#54: Real Time Payments in Latin America and the Caribben: interoperability is the future
W FINTECHS NEWSLETTER #54: 01/08-07/08
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Latin American and the Caribbean countries are undergoing profound financial transformations. Countries in the region are making progress in regulating Open Finance and improving their payment systems, bringing more interoperability.
Despite the lack of specific Open Finance regulation, some countries are beginning to discuss Payment Initiation. For example, the Central Bank of the Republic of Argentina issued Communication A7514, kicking off discussions on Payment Initiation. On July 25, 2022, Colombia updated a 2010 Decree to include Payment Initiators in the payment system. Furthermore, the structure that the country wishes to implement will permit the sharing of financial data while adhering to the country's privacy laws of 2008 and 2012.
When it comes to the implementation of interoperable and instantaneous payment systems, Latin American and the Caribbean countries are also making strides.
Brazil 🇧🇷
Brazil had the most impressive numerical implementation — numbers from the Central Bank of Brazil show that more than 60% of the population has used Pix. Pix, which was launched in November 2020, took advantage of the experience that Brazil acquired when it implemented the Fund Transfer System (SITRAF) in 2002.
Thus, Brazil operates two payment infrastructures: SITRAF (with TED, TEF, and DOC features) and Pix (which gave rise to the Instant Payments System - SPI). However, Pix has outperformed SITRAF numbers. Because SITRAF only operates during banking hours, the volume of activities that the platform can handle is limited. Pix, on the other hand, is designed to run 24 hours a day, 7 days a week, 365 days a year — and has a much friendlier user expirience than TED, TEF, and DOC.
Pix has already surpassed SITRAF in terms of participant adoption since its launch in 2020, as it is available to customers of 777 financial institutions 1, whereas SITRAF has only 104 participants 2. This undoubtedly influenced population adoption of the platform.
Mexico 🇲🇽
Mexico has the SPEI (Interbank Electronic Payment System), which provides real-time payment infrastructure, and CoDi (Cobro Digital), which was launched in 2019 as a digital platform with features similar to Pix, which uses SPEI rails for payment settlement. However, the CoDi features were not widely adopted by the population. According to Banxico data, CoDi was used at least once by 231,574 users, including individuals and businesses, who moved a total of US$120 million (at the exchange rate of October 12, 2021) 3.
Colombia 🇨🇴
The history of instant payments in Colombia began with an independent initiative. In 1997, several financial institutions came together to form ACH Colombia as an Automated Clearing House in order to improve and provide better financial services to their clients. Through Resolution 1,738, the company passed the Financial Superintendence of Colombia's supervision in 2005, being classified as an entity that manages low-value payment systems — Colombia also has ACH Cenit, a clearinghouse managed by Banco de la Republica.
ACH Colombia has since played an important role in the modernization of Colombia's payment system. Transfiya, a system open to the entire banking system, was launched in 2016. As of July 2021, just over 3.9 million transfers had been completed, and the platform had over 2 million users. Furthermore, the average daily transaction volume increased from 2,800 in July 2020 to over 18,000 in July 2021 4. However, the platform was not widely adopted by financial institutions, making population adoption difficult.
Argentina 🇦🇷
Argentina is working to improve its payment system. Since 2016, the country has implemented a number of policies to encourage the use of electronic payment methods. The BCRA introduced DEBIN (Instant Debit) in 2016 via Communication A6099, a payment tool by direct transfer that can be used electronically. DEBIN granted financial institutions and new payment sector participants the authority to debit funds from their customers' bank accounts, subject to prior authorization.
In the same year, the BCRA expanded the instant transfer system to the PEI (Immediate Electronic Payment) including means such as: (i) electronic wallet, for transfers made through an application; (ii) Mobile POS, for transfers made through a card reader device connected to a cell phone; (iii) Payment Button, for transfers made through a payment button used to make online payments.
Argentina launched Transferencias 3.0 in 2020, taking the debate to a new level. Argentina has attempted to modernize its payment system by making it faster since 2016. However, with Transfer 3.0, the country begins to adopt technical standards based on global standards such as ISO 20022, allowing for new use cases and bringing Transfer 3.0 to an interoperability level comparable to Pix in Brazil.
The new digital payments system will be monitored by the BCRA, but will be managed by four private companies – Prisma, Red Link, Interbanking and Coelsa 5 .
Chile 🇨🇱
Chile has Transferencias en lÃnea (TEF), implemented in 2008. However, recent moves by Chile's Central Bank indicate that the country's payments sector will continue to evolve. In recent years, the regulatory framework for card issuers has been modified to allow more and/or different participants to access the payment system. The Central Bank of Chile has also formed a Working Group to investigate and propose a medium and long-term strategy for digital payments in Chile 6.
Furthermore, the government sent a bill to Congress titled "Fintech Law" which includes the establishment of a implementation for Open Banking, which could lead to even more innovations in the sector.
Peru 🇵🇪
Immediate Interbank Transfers were introduced in Peru by the Electronic Clearing House (CCE) in 2016 7.
CCE announced a partnership between Mastercard and ACI Worldwide in 2020 to improve digital payment interoperability in Peru through ISO 20022 8.
Interoperability
The future is interoperability. Several Latin American and the Caribbean countries are modernizing their payment systems and introducing ISO 20022 standards.
Many financial institutions continue to use ISO 8583, but as Open Finance ecosystems evolve, standards that bring more data and enable interoperability will be required. The main distinction between ISO 8583 and ISO 20022 is that the former only applies to card transactions, whereas the latter applies to all transactions.
With the introduction of ISO 20022, a Latin American country, for example, will be able to make instant payments with Japan (we hope!).
ISO 20022 implementation opens up new use case possibilities. Because of the wealth of data provided by ISO 20022, banks and fintechs will be able to better understand their customers and provide insights to support their business.
Interoperability is the future of payments worldwide, and Latin America and the Caribbean are not immune.
Best wishes,
Walter Pereira
https://www.bcb.gov.br/content/estabilidadefinanceira/pix/ListadeparticipantesdoPix.pdf
https://www2.cip-bancos.org.br/Monitoramento/SITRAF.pdf
https://www.eleconomista.com.mx/sectorfinanciero/Por-que-Pix-si-funciono-en-Brasil-y-CoDi-no-ha-despegado-en-Mexico-20211015-0029.html
https://cloud.google.com/customers/ach-colombia?hl=pt-br
https://www.loc.gov/item/global-legal-monitor/2021-01-28/argentina-national-digital-payment-system-implemented/
https://www.bis.org/publ/bppdf/bispap123_d.pdf
https://books.google.com.br/books?id=u_MhEAAAQBAJ&pg=PT43&lpg=PT43&dq=immediate+interbank+transfers+peru&source=bl&ots=Y6uTZEd-sj&sig=ACfU3U2d9X-9aWp_UZFZbsoxy7lUmzAHDQ&hl=pt-BR&sa=X&ved=2ahUKEwjZrqn6l6b5AhWlHbkGHWUAATgQ6AF6BAgYEAM#v=onepage&q=immediate%20interbank%20transfers%20peru&f=false
https://www.cardsinternational.com/news/cce-taps-aci-and-mastercard-to-increase-instant-payments/