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Innovations and non-banks in retail
payments
Carlos Conesa
Member of Secretariat, CPMI
ICCI conference. Sofia, 24 October 2014
* Views expressed are those of the author and not necessarily those of the BIS.
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Agenda
1. What is the CPMI and what is its role?
2. Recent work of the CPMI in the field of retail
Innovations in retail payments (what?)
Non-banks in retail payments (who?)
3. Some conclusions and future outlook
Potential second round effects (“faster” payment systems?)
And what about virtual currencies?
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What is the CPMI and what is its role?
Committee on Payments and Market Infrastructures : focused
on standard-setting activities related to payment and settlement
systems and monitoring and analysing developments in domestic
payment, settlement and clearing systems as well as in cross-
border and multicurrency systems.
Formerly CPSS (until 1 September 2014)
Hosted by the BIS in Basel
Global Committee with 25 member Central Banks
Standard setting body – PFMIs
Monitor developments
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CPMI work on retail payments:
Description and statistics on payment and settlement systems – Red Book
(not only retail)
Guidelines, principles, best practices
General Principles for international remittance services (January 2007)
Policy and analytical reports:
Retail payment systems in selected countries: a comparative study
(September 1999)
Clearing and settlement arrangements for retail payments in selected
countries (September 2000)
Policy issues for central banks in retail payments (March 2003)
Innovations in retail payments (May 2012)
Non-banks in retail payments (September 2014)
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What is the CPMI and what is its role?
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Recent CPMI work in retail: Innovations in retail payments
In the last years, many innovations are changing the way in which retail
payments are made: communication channels, choice of payment
instruments, payment processing…
To assess those changes and evaluate the implications for central banks,
the CPMI carried out an in depth study on the issue: Innovations in retail
payments (published May 2012)
Based on a comprehensive survey (122 innovations reported by 30
central banks)
Objectives: In view of the characteristics of the retail payment market,
Classify innovations
Identify drivers and barriers for innovation
Current trends, future outlook
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Recent CPMI work in retail: Innovations in retail payments
Drivers and
barriers for
innovation
Current
trends
Retail payment’s
ecosystem
Endogenous factors:
• Cooperation among
stakeholders (horizontal /
vertical)
• Standardization
• Pricing
• Security
Exogenous factors:
New technologies
User behaviour
Public transport
Financial inclusion
Regulation
Special characteristics of the retail payment markets (economies
of scale & scope, network effects, two sided markets…)
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Recent CPMI work in retail: Innovations in retail payments
Drivers and
barriers for
innovation
Current
trends
Trends:
• Dynamic market, but few innovations have had
significant market impact (so far)
• Innovations are usually domestic (but similar
innovations have appeared in many markets)
• Speed is becoming an important factor in retail
payments processing
• Financial inclusion is one of the driving forces for
innovation
• The role of non-banks is significantly increasing
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Non-banks in retail payments:
Follow-up to the report on innovations in order to explore in
detail the growing influence of non-banks in retail payments and
analyse the potential implications: Non-banks in retail payments
(published September 2014)
Objectives:
Framework for the analysis: Definition and classification
Factors influencing the increasing presence of non-banks
Implications for efficiency and risk
Regulatory framework
Implications for central bank and other authorities
Recent CPMI work in retail: Non-banks in retail payments
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Definition and
classification
Regulatory
framework
Efficiency and
risk
Clearing & settlement
arrangementPayer’s bank Payee’s bank
Payer PayeeGoods or services
d. Non-bank
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Functional definition: “any entity involved in the
provision of retail payment services whose main
business is not related to taking deposits from the
public and using these deposits to make loans”
a. Non-bank
a. Non-bank
a. Front-end providers
b. Back-end providers
c. Operators of retail infrastructures
d. End-to end providers
b. Non-bank b. Non-bank
c. Non-bank
Recent CPMI work in retail: Non-banks in retail payments
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Definition and
classification
Regulatory
framework
Efficiency and
risk
Recent CPMI work in retail: Non-banks in retail payments
• Non-banks are very diverse: this diversity is reflected in
the range of authorities that can potentially deal with
them
• Regulatory approaches: Very diverse…
• Banking licence
• Specific licence
• Registration
• Central bank’s oversight
• Indirectly subject to regulation through outsourcing
agreements
• No specific regulation or oversight
• Observations:
• Level playing field?
• Need for an increasing coordination of authorities?
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Definition and
classification
Regulatory
framework
Efficiency and
risk
Recent CPMI work in retail: Non-banks in retail payments
Efficiency:
Outsourcing might lower
costs through economies of
scale and scope
Competition between banks
and non-banks) potential…
•… to lower fees
•… to increase range of
payment methods
•… to reach new markets
or segments
Cooperation: to exploit
respective competitive
advantages to their mutual
benefit
Risk
Similar risks may arise
irrespective of whether a bank
or a non-bank is providing the
service… but potential
regulatory differences may
lead to differences in risk
mitigation measures
That being said:
•Concentration and
outsourcing can impact
operational risk
•Fraud and other risks related
to consumer protection
issues
•Potential increased
complexity in the payment
chain
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Faster or instant payment services: Potential
second-round effects of innovative services
Innovations
Non-bank
players
Traditional providers
and systems?
Faster / instant payment
services:
Eg UK (faster payments) SG
(FAST), MX (SPEI), AU (NPP)…
Conclusions and future outlook (1)
Some controversial questions… and some counter-arguments
Are innovations related mainly to non-banks?
Are changes mainly focusing in the customer-to-provider interface?
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Are innovations really changing the core mechanics of retail
payments?… what about (decentralised) virtual currencies?
Conclusions and future outlook (2)
Yes, it is true…
• Security problems
• High degree of
anonymity
• Instability
• Inherently deflationary
• “Hidden” costs
(currency conversion)
• Lack of user and
merchant adoption
But…
• A decentralised system for
peer-to-peer transfers has
been shown to work (no
intermediaries)
• Lean infrastructure
• Very dynamic sector, many
schemes in constant
evolution
• Any lesson to be learned?
Your views?
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Thank you ...
… questions?
Information and publications at:
www.bis.org
Innovations in retail payments: www.bis.org/cpmi/publ/d102.htm
Non-banks in retail payments: www.bis.org/cpmi/publ/d118.htm