Volume 15 (2021)

Each volume of Journal of Payments Strategy & Systems consists of four 100-page issues, published both in print and online.

Volume 15 Number 4

Editorial:
Holti Banka, Financial Sector Specialist, World Bank
Opinion piece
Developments in fast payments in the Single Euro Payments Area
Javier Santamaría, Chair, European Payments Council

The European Payments Council introduced the SCT Inst scheme to benefit end users by enabling real-time euro payments between payment service providers (PSPs) throughout the Single Euro Payments Area. The rapid development of the scheme during its first four years is testament to the collective vision and work of European PSPs in support of real-time payments. This paper explores the SCT Inst scheme’s significant progress, in addition to related developments and challenges in the field of payments. The paper finds that a critical mass of SCT Inst scheme participants and reachable payment accounts is forming in the euro area through a natural, market-based process in response to the benefits of the scheme for end users and PSPs.
Keywords: instant payment, SEPA, pan-European, European Payments Council, request-to-pay, mobile payment
Practice papers
Mind the gap: Digitisation and payment systems
Ahmet Buğday, Director of Information Technology, Ozan Deniz, Director of Payment Systems and Financial Technologies, Serdar Murat Öztaner, Deputy Executive Director of Payment Systems and Financial Technologies and Emrah Şener, Deputy Governor, Central Bank of the Republic of Turkey

This paper provides a practical toolkit for central banks looking to develop their own instant (retail) payment system (IPS). Noting how the organisational and operational structures of such systems differ significantly across jurisdictions, mostly depending on the style of coordination between the system operator, service providers and the central bank in question, the paper identifies three key parameters to facilitate the successful launching of an IPS: the ownership/ operational model, incentives for fast adoption, and technology. The paper discusses how the Central Bank of the Republic of Turkey optimised these parameters in 2021 while developing a new in-house IPS, known as FAST.
Keywords: digitisation, instant payment system, central bank role in payments
Pix: The Brazilian fast payments scheme
Breno Lobo, Senior Adviser and Carlos Eduardo Brandt, Deputy Head of Competition and Financial Market Structure, Central Bank of Brazil

Pix, the Brazilian fast payments scheme, has enjoyed an impressive rate of adoption during its first year of operation. As this paper discusses, this is not simply due to its speed and 24/7 availability, but also such factors as convenience, reconciliation, openness, competitiveness, safety, low cost and the multiplicity of use cases. This paper also explores the role played by the Central Bank of Brazil in the implementation, management and operation of Pix, with a particular focus on the Pix rulebook and its settlement system. Finally, the paper shares some lessons learned from the Brazilian experience, including learnings regarding branding, focusing on the user and the rulebook (rather than the system), mandatory participation, minimum requirements, standardisation, fee structure, usability, use cases, governance and stakeholder engagement.
Keywords: Pix, fast payments, Brazil
Person-to-business instant payments: Could they work in Colombia?
Carlos A. Arango-Arango, Principal Researcher and Adviser, Ana Carolina Ramirez-Pineda, Payments Systems and Banking Operations Adviser and Manuela Restrepo-Bernal, Specialised Professional, Central Bank of Colombia

More than 60 countries have already implemented instant payment systems. However, in many cases they have been limited to person-to-person transactions. This study looks at the challenges that instant payment systems may face in developing economies like Colombia as they advance further into the person-to-business (P2B) transaction space. Using a survey of Colombian merchants, the study explores the factors associated with merchants’ propensity to adopt instant payments and identifies those associated with the adoption of electronic payment alternatives. The study finds that instant payment systems will require a broad strategy if they are to penetrate the P2B space, as they will have to compete with the low marginal costs and immediacy offered by cash and the high levels of informality in the commerce sector, especially for micro-businesses. Furthermore, instant payment systems will have to meet merchants’ high expectations with respect to enabling access to other financial services, enhancing competitiveness and increasing their bottom line.
Keywords: instant payments, faster payments, mobile payments, cash and electronic payments, merchants, retail payments, cards, bank transfers
Instant payments and cards: Apples and oranges or a possible substitute?
Diederik Bruggink, Head of Innovation and Payments and Alessia Benevelli, Adviser Payments, Data and Innovation, European Savings and Retail Banking Group

If instant payment instruments are to disrupt the card payments market as expected, this will require propositions that match or surpass those currently developed for cards. This begs the question whether instant payments can realistically substitute for certain card transactions. Certainly, there seems to be sufficient common ground for the former to substitute for the latter. Nevertheless, the two instruments are not the same, and each has its own characteristics, specific use cases and advantages. This paper explores some of the barriers to the full uptake of instant payments and the main challenges when it comes to driving adoption among the wider public.
Keywords: instant payments, cards, euro area, retail payments
Demystifying ISO 20022: Evaluating the benefits and limitations of new messaging standards
Mike Gallaher, Fellow and Chad Harper, Senior Fellow, Visa Economic Empowerment Institute

Messaging standards are core to the payment system, enabling institutions across sectors to connect and transact efficiently and effectively. Recent payment infrastructure modernisation efforts have identified one such standard, ISO 20022, as particularly effective at enabling richer data collection, which in turn has the potential to increase payment system interoperability and efficiency. The adoption of a new messaging standard has broad implications for both domestic and cross-border payment systems, with applications not only for faster payment systems but for retail payments more broadly. However, while the benefits for financial services will be net positive, benefits will be limited for domains already using international standards (ie retail card payments). This paper explores the benefits and limitations of ISO 20022, examining recent private sector initiatives and their experiences with implementation.
Keywords: messaging standards, ISO 20022, history, faster payments, retail payments, cross-border payments, SEPA
Open banking: Opening up the ‘walled gardens’
Baran Aytaş, Deputy General Manager of Digital Payment Solutions, Interbank Card Center, Serdar Murat Öztaner, Deputy Executive Director, Payment Systems and Financial Technologies and Emrah Şener, Deputy Governor, Central Bank of the Republic of Turkey

This paper explores the reasons for differences in open banking systems around the world in order to identify the ideal conditions for open banking. Following an examination of different approaches to open banking, the paper identifies six parameters that are essential for success, and discusses how to optimise these based on the Turkish experience. The findings have important implications for regulators of open banking initiatives. First, the active involvement of the regulator is crucial, especially during the early stages of implementation. More than simply providing the legal framework for open banking, regulators need to participate actively in the design and implementation of such systems, providing guidance for application programming interface standards and efficient infrastructures. Secondly, it is essential to build and maintain a shared platform with standardised infrastructure to foster fast adoption. Finally, the development of an instant payment system is critical to unlocking the full potential of open banking.
Keywords: optimal design for payment systems, open banking regulation, instant payments, standardised APIs, shared platforms
Open banking in Europe: The effect of the Revised Payment Services Directive on Solarisbank and Insha
Zhamal Nanaeva, PhD candidate, Ahmet Faruk Aysan, Professor and Coordinator of the Islamic Finance and Economy Programme and Nasim Shah Shirazi, Professor, Hamad Bin Khalifa University

The concept of open banking is gaining global recognition for helping to integrate innovative financial service providers into a sustainable financial ecosystem. This paper discusses open banking, including its core building blocks, prospects and challenges. Given the European Union’s pioneering role in adopting open banking regulations, the paper also reviews the revised Payment Services Directive (PSD2) and its role in advancing fast payment systems in Europe. The paper goes on to consider the practical implications of the PSD2 in Germany through case studies of the banking-as-a-service platform, Solarisbank, and the Islamic digital bank, Insha. Finally, the paper sheds light on the benefits of open banking for ecosystem stakeholders, including fast payment system providers, and how they can benefit from the introduction of open banking regulations.
Keywords: open banking, PSD2, FinTechs, payment services, Insha, Solarisbank
Demystifying programmable money: How the next generation of payment solutions can be built with existing infrastructure
Erwin Kulk, Head of Service Development and Management and Petra Plompen, Senior Manager, Service Development and Management, EBA Clearing

As the conversation around programmable money has developed, many have argued that digital currencies built on distributed ledger technology — and the secure, automated, 24/7/365 and real-time environment this provides — are needed to unlock the solution. This paper, however, proposes an alternative way forward. Pointing to the various innovations developed and launched by the payments industry over the last decade, this paper argues that rather than waiting for digital currencies to reach maturity, it makes more sense to explore how existing payments tools can be used to create programmable money. Indeed, the paper suggests that by leveraging such recently delivered building blocks as instant payments, open-banking application programming interfaces and request to pay, the industry can create programmable money already — with the added benefit of faster time to market. Specifically, the paper contends that request to pay, and the underlying four-corner model that creates a level playing field for solution providers, is the best means to drive forward the programmable money journey.
Keywords: request to pay, instant payments, programmable money, digital currencies, distributed ledger technology, DLT, CBDC, application programming interface, API
Book review
The Pay Off: How Changing the Way We Pay Changes Everything
Reviewed by Piet Mallekoote, Independent Adviser and Supervisor

Volume 15 Number 3

Editorial:
Gerard Hartsink, Editor, Journal of Payments Strategy & Systems
Practice papers
Changing US consumer payment habits during the COVID-19 crisis
Tom Akana, Adviser and Research Fellow at the Consumer Finance Institute, Federal Reserve Bank of Philadelphia

Following the arrival of COVID-19, consumer spending patterns changed almost overnight, in some cases accelerating trends that had been progressing slowly for years, in particular, the transition of consumer payments from ‘traditional’ methods such as cash and cheques to electronic payment methods like cards, mobile wallets and mobile payment applications. As the world begins to transition into a post-pandemic economy, the big question is whether these new payment habits will endure. In an economy such as the USA, which produces nearly US$100tn of non-cash payments annually, changes to the way that consumption is conducted have potentially large effects on both cost and risk for financial institutions, payment networks and consumers. This paper uses data from the Federal Reserve Bank of Philadelphia to identify which segments of the population are most likely to maintain these new habits, and which are more likely to shift. While it is still too early to make definitive conclusions, this paper identifies trends that may provide insights into future developments in this area.
Keywords: payments, consumer spending, payment habits, cash
Income and banking access in the USA: The effect on bill payment choice
Claire Greene, Payments Risk Expert, Federal Reserve Bank of Atlanta and Joanna Stavins, Senior Economist and Policy Advisor, Federal Reserve Bank of Boston

Consumer payment methods are determined by a number of factors, including the type of bill, the value of the bill, whether the bill is to be paid online or automatically, and — by no means least of all — the demographic and income profile of the individual making the payment. As this paper argues, the convenience and speed provided by automatic and online payments do not benefit all US consumers equally. Unbanked consumers lack access to most payment methods and hence use cash or prepaid cards to pay their bills. Low-income consumers are more likely to pay in person, use significantly more cash, and are less likely to set up automated or online bill payments, regardless of whether they have a bank account.
Keywords: bill payments, payment choice, payment preferences, consumer payments
The evolving role of the ‘collecting model’ in the payment service provider market
Niklas Bartelt, Senior Adviser, DZ BANK and Ulrich Hommel, Professor of Finance, EBS University of Business & Law

Many payment service providers (PSPs) are investing in the extension of their value chain by adopting the so-called ‘collecting model’. In contrast to conventional e-commerce PSPs, collecting PSPs, simplify payment processes for their clients, in addition to optimising merchant processes in general. Using the Dutch-based Adyen as a case illustration, this paper gauges the longer-term prospects of this service model. The study concludes that the collecting model will command a larger market share going forward, although it is better suited to some sectors rather than others.
Keywords: collecting PSP, collecting model, payment service providers, digital payments, e-commerce payments, mobile payments, Adyen
Do we need a digital euro, or a digitisation of payments?
Udo Milkau, Digital Counsellor

With the exception of cash, payments have been ‘digital’ for decades. This raises the question whether the ‘digital euro’, as proposed by the European Central Bank, is actually needed, and if so, where the demand comes from. This opinion paper examines this question from five perspectives — structural, regulatory, monetary, financial and geo-political — and compares the proposed features with the actual benefits. These five perspectives lead to five antagonisms: (1) centralisation of the current two-tier financial system vs market-driven innovations, (2) a standalone digital euro vs the comprehensive European Markets in Crypto-assets regulation, (3) the attractiveness of a digital euro vs its cash-like limitations, (4) a digital euro ‘free of charge’ vs the question of funding, and (5) a competition of currencies vs a competition of payment instruments. While other parts of the world plan to develop innovations with automated payments integrated in cross-industry process chains, the debate about a digital euro seems to forget the ‘voice of the customer’. With this in mind, this paper suggests that a digital euro (as currently proposed) does not provide tangible benefits, and that Europe needs more options for digital payments if it is to stay competitive in today’s global economy.
Keywords: digital euro, CBDC, digitisation of payments, MiCA, SEPA Instant Payments
The public, the private and the secret: Thoughts on privacy in central bank digital currencies
David Ballaschk, Senior Expert and Jan Paulick, Principal Expert, Deutsche Bundesbank

This paper discusses the issues surrounding privacy and anonymity in the context of central bank digital currency (CBDC). Most notably, central banks calibrating the design criteria for CBDC must strike a balance between data protection and the individual’s right to privacy on the one hand, and the prevention of financial crime on the other. In this regard, there are — from a technical and governance point of view — a number of possible solutions. By way of illustration, this paper constructs three exemplary and simplified privacy scenarios. The paper also describes the need for standards to ensure the responsible treatment of data, and clear rules guaranteeing that access is restricted to public authorities fulfilling their mandates. When it comes to protecting user privacy in a CBDC system, this paper argues that independent central banks are ideally positioned to serve as an honest broker. In this respect, gaining the public’s trust and acceptance will be a key challenge for central banks.
Keywords: central bank digital currency (CBDC), privacy, anonymity, retail payments, central banks
An integrated approach for electronic identification and central bank digital currencies
Michael Adams, Founder, Quali-Sign, Luca Boldrin, Innovation Manager, InfoCert, Ralf Ohlhausen, Founder, PayPractice and Eric Wagner, Group Product Owner Compliance Advanced Analytics, Erste Group Bank AG

This paper outlines a proposal for how to implement Central Bank Digital Currencies (CBDC) based on open banking standards and supports both account-based and token-based CBDC models, transacting online and offline with immediate finality, while recognising the European PSD2 requirements, including (multi-factor) strong customer authentication (SCA). The authors recognise the limitations with current smartphone technologies with respect to deploying trusted applications and in performing the role of a qualified signature creation device - highly relevant to offline scenarios. In some cases, the authors recommend regulatory review, in others they recommend taking full advantage of the existing capabilities of the separated secure execution environment by dividing the control of a CBDC transaction between both payee and payer devices, so that if one device was compromised, this does not undermine the whole transaction. It balances the need for anonymity with financial crime regulatory requirements and suggests that a CBDC wallet can be enriched with eID capabilities, or vice versa. The wallet is bound to the person’s identity, their device and software via a chain of trust (eIDAS for the EU or similar for non-EU countries). The authors combine this with self-sovereign identity (SSI) principles to maximize privacy and minimize information sharing with a third party.
Keywords: CBDC, identity, eID, SCA, electronic signatures, verifiable credentials, offline transactions
The phenomenon of de-risking: Unintended consequences and possible solutions
Jorge Jimenez, PhD student and Jose Maria Labeaga Azcona, Professor of Economic Theory, National Distance Learning University

Global commerce relies on correspondent banking to execute international transactions. Due to the increasing cost of compliance, however, some US-based global financial institutions have been terminating their correspondent banking relationships — a practice known as de-risking. In some cases, correspondent banks have even terminated their relationships with central banks. This kind of situation creates systemic risk at a country level, and central banks are looking at alternatives to better serve the needs of their respective financial systems. This paper analyses prior work and surveys on the magnitude of de-risking, and cross-references the findings with recent surveys conducted in the Dominican Republic and Argentina to determine whether market failures and systemic risk are inevitable. The results indicate that while the situation is not yet catastrophic, it is sufficiently precarious that foreign countries that rely on the US dollar should start looking for alternative solutions for global correspondent banking immediately. The paper also describes some of the alternatives currently available, including intervention from the Federal Reserve Bank of New York, regional payments systems, and smaller US correspondents.
Keywords: de-risking, international trade, remittance, global correspondent banking, financial institutions, regional payment infrastructure
The European Payments Initiative: The next big thing in European payments?
Ewald Judt, Honorary Professor, Vienna University of Economics and Business and Malte Krueger, Professor of Economics, University of Applied Sciences Aschaffenburg

Proposals for a European Card Payment Scheme (ECPS) to supplement the existing European Scheme for Credit Transfers and the SEPA Direct Debit Scheme have been under discussion since before the turn of the century. Since 2020, however, progress has entered a new phase, with banks from five European countries announcing the implementation of the European Payments Initiative (EPI). This paper describes what happened to the ECPS prior to the turn of the millennium and how things have developed since then. It then goes on to analyse the challenges the EPI must overcome to become an ECPS, the success of which would bring a degree of European sovereignty over payments.
Keywords: acquiring, card payments, mobile payments, internet payments, European payment scheme, instant payments, payment scheme, payment service provider
Country report
The payments industry in the Netherlands: Status and future developments
Piet M. Mallekoote, Independent Adviser and Supervisor and Gerard Hartsink, Independent Adviser

Transaction fees are not simply a core source of revenue for payment service providers, but also impact significantly on the economy more broadly. This paper examines the situation in the Netherlands, where the banks in this relatively small country have historically cooperated to keep transaction costs low. With a focus on retail payments rather than the settlement of payment transactions or the payments leg of securities transactions, this paper explains the principles underlying this model of cooperation, and explores how cooperation within the payments industry has impacted the sector and country.
Keywords: cooperation model, SEPA schemes, card schemes, e-payments, iDEAL, cash services, digital identity, iDIN, AML, transaction monitoring

Volume 15 Number 2

Editorial:
Gerard Hartsink, Editor, Journal of Payments Strategy & Systems
Practice papers
Payment infrastructure trends in Japan: Emerging technologies and alternative infrastructures
Eiichiro Yanagawa, Senior Analyst, Celent

Countries and regions around the world are improving their financial market infrastructure at an accelerated rate. These efforts go beyond initiatives to provide 24/7, real-time, payment infrastructures, into entirely new areas of innovative value-added services. This paper examines advances in payment infrastructure, promising new technologies, emerging service providers and the relationship between the inherent new value and related risk.
Keywords: financial market infrastructure (FMI), 24/7, real-time payment infrastructure, next-generation financial services, value-added services, Zengin System, BOJ-NET
Establishing the trust anchor in the digital economy: The case for banks to become ‘data custodians’
Mounaim Cortet, Senior Manager, Maarten Bakker, Partner, Pepijn Groen, Manager and Denise Hoppenbrouwer, Consultant, INNOPAY

This paper argues that the entry of non-bank and/or non-financial players (eg FinTechs and Big Techs) into the payments and banking industry is eroding the role of banks as ‘money custodians’. To survive, banks must therefore embrace new strategic initiatives. This paper discusses how banks can establish themselves as the trust anchor in the digital economy and secure their future relevance and business. Specifically, it presents a strategic roadmap for banks to assume the role of ‘data custodian’ in the everyday lives of their customers. This role will enable them to provide the secure and reliable exchange and management of data-driven digital transactions across all sectors in the digital economy. The proposed roadmap describes the key implications for banks to succeed in their new role. The paper concludes with three critical transformation success factors for bank executives to consider in their transformation journey.
Keywords: data custodian, data economy, digital ecosystem, digital transformation, open banking, digital identity
Preparing euro payments for the future: A blueprint for a digital euro
Eric Wagner, Group Product Owner Compliance Advanced Analytics, Erste Group Bank, Diederik Bruggink, Head of Innovation and Payments and Alessia Benevelli, Adviser, European Savings and Retail Banking Group

In its 2020 report on a digital euro, the European Central Bank (ECB) created a starting point for a broader dialogue on the topic. The initiative behind the digital euro, supported by the European Commission, draws on best practices and promising approaches, but is also predicated upon the idea that electronic identity schemes and central bank digital currencies (CBDCs) should be developed in concert. This paper discusses the ECB’s report, before examining other global CBDC initiatives and then proposing a possible blueprint for a digital euro. The paper argues that if the key parties continue to combine their expertise, Europe will not only have a world-class blueprint for a digital euro, but also a template for the creation of a future digital world currency based on European design principles.
Keywords: central bank digital currency, CBDC, digital euro, digital currency, electronic identity, euro area
Consumer behaviour in a health crisis: What happened to cash?
Kevin Foster, Senior Survey Specialist and Claire Greene, Payments Risk Expert, Federal Reserve Bank of Atlanta

This paper uses data from the Federal Reserve Bank of Atlanta’s 2019 Survey and Diary of Consumer Payment Choice and interim rapid-response surveys in spring and late summer 2020 to give some insights into consumer cash holdings and payments behaviour during the COVID-19 pandemic. The paper describes several key findings from the survey, most notably that US consumers increased their cash holdings at the time of the pandemic lockdowns. More consumers held at least some cash, and almost half of consumers had more than US$100 in spring and late summer 2020, compared with one-third in autumn 2019. In spring, just one-third of consumers reported making an in-person payment, compared with almost everyone in autumn 2019. People who paid in person, however, were about as likely to use cash in the spring as they had been in the previous autumn. Payments of unemployment benefits appear to have affected cash holding for some consumers. Similar to the behaviour of some consumers in advance of hurricanes, some consumers reported getting precautionary amounts of cash.
Keywords: COVID-19, cash, US currency in circulation, consumer behaviour
The impact of merchant and mobile payments on financial inclusion in Asia-Pacific
Zennon Kapron, Managing Director, Kapronasia Shanghai

Financial inclusion is one of the biggest impediments to growth in South-east Asia. Access to financial products or even financial institutions is very limited in some countries, constraining both individual and company access to capital. This phenomenon has only intensified during the COVID-19 pandemic, and is especially problematic for those individuals and companies with largely offline businesses. This paper argues that the roots of change are starting to take hold, as payment service providers and business-to-business players are helping bridge the digital divide. Payments services are increasingly likely not to be standalone products, but rather to include a myriad of both financial and non-financial products and services that can help individuals and companies increase their economic empowerment.
Keywords: financial inclusion, Southeast Asia, platforms, digital payments
Acceptance of digital payments among rural retailers in India
Surabhi Koul, Assistant Professor of Marketing, School of Business Management, NMIMS, Sahil Singh Jasrotia, Assistant Professor of Marketing, Jaipuria Institute of Management and Hari Govind Mishra, Associate Professor, SMVD University

The growing acceptance of digital payment instruments among rural retailers in India has significantly enhanced people’s livelihoods, and represents a positive step in the country’s journey to being a cashless economy. This paper uses the technology acceptance model as a theoretical platform to understand better the drivers of these developments. The study concludes that retailers consider it risky not to accept digital payment modes at the point of purchase as they fear losing customers if they do not.
Keywords: digital payments, rural retailers, structural equational modelling, technology acceptance
Wholesale payment systems: Modernisation of the liability framework
Robin Doyle, Managing Director, J.P. Morgan Chase

Wholesale payment systems are potential targets for fraud and cyber attacks due to the scope of activity they cover, the high value of individual transactions and the trillions of dollars they move across the globe daily. These risks have increased due to the increasingly sophisticated methods malefactors are using in their attacks. While payment system operators are modernising their infrastructures in response to these threats, there is still work to be done. Payment system control and governance frameworks must be strengthened in accordance with guidance from regulators and marketplace best practices. There is also an urgent need to examine the liability frameworks under which payment systems operate as some may not be adequate to protect participants and owners from either business-as-usual or catastrophic losses, and participants may be expected to bear uncapped, unpredictable liability for losses. This paper suggests that all participants in the payments ecosystem should consider the strength of their resources to cover potential losses, adopt guidance on endpoint security provided by the regulatory community, and engage in a collaborative effort to ensure that appropriate incentives exist for all parties to maintain enhanced defences against fraud and cyber attack, thereby better supporting financial stability.
Keywords: wholesale payments, liability, fraud, cyber attack, controls, governance, financial stability

Volume 15 Number 1

Special Issue: FinTech’s Impact on Payments - Part 2

Editorial: FinTech’s impact on payments - Part 2
Harish Natarajan, Guest Editor, Lead — Payments and Market Infrastructures, World Bank
Practice papers
Sovereign digital currencies: Reshaping the design of money and payments systems
Ross P. Buckley, KPMG Law — King & Wood Mallesons Chair of Disruptive Innovation, UNSW Sydney, Douglas W. Arner, Kerry Holdings Professor in Law and Director, Asian Institute of International Financial Law, University of Hong Kong, Dirk A. Zetzsche, Professor of Law, ADA Chair in Financial Law (Inclusive Finance), Faculty of Law, Economics and Finance, University of Luxembourg, Anton N. Didenko, Research Fellow and Member, Centre for Law, Markets and Regulation and Lucien J. van Romburg, Research Fellow, Asian Institute of International Financial Law, University of Hong Kong

This paper focuses on how technology might reshape payments going forward. It considers the policy issues and choices associated with crypto-currencies, stablecoins and sovereign digital currencies and emphasises that there is no single model for sovereign digital currency design. While Bitcoin and its progenies could be safely ignored by regulators, Facebook’s proposal for Libra, a global stablecoin, brought an immediate and potent response from regulators globally. Any proposal by the private sector to move into the creation of currency — the traditional preserve of sovereigns — was always likely to trigger such a regulatory response, as well as the launch of sovereign digital currencies by other major central banks. While China has moved first, dozens of other countries are now investigating their own central bank digital currencies or other forms of sovereign digital currency. This paper argues that central banks should first focus not on rolling out novel new forms of sovereign digital currencies, but rather on transforming their payment systems. In time, domestic money and payment systems are expected to evolve so that central banks cooperate with (new and old) private entities to launch digital currencies that better underpin monetary and payment systems at the domestic, regional and international levels.
Keywords: sovereign digital currencies, central bank digital currencies, Libra, digital yuan, COVID-19, payments, stablecoins, blockchain
Two paths to tomorrow’s money
Tony McLaughlin, Managing Director of Emerging Payments and Business Development, Citi Treasury and Trade Solutions, Citibank

Payment systems need to be modernised to meet the needs of 21st-century digital economies, but which road to follow? The publication of the Bitcoin white paper in 2008 raised the prospect of global digital currencies without central issuers or intermediaries. While cryptocurrencies have yet to achieve the status of money, the underlying ‘token’ technology has prompted big tech interest in stablecoins and central banks to evaluate novel forms of national currency issuance. Although crypto has captured the column inches, most real-world action in payments since 2008 has been elsewhere — the rollout of instant payments schemes, the adoption of electronic money wallets by hundreds of millions of people and the FinTech revolution. This paper suggests that we stand at a crossroads. Will the future of money be digital tokens, restructuring the financial system as we know it, or a much needed overhaul of account-based payments?
Keywords: crypto-currency, Bitcoin, blockchain, central bank digital currency (CBDC), Stablecoin, instant payments, digital identity
Money and customer funds in the world of digital finance: Who really owns what?
Biagio Bossone, Senior Advisor, World Bank

This paper addresses the moneyness of fully backed digital currencies issued by the private sector in the form of electronic monies, stablecoins and ‘synthetic’ central bank digital currencies. Are these true monies or are they just services provided by FinTech companies to facilitate the use of funds? Furthermore, who actually owns the funds that back these monies? Distinguishing between money, claims on money, and money claims that eventually become money, this paper compares the development of the above types of digital currencies with bank deposits as these have evolved in the banking practice over the years. The paper points to the apparent inconsistent treatment between issuers of digital currencies and banks as issuers of deposit claims, and indicates how addressing this inconsistency could change the rules that govern the provision of digital currencies, reallocate the responsibilities associated with their issuance and use, and redesign the measures to protect stakeholder rights. The suggested measures call for existing regulations to be revisited in some important respects.
Keywords: bank deposits, customer funds, digital currencies, e-money, stablecoins, synthetic CBDCs
Innovation and competition in payments: Evolving policy challenges
Pablo Urbiola, Head of Digital Regulation, Lucía Pacheco, Digital Regulation Manager and Jesús Lozano, Digital Regulation Manager BBVA

Technology-led innovation in payments has been a constant over history. Nevertheless, the ongoing process of digital transformation is proving to be radically different from the previous waves, as it is leading to a more profound reconfiguration of the financial industry. By facilitating the entrance of new players, particularly FinTech and big tech companies, technological innovation in payments has increased competition, further inducing innovation and efficiency gains. Despite having obvious benefits, payment system innovations and the associated changes in competition dynamics have implications for consumer protection, financial stability and market integrity that require an adequate response from supervisors and policymakers. This paper explores how the digital transformation of financial services has led to the opening up of the payments market to new providers, initially specialised FinTech companies and increasingly large technology conglomerates. The paper also discusses how regulators and policymakers have already responded to the evolving nature of the payment ecosystem, and key issues that policymakers should take into consideration to define a forward-looking approach. Finally, it calls for a balanced regulatory intervention that promotes electronic payments adoption and responds to the challenges posed by this unprecedented transformation trend in payments.
Keywords: payments, financial regulation, digital markets, competition policy
Did Wirecard ever matter? Reflections on the structure of the German e-commerce payment service provider market
Niklas Bartelt, Lecturer and Ulrich Hommel, Chair of Corporate Finance & Higher Education Finance, EBS University of Business & Law

The scandal-ridden collapse of Wirecard AG in June 2020 raises three important issues regarding the German e-commerce payment service provider (PSP) market. First, what do we know about the structure of the PSP market and, more specifically, its concentration when Wirecard was still ‘in the game’? Secondly, in the light of the evidence on market concentration, was the disruptive fallout following Wirecard’s demise based on realistic concerns? Finally, would linking company reporting to market data have allowed for a more precise gauging of Wirecard’s market relevance ex ante? To explore these questions, this paper draws on a data-driven market survey, expert interviews and confirmational reverse data engineering. The paper concludes that market power on the supply side of the market is not only limited but also sufficiently counterbalanced by market concentration on the buy side — among other factors. Simply put: Wirecard was not a systemically important PSP; indeed, it was not even a major one. The insights provided by this paper should invite further forensic analysis to better understand why many market observers got it wrong.
Keywords: payment service providers, PSP, digital payments, e-commerce payments, market structure, Wirecard AG
Digital wallet war in Asia: Finding the drivers of digital wallet adoption
Putri Natasya Fanuel, Graduate Student in Management Information Systems and Ahmad Nurul Fajar, Associate Professor in Computer Science, Bina Nusantara University

Using data sourced from a quantitative study of 457 digital wallet users in Indonesia, this paper aims to find the drivers of digital wallet adoption. The study uses a comprehensive technology acceptance model that combines both social environment and technological characteristics in order to predict intention to use digital wallet services. The study finds that the drivers of intention to use digital wallet technology are usefulness, ease of use and innovativeness. The study also finds that digital wallet adoption is influenced by personal experience, perceived security, subjective norms and job relevance. The paper discusses both the theoretical and practical implications of the research findings so that digital wallet providers can devise appropriate business strategies to encourage the wider acceptance of digital wallet technology. The paper also enhances the current knowledge about the drivers of digital wallet acceptance using modified TAM2, which has never been done before.
Keywords: digital wallet, mobile wallet, FinTech, technology adoption, technology acceptance, innovation diffusion theory
Factors influencing the acceptance of proximity mobile payment in Germany: The example of Apple Pay
Silke Finken, Professor of Innovation Management, International School of Management and Louisa Heiduk, Consultant, Horváth & Partners Management Consultants

This study is one of the first to analyse the factors driving the adoption of proximity mobile payments in Germany, with a specific focus on Apple Pay. It employs a mixed-methods approach based on 14 qualitative interviews with specialists from the financial service sector and a quantitative online survey with 617 participants. The aim is to better understand the factors enhancing and inhibiting the growth of proximity mobile payment solutions, and to generate insights regarding the characteristics of early adopters of Apple Pay in Germany. The authors investigated a range of factors from existing technology acceptance research as well as additional aspects concerning brand perception and sociodemographic factors to identify significant differences between users and non-users of Apple Pay. The most pronounced differences concerned personal willingness to innovate, followed by perceived concerns regarding the risk associated with mobile payments, the perception of Apple as a secure provider, the perceived trustworthiness of technology providers in general, social influences, gender, and the user’s desire to be perceived as tech-savvy. Additionally, the perceived benefits of mobile payments, reasons for non-usage, as well as further potential value-added services to enhance future user experience were analysed and appropriate recommendations derived.
Keywords: Apple Pay, proximity mobile payment, NFC, mobile payment, diffusion of innovation, technology acceptance
How small and medium-sized retail enterprises can make the best use of payment innovations
Maria Iride Vangelisti, Director of the Financial Education Department, Banca d’Italia

Recent years have seen great innovation in the field of payments. This paper discusses which aspects of the payment process may be relevant for retailers and the innovations that may be useful for meeting retailers’ needs. Special attention is devoted to how small and medium-sized firms (SMEs) can make effective use of such advancements to simplify the payment process, ensure a frictionless experience for their customers, speed up the finality of fund settlement and reduce processing costs. The paper discusses the importance of giving careful consideration to the selling mode and size of the firm, as well as the implementation costs. The paper shows that while some innovations are easy to implement, for instance, because banks and service providers supply turnkey solutions, others require more complex arrangements and the involvement of third-party providers. The paper highlights the importance of cooperation agreements between SMEs, specific awareness campaigns and financial literacy initiatives to put SMEs in a better position to leverage payment innovations and improve their business opportunities.
Keywords: payment innovation, payment acceptance, small and medium enterprises (SMEs), retailers, cooperation agreements, awareness campaigns
FinTechs and payments for international education
Venkataramani Prakash, Vice President and Head Retail Business, EBIXCASH World Money

This paper examines the landscape of global student mobility, giving special attention to the emergence of FinTechs in the international education payment space. Banks, which have at best been participants in the market for cross-border remittance of person-to-person and person-to-business/university payments, are now seeing new innovative FinTechs solving customer pain points, making transactions more efficient and simple. This paper maps the huge market demand for speed, safety and security in education-related payment instruments. With COVID-19 creating a new normal, the paper also describes how various FinTechs have launched creative solutions to solve payment issues for students and reconciliation-related challenges for universities and other beneficiaries by setting up smart digital interfaces. The issues faced by students and parents at a larger level are very similar to the frictions and challenges seen with peer-to-peer payments.
Keywords: FinTechs, cross-border remittance, education payments, tuition fee, peer-to-peer, digital payments