Page 60 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

widened and deepened as national economies across the world have experienced increasing cross-border trade
and financial flows. Many international interlinking initiatives, especially at the regional level, have progressed
through the collaborative efforts of the financial industry and the public sector.
3. Today, the interlinking of national PSIs and their interoperability represent important requisites for
economic and financial development and constitute sources of potentially significant risks . They require
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public authorities in the relevant jurisdictions to mutually cooperate to make them happen and to adopt
suitable oversight provisions in order to render them sustainable. The purpose of this report is to discuss
payment system interoperability and oversight policy in the context of international economic and financial
integration. This is in line with the objective of ultimately enabling payment service users worldwide to make/
receive electronic payment transactions to/from any other users located elsewhere, in a convenient, affordable,
fast, seamless, and secure way, possibly using a single transaction account . This report is not intended to be
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a regulatory document, and its main aim is to provide policy advice, recommendations, and indications to
country authorities, payment system operators, and Payment Service Providers (PSPs).

4. The report is structured as follows: Section II discusses the factors that typically lead to public or private
sector decisions in order to link PSIs internationally. It analyzes stylized modalities to achieve international PSI
interlinking and describes major real-world examples of linked PSIs. Section III focuses on PSI interlinking and
interoperability, illustrating the various types of solutions adopted to achieve interoperability at the national
and international (regional and global) level, and points to the challenges and risks associated with international
payment system interoperability. Finally, Section IV considers the implications of international interoperability
for central bank oversight policy of payment systems, and elaborates on a set of oversight principles aimed to
ensure the establishment of safe and efficient international interoperability agreements.

2 The term payment system infrastructure (PSI) is used here to generally refer to a payment system or any of its components (e.g.,
a platform, structure, or module) which combine with others to allow the system to perform its function of transferring funds
between or among participants.
3 A transaction account is defined as an account (including an e-money account) held with a bank or other authorized and/
or regulated 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", which 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 the "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 consid-
erations: First, while interoperability can be achieved even among payment service users who do not possess accounts with
banks or other PSPs, this 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 (for example, as in the case
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, send them on 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 user 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.

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