Page 35 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

Purpose of this report

1. Payment systems have become a vital component of the economic life of contemporary societies. They
consist of increasingly complex and integrated networks of institutions and people involved in the execution
of fund transfers across economies (see Box 1). The smooth functioning of payment systems is essential
to the overall efficiency and stability of the market systems of which they are core parts. To ensure such
smooth functioning, and to facilitate the development of sound payment system infrastructures, central banks
worldwide have been entrusted with the responsibility to oversee national payment infrastructures. To this
purpose, and considering the growing interconnectedness and mutual interdependence of payment system
and other financial market infrastructures, including across national borders, central banks have developed
specific oversight policy frameworks and activities.
2. While for many years central banks have mainly focused their attention on large-value fund transfer
infrastructures, more recently, they have placed increasing emphasis on retail payment systems. As the
evolution of information and communication technology has dramatically changed the means and channels of
transferring money across the economy, a strong interest on retail payments has emerged in a growing number
of countries, recognizing their importance in facilitating commerce and improving both the efficiency of day-
to-day transactions among consumers and businesses, as well as the distribution and collection of payments
made by and to government agencies. Research has shown that switching from traditional paper-based to
modern (digital) payment instruments can entail yearly savings to a country’s economy in the order of one
percentage point of GDP or more. 1

As a result, developing efficient and safe retail payment infrastructures has become a key strategic objective
of payment system oversight in many jurisdictions. Retail payments are typically the entry point to broader
financial services, and their potential weaknesses regarding security and reliability may impact the financial
system and the broader economy in general, in particular by affecting the confidence of users. Innovations
in retail payments raise relevant oversight policy issues for central banks. It is paramount that the integrity
of the design and operation of retail payment systems is protected, so that users can trust payment service
providers (PSPs), the payment mechanisms themselves, and the central bank as the institution responsible
for overseeing them.

1 See Humphrey, D., M. Willesson, T. Lindblom, and G. Bergendahl, “What Does it Cost to Make a Payment?”, Review of Network
Economics 2 (June), 2003: 159–174. In Europe, for example, the same authors show that the gradual move towards the use of
electronic payments and substitution of ATMs for traditional banking offices has helped reduce bank operating costs by some
US$32 billion, saving 0.38 per cent of 12 nations’ GDP over the period 1987–1999. Payment cost studies conducted in the
Netherlands estimate the overall social cost of point-of-sales payments at 0.65 per cent of GDP, while the share of the cost of
cash is 73 per cent of the total social cost or at 0.48 per cent of GDP. Comparatively, in Belgium, the social cost estimate was at
0.74 per cent of GDP, while the share of cost of cash is 75 per cent of the total social cost, or at 0.58 per cent of GDP. In Finland,
estimates of the social cost of payments is at 0.3 per cent of GDP, where the share of the cost of cash is at 0.1 per cent of GDP.
These studies further argue that the marginal social cost of cash is much higher than the use of non-cash payment methods,
particularly debit cards and electronic purses, so with proper incentives, such cost-savings would lead to the adoption of more
efficient payment methods.

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