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 , 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 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 ), 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. 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.
