint efforts of regulators and financial market participants, include the development of the target operating model, the list and standards of Open API, modernization and creation of common elements of the Open API platform infrastructure, as well as updating the regulatory and legal framework.
Taking into account the results of digital development of Kazakhstani financial organizations, public interest and demand for innovations in the sphere of payments, financial services and products, as well as key infrastructure initiatives implemented by the NBK, such as instant payment infrastructure and interbank digital user identification service, the development of Open API and Open Banking will allow achieving a qualitatively new state of the financial services market, optimally meeting the prospective needs of building a modern and high-tech financial industry of the Republic of Kazakhstan based on the maximum balance of interests of market participants, consumers and the state.
