Israelis should be using digital checks, electronic wallets and mobile payments more frequently instead of cash or checks, but in order to prevent fraud and abuse the government should create a comprehensive infrastructure for processing payments and legal systems.
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That was among the conclusions of an interim report issued yesterday by a government committee examining how Israel can begin adopting an array of advanced-payment technologies without inadvertently creating new problems in the form of fraud, money laundering and terror finance.
The Joint Committee for Promoting Advanced Electronic Means of Payment was formed as an offshoot of the Locker committee, which was established two years ago to examine ways of fighting the black market, money laundering and financial crimes. One way Locker recommended cracking down was reducing the use of checks and cash, the preferred means of under-the-table payments.
The panel said adopting advanced means of payment would strike a blow at the black market, increase competition by encouraging new players offering payment services and innovative new technology, reduce costs and making paying easier for consumers. But the committee warned that new technologies also carried serious security risks that Israel would have to address before adopting them.
“The flexibility that characterizes advanced-payment technologies and the transition to computerized platform is likely to expose users to identity theft, abuse, fraud and system failures,” the report said. “In addition, the presence of multiple systems for making payments alongside competition for customers has the potential to affect the security of payment systems.”
The black market accounts for a big proportion of the Israeli economy — by the estimates of the Locker committee it is worth about 20% of gross domestic product. It deprives the government of between 40 billion shekels to 50 billion shekels ($10.3 billion to $12.9 billion) a year, almost the size of the entire defense budget.
As part of the war on so-called black capital, the Knesset has passed, in the first of three readings, a bill based on Locker committee recommendations that would, among other provisions, immediately place a 10,000-shekel limit on all cash transactions — this would eventually be reduced to 5,000 shekels — and ban the writing of a check for those amounts when the payee’s name is not specified.
To address the problems involved in advanced-payment technology, the panel proposed that a centralized clearing system and a secure national communications network be established. The report said new laws and some restructuring of government agencies would be necessary.
It also recommended that Israel explore how to promote so-called contactless systems, which use radio-frequency identification technology so that users simply wave their credit card, smartphone or other device over a reader to complete a payment.
It also called for the development of a system for digital checks, which are typically created on smartphones loaded with software that allows them to create virtual checks. Digital checks eliminate the cost of printing and processing paper checks.