Page 68 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

PSI interlinking and interoperability

18. PSI interlinking is essential to allow cross-system interoperability and to deliver convenient cross-border
payment and settlement services. This section discusses the different geographical layers of interoperability,
from national interoperability, that is, between PSIs within national borders, to international interoperability,
that is, between national PSIs that are linked regionally or globally.

A. National Interoperability

19. As the vast majority of payment transactions are effected within national borders, most of the progress
on interoperability so far has been achieved at the national level . In fact, national interoperability has
20
mainly been limited to the same types of accounts, e.g., between deposit accounts issued by different banks or
between e-money transaction accounts offered by several mobile network operators (MNOs). Considering two
baseline scenarios, one with a multitude of non-interoperable PSIs, and one with a single service provider, an
interoperable payment ecosystem at the national level can typically be achieved via two migration modalities
(Figure 3). The first, and most obvious, is the establishment of bilateral links between PSPs or PSIs, the second
consists of a centrally interoperable solution. The former modality, which is largely followed by the mobile
telecom and banking industries, requires setting up bilateral interoperability agreements between participating
entities . This process may encompass PSPs or PSIs establishing bilateral links with other PSPs or PSIs. Very
21
often, in practice, a subset of PSPs might take the lead and establish bilateral interoperability agreements
first, while others would follow through at some later stage either in response to their own ambition or as
they are prompted to do so by the authorities’ moral suasion or by regulatory measures aimed to achieve
interoperability countrywide.

20. Bilateral interoperability agreements feature some advantages as well as considerable disadvantages.
They are relatively easy to deploy and make use of existing account management processes; yet they require
each PSP or PSI to link to all others which are participating, with obvious duplication of efforts and much
more complex maintenance of bilateral agreements. In general, the complexity of bilateral interoperability
agreements increases with the number of linked entities. While this may not be a major issue, say, for MNOs
linking toeach other, due to their limited number per country, it may become complicated when MNOs and
banks aim to establish interoperable services.

20 The World Bank included a dedicated questionnaire to capture developments in the area of interoperability as an annex to the
2010 edition of the biennial Global Payment Systems Survey. The questionnaire was designed to capture innovations resulting in
new products as well as innovations in processing (hereinafter referred to as the survey). A total of 101 central banks completed
the survey and reported 173 innovative retail payment products/product groups. The majority of the innovative products/
mechanisms have very limited interoperability. Less than 20 per cent of the products were reported to be fully or partially
interoperable. Around 25 per cent of the products/mechanisms supported some mechanism to exchange funds with traditional
payment products. The traditional clearing and settlement infrastructure is not generally used. More than 50 per cent of the
innovative products reported in the survey were settled in the books of the issuer, with only around 24 per cent settling in central
bank money. Less than 40 per cent of the products settled in T+0. There is little evidence to assume that the situation has sub-
stantially changed since then. Interoperability of e-money accounts accessed via the mobile phone (mobile money accounts) has
only been implemented (or is planned to be implemented) in very few countries. According to the GSMA "The Mobile Economy
2015" report, there were 255 mobile money solutions offered in 89 countries as of December 2014. In November 2014, the
GSMA reported that, based on slightly lower figures, 60% of all mobile money services worldwide are led by MNOs. There were
57 markets with two or more live mobile money services (33 of which had 3 or more services). However, the GSMA report only
lists four countries, where certain MNOs established interoperability between their mobile money solutions, namely Indonesia
(2013), Pakistan, Sri Lanka, and Tanzania (all in 2014). Based on these figures, (partial) interoperability has only been introduced
in 7 per cent of those countries with two or more mobile money deployments. In 2014, the GSMA introduced a Mobile Money
Interoperability program with the support of Axiata, Bharti Airtel, Etisalat, Millicom, MTN, Ooredoo, Orange, Telenor, Turk
Telekom, Vodafone, and Zain, aiming at accelerating interoperability of mobile money services by identifying and sharing best
practices, guidelines, and processes, and by providing regulatory support in a number of leading markets.
21 An "interoperability agreement" is here defined as an arrangement among systems and participating entities to facilitate the
delivery of interoperable payment services to participants and users, consisting of a combination of: 1) technical, legal, commer-
cial, and contractual agreements among participating institutions, 2) shared telecommunication links and common standards for
the exchange of transaction data between access and acceptance devices of participants and users, and 3) a central coordinating
structure to manage the clearing and settlement of transactions as well as related business aspects such as rules, procedures,
fees, sanctions, etc. This report will refer to "international" interoperability agreements, to be understood as interoperability
arrangements involving two or more national PSIs.

58