Albania’s Financial Future: Innovations, Challenges, and the Path to Inclusion – Ledia Bregu – [Season 2 | Episode #11]

Podcast Intro 00:00:01 Hello. Welcome to Pitt Exchange, a podcast by Currency Research. Join us as we discuss the latest in payments, innovation and technology with the industry’s most innovative thought leaders. Today’s payments are changing and moving around the world faster than ever before. P.I.T. Exchange gives you the knowledge and insights to keep up. Sit back and relax as we join currency research, exchanging ideas with today’s special guest.

Jordan Taylor 00:00:33 Welcome to the latest edition of the P.I.T. Exchange podcast by Currency Research. My name is Jordan Taylor and I am your host for this episode. And today I am joined by a very special guest, Miss Ledia Bregu of the Bank of Albania. Pleasure to have you Ledia Bregu.

Ledia Bregu 00:00:52 Thank you for having me.

Jordan Taylor 00:00:53 It is my pleasure. I’m glad that we could make this happen. I know that you’re very busy. We’ve had a few obstacles in trying to make this happen. So this is exciting for me as the unofficial head of the Balkan desk at Currency Research. Getting to speak with you and have you appear on the P.I.T. Exchange has been something that I’ve wanted to do for a while now, so this is wonderful.

Jordan Taylor 00:01:14 But before we get started, perhaps you can just for a moment, give a brief little background for our listeners for whom Ledia Bregu is not a household name for the 2 or 3 people who might not know what you’re about. So how did you get to to be where you are at this point?

Ledia Bregu 00:01:30 That’s a nice question to to to start. Oh, well, I’m as, as of the moment speaking the chairing or directing the payment systems in the accounting department at the Central Bank of Albania, which is in charge for pushing forward the agenda or the policies on financial inclusion, digital payments, informal economy reduction and anything that’s related to payment systems operations. And I’ve been in this position since 2018. Prior to joining the payment system department, which is quite challenging and I have to say, beautiful and motivating. I, had been working for about nine years at the internal audit department of the Central Bank, especially in charge for operational business management and all related, challenges of central banking, enforcing its internal procedures and internal controls.

Ledia Bregu 00:02:24 I hold a degree in finance and MBA, studied in France. a short period of time, which gave me a lot of beautiful presence of, of the profession. And, now, I’m just happy to be at this position and driving forward many, many developments in the payments for Albania. And I hope for the region as well.

Jordan Taylor 00:02:46 Thank you. Yeah, I think that’s that’s clear that there is much happening in Albania and in broader in the Western Balkans. Before we dive into all that is happening, I thought it might be instructive to maybe briefly talk about where we’re coming from. You know, I remember when we when we met few years ago, you know, I asked you if if you saw payments being what it is and, you know, developing into this, into this hugely influential space and I, I don’t think that anybody quite saw that. And certainly in Albania when we, when we first met five years ago now, things were very different. So can you talk about where they were as opposed to where they are now or where they’re headed?

Ledia Bregu 00:03:31 It’s already five years since we last met, so time moves very fast forward.

Ledia Bregu 00:03:37 we come from a place of very low financial inclusion, very low financial literacy, a high uptake of digital and cashless payments per capita, especially if we take as a benchmark, 2017 and 18, which, let’s say a basic analysis was done to understand what was missing and what are the challenges that we needed to focus on. When we speak for the benchmark, we use as a starting point. So we had only 38 to 40% of the adult population of Albanian citizens about 15 years of age to hold at least one bank account. So many, many years ago, the majority of what was of course done via cash or other instruments which are quite similar to cash, and also in terms of cashless payments per capita, which is an indicator to understand those accounts are being used or not. We are only at the level of 4.3, but then in 2017 and 18 for for one person who has a bank account. Fast forward to all these last years markers after a lot of improvements in the modernisation of the payment systems, but also policy A level.

Ledia Bregu 00:04:53 Interventions. We are at least 78% of the adult population on at least one bank account, and this without considering the e-money accounts, which has boosted very, very high level of such accounts, are being used also related to new fintechs and the payment institutions being licensed data markets. Due to the competition opening of the legal framework and in terms of cashless payments, we are now at around 23 cashless payments per capita with one bank account, which means a multifold increase in the in the beginning. In the initial benchmark, which was put as the basis for progression, we also see a huge impact of new entrants in the market, which of course we understand that it’s it’s a focus for the central bank as a regulator to make sure that the market has alternatives, has a high competition which will deliver to clients a better user experience. A much more safer and faster, but also cheaper payments for them to use such digital payments. We also try to make a lot of financial education in terms of seeing the risks, because new innovation also comes with risks, and it’s important for the regulator or the central bank to make use that and test drive such trust, which is the biggest asset of a central bank, to make sure that citizens understand that electronic payment is as safe or even much, much safer than the cash they hold in their hand.

Ledia Bregu 00:06:30 So there are a lot of different and parallel fields that we work with, and we try to advance. And we then indicators show that we are doing a good work, and we understand that we need to keep going with the same energy and efforts to make sure that we achieve much, much greater results in the area.

Jordan Taylor 00:06:51 It seems to me that that one component of all of this has been the bank has been really public facing, and I think you have been a big part of that. I mean, every time I seem to turn around, I see you perhaps on the local news appearance or doing some sort of educational component to try and and advance the bank’s the bank’s efforts. You seem very comfortable with that one. You’re getting you’re getting quite used to being in front of the camera or having the microphone.

Ledia Bregu 00:07:23 That’s true. I think it’s also because of you speak your own passion and your own work. And I know in the beginning it’s it’s difficult to express some get out of the box of technicality.

Ledia Bregu 00:07:34 But once you try to explain it to the little ones or the teams, then you see such objective and try to replicate it as much as you can. So, well, citizens and businesses understand what alternatives are there and how we can enhance.

Jordan Taylor 00:07:51 What are you finding to be the biggest obstacles as far as reaching certain segments of the population? I mean, you described the the exponential growth of digital payments over the last 6 or 7 years. Albania’s population, I would imagine, is not incredibly large. Tirana has a fairly sizable population, and I’m sure accounts for a significant percentage of that. But but for the rest of the country, how are you finding reaching them, getting your messaging across the trust aspect that you alluded to?

Ledia Bregu 00:08:22 Well, definitely. It’s a matter of trust and knowledge, of course. Information. I mean, you need to use every tool possible, not just the central bank, but the way we are considering it is collaborating with different players or those who are much more closer, not only physically, but also in terms of arrangements and bilateral agreements with citizens.

Ledia Bregu 00:08:44 When you first approach them. You really need to make them understand any form of the possible, of the possible, elements and possible products which are in which are, in the market, for example, the latest one I can think of is a basic account intervention in the market, which was done via a law which stipulates that those who don’t own a bank account now, they are eligible to have one at free of charge. But there’s a lot of people who don’t know that this product now exists. And that’s enforced from the central bank to the commercial banks to offer such service and to offer such account to citizens and also to businesses. So it’s I think the greatest challenge is reachability arriving at each and every one with a clear message and trust. I mentioned it before, trust is the biggest asset of a central bank, and, you need to convey a good message to to make sure that trust is the Basis on the foundation of relationship, and as well that everything that comes from such regulation might be beneficial to citizens.

Jordan Taylor 00:09:53 What does the bank stand? About the use of cash? I mean, are we. Are we? Is. Is the policy one of of cash light? Is it one of, we are really hoping to one day eliminate the use of cash. And where where does that balance stand currently? And where is the bank hoping to be, say, five, ten years from now with regard to cash?

Ledia Bregu 00:10:16 Well, I think it’s important that central bank and not only the central bank, but also other actors in the market that Ministry of Finance or other authorities that might intervene in the matter. Understand that there is a need for a clear balance. So we don’t think and we don’t believe that being fully cashless is the solution to everything. There are many issues and challenges related to that. Of course, it’s a priority not only of the central bank, but also the government and other public authorities to reduce informal economy, shadow economy and everything that’s related to cash, because we understand. And different studies that were done lately show that a reduction in the cash and informality benefits to all benefits to the economy and benefits to tax authorities, benefits to the GDP growth and everything related to it.

Ledia Bregu 00:11:09 So everything that’s under the umbrella of the central bank, policy wise, infrastructure wise, meaning new payment infrastructures, which might increase such velocity of money, circulation and acceptance, they are all in the pipeline to make sure that we check all the box and have such possibility. Meanwhile, from the other perspective, there are different initiatives from other public authorities that are trying to reduce cash in circulation or cash being used as a payment instrument, as well as probably thinking of tax incentives to make sure that it’s much more used not only from citizens, but also from small and medium enterprises, and so on. Different parts and different aspects of the market. And I think we are all aligned in this objective. And probably in the next five years, we will want to see such reduction in material one, not just a slight one. Of course, not a full, full cashless economy, because probably, as you might have already heard from other economies who are quite close to fully cashless, they do think of reverting and having as a backup also cash.

Jordan Taylor 00:12:21 So yeah, that’s interesting right? I mean, Sweden I think is one of the more prominent cases. And recently they’ve come out with a few a few statements and a few documents urging the protection of cash and advancing legislation to preserve that. So yeah, it’s interesting to see some of the the countries who are in the vanguard, if you will, moving towards a cashless society or if not backtracking that a little bit. They are sort of rethinking things just a little bit. So we’ve touched on this, the kind of domestic situation a little bit and the advancement of, of digital payments. But I think that something that has been huge for Albania in the last year or two has been the sort of expansion of prospects and outlook. And I see the, the little little sign you have in the background there announcing that you are a SEPA star. Can you talk about what inclusion in SEPA is going to mean, what it means for Albania now and for the region more broadly?

Ledia Bregu 00:13:21 Well, it marks definitely on a historical milestone its acceptance to the SEPA geographical stone.

Ledia Bregu 00:13:27 It’s it was a great move not only for Albania but for the whole region. Finally, some European institutions gave a green light to have such acceptance. And I think that many countries in the region are those following. They are doing all homework to make sure that the legal framework and the, let’s say, the part which is regulatory, is being spoken identical as those of the European Union countries and area. SEPA is important and making sure that we are benefiting from all of the elements that’s included in the cross-border payments. We are in a very high intensive work with all the SPS in the market, which are banks and non banks, around 22 plus to make sure that they apply within April, which is next week, next month, and make sure that they are also operational, ready to receive and send separate transactions cross-border within starting from October of this year. So it’s quite challenging, not only legally but also operationally because it’s completely a new market outside the open borders. And you need to technically make sure that such connection is smooth, is efficient, and it goes out how it should.

Ledia Bregu 00:14:48 So we are very much keen to see its benefits in terms of, let’s say external connections. import export is quite huge with the European Union countries, not only for Albania, for the whole region. And more than half of it’s also we see a huge impact on the inflow outflow from tourism, which Albania has been lately receiving a lot of tourism from this area, European countries, FDI so of course, which might be attractive only lately the ranking of Albania has been rising to a to a better note. So which means it’s it’s more it’s much more credible and trustworthy to invest. So we expect as well those channels to be through these corridors and the remittances, which are quite important, they will benefit a lot from the reduction in fees. So overall, the GDP growth might be probably contributed a little bit with the entrance into CFA. And savings will be much more beneficial to remain in the country and be used for better purposes.

Jordan Taylor 00:15:55 I think that was sort of led into my next question. You know, we sometimes talk about payment issues as an abstraction, right? Cross-border payments are expensive.

Jordan Taylor 00:16:05 They’re opaque, they’re slow. There are all of these things. But what does that what does that actually mean? The world Bank produced a report, I think, sometime late last year, about the cost of cross-border payments between select EU countries to the Western Balkan six and vice versa, and the cost to send to the Western Balkans and from the Western Balkans to I think it’s Germany and and one other were so astronomically high.

Ledia Bregu 00:16:34 Ten times.

Jordan Taylor 00:16:36 Yeah, it’s 10 to 15 times greater than than within the EU. That’s a significant amount of money that that Albania is, is losing. And the region, you know, more broadly and of course, the countries in the EU that are, that are sending to to the region. Those are tangible, real savings that Albania in the region are likely to see from inclusion in Sepa and and greater integration into European financial infrastructures. Can you talk about what in real terms that that is going to mean for businesses, households even and the region more broadly?

Ledia Bregu 00:17:12 Sure.

Ledia Bregu 00:17:13 For the region broadly, let’s start from the last one.

Ledia Bregu 00:17:16 Calculations are that about a €500 million might be saved on the first year of adherence to the Sepa schemes, meaning that the whole region, if it enjoys or joins the same time now where on the pipeline we have, for example, Kosovo and then Serbia and Bosnia-Herzegovina, which we are already Albania, Montenegro and North Macedonia are already in the graphical scope of what we calculate as a basis, only considering import export exchanges, external exchanges. Only the first year, 20 to 50 million, are only in the exchanges of bilateral cross-border transactions for import and export without considering remittances, which are huge amounts of savings in terms of only 1% reduction from the existing costs, which is around 6 to 7% in average of all remittances go to fees. So now we can understand and consider that such big savings are very beneficial to the country and to the economy. And not only it will benefit to the whole region. That’s why Sepa is very important and it’s like a door prior or a concrete de facto integration to the payments market infrastructures.

Ledia Bregu 00:18:35 That is what is, really is and is considered. So we we sometimes when we write speeches, we we, we consider it like the second concrete step after the liberalisation of visas, which was huge for for the movement of people in and out from the Bay to other jurisdictions, European jurisdictions. So this is the second concrete step, which marks a significant milestone for integration of concrete integration, great savings and much more visibility. We can also consider that now being and businesses have a huge market which is the European one. So it doesn’t matter that you’re small, but the whole region together might be, let’s say impactful in terms of volumes. They’re all stronger together in the same area.

Jordan Taylor 00:19:25 Is there a third concrete step or the third step is full complete integration with with the EU?

Ledia Bregu 00:19:32 I think that’s the ultimate step for all the countries to be part of the EU. I think the front runners like Lebanon and North Macedonia are probably also with Montenegro the fastest, and those who have much more clearer objective. But these concrete ones, we understand that if you have such the de facto concrete steps, then integration to the European is just a formality.

Ledia Bregu 00:20:00 If you consider that money movement, goods movement, but also people movement are already harmonized.

Jordan Taylor 00:20:09 Coming from the the sort of insular environment that that Albania historically came from. Would this ever have seemed like a, a place that Albania would end up, or even a possibility, if that makes sense?

Ledia Bregu 00:20:24 It’s it’s [inaudible]. And I will say that it’s a it’s a shared common goal. There are poles for the Western Balkans which are done periodically. And as far as I remember, Albania is the most pro-European country from years and years now, decades. So it’s a consistent objective of the country. And it’s of course, it’s institutions to work toward. But that’s objective. It seems like it’s a common understanding that that’s where we belong and that’s where we are heading. It’s also a good guide, not only technically, but also legally and financially speaking, that you have such, such paths to follow. And it’s also helped a lot in the velocity of reforms and the velocity of new and innovative, jurisdictions or regulatory frameworks to strengthen the internal market and being ready for such thing.

Ledia Bregu 00:21:18 I don’t know if we hadn’t had this objective, if we would have been so fast in developing and making sure that with the limited resources you you mentioned that very small country with the limited resources we could have reached so far if we did not have a clear objective where we are going to.

Jordan Taylor 00:21:36 I know we’re we’re getting short on time, but I would be remiss if I did not ask you a little bit about tips, the tips clone and instant payments that was announced, I think, just in January, perhaps yet another big deal. We’ll talk about that a little bit.

Ledia Bregu 00:21:52 That’s true.

Ledia Bregu 00:21:53 It started as an idea and a pilot with Bank of Albania suggested from Bank of Italy. So it was a good way to tackle the the missing puzzle of the instant payment infrastructure in the country. And then after many discussions, it came out like a regional project and the regional initiative, which, we have shown lately that, we can collaborate and contribute Contributes to each other advancement. Very, very good and very beautiful and very and we are very proud of that.

Ledia Bregu 00:22:27 So in January, the latest development was that we signed all of us an agreement with Banca d’Italia to provide us within 18 months, meaning in June 2026 we should be already a clone of the existing real chips used by the OECD in the European market. And that would probably firstly cover the domestic payments, which is missing in our countries. And of course, it is also having a, in perspective, the layer of the regional cross-border payments, which of course are emphasized with the RCEp accession and also the probability of connecting a clone with a real one until we are all part of the European integration community. So it’s a very challenging but very promising project to address, especially retail and fast payments within the country and within the region. And despite the different currencies among us, and we are very committed and fully energized to advance with it. Different Workstreams are already working from many countries with Banca d’Italia and the world Bank support. And we would really like to see it fruitful the next year going live. And why not also go live with the regional and cross-border with the European Union? So a lot of, parallel projects, good investments, at least we are not staying in the same position, but we are very happy to be leading in such momentum and taking forward contributing to our countries and the region.

Jordan Taylor 00:24:07 That’s wonderful. Yeah. So I was I was curious, so when you joined the EU formally, the tips clone would be would be dissolved. There would be no there would be no need for it at that point. I was curious how that would work in effect.

Ledia Bregu 00:24:22 That’s the main idea. What? Why? It is a good project to be on boarding because once you have access to the real one, you wouldn’t need to keep that. And so that would be counterintuitive. We would go with a completely different infrastructure on board from the market for all the countries, and then had to recycle it or had to keep some pieces of it. In this case, it would be a plug up and a plug in for those who are operating it. And for the markets, it should be mostly because they wouldn’t, let’s say, experience anything. When you switch to the real one. The market is already, used and customized already domestically speaking for US payments or use cases, QR payments and everything would be up and running.

Ledia Bregu 00:25:11 And when the moment is, you can switch and of course, and make sure that you are on the same path like the real one.

Jordan Taylor 00:25:19 So you mentioned a moment ago that you have obviously many projects on your plate. What are you most excited about? Not just for Albania and the region or Europe in general, but payments more, more, more, more broadly. Where where do you sort of get excited when you think about the direction of of these developments and what they mean for economies like yours and and others around the world?

Ledia Bregu 00:25:44 Well, I think every project which has a positive impact to at least one person, I think it’s quite motivational. And what we are doing, I believe, and at least I see it like this, it’s quite beneficial to the lives of different citizens of my country, the rich and also the businesses. So all those projects who make better lives of people and businesses, of course, motivate us to bring that forward in terms of payments? Definitely. Of course, the CPA one is, making sure that all on board is quite, important for us.

Ledia Bregu 00:26:23 And also the tips which we just mentioned in the previous question is important to be delivered successfully and how we how we plan it in terms of a more global discussion, we are also part of some, let’s say, task force, which discusses the importance of cross-border payments and the challenges or the operational challenges of interlinking cross payments in terms of making sure that cross-border payments are also instant and can be as fast, as cheap, as safe as domestic ones. So these are quite exciting and they make me be very happy to be working and to the advanced research projects.

Jordan Taylor 00:27:08 Well, I think that’s something that’s going to keep, central banks and regulators and the industry busy for a few years at least. So you’ve got you’ve got plenty to keep you occupied. Ledia Bregu, I want to thank you for joining us today. It’s been an extreme pleasure, I hope. I hope it’s been okay for you, too.

Ledia Bregu 00:27:25 Thank you very much. I really enjoy it.

Jordan Taylor 00:27:26 Pleasure. Please say hello to the family for us.

Jordan Taylor 00:27:29 And I hope you will, let us buy you a pizza again the next time we were in Albania.

Ledia Bregu 00:27:34 Well, the great pleasure. Thank you very much.

Jordan Taylor 00:27:36 Thank you. you’ve been listening to the P.I.T. Exchange podcast. Be sure to like, subscribe, download, do all of those things that you do on your favorite platforms. Until the next time I’m Jordan Taylor.

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