Cyber Threats Spark Iceland Plan to Process Payments at Home

(Bloomberg) -- Iceland is creating a domestic payments infrastructure to ensure it can process transactions even if the island is cut off from the rest of the world.

Connected to other countries by four submarine data cables, the North Atlantic nation wants to ensure payments can be made even if there’s no internet connection out of the country. Today, more than 90% of all retail payments go through Visa Inc. and Mastercard Inc., which process them abroad, according to the central bank.

While it’s unlikely for all cables to be out of service at the same time, the Sedlabanki is now working on a solution. The hope is that the solution — also set to be cheaper — is ready as soon as this year, according to Sigridur Dis Gudjonsdottir. She is the chief executive officer of Greidsluveitan ehf., an entity owned by the central bank that oversees the development and coordination of the new financial infrastructure.

“We don’t have enough variety in payment solutions and that is the threat,” she said in a recent interview in Reykjavik. “We’ve put all our eggs in the basket of the international payment cards companies.”

The legal framework for the solution was passed last year by the parliament, and the matter has been widely discussed by the country’s national security council amid an increase in cyber attacks and as the “geopolitical landscape has become more volatile,” according to the text of the bill. 

Iceland already has experience of being shut out of international markets. During the 2008 financial crisis when the country’s out-sized banking sector collapsed, international card companies contemplated closing payments on Icelandic cards, which would have had a devastating effect, as detailed in the documents justifying the need for the bill.

The current system is also more costly than in neighboring countries. Icelanders spent 1.25% of GDP on transmitting payments in 2023, compared with about 0.93% for Swedes in 2021 and 0.79% for Norwegians in 2020, according to a recent report by the central bank.

Authorities expect the domestic solution to reduce that cost, something that has happened elsewhere, including the Nordic countries, Gudjonsdottir said.

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