Technological transformation and payment systems

Transcription

1 Technological transformation and payment systems Lorenza Martínez Trigueros, June 2016

2 Summary 1 Innovation: existing versus disruptive networks 2 Innovation brings new participants and services... 3 and changes the way we pay 4 Mexican experience: benefits of innovation 5 New challenges: regulation 2

3 1 Innovation: existing versus disruptive networks Incremental innovations have had an important impact Network externalities on payment systems: take advantage of critical mass Cards Existing networks Transfers and others Innovation Disruptive networks Parallel networks of existing services Virtual assets

4 Currently Before 2 New participants and services Card Networks Checks and Transfers New Devices t+1 4

5 2 Innovation changes participants and services Technological transformation Reduces fixed costs Expands frontiers New participants or systems New/improved services and products prices barriers to entry + competition + participants + different participants (non-banks) + users (financial inclusion) + use by existent customers + customer experience (e.g., + trust in nonbanks, - steps to pay for customers) + flexible products 5

6 3 The way we pay is changing Distribution of transactions by method of payment 25% Checks 43% Card payments 7% 61% 26% Checks 37% Card payments 3% 70% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Card payments Direct debits Checks Credit transfers CPMI countries 1/ EMDEs 2/ E-money payments 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Card payments Direct debits Checks Credit transfers E-money payments 1/ CPMI countries: Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Italy, Japan, Korea, Mexico, Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Sweden, Switzerland, Turkey, United Kingdom and United States. Source: CPMI 2/ EMDEs: Brazil, China, India, Mexico, Russia, Saudi Arabia, South Africa and Turkey. Source: CPMI 6

7 4 Mexican experience: cards systems Reduction of entry barriers for aggregators has brought new benefits and improvements. Number of POS terminals from banks and aggregators Mexico, thousands 1,100 1, % POS, banks POS, aggregators In 2015, one of the largest aggregators affiliated: + 8,000 taxi cabs (1% of total POS) + 6,500 small merchants Source: Bank of Mexico 7

8 Australia Turkey Italy United Kingdom Singapore Canada Brazil France Switzerland Sweden Netherlands Belgium China Germany Russia South Africa Mexico Saudi Arabia India 4 Mexican experience: cards systems Advances in regulation: Reduce entry barriers for ACHs Reduced tariffs New cards acquirers (business model: information based) However, there are still areas of opportunity in terms of high discount rates and low penetration. POS terminals per million inhabitants CPMI countries, 2014 Discount rates on debit and credit cards Percentage % 2.9% 2.83% % 2.5% 2.3% 2.1% 1.9% 1.7% 2.38% 2.36% 2.23% 1.98% 1.80% 1.5% Debit Credit Source: CPMI Source: Bank of Mexico 8

9 4 Mexican experience: transfers SPEI, the Mexican RTGS and fast payment system, is allowing for system-wide interoperability and relevant new services such as mobile payments on a 24 / 7 schedule. Electronic disbursement of federal payments has cut costs by 3.3% of total annual expenditure. 3/ SPEUA SPEI SPEI 24/ Min. transaction: $8K USD 2000: Banxico began the design of SPEI 2005 SPEUA shuts down Min. transaction: removed /7 Operation Mobile payments 1995 SPEUA began operations. Min. transaction: $38K USD. Fee: $0.18 USD Min transaction: $4K USD 2004 SPEI began operations Min. transaction: $4K USD. Fee: $0.08 USD Fee: $0.04 USD Min. transaction is the minimum amount per transfer on SPEUA/SPEI Fee is the amount that Banxico charges to commercial banks per transaction on SPEUA/SPEI. 3/ Babatz (2013). Sustained Effort, Saving Billions: Lessons from the Mexican Government s Shift, Better Than Cash Alliance Fee = MC = $0 9

10 4 Mexican experience: new developments New technologies attack the reasons behind people not having a bank account (restrictive requirements, high prices, distance to bank branches). Potential: users have shown increased acceptance of developments such as mobile banking. Some new products and services might convey lower transaction costs and faster services. This is potentially beneficial for the remittances market, where users still face relatively high prices. Number of accounts with mobile banking functionality 5,087,915 6,070,183 Remittance prices in USA-MEX corridor As % of value sent, , ,657 2,699, USD 500 USD Bank 4.68% 3.31% MTO 5.15% 3.42% Total 5.09% 3.40% 4q % 3.15% Source: Remittance Prices Worldwide, World Bank Source: National Banking and Securities Commission Data corresponds to the last quarter of each year, except for 2015 (2 nd quarter) 10

11 5 New challenges: regulation Technological changes pose benefits (+ competition, quality and quantity of payment alternatives) albeit new risks (e.g., cybersecurity, data privacy, money laundering, financial instability) Necessity to create a regulatory framework. Considerations: Focus on services rather than on particular entities or payment devices Protect consumers Give legal certainty to payment service providers Enough flexibility as to encourage innovation Degree of regulatory power over payment innovations relies on: Type of network innovations are installed on (existing or parallel networks) Degree of centralization Ability to move internationally 11

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