Payments and market infrastructure initiative: National Bank of Ukraine’s BankID

The National Bank of Ukraine estimates that eight million Ukrainian citizens, representing around 20% of the country’s population, fled across its borders in 2022. In addition, approximately five million citizens were displaced within the country. As citizens relocated in response to Russia’s invasion of Ukraine, important documents were lost or expired. This posed significant identification (ID) problems for the most vulnerable of citizens when it came to accessing bank accounts, payments services and state aid. The NBU has made significant efforts to resolve these issues to support Ukrainians’ access to financial services during 2022, building on earlier efforts to develop authorisation services.

BankID was created by the NBU back in 2015. It has been tweaked and upgraded through the years, but usage levels remained relatively low until 2019. That was the year when anti-money laundering (AML) legislation was updated in Ukraine, and BankID became an identification tool enabling remote access to financial services.

The NBU took three important steps to raise the interest of banks, service providers and citizens. First, it connected 40 of the country’s 67 banks (accounting for 99% of the cardholders) while increasing the number of participants to 11 public and 87 private companies (including banks with account-opening services). Second, it established a commercial model whereby identifier banks received $0.5 for each transfer of customers’ data used by remote service suppliers (who pay the fee). Suppliers benefitted from a convenient and a relatively cheap identification tool and BankID is free for public service providers. Third, BankID was integrated into Ukraine’s public services e-portal Diia app, dubbed ‘state in a smartphone’ – a nationwide project aimed at converting all citizen-to-state communications into digital format.

The use of BankID as the main identification tool in Diia resulted in a sixfold increase in BankID’s usage, which in turn, encouraged banks and others to join the system, creating a virtuous circle. It also meant that during the Covid-19 pandemic, BankID was well positioned to make it possible for many service providers to launch convenient remote services to their customers.

But the biggest advantage of the technology emerged after the Russian invasion of Ukraine began in February 2022. The NBU cancelled its own systems tariffs – where participants traditionally have paid the NBU for monthly support and transactions processing – in the BankID system. “During the period of martial law, the system became a necessary tool for the possibility of remotely opening bank accounts for citizens who didn’t have the opportunity to visit bank branches due to forced relocation or the inability of the bank to provide physical customer service,” says Olga Vasylieva, deputy head of the NBU’s payment systems and innovations department.

As BankID facilitated access to Diia, it also enabled citizens to receive temporary documents, donate to the army, transfer digital signatures, inform the state of attacks and access national TV and radio.

“BankID’s main advantages became apparent after the full-scale Russian invasion of Ukraine. Many people had to leave areas of hostilities, and some of them lost paper documents,” says Vasylieva. “However, using BankID, almost every cardholder was able to get the electronic copies of documents in the Diia app … and use them in Ukraine and in 58 other countries. It was also then possible for them to apply for state financial support for internal migrants and for citizens who have lost property.”

To achieve this goal, however, required the mass registration of SIM cards, which was done in co-ordination with the Ministry of Digital Transformation. “We have a connection with the telecommunication operators that use our system to identify their own users, because in Ukraine there are a lot of ‘no identification’ SIM cards – they’re pre-paid cards,” say Vasylieva. “We started the rather massive process to identify the SIM card users and our national telecommunication system started to use BankID for this purpose.”

To go through the process, the user requests an online service. That goes to the service provider for either public or commercial services. Information is transferred to the National Bank of Ukraine’s BankID system. The data transfers are encrypted and the bank uses multifactor user authentication. “The National Bank of Ukraine has no ability to unencrypt the identification,” says Vasylieva. The user then confirms the data transfer and the information is processed by the BankID system once more before being sent to the service provider.

“In wartime conditions, BankID provides cardholders with rapid remote access to public services, and the ability to open accounts remotely, making the lives of millions of Ukrainians easier and more secure. We perform 85,000 successful identifications daily,” Vasylieva adds.

The BankID system was created with the purpose of offering a safe, convenient online identification for critical services. Today, there are 96 service providers and 41 identifying banks. An estimated 99.9% of cardholders in Ukraine have access to BankID services. “At the start of the full-scale invasion, all government systems were shut down by government order. This was done to prevent the hacking of government systems since at the same time, government institutions were subject to powerful cyber attacks,” says Vasylieva. “But during the summer and autumn, we made new connections to service providers in the system … we can see that some previous financial institutions like non-bank institutions also refreshed their commercial activity. And they started to use the system as a commercial system to identify the new customers and make ‘know-your-customer’ and AML procedures.

“The number of new connections during the summer and autumn was negligible,” said Vasylieva. “The increase in traffic was associated with the resumption of the work of providers that had previously suspended their activity in the system.”

The ratio of commercial to non-commercial services has now picked up and the central bank plans to implement a delayed new tiered tariff scheme as soon as conditions allow.

The Central Banking Awards 2023 were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Joasia Popowicz, Ben Margulies, Riley Steward, Jimmy Choi and Blake Evans-Pritchard.