Joining Central Bankers to Focus on Innovations in Consumer Payments

I was invited by Forum Co-Chair Massimo Cirasino, who is Head of Payments Systems Development Group at the World Bank and one of BTCA’s Senior Advisors. I was keen to speak about the Better Than Cash Alliance at this event because the Heads of Payments at Central Banks and the CPSS are critically important to the transition to electronic payments.

Nearly 100 central bank officials and private sector payments experts participated in the Forum, representing dozens of developed and emerging economies. I was impressed by this incredible interest from the world’s leading financial regulators in payments systems that particularly matter for emerging and developing economies.

The CPSS is one of the five global financial system standard-setting bodies (SSBs)[1] of greatest relevance to financial inclusion. Its objectives are to contribute to the strengthening of financial market infrastructure by promoting sound and efficient payment and settlement systems; and to monitor and analyze developments in domestic payment, settlement and clearing systems as well as in cross-border and multi-currency settlement schemes. In 2012 it issued a report on Innovation in Retail Payments and it is now working on Non-Banks in Retail Payments.

Keeping in close touch with standard setters and payments overseers is important for the Better Than Cash Alliance, because well-designed, proportionate regulation is essential to providing retail consumers access to appropriate, affordable, retail payment services. The G20’s Global Partnership for Financial Inclusion (GPFI) explained that “Together, the normative standards and advisory guidance of the SSBs have significant influence on how many poor households get access to what range and quality of formal financial services and at what cost.” [2]

My three big takeaways from the Forum:

1. The explosion in retail payment systems will reduce costs for clients

As Edgar Dunn & Company and others explained, there has been an incredible proliferation in the payment choices available to consumers in both developed and emerging economies. Some of the new retail payments systems in emerging economies cited by Jason Lamb from the Bill & Melinda Gates Foundation include M-PESA, Finsphere, Lianlian Pay, Dwolla, and M-KOPA.

While many new kinds of payments are developing, Lamb presented cross-country research (soon to be released by the Gates Foundation) showing that digital channels consistently had the lowest transaction costs for consumers among the countries studied – and therefore offer the greatest potential for advancing financial inclusion. If you have a moment to read this presentation it is well worth it! This research further validates the Better Than Cash Alliance’s work to support the transition to electronic payments.

Even though the total value of retail payment transactions is small in a given country (even post-M-PESA Kenya), because the number of users is growing so fast in many markets, SSBs have recognized that retail payments may have greater systemic significance than traditionally thought, so they are paying greater attention.

2. The importance of peer-to-peer learning for overseers of payments systems

The Forum also provided exciting opportunities for peer-to-peer learning, allowing those responsible for payments systems at Central Banks to share good practices for overseeing this rapid expansion in retail payment options. I saw a great example of this at the Forum when two leading central banks from emerging markets shared their experience on how to promote the safe and sound expansion of mobile money schemes. The experience of the Better Than Cash Alliance is that knowledge sharing among researchers, regulators, and practitioners is essential to integrating new innovations into the payments system.

3. The Better Than Cash Alliance goals are aligned with prudent payments system oversight

The most important takeaway from the Forum for me was the widespread agreement that promoting the shift from cash payments to electronic payments advances both the Alliance’s goal of expanding transparency and financial inclusion, and also the Central Bankers’ and CPSS’ goals of ensuring sound and efficient payment systems.

Massimo is often quoted saying that “payments are the plumbing of the financial system.” Households that are currently excluded from that “plumbing” have no option but to operate with cash and are vulnerable to higher costs (including facilitation payments) and risks. It became clear that the CPSS’ goal of expanding the availability of retail payment services means prudently supporting innovations in retail payments to “tapping and extending the plumbing.” I look forward to working with the World Bank and the CPSS Secretariat toward this goal.

Thank you to the WB and the CPSS Secretariat for including the Better Than Cash Alliance in this important Forum.

1 There are five major SSBs with influence over financial inclusion globally: the Basel Committee on Banking Supervision (BCBS), the Committee on Payment and Settlement Systems (CPSS), the Financial Action Task Force (FATF), the International Association of Deposit Insurers (IADI), and the International Association of Insurance Supervisors (IAIS).

2 “Global Standard-Setting Bodies and Financial Inclusion for the Poor—Toward Proportionate Standards and Guidance,” [PDF] The Consultative Group to Assist the Poor (CGAP), 2011 (A joint World Bank – CGAP team led by Tim Lyman authored this paper.)