Colombia Builds New Instant Payment System

December 8, 2022
Colombia is building a new instant payment system with a particular focus on user experience and full interoperability with other payment networks.

Colombia is building a new instant payment system with a particular focus on user experience and full interoperability with other payment networks.

Colombia’s central bank, Banco de la República (BanRep), has released a document laying out plans for the architecture of a new real-time payment system, which enables the processing of low-value payments around the clock 24/7 in a safe and cost-effective manner.

The system will be designed to ensure broad access for market players, full interoperability between different technologies and systems, and scalability to support a wide range of use cases, the central bank said.

The service is being developed by BanRep’s payment system forum, which was set up in August to facilitate coordination with the private sector in developing the new system.

The forum has sparked large interest from industry players, with more than 150 payment system administrators, financial institutions, fintechs and other stakeholders having participated in the forum since its launch.

They were looking at best practices from other countries, including those that modernised their existing infrastructure, such as Australia and India, as well as neighbour’s Brazil, which launched its successful low-value instant payments, Pix, at the end of 2020.

Despite significant improvements made in the payments ecosystem in recent years, the forum concluded that there are still numerous frictions that hold major progress back.

One of these frictions is caused by payment platforms’ limited ability to access the payment infrastructure, which means that existing solutions cannot supply the full variety of use cases.

There is significant potential in digital wallets, with more than 40m users in Colombia. However, volumes are low due to high fragmentation of the market.

In addition, only 5 percent of small businesses accept any form of digital payment and 75 percent of total transactions are still believed to take place in cash.

As a result, the forum said the new payment system should be designed in a way that supports multiple use cases and allows for access for all market players, with indirect access proposed for payment initiators.

To ensure the best user experience, the document says the instant payment service should be marketed under one common brand that is embedded into each provider’s channel and provides P2P payments at no cost.

The document recommends BanRep set up a new public clearing house that will be linked to all private clearing houses, as well as other private networks that provide real-time payments in Colombia, such as ACH Colombia.

The new network will use the ISO 20022 data-rich messaging format, according to the document.

One vital issue the forum could not yet agree on was whether the new instant payment infrastructure should be built from scratch or interconnect the existing networks.

Some industry players warned there are structural frictions and too much complexity in the existing systems, while others expressed a willingness to improve the existing infrastructure.

The new infrastructure “will not only solve the issue of access facing market players today, but will also help achieve full interoperability with the industry”, Ana María Prieto, director of payment systems at BanRep, said.

“This infrastructure will act as a digital public good, generating market contestability to promote constant innovation and improvement in the provision of payment services in the country,” Prieto added.

The central bank will be responsible for issuing rules and technical and operational standards for the industry and will set out a roadmap for the promotion of the new service. BanRep will also monitor the adoption of the system and address new challenges as they arise.

In July, Colombia passed a decree to adopt an open banking framework, joining the likes of Mexico and Brazil as the third country in Latin America to regulate the sharing of consumer data.

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