Ladies and gentlemen,
For a small, highly digital economy – such as Iceland – payment sovereignty does not mean self-sufficiency. It means combining international shelter with domestic resilience and ensuring, to the extent possible, that neither becomes a single point of failure.
That is the central proposition I want to discuss with you today. Iceland’s payment system is fast, efficient and highly digital. Instant payments have been the norm for decades and interbank payments have been efficiently routed through a localized system from a foreign vendor. Importantly, payments for goods and services are made almost exclusively by cards, through the global networks of Visa and Mastercard. Critically, domestic rails for debit card transactions that played and important role during the banking failures of the Global Financial Crisis have given way to foreign rails. Cash use is very low, and broadly adopted account-to-account solutions have not emerged as they have in many other countries in the region.
The result is a system that is robust but fragile, as it depends on a small number of providers, common technical infrastructure and continuous digital connectivity. Critical services are provided outside Icelandic jurisdiction, and our links with the outside world depend heavily on subsea cables. In a more fragmented geopolitical environment, where political prioritise often lead economic statecraft, efficiency can no longer be the only design criterion. Resilience must stand alongside it to ensure digital sovereignty, financial stability and economic security.
International shelter and domestic resilience
Through the European Economic Area, Iceland is closely integrated with Europe, with full access to the Single Market and a common legal framework, including for financial services. Yet it remains outside the EU, the euro area and therefore the Banking Union. This position—closely connected but not fully within Europe’s financial safety net—shapes our response to a changing global order and growing reliance on a small number of global critical service providers.
Our strategy, to counter the effects of this changing environment, has two mutually reinforcing parts. The first is international shelter: participation in large, trusted infrastructures where scale, expertise and common standards strengthen security. The second is domestic resilience: the ability to route payments through more than one channel, maintain essential services during disruption, recover quickly and clarify responsibilities across institutional boundaries.
This is resilience through diversification, credible fallbacks and tested cooperation. International integration gives us depth and scale. Domestic capability gives us control over critical functions when circumstances depart from the ordinary. In practice, this means diversifying payment methods and infrastructure; maintaining critical domestic capabilities; and strengthening coordination among the Central Bank, financial institutions, infrastructure providers and other public authorities. Real resilience arises through cooperation between central institutions of society and private actors that provide systemically important services.
The Central Bank must be central to this effort due to its broad responsibilities for the payments system, financial stability and supervision. The Bank has therefore a role both as a provider of critical infrastructure and as a supervisor with macro-oversight responsibilities for systemically important critical infrastructure and a micro-supervisory role with increased responsibilities in recent years, including through the implementation of DORA in Icelandic law.
We do not seek to provide every service, but we will fulfil our responsibility for the resilience of the whole system. We can identify system-wide dependencies, set common objectives, convene the relevant actors and ensure that contingency arrangements are tested against severe but plausible disruptions. Where necessary, we should also help private-sector participants weigh the wider benefits of resilience, which may otherwise attract too little investment, against its more readily quantifiable upfront costs.
To put these principles into practice, we have identified seven critical services and assessed the risks they face. This is only the first step. We must also determine who needs continued access, how quickly each service should be restored, how long it must remain operational and under what conditions. In a small economy, concentration and uniformity often create the greatest vulnerabilities. Responsibilities must therefore be clear, fallback arrangements credible, and preparedness tested before a crisis occurs.
The Central Bank is working on initiatives to fulfil its extensive mandate in this field. These can broadly be categorised in three parts.
Payment continuity gets the most attention. Here we are both focusing on strengthening existing routes and establishing new payment rails. We see cash an important backstop for extreme and prolonged events. However, in a society where people overwhelmingly choose digital payments, resilience must be built into the channels they use every day, be it existing card schemes or instant transfers.
Second is our focus on preparedness and response to possible negative events. This includes the establishment of a financial-infrastructure incident centre, earlier this year, with round-the-clock monitoring and participation across the financial system. In this way, we turn the small size of the system into a strength.
Third is our work on building system-wide oversight, including on identifying shared dependencies. This is in part being done through close collaboration between the bank and representatives of systemically important institutions. Here we have also strengthened our internal crisis governance.
TIPS: resilience through trusted European infrastructure
Our planned participation in the Eurosystem’s TIPS service is a clear example of international shelter. It would allow instant payments in Icelandic krónur to settle on shared European infrastructure, with the scale, operational expertise and common standards that a small economy would find costly to reproduce alone. It should also place Icelandic market participants on a level playing field with their European counterparts and make it easier to adopt future developments in European payments.
A final go-live date has not been set, but our work is directed towards readiness in the second half of 2028. This is an ambitious timeline and requires everything to fall in place and close cooperation both domestically and with our European partners.
In parallel, we intend to assess the feasibility of participation in T2 and T2S and to examine carefully the potential relevance of TIPS cross-currency functionality as cross-border payments remain costly in the current system. We are, however, cognisant that there are hurdles to clear for this to have meaningful impact.
These are significant decisions we are making, and they must be based on a clear assessment of costs, benefits, governance and operational risk.
While we believe that an efficient and resilient instant-payment infrastructure serves our economy well, we are closely following rapid advances in both private- and public-sector distributed ledger technology. In our case, we see the greatest potential for these emerging solutions in cross-currency payments.
Participation in common European infrastructure does not eliminate vulnerability; it changes its form. Access depends on reliable connectivity between Iceland and continental Europe. Subsea cables can fail, repairs can take time and deliberate interference can no longer be treated as inconceivable. Iceland is therefore strengthening the redundancy of external data connections, including through additional cable capacity and satellite backup. For the TIPS project, the Central Bank also intends to maintain local contingency capability for critical functions if external connectivity is lost.
The development of the European instant-payments framework will reinforce the role of instant payments across the European Economic Area. For Iceland, this is an opportunity to strengthen interoperability and standards. But European integration alone will not give households and merchants a genuine alternative at the point of sale that supports our aim of economic sovereignty at the same time. That requires a domestic scheme that translates our existing instant-payment capability into an everyday retail product.
A domestic account-to-account alternative
A resilient payment system cannot depend on a single payment method or a single set of commercial rails. Unlike several neighbouring countries, Iceland has neither a domestic card scheme nor a widely used account-to-account solution for retail payments. Regulation can improve access and competition, but it will not by itself create a common scheme with sufficient reach, acceptance and trust with the basic infrastructure under Icelandic jurisdiction.
We have therefore concluded that the Central Bank should facilitate the creation of a shared account-to-account payment scheme. Contrary to many other economies, instant payments between individuals are common and have been used successfully for decades. Our focus is therefore on the consumer to business aspect, which has until now not developed in Iceland in the same manner as in many other European economies.
Our goal for the domestic account-to-account alternative is to allow consumers to initiate a payment directly from a bank account at the point of sale, online or between individuals. The recipient should receive immediate confirmation. The common layer would provide scheme rules, technical standards and interfaces connecting banks and payment providers to the existing instant-payment and settlement infrastructure.
Banks and payment firms would remain responsible for customer-facing services: mobile applications, payment requests, merchant solutions and the user experience. They would compete on price, functionality and service. The role of the Central Bank is not to design retail products or displace private innovation. It is to provide the strategic centre of gravity: trusted settlement, common standards and a framework within which private actors can compete, innovate and cooperate.
The goal is not to replace cards. Cards will remain an important part of Iceland’s payment landscape. In fact, we are working on strengthening the resilience of the current card network by allowing for off-line payments with both fiscal cards and contactless payments.
The goal is to set up a credible alternative route. A route that is based on different rails and capable of supporting essential domestic payments during disruption. The same infrastructure should also lower barriers to innovation, give merchants another option and allow competition to take place at the service layer rather than through duplicative infrastructure.
We have started a public procurement process for the core solution which we describe as infrastructure that is based on “request-to-pay” that uses the current payment rails for domestic instant credit transfers that the Central Bank owns and runs. Moving from design to implementation will require close cooperation with banks, payment providers, merchants and other public authorities.
Adoption will matter as much as technology. A scheme contributes to resilience only if it is widely available, broadly accepted and familiar to users before a disruption occurs.
Sovereignty through connection and capability
TIPS and the domestic account-to-account scheme are not separate projects but parts of the same strategy to increase resilience through diversification and cooperation. TIPS offers trusted European scale, standards and future connectivity. The domestic scheme offers another payment channel, local reach and greater control over continuity. Together, they reduce dependence without sacrificing openness and give domestic players a level playing field to innovate and compete on.
This strategy can be boiled down unto three main elements: First, reliable institutions are not enough; resilience requires multiple viable payment routes. Second, international integration and domestic capability are complements, not alternatives. Third, central banks should provide trusted common foundations while leaving customer-facing innovation to banks and payment firms.
We are not aiming for a system that is safe and secure by being apart from Europe. It is a system that is deeply connected in normal times, capable of operating through disruption and open to competition and innovation.
Thank you.