Israel's Central Bank Issues Draft Rules to Spur Debit Card Use

Bank of Israel hopes to put new plastic into everyone’s wallet in one year’s time.

Bloomberg

Israelis will be carrying at least two pieces of plastic in their wallets by this time next year after the Bank of Israel issued Tuesday a series of draft regulations aimed at encouraging Israelis to use debit cards. The central bank said the planned measures would “bring a concrete increase in competition in the debit card sector and enable immediate mass distribution of debit cards while reducing costs of businesses and households.”

Bank of Israel Banks Supervisor David Zaken rejected a plan to give credit cards a debit option and said banks will be required to issue debit cards as a separate piece of plastic at no charge to customers by the middle of 2016.

Debit cards deduct the amount of the holder’s purchase immediately and deposit it to the seller within three days, thus saving businesses significant costs, because they are not granting credit to customers, as well as savings on the clearing costs. Israelis can get debit cards today, but there is little advantage to having one: Both sides pay a clearing fee – in the case of businesses 0.7%, the same they pay for credit card transactions.

Besides getting their money faster, under the new regulations businesses will pay a clearing fee equal to 0.3% per transaction on the debit cards. Antitrust Commissioner David Gilo, who hopes businesses will pass at least some of the savings onto consumers, was behind the drive to advance debit cards.

In addition, debit cards fit into the vision of a government panel headed by Harel Locker, director general of the Prime Minister’s Office, working on ways to reduce the use of cash in the economy and discourage black market transactions. The Locker committee wanted a single credit/debit card but in a victory for the credit card industry, which is controlled by the banks, the decision to allow separate cards is likely to slow growth of debt card use, among other reasons because cardholders will have to go a their bank branch to get it as well as remember two passwords.

But Zaken defended the decision, saying, “the solution preserves the right of choice to cardholders concerning the type of transaction.”