Page 88 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

1 Involvement of banks and non-banks in the payments business

Banks have been the "traditional" retail payment service providers, largely because through one of their core
functions which is deposit-taking, they provide their depositors a gateway for making payments to other
depositors in the same bank or in another bank. Nevertheless, banks also provide certain payment services to
individuals and businesses that do not hold deposits with them. Examples of the latter include bill and other
service payments made in cash, or acceptance of payments made with payments cards issued by another entity.
In recent years, non-banks have made a significant incursion into the retail payments market. Some of the
elements that favored this development include the range of technical and other innovations in payment
methods, the emergence of new payment needs/changing payment habits and customer preferences, and
several other market-driven factors. In addition, in some countries the regulatory environment has facilitated
and promoted the incursion of non-banks in this field, while in others it has become a hurdle or even an
impediment.

For the purposes of this report, it is deemed useful to have a working definition of "non-banks" as regards their
role in payments. In many jurisdictions, there is no specific legal definition of non-banks, or various definitions
may apply depending on the functions that a non-bank performs. For reasons like these, it is proposed to adopt
the functional definition of non-banks stated in the CPMI 2014 report "Role of non-banks in retail payments":
"a non-bank is defined as: 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".

Moreover, in the payments field non-banks (as well as banks) are involved in a number of activities, not all of
which are directly affected by the regulatory environment surrounding the access to payment infrastructures
(e.g., access policies, conditions, restrictions, etc.). For this reason, it is also useful to specify the payments-
related activities that are covered in this report.
Hence, following also CPMI (2014), non-banks involved in retail payments can be categorized as follows
according to the stages of the payments chain in which they engage, the type of payment service provided
and also their relationship with banks:
• Front-end providers that provide services directly to end-users such as consumers and businesses/
corporates
• Back-end providers that typically provide services to banks
• Operators of retail payment infrastructures; and,

• End-to-end providers that combine front-end services to end users with clearing and settlement services.
This report will focus mainly on the first category, although it will also analyze access to central bank-operated
settlement systems for operators of retail payment infrastructures. 2

Lastly, for the purpose of this report, banks and non-banks that provide services directly to end-users are
referred to as "payment service providers" or "PSPs".

2 Payment infrastructures 3

An individual that holds a transaction account with a bank or non-bank PSP can normally make payments using
that transaction account to other individuals, businesses and government entities that also hold a transaction

2 Non-banks in the fourth category also provide clearing and settlement services, even if only for a limited number of participants.
For determining access to the core payment and settlement infrastructures in their respective jurisdiction, the non-banks in this
category would also be regarded as operators of retail payment infrastructures.
3 This section draws largely on CPMI and the World Bank Group (2016), section 3.1.3.1.

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