Volume 14 (2020)

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

Articles scheduled for Volume 14 are available to view on the 'Forthcoming content' page. The articles published in Volume 14 so far:

Volume 14: Number 3

  • Editorial
    Alec Nacamuli, Editor, Journal of Payments Strategy & Systems
  • Practice papers
    The COVID-19 pandemic: Implications for financial market infrastructures and the payments ecosystem in the euro area
    Klaus Löber, Head of Oversight Division and Patrick Papsdorf, Head of Payments Oversight, European Central Bank

    Around the world, the COVID-19 pandemic has posed a number of challenges for financial market infrastructures (FMIs). This paper explores these issues in the context of payment systems. Given the critical role of FMIs for the functioning of the economy, for financial stability and the conduct of monetary policy, it is vital for central banks and other relevant authorities to monitor and support FMIs during the crisis and beyond to ensure their safe and efficient operations. This paper highlights various key issues for FMIs and considers different forward-looking scenarios and the associated challenges.
    Keywords: pandemic, oversight, COVID-19, financial market infrastructures(FMIs), payments, central banks, crisis

  • Does socio-demography affect preferences and concerns towards cashless payment? Evidence from the north-eastern region of India
    Krishna Murari, Associate Professor of Management, Sikkim University, Vimal Bhatt, Professor of Marketing, Balaji Institute of Modern Management and Prabhat Kumar, Associate Professor of Management, Bharati Vidyapeeth University

    Using primary data from respondents in Sikkim, in the north-eastern region of India, this study investigates the relationship between the sociodemographic characteristics of consumers and their preference for cashless payment instruments. The results show that debit/credit cards, online banking and payment apps are the preferred instruments for making cashless payments, irrespective of sociodemographic category, while the least preferred instrument is the e-wallet. Study subjects reported that being motivated to adopt cashless payment for a number of reasons, including convenience, financial incentives and promotional offers, reluctance to adopt cashless payment instruments was informed by security concerns, poor internet coverage, low acceptance levels among merchants, transaction costs and lack of technical know-how. The results also suggest that while people’s preferences towards cashless payment systems are significantly associated with gender, age, education, occupation and income, reluctance to adopt is significantly associated with occupation.
    Keywords: socio-demographic characteristics, preferences, motives, concerns, cashless payments

  • Compliance in a hyper-growth FinTech payments business: A brief guide to support success
    Matt Buchanan, Head of Compliance, Checkout.com

    This paper examines the experiences of the compliance function in a fast-growing payments business and endeavours to identify focus areas that support this growth. Given the regulatory challenges that can beset a FinTech company experiencing rapid change, the paper details the compliance processes that can be utilised to ensure that the function remains a key asset to the payments business.
    Keywords: compliance, payments, innovation

  • Digital assets in banking: A regulatory target operating model for payments
    Gino Wirthensohn, Head RegTech, Sygnum Bank

    Traditional banks are increasingly adopting blockchain use cases and digital assets to expand their product offering to open up new revenue streams and meet the demands of today’s customers. However, while engaging with digital assets can present incumbent financial institutions with many opportunities, the regulatory landscape is complex and there are various risks associated with compliance. As this paper will discuss, mitigating these risks and successfully operating a digital asset payment offering as a fully regulated bank requires a robust risk framework, streamlined and automated processes embedded into scalable RegTech solutions, as well as suitably trained staff.
    Keywords: digital assets, blockchain, cryptocurrency, Bitcoin, digital banking, RegTech, compliance

  • How India can develop its payments fraud prevention model: A study of emerging best practices
    Nakul Gupta, Student, Shri Ram College of Commerce and Dharmender Jhamb, public policy professional

    This paper describes the policy interventions undertaken to control and prevent the rampant fraud that continues to threaten the viability of the digital banking ecosystem in India. In its varied forms, fraud constitutes the primary source of resistance to the transition from cash-based channels to cashless transactions and the benefits associated with such transactions. While presenting a policy overview of fraud prevention tools, this paper analyses the trends in fraud vis-à-vis digital transactions and synthesises global best practices used to rank emerging markets. By providing insight into fraud mechanisms, and then addressing loopholes through relevant policy interventions, the paper develops an evolutionary history of fraud and preventive tools to control its various forms. The paper focuses on the need to prioritise interventions, defining those interventions, and analysing their efficacy and potential for change.
    Keywords: fraud prevention, payments security, online transactions, banking system, policy ecosystem, penalisation

  • CodeCash: A novel system for mobile and electronic transactions
    Zhuo Qi Chen, Academy of Science and Technology

    To combat the security risks associated with mobile and electronic payments, this paper proposes a novel system to perform electronic transactions and to appropriate the funds involved in them. This system, known as CodeCash, separates account funds into distinct, independent parts, with each of these represented by a cash sequence, or 20-digit distinct, randomly generated numerical series. Each associated with a value up to a specific amount determined by the bank, these cash sequences are given to the client to use as spendable funds, with their hashes being stored in the account and used for verification and value deduction during transactions. Utilising a non-device-verifiable password on each transaction, the CodeCash system offers a secure method of transaction and transfer that, even if disrupted or attacked, yields minimal gains to the attacker, with the total amount of losses from theft being limited to the total value of cash sequences stored digitally on the particular device. Furthermore, a method of storing cash sequences on offline hard drives is also introduced, with this method providing clients the option to shield funds from almost any known type of digital fraud.
    Keywords: mobile payment, tokenisation, cash sequences, payment security, digital fraud

  • Innovation in open banking: Lessons from the recent wave of payment institutions that have been authorised to provide payment initiation and account information services
    Fred Bär, Partner, Payments Advisory Group and Ivan Mortimer-Schutts, Senior Financial Sector Specialist, World Bank

    The Revised Payment Services Directive (PSD2) came into force in all EU member states in 2018. One stated aim of this legislation was to create room for innovations in technology and business models in order to give account holders more choices and more direct control regarding access to their account information and ways of initiating payment transactions. Although an evolving array of new services and service providers has emerged over the past few years, the market remains in an early phase of experimentation. Nevertheless, information about the range of newly licensed service providers in the EU, and their business models, provides some insights into how the market is evolving and how it is reacting to recent regulatory and market infrastructure changes introduced through the PSD2 and open banking architecture. This paper reviews the population of payment institutions that have recently obtained authorisation to provide payment initiation or account information services in the EEA. It examines the (1) geographic reach, (2) company origins and investors, and (3) business function of these new actors to provide early insights into the changing economics of banking and payments.
    Keywords: open banking, PSD2, PISP, AISP, payment service licence, new entrants, EUCLID database, payment institutions, payment service passporting, FinTech investment

  • Banks create money (but only to a point): The ‘payments perspective’
    Biagio Bossone, Senior Adviser, World Bank

    This paper discusses the power of commercial banks to create money. After reviewing the relevant literature, including the latest contributions on the topic, the paper takes a new ‘payments perspective’ to the issue and investigates how the role that banks play in payment systems affects the way they create money. Through this new perspective, the paper analyses how banks’ payment obligations and the rules governing their settlement determine (and constrain) the extent to which each bank can exercise its power to create money. The paper also analyses how electronic monies and central bank digital currencies may impact the creation of money by banks. Aside from contributing to the understanding of the critical topic of money creation, the paper’s ‘payments perspective’ explains the uniqueness of banks, even in today’s fast-evolving FinTech world, and provides a key to understand the impact of FinTech on money and credit supply in contemporary economies. More broadly, the paper underscores the relevance of payment system analysis for macroeconomic theory and practice, pointing to the need to better integrate the two disciplines.
    Keywords: bank money creation, central bank digital currencies, demand deposits, e-money, financial intermediaries, funding, payment and settlement systems

Volume 14: Number 2

  • Editorial
    Alec Nacamuli, Editor, Journal of Payments Strategy & Systems
  • Opinion piece: SEPA Instant Credit Transfer: Where are we now and where are we heading?
    Javier Santamaría, Chair, European Payments Council

    Launched by the European Payments Council in November 2017, the Single Euro Payments Area (SEPA) Instant Credit Transfer (SCT Inst) is an instant payments scheme enabling euro credit transfers within the SEPA area to be made in under 10 seconds. SCT Inst was designed for everyone: consumers, businesses, large companies and administrations. It works like a regular SEPA credit transfer but much, much faster; it is also open and accessible to users and service providers 24 hours a day, seven days a week. This paper reviews the progress of SCT Inst since its launch, its critical success factors, challenges and what the future holds for it.
    Keywords: SEPA Instant Credit Transfer, pan-European, European Payments Council, SCT Inst, Euro credit transfers

  • Interview: Unlocking the potential of faster payments in the USA: An interview with Attila Csutak
    Brian Laverdure, Director, Emerging Payments Education, EPCOR and Attila Csutak, RTP/Zelle Product Manager, VP, KeyBank

    Many Americans now have access to faster payments through Early Warning Services’ Zelle or through services provided by their financial institution that utilise the RTP network, the real-time payment system launched by The Clearing House in 2017. In this interview, Attila Csutak, Vice President and Product Manager of RTP and Zelle for KeyBank, shares insights into KeyBank’s first full year of operations with Zelle and the RTP network. He also discusses the current state of faster payments adoption in the USA, and offers observations on the potential impacts of real-time payments in the coming years.
    Keywords: real-time payments, faster payments, The Clearing House, Zelle, KeyBank, financial institutions

  • The consumer in lockdown: Consumer–merchant payments in a mobility-constrained environment
    Nick Kerigan, Future Payments Expert and Senior Innovation Leader, Managing Director – Barclays Bank PLC

    The COVID-19 pandemic has prompted a broad-ranging response from governments across the world. A common theme of those responses is to lock down consumers, largely confining them to their homes. This paper explores what the COVID-19 lockdown could mean for consumer behaviours, and therefore by implication, for payments. In this period of lockdown, consumer needs do not go away — but how those needs are met and how those solutions are accessed could change radically. This situation will favour digital business models with delivery services, over physical stores, restaurants and other venues. Payment providers are likely to see a rapid change in the mix of payments towards contactless and e/m-commerce payments. This paper argues that it is important not to lose sight of the strategic implications of what could be a profound change in how we live our lives and our relationship with digital technology.
    Keywords: consumer, pandemic, behaviours; payments, contactless, digital, e-commerce

  • The cash society
    Claire Greene, Payments Risk Expert, Federal Reserve Bank of Atlanta

    This paper discusses the use of cash by US consumers. Using data about how consumers get, hold and use cash, it finds that reports of the demise of cash are, indeed, premature.
    Keywords: cash, currency, US consumers, payment instrument choice

  • Open banking: The rise of the cloud platform
    Gary S.D. Farrow, Director, Triari Consulting

    This paper explores how traditional banking system architectures will be affected by the emergence of open banking. Platform models for open banking are proposed that accommodate both supply and demand-side solutions. On the demand side, the network effects of open banking platforms and their limitations are discussed. Using a feedback model of platform behaviour, it is suggested that the long-term success of open banking can be directly coupled to the emergence of such platforms and their regulatory scope. To inform the architectures to support open banking, the unique transactional characteristics of open banking solutions are determined. The essential role of cloud technologies in meeting these characteristics and hence the propensity for their use in the implementation of open banking platforms is illustrated. Specific types of open banking platforms are then described in terms of their essential architectural components and collaborations. The benefits to account servicing payment service providers and to third-party providers in adopting such open banking platforms are highlighted.
    Keywords: PSD2, open banking, cloud platform, FinTech, banking architecture, BaaS

  • How the financial sector can anticipate the threats of quantum computing to keep payments safe and secure
    Oscar Covers, Senior Information Risk Consultant and Cybersecurity Analyst and Marco Doeland, Manager Risk Management, Dutch Payments Association

    At the end of 2015, the Dutch General Intelligence and Security Service informed owners and managers of vital infrastructure in the Netherlands about the developments and threats emanating from the advent of quantum computing. Dutch financial institutions have since started to monitor developments in quantum computing and are seeking to understand the implications for their interbank business processes. This paper looks at how banks and payment institutions can anticipate how quantum computing will evolve and respond accordingly, even though developments remain ongoing. To gain and maintain a good understanding, the Dutch Payments Association brings together quantum computing experts and experts from financial institutions to discuss the impact of quantum computing advancements on the industry. The key deliverable is to offer an approach to dealing with the threats associated with quantum computing, so that payment systems can continue securely and undisturbed. As this paper will discuss, this has resulted in a quantum readiness programme and seven so-called low regret moves.
    Keywords: quantum computing, post quantum cryptography, financial sector, banks, cyber security, payments

  • FinTech and payments regulation: An analytical framework
    Tanai Khiaonarong, Senior Financial Sector Expert and Terry Goh, Short-Term Payment Systems Expert, International Monetary Fund

    This paper draws on recent international experiences in modernising legal and regulatory frameworks for payment services. It proposes an analytical framework based on a four-step process: (1) identifying payment activities; (2) licensing entities and designating systems; (3) analysing and managing risks, and (4) promoting legal certainty. The paper concludes that as payment activities evolve and potential systemic risks heighten, adherence to international standards and additional regulatory requirements are warranted.
    Keywords: FinTech, payment activities, payment services, payment systems, central bank, regulation, BigTech

  • Real-time retail payments or faster payments: Evidence from select countries on consumer attitudes and the importance of dependability
    Andrew Buckley, Executive Vice President for New Payment Platform Products, Mastercard and Mahadevan Balakrishnan, Consultant, Payment System Development Group, World Bank

    To date, some 54 countries have access to real-time retail payments systems (RTRPS). With many other systems currently under development, this number could exceed 100 in the next few years. Many countries without a widely available and accessible infrastructure for payment acceptance are leveraging RTRPS to build applications that employ QR codes or other means to transform payments. Many other countries have also been leveraging the RTRPS infrastructure to integrate e-money institutions or FinTechs into the payments ecosystem, to drive competition and innovation and to improve financial inclusion. In this way, faster and real-time payments systems are becoming an increasingly important critical national infrastructure and hence vital for enabling economic development. Thus, as economies leverage these systems, it is essential that they be dependable. This paper investigates the dependability of faster payments based on market research findings from six countries — three with developed economies (Australia, Japan and the UK) and three with developing economies (India, Mexico and Thailand). Based on the findings, the paper discusses policy implications and suggests approaches to implementing real-time payment systems.
    Keywords: faster payment, real-time retail payments, economic impact, dependability of faster payments

  • Enabling financial inclusion in developing economies
    Nabeel Ghunaim, Lead Technologist, ProgressSoft Corporation

    This paper addresses the adverse effects of closed-loop mobile payments on developing economies and investigates several market-led attempts to overcome the barriers of closed-loop mobile payments and enhance financial inclusion. The paper also describes the approaches taken by Tanzania, Pakistan and Jordan, and discusses their challenges and outcomes.
    Keywords: financial inclusion, interoperability, mobile payments, Tanzania, Pakistan, Jordan

Volume 14: Number 1

  • Editorial
    Alec Nacamuli, Editor, Journal of Payments Strategy & Systems
  • Interview: The payments landscape in Portugal: An interview with Pedro Coelho
    Diederik Bruggink, Managing Director, Bruggink Consultancy and Pedro Coelho, Executive Chairman and Chief Executive, BNI Europa

    Strategically positioned between Europe, Africa and America, Portugal has an attractive and modern financial system. The Portuguese carry the least cash of all European citizens and use debit cards frequently. The Portuguese retail payments market is still dominated by the local payment system, Multibanco. Multibanco is a payment brand that belongs to SIBS, a large-scale payments specialist operating a payment infrastructure shared by all Portuguese banks. BNI Europa is a challenger bank providing niche products in several segments. In this interview, Pedro Coelho talks about the specifics of the Portuguese retail payments industry, the way BNI Europa entered the market as a branchless bank, and his expectations regarding further developments in the retail payments market.
    Keywords: Portugal, BNI Europa, SIBS, Multibanco

  • Opinion: How payments drive digital transformation
    Andréa Toucinho, Director of Studies, Prospective and Training, Partelya Consulting

    This paper discusses the main issues relating to the digital transformation of the payments market. It describes how, in the context of globalised financial services, digital transformation has been a key driver in the evolution of payments. Indeed, technological, sociological and geopolitical issues have all contributed to the payments market adopting a modern, prospective and international approach. In this context, the payment ecosystem is confronted with many issues linked with innovation, new use cases and social debate, as well as the question of sovereignty. While questions continue to arise, one thing is clear: the field of payments has grown beyond its technological origins to become a real asset in the global economy.
    Keywords: payments, regulation, innovation, digital transformation

  • Beyond interchange: From plastic to payment platforms?
    Udo Milkau, Chief Digital Officer, Transaction Banking, DZ BANK

    The emergence of mobile payments has delivered unprecedented levels of convenience for consumers. In parallel, digital platforms have begun to launch dedicated payment platforms and payment apps. These new platforms share two characteristics: (1) ‘reverse value creation’ and (2) services that are ‘free’ for consumers, but which cost merchants to accept. This development has changed the business paradigm for payment models: as payment has become commoditised, merchants must offer the full spectrum of payment options demanded by consumers. In the light of this new economic reality, the interchange fee model is increasingly looking like a hangover from the last century. New business models are needed for the payment industry to stay competitive, but also to leverage Europe’s advanced payment infrastructure in the digital age. This comment piece provides a personal opinion about the future of payment business models informed by two developments: the shift from plastic (ie cards) to mobile devices as the dominant mode of payment, and the shift from schemes with interoperable participants to centralised platforms based on new digital models of value creation.
    Keywords: interchange fee, payment platforms, reverse value creation, QR code, plastic versus payment platforms

  • Glimpses of a cash-free world, and how it might be avoided
    Ron Delnevo, Consultant, ATM Industry Association

    This paper explores the advantages and disadvantages of society operating with less or, indeed, no cash. While the paper has a particular focus on Sweden and India, it also draws on examples from other markets with differing views and approaches regarding the importance of cash in general and payment choice in particular. The key issues in this debate typically focus on cost, convenience/speed of transactions, crime, economic activity, employment and payment choice. After considering each of these in turn, the paper concludes that while a cash-free world might suit certain commercial interests, it would not be in the public interest. It then briefly turns its attention to steps that might be taken at governmental level to ensure that cash remains on the payment choice menu for the public everywhere.
    Keywords: cash, cash-free, cost, economic activity, public interest, payment choice

  • Papers: European payments regulation: State of play at the start of the new decade
    Diederik Bruggink, Managing Director, Bruggink Consultancy

    This paper addresses at high level, a selection of regulatory developments and expectations that will drive the agenda for payment service providers at the start of the new decade. More specifically, the paper will cover European sovereignty in payments, instant payments, the Interchange Fee Regulation, the cross-border payments regulation and VAT reporting requirements, while also commenting on the topic of cash. With respect to instant payments, the question is not if the European payments industry will move to instant payments but when. In the short term, the industry will have to work on increasing adherence levels and reachability rates. The latter can best be achieved by ensuring interoperability between clearing and settlement mechanisms. In parallel, the industry will have to develop end-user solutions based on instant payments that are attractive for all involved.
    Keywords: European sovereignty in payments, instant payments, Interchange Fee Regulation, cross-border payments regulation, VAT reporting requirements, cash, access to cash

  • The impact of the Revised Payment Services Directive on the market for payment initiation services
    Bruno Lule Yawe, Associate Professor of Economics, College of Business and Management Sciences and Ibrahim Mukisa Lecturer in Economics, School of Economics, Makerere University

    The Revised Payment Services Directive (PSD2) was adopted to stimulate the development of an integrated internal market for payment services. This paper describes the impact of PSD2 on online payments by documenting the impact of PSD2 on the market for payment initiation services, both now and into the future. PSD2 has formalised the relationship between banks and FinTechs by establishing open banking, thereby providing open access to customer account data and payments infrastructure. The general response of Europe’s bankers to PSD2 is one of uncertainty. While there is considerable uncertainty about both the gravity and timing of the threats to emerge under PSD2, the new regulation opens highly attractive opportunities for established payments organisations.
    Keywords: PSD2, online payments, payment initiation services, FinTechs

  • Real-time retail payments system or faster payments: Implementation considerations
    Harish Natarajan, Lead Financial Sector Specialist and Mahadevan Balakrishnan, Consultant on Payment Systems Topics, World Bank

    Real-time retail payments systems — otherwise known as low-value real-time retail payments, faster payments or immediate payments — are gaining momentum. This paper describes a framework to help countries, particularly developing countries, decide whether or not to implement such systems, and if so, the key considerations, such as settlement options, message formats, third-party access etc, would be very helpful for these countries.
    Keywords: faster payments, real-time retail payments, framework for real-time retail payments, RTRPS readiness index, decision tree, settlement options, messaging standards, APIs

  • The institutional layering arrangements of the Egyptian government’s e-payment system: An analytical case study
    Wael Omran Aly, Associate Professor, High Institute of Managerial Sciences and Foreign Trade

    This paper draws on the literature on institutional layering to explore the process of institutional change relating to the Egyptian government’s ambitious plan to embed e-payments into the country’s financial system. It utilises the concept of policy layering to explain the gradual yet significant and accumulative institutional and layering changes that have taken place in the country’s payment system policy and affected the activities of actors in the public sector. The paper analyses empirical data collected from interviews with various actors within the Egyptian government’s e-payment system. Analysis of relevant regulations and other official policy documents and reports is also considered. Following this, the paper focuses on the layering of institutional arrangements, consisting of both actors and instruments. In this way, the paper focuses on the actors responsible for the internal governance and external regulation of e-payments in Egypt.
    Keywords: e-payment system, institutional reform, layering arrangement, policy change, public management

  • An application programming interface model for open banking ecosystems
    Gary S.D. Farrow, Director, Triari Consulting

    This paper proposes a model for an open banking application programming interface (API) ecosystem that supports the expansion of open banking APIs beyond the regulatory minimum. The paper uses specific banking business scenarios as candidates to drive the requirements for a broader set of open banking services. Using the API model framework, specific examples of ‘value-add’ services are identified to support the scenarios. Future market constructs and associated APIs needed to support a burgeoning ecosystem are proposed and elaborated. Barriers to their development and the realisation of a fully functioning open banking ecosystem are also discussed.
    Keywords: open banking, PSD2, CMA Order, API economy, payment initiation