The Serbian financial sector is undergoing significant changes, with recent and upcoming legislative reforms set to reshape its landscape. The Payment Services Law, adopted on July 31, 2024, introduces key regulatory updates aimed at modernizing payment systems and aligning them with European standards. Additionally, amendments to the Banking Law and the new Financial Consumer Protection Law are expected to be adopted soon, further strengthening the regulatory framework. Together, these changes are expected to have a profound impact on market participants, from traditional banks to fintech companies, as well as consumers, who stand to benefit from enhanced protections and greater transparency.
The Payment Services Law aligns Serbia’s financial sector with EU directives, particularly the PSD2, thus promoting open banking. This allows third-party providers to access (with consent) bank-held customer data, fostering competition and creating opportunities for fintech companies to offer personalized payment solutions.
The law also lays the groundwork for Serbia’s SEPA accession. While Serbia has had its own instant payment system since 2018, real benefits will arrive once it is connected to the EU’s Target Instant Payment Settlement (TIPS), which will make cross-border payments faster and more cost-effective for businesses engaged in international trade. Another key update is the introduction of strong customer authentication, requiring multi-factor authentication for online payments. This security measure will enhance consumer protection by reducing fraud, thus increasing trust in digital payment systems.
For traditional banks, these changes present both challenges and opportunities. Banks must adapt their infrastructure to meet compliance requirements while also collaborating with fintech companies to develop services such as digital wallets and instant payments. From a consumer perspective, the law increases transparency and security, providing a safer environment for online transactions and fostering greater trust in the financial system.
The Banking Law amendments introduce enhanced oversight through improved reporting and increased transparency, requiring the publication of new types of supervisory reports. Additionally, the amendments establish a Bank Restructuring Fund, managed by the National Bank of Serbia (NBS) without the status of a separate legal entity. This fund is expected to contribute to the stability of the banking sector.
Another important change is the increase in the threshold for acquiring a qualifying holding from 5% to 10%, aligning it with European standards. Raising the threshold could stimulate investment in the banking sector, giving potential investors more room to acquire significant stakes without requiring regulatory approval. This increase could enhance competition and contribute to market growth.
The draft Financial Consumer Protection Law introduces significant changes aimed at safeguarding consumers, particularly by placing stricter limits on interest rates. One key provision is the introduction of a lower interest rate for overdue monetary obligations, set to be 2% lower than the general default rate, which will also cap the effective interest rate for new loans. The law also caps nominal interest rates on variable-rate loans and fixed-rate mortgages based on the average weighted interest rate determined by the NBS. For instance, newly approved mortgage loans will be capped at one-fifth above the average rate, while older loans will follow temporary NBS measures limiting rate increases until 2026. Similar caps will apply to cash and consumer loans, with a limit set at one-quarter above the average rate. These caps aim to prevent sudden spikes in interest rates, particularly for credit cards and overdrafts, where rates have historically been high. The law will cap effective interest rates on credit cards at 6% above the default rate, while overdrafts will be capped at 8%. For example, the effective interest rate for overdrafts, which previously reached 28.41%, will now be capped at 20%.
These measures have received criticism from the banking industry. Some argue that interest rate caps could distort competition by creating a gap between risk-based pricing and legally mandated rates, potentially leading banks to deny credit to higher-risk customers. There are also concerns that reduced loan interest rates, especially for credit cards and overdrafts, could lead to lower deposit interest rates as banks adjust to protect their margins. The NBS defends the measures, arguing that they are intended to stabilize the market amid inflationary pressures and protect consumers from excessive rate hikes.
While these legislative changes promise to enhance transparency, security, and stability in Serbia’s financial sector, their full impact on both consumers and the industry remains to be seen. Monitoring how market participants adapt to the new regulatory framework, particularly in balancing consumer protection with potential challenges, will be crucial in the coming years.
By Jelisaveta Janic, Partner, VP Law Firm
This article was originally published in Issue 11.10 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
