Central Bank of the Republic of Kosovo: In Conversation with Dardan Fusha, Director of the Department for Payment Systems

With previous features in these pages from Albania, Montenegro, and Serbia, the focus on the Western Balkans continues with a look at recent payments developments at the Central Bank of Kosovo (CBK). The Republic of Kosovo is not only one of the youngest countries in the world, but also boasts the youngest population in Europe, with nearly half of the population under the age of 25.

The Central Bank Payments News team recently caught up with Dardan Fusha, Director of the Department for Payment Systems at CBK, who filled us in on the implementation of CBK’s National Retail Payments Strategy, plans to enhance legislation and regulation to enable innovative payments, the future of instant payments and open banking in Kosovo, steps currently being taken to integrate CBK into EU payments systems, and more.

CBPN: The Central Bank of Kosovo (CBK) launched the National Retail Payments Strategy (NRPS) 2021–2026 in July of last year. Can you offer a little context as to why the NRPS was needed?

Dardan Fusha: Endeavoring to respond to the needs and requirements of a fast-developing market, having in mind recent payments innovations and fintech solutions and the challenges that digital financial services are presenting to regulators, the central bank considered it necessary to redefine and build its strategic view regarding retail payments modernization and the advancement of the country’s financial market infrastructure.

Like many countries, Kosovo is trying to adapt to the needs of different economic actors to provide fast, cost efficient, and highly available transfer services. It has become normal for consumers and businesses to expect to receive money transfers and payments immediately—24/7/365. Such a service is a necessity, although for smaller institutions and in countries with relatively few electronic transactions, building the required infrastructure to enable these services is not always financially feasible, especially in the short run.

Bearing in mind the involvement of many relevant parties and stakeholders in the initiation and processing of retail payments services, the number of factors affecting and influencing the development of digital payments systems and services and their adoption and usage by consumers, businesses, and government, there were many areas that we had to take into consideration while drafting the National Retail Payments Strategy and defining the roles of such stakeholders.

It is only through close cooperation with these relevant stakeholders, and with clear objectives and actions, that we can build the necessary financial market infrastructure that prepares us for the new challenges and changes brought about by digital financial services.

CBPN: With the exception of neighboring Albania, Kosovo (as of 2019 data) has the region’s lowest rate of cashless transactions per inhabitant (17.3). Expanding this figure to 25 per capita/ per annum (and achieving adult transaction ownership rates of 70 percent) by end-2026 is the Strategy’s overarching objective. Described as “ambitious, yet reasonable,” what are some of the critical steps the central bank and other stakeholders are planning to take to achieve this?

Dardan Fusha: The Central Bank of Kosovo has taken some important steps with regard to the further enhancement of its regulatory and technical infrastructure in the field of payments. It established its new RTGS interbank payments system in July 2016, which introduced the new financial messaging standard ISO 20022 based on SEPA messages. This has prepared the CBK and the banking sector for the future integration into EU payments systems and for an easier introduction of a domestic faster payment system, which use the same messaging standard. Additionally, it will enable Kosovo’s banks to easily migrate to ISO 20022 for international transfers, which is to become mandatory.

Benefiting from the Swiss State Secretariat for Economic Affairs (SECO) financed Remittances and Payments Program, implemented by the World Bank’s Payment Systems Development Group (PSDG), the CBK, with the support of the World Bank, has conducted several activities related to payments and electronic money institutions. These include a study of the cost of retail payments and the drafting and amending of several regulations. The introduction of new regulations has enabled CBK to license several non-bank financial institutions (NBFIs) to provide payments and electronic money services, which has allowed new fintech solutions to enter the payments market.

These improvements had to be undertaken within the current regulatory framework, which ...

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