Foreword

Dr György Matolcsy

Governor, Magyar Nemzeti Bank

Undoubtedly, money is a revolutionary invention in the history of mankind that has shaped commercial and economic relations among people and influenced their everyday lives since its earliest appearance. Yet, this groundbreaking invention has changed and progressed a great deal over the centuries to meet the expectations created by evolving economic circumstances. The history of the successive forms of money can be seen as a series of innovations, and continuous innovation has been instrumental in ensuring that the different solutions increasingly fulfilled the functions of money (standard of value, means of circulation, means of payment, means of hoarding) while the supporting institutions and the infrastructure continued to advance.

We have come a long way since the emergence of the first types of commodity money, and the process of development has accelerated further as globalisation and the technological, as well as the information and communication revolution has gathered pace. Accordingly, we can see that since the appearance of the first forms of money, the revolutionary changes now come in quick succession. However, the constant development can be divided into innovations in content and technology. Innovations in content occur when a change affecting the central features of money happens (e.g. monopolisation of minting, the appearance of fiat money without intrinsic value). Technological innovations include changes that do not modify money’s main characteristics from the perspective of its functions yet trigger some, perhaps even landmark, advances (e.g. the emergence of electronic records instead of paper-based account balances).

I believe that the introduction of the instant payment system in Hungary was precisely such a landmark technological innovation, as money can now be transferred electronically

in real time, 365 days a year, allowing the transferred amount to be immediately used by the beneficiary.

Although various forms of instant payment systems have been present internationally for some time, mainly in response to the pressure exerted on the payment sector by the rise of innovative service providers and the self-contained and often not interoperable systems created by them (e.g. e-money systems, virtual means of payment). Still, the Hungarian solution is unique. Hungary was the only country in the world where all domestic bank customers were simultaneously granted access to a service opening up new dimensions in finance. This is a noteworthy achievement not least because the payment market is networked, so if a solution raising the quality of the service, and creating real added value, is to be used widely, it is necessary that the developments related to the given service are implemented by all the stakeholders, or at least most of the payment service providers. This creates the necessary link between the different elements of the network, and the service in question can be accessed across all the participants.

It also has to be noted that payment services are increasingly like utilities, in that they are vital to modern life. However, until 2 March 2020, state-of-the-art electronic payment solutions meeting consumers’ legitimate needs could not necessarily be used in all payment situations in Hungary. The instant payment system laid the groundwork for this. It facilitated an electronic alternative in the payment situations where until then only cash could be used. Until 2 March 2020, the traditional financial infrastructures had several shortcomings in Hungary. One only needs to think of the limited communication options between the key elements of different infrastructures, the relatively slow message processing or the scarce capacities.

However, technological progress has changed the role of space and time in recent years, as consumers became accustomed to using simple, convenient and highly efficient services in several areas of life. Payments could be no exception; that is why the decision on the compulsory introduction of the system was made, which was regarded by many as bold or even audacious. However, events have proven us right. What is more, the timing could not have been any more perfect, since the service was launched at the onset of a crisis where remote electronic payments were crucial in mitigating risks.

Major strides have been made in improving Hungary’s competitiveness in several areas, and these achievements have now been complemented by a solution that not only expedites payments, makes credit transfers available at all times, allows funds to be transferred in a simpler and more convenient form, helps liquidity turn around as much as possible and

indirectly supports the reduction of the shadow economy, but also includes an entire paradigm shift. As I have already noted in my earlier works, I am convinced that our convergence to advanced countries hinges partly on the establishment of a renewable financial model, and the modernisation of payments forms an integral part of that. Hungary has recognised early on that the future of money is not paper-based, that is why the country dared to open a window to digitalisation, and all the players affected by the introduction of the instant payment system were partners in this. Thanks to this, a technological revolution of payments, and indirectly of money itself, got underway in Hungary. The new service is expected to provide significant contribution to break out from the situation in which many people in Hungary still do not take advantage of the opportunities offered by digitalisation in terms of managing finances. However, putting payment transactions on a new footing is only the beginning, the dawn of a new era characterised, as we hope, by an unprecedented advance and development in electronic payments.

We wish to commemorate this monumental paradigm shift in payments, in the hope of encouraging others to introduce similar innovations. This is how this book was conceived, offering a platform for our partners and colleagues who took part in the implementation to share their experiences about the hard and successful work delivered in the past three years.