Page 36 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

Box 1. Payment systems and payment system infrastructures
A payment system is a set of instruments, procedures, and rules for the transfer of funds between or
among participants; the system includes the participants and the entity operating the arrangement.
Payment systems are typically based on an agreement between or among participants and the
operator of the arrangement, and the transfer of funds is effected using an agreed-upon operational
infrastructure. Payment systems are generally categorized as either large-value payment systems
(LVPSs) or as retail payment systems (RPSs). A LVPS is a funds transfer system that typically handles
large-value and high-priority payments. On the other hand, a RPS is a funds transfer system that
handles a large volume of relatively low-value payments in such forms as cheques, credit transfers,
direct debits, cards, mobile, and Internet. LVPSs and RPSs may be operated either by the private
sector or the public sector, using multilateral deferred net settlement or real-time gross settlement
(RTGS) mechanisms. Often, LVPSs are operated by central banks. An increasing number of countries
are introducing real-time retail payments systems (RT-RPS), which provide irrevocability, support
real-time posting and re-use of funds, as well as immediate payment confirmation to both the payer
and the payee.
Payment system infrastructures (comprised of institutions, instruments, rules, procedures, standards,
and technical means and platforms) enable the execution of the transfer of monetary value between
parties discharging mutual obligations. They include payment systems as defined above, payment
technologies and schemes, and all arrangements that facilitate the execution, clearing, settlement,
and recording of monetary and other financial transactions, such as payments, funds transfers,
securities, and derivatives contracts (including for commodities).

3. Critical to the development and diffusion of modern (digital) retail payment services is the interoperability
of payment systems. Generally understood as the property of products or systems to work with other
products or systems without friction, when referred to retail payments, interoperability enables users to make
electronic payment transactions with any other user in a convenient, affordable, fast, seamless, and secure way,
possibly via a single transaction account. Thus, interoperable payment systems allow two or more proprietary
2
platforms to interact seamlessly, enabling the exchange of payment transactions between and among PSPs
and, consequently, users. By its very nature, interoperability represents both an important feature of payment
3
system efficiency and, at the same time, a critical source of risks. For this reason, pursuing it requires public
authorities to adopt suitable oversight provisions, and system operators and PSPs to implement adequate
oversight standards covering legal, organizational, technical, procedural, and business practices.
4. This report focuses on payment system oversight and the interoperability of payment systems as an
increasingly emerging feature of retail payments. The report describes the foundations of payment system

2 A transaction account is defined as an account (including an e-money account) held with a bank or other authorized and/or reg-
ulated PSP, which can be used to make and receive payments and to store value. All deposit accounts held with banks and other
authorized deposit-taking financial institutions, referred to as “deposit transaction accounts”, that can be used for making and
receiving payments qualify as transaction accounts. Prepaid instruments based on e-money, referred to as “e-money accounts”,
can be offered by banks and other authorized deposit-taking financial institutions, as well as by non-deposit-taking PSPs such
as mobile network operators. (See “Payment aspects of financial inclusion”, report by the Committee on Payments and Market
Infrastructures and the World Bank Group, APRIL 2016.) The desirability of a single account is based on two considerations.
First, while interoperability can be achieved even among payment service users who do not possess accounts with banks or
other PSPs, such type of interoperability would not be as financially inclusive as one among payment service users who all
hold accounts. The difference is between interoperability built around “off-network” transactions (as in the case, for example,
of an individual sending money from her mobile account to another individual who doesn’t have an account) and “cross-net-
work” transactions: the former requires recipients to cash out the payments received, whereas the latter makes it possible
for recipients to store received funds, on-send them, or use them to make payments. The second reason in favor of achieving
interoperability via a single transaction account is that this would allow every individual payment service users to make and
receive payments from all other payment service users in the economy through only one entry point to the financial system, with
maximum efficiency and user convenience.
3 See ITU DFS Focus Group - Ecosystem Working Group Glossary - May 2016.

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