Volume 16 (2022)

Each volume of Journal of Payments Strategy & Systems consists of four 100-page issues, published both in print and online. Articles scheduled for Volume 16 are available to view on the Forthcoming content page.

The Articles published in Volume 16 include:

Volume 16 Number 2

  • Editorial: 
    Gerard Hartsink, Editor, Journal of Payments Strategy & Systems
  • Practice papers
    The European Automated Clearing Association and the role of clearing and settlement mechanisms in Europe’s evolving payments landscape
    José M. Beltrán, President and Fred Bär, Secretary General, EACHA

    This paper presents a concise history of the Single Euro Payments Area (SEPA), with particular emphasis on its impacts on clearing and settlement practices, and on the role of the European Automated Clearing Association as a forum to support the standardisation, harmonisation and consolidation of European payment systems. The paper provides policymakers, scholars and practitioners with an introductory overview, and will help readers, especially those new to SEPA, to understand both its history and more recent developments in the euro area. The conclusions highlight the indispensable role of clearing and settlement infrastructures as a backbone for the payment services delivered by banks, as well as the importance of collaboration for infrastructural evolution.
    Keywords: clearing and settlement, payments integration, payments harmonisation, collaboration, SEPA, EACHA, payments infrastructures

  • Forecasting banknote returns in a changing payments environment
    David Cronin, Advisor and Niall McInerney, Senior Economist, Central Bank of Ireland

    This paper provides a model for forecasting cash returns to central banks. Using data from Ireland, the study identifies a recent structural shift in the relationship between banknote returns and cash-based personal consumption expenditure, likely due to the adoption of contactless payments. Projections of banknote returns are informed by three elements: forecasts of personal consumption, the cash share of that spending, and the returns ratio — that is the ratio of (the log of) banknote returns to the (log of) cash-based personal consumption. To illustrate the modelling approach, the study considers the effects of future payment instrument choices and of COVID-19 on consumption to forecast cash returns for Ireland up to 2030.
    Keywords: banknote returns, contactless payments, COVID-19

  • Payment outages: Experiences and issues
    Tanai Khiaonarong, Senior Financial Sector Expert, International Monetary Fund, Ryan Rizaldy, Director, Central Bank of Indonesia and Harry Leinonen, Chief Executive Officer, PSS Consultancy

    Major operational incidents in payment systems suggest the need to improve their resiliency. As payment infrastructures become more digital, integrated and interdependent, with users demanding real-time and uninterrupted services, a higher degree of resilience is required. Risks that could trigger major disruptions have become more acute given the rise in power outages, cyber incidents and natural disasters. International experiences suggest the need to strengthen (1) reliability objectives, (2) redundancies, (3) assessment of critical service providers, (4) endpoint security and (5) alternative arrangements. A comprehensive restructuring of resiliency plans — across the entire payment value chain — is also needed. This paper draws lessons from recent operational incidents to suggest ways in which operational risk management frameworks could be strengthened given evolving payment systems, increasing user expectations, developing technologies and varying country circumstances. The objective is to share observations from international experiences and explore operational and developmental issues to facilitating the stronger operational resilience of existing and future payment systems.
    Keywords: operational resilience, payment systems, risks, disasters, business continuity

  • Designing an inclusive digital euro
    Ludovica Galotto, Economist, Directorate General for Consumer Protection and Financial Education and Maria Iride Vangelisti, Director, Department of Financial Education, Bank of Italy

    This paper discusses how the introduction of a digital euro could motivate those Europeans who are yet to open a transaction account, or who are yet to adopt digital payments, into doing just that. The paper argues that this will require central banks to emphasise the risk-free nature of central bank digital currency. In addition, payment transactions need to be made less expensive and more user-friendly than those offered by private intermediaries. The paper explains the benefits of adopting a digital currency instead of relying on cash alone, such as the ability to send and receive payments remotely, improved security, and greater transparency vis-à-vis historical transactions. After discussing the key design features that a digital euro might adopt, the paper concludes that an account-based digital euro could have a greater impact on financial inclusion than a token-based euro. The more that digital euro accounts are integrated into existing payment systems, the greater the benefits will be.
    Keywords: digital euro, central bank digital currency, electronic money, payment innovation, payment instrument, financial inclusion

  • The payments industry in Australia: Status and future developments
    Andy White, Chief Executive Officer, Australian Payments Network

    The payments ecosystem is experiencing accelerated change, with the COVID-19 pandemic acting as an additional catalyst. This paper looks at the example of Australia, where regulation has been reset to reflect, and future-proof its handling of, these changes. With a focus on regulation, and the modernisation of payments systems, this paper focuses on what these changes mean for legacy payment systems, for the future of cash, and for their end users, especially in terms of their trust and confidence in payments.
    Keywords: payments regulation, real-time payments, ISO 20022, open data, the future of cash, fraud, scams, digital identity

  • Cash demand in times of crisis
    Gerhard Rösl, Professor of Economics and Franz Seitz, Professor of Economics, Technical University of Applied Sciences

    This paper focuses on the role of specific types of crisis (technological crisis, financial market crisis, natural disaster) and their effects on the demand for cash in an international context. As evidence from the last 30 years shows, demand for cash increases during periods of crisis, regardless of the nature of the crisis. The nature of the crisis does, however, determine whether small or large banknote denominations are affected more. This study finds that times of payment uncertainties are associated with increased demand for small denominations, probably reflecting an elevated demand for transaction balances. By contrast, in times of financial crisis or general economic uncertainty, the increased demand for cash is largely the result of consumers taking precautionary actions and building up non-transaction balances; for this reason, there is greater demand for large banknote denominations. This study finds that cash continues to play an important role in crisis management. Whether this function can also be fulfilled by a future central bank digital currency, however, remains to be seen.
    Keywords: cash, banknotes, crises, COVID-19

  • How the Legal Entity Identifier supports the digitisation of business transactions
    Stephan Wolf, Chief Executive Officer, Global Legal Entity Identifier Foundation

    This paper reviews the global market conditions together with the commercial and technical drivers that have created the need for a globally interoperable form of digital identity for legal entities. It recounts the role the Global Legal Entity Identifier (LEI) System is already playing in enabling the clear and unambiguous identification of legal entities for all stakeholders globally, and presents examples of how the LEI is already being leveraged by public authorities in payments use cases around the world. The paper also explores the technical model underpinning the Global Legal Entity Identifier Foundation’s new form of digital organisational identity — the verifiable LEI — before exploring how this can bring new value to the payments industry globally.
    Keywords: LEI, self-sovereign identity, legal entity payments, digital identity, cross-border transactions

Volume 16 Number 1

  • Editorial: 
    Gerard Hartsink, Editor, Journal of Payments Strategy & Systems
  • Practice papers
    Mobile wallet payments in the time of COVID-19: The Indian experience
    Rishi Kumar, Assistant Professor and Vastav Ratra, Student, BITS Pilani, Hyderabad Campus, and Shravanth Mandava, Associate, PricewaterhouseCoopers

    This paper uses an interrupted time-series approach to study the demand for mobile wallet payments in India following the imposition of social distancing measures to contain the spread of COVID-19. The study finds that although the value and volume of mobile wallet payments initially dipped once the restrictions were in place, the rate of increase in both value and volume subsequently rose above pre-pandemic levels. Various factors are likely to have influenced this trend, including inter alia convenience and society’s new-found aversion to transacting in cash.  This paper argues that to continue to benefit from the work carried out by banks and FinTechs to simplify the process of sending and receiving payments, and encourage the sustained use of mobile wallets, policymakers need to provide the right incentives, infrastructure, regulation and strategies.
    Keywords: COVID-19, mobile wallets, India, time series, interrupted time series

  • COVID-19 and point-of-sale payments in Belgium: How the older generation also learned to love contactless
    Ellen Van Droogenbroeck, Guest Professor and Leo Van Hove, Professor of Economics, Vrije Universiteit Brussel

    This paper reports the first publicly available results of Belgium’s newly created Digital Payment Barometer. The results show that, as in other countries, the COVID-19 pandemic triggered a shift towards contactless and, to a lesser extent, mobile payments at the point of sale. Strikingly, however, the biggest jumps in the use of contactless payments are observed in the 65–74 and 75+ age groups. There are also indications that these shifts in behaviour may well outlast the pandemic, as consumer preferences have also changed markedly.
    Keywords: point-of-sale payments, COVID-19, contactless, mobile, Belgium

  • What is money? A lawyer’s perspective on the evolution of the US payment system and dollars in the digital age
    Jess Cheng, Senior Counsel, Board of Governors of the Federal Reserve System and Joseph Torregrossa, Associate General Counsel and Vice President, Federal Reserve Bank of New York

    This paper analyses the current frictions, and opportunities for evolution, in the US dollar payment system, by viewing money through the lens of network effects, interoperability, and their legal underpinnings. It gives a lawyer’s perspective on the workings of the US payment system and lessons from history, including the free banking era. This paper also discusses current developments, such as various central bank digital currency proposals and private sector stablecoin developments, in this context. The goal is to contribute to the discussion around the future of the US payment system, toward greater efficiency that does not risk introducing instability.
    Keywords: US payment system, central bank digital currency (CBDC), Federal Reserve, legal framework, crypto currencies, money, stablecoins

  • Getting the balance right: Crypto, stablecoin and central bank digital currency
    Wilko Bolt, Senior Economist, Vera Lubbersen, Economist and Peter Wierts, Senior Economist, Dutch Central Bank

    The rise of new forms of private money is reviving a long-standing debate on the appropriate balance between private and public interests in money and payments. This paper provides an integrated policy analysis of various digital assets that may function as money, namely, bank deposits, non-backed cryptos, stablecoins and central bank digital currency (CBDC). This paper argues that public and private money need to coexist in order to get the best of both worlds, that is, trust and innovation. Getting the balance right, however, is no easy task. It requires a digital update of public money and the effective regulation of cryptos and stablecoins. This paper argues that convertibility between public and private money should be a leading principle both for the design of CBDC and for the regulation of stablecoins with the potential to be widely adopted as a means of payment.
    Keywords: digital payments, cryptos, stablecoins, CBDC, regulation

  • An introduction to cross-border payments within the COMESA region of Africa
    Andrew M. Wamicwe, Regulatory Director, Mobile Financial Services, Airtel Africa

    Within Africa, cross-border payments are yet to become seamless and efficient, and correspondent banking relationships with multiple intermediaries still dominate the payments arena. The cultural divide between anglophone and francophone countries extends to key differences in legal and regulatory frameworks, governance structures, payment channels and currencies. This paper explores the landscape of cross-border payments and the various associated challenges, emphasising the importance of keeping to a specific journey and focusing on one hurdle at a time. Written against the backdrop of the recently passed Africa Continental Free Trade Area agreement, this paper argues that if Africa is to succeed in its pursuit of an effective cross-border retail payments environment, the various stakeholders involved will have to embrace customer-friendly interfaces, fair pricing, standard operating rules and predictable/reliable payment rails. While it is possible to have differences in infrastructure, as shall be seen in the paper, the adoption of common principles is essential to the development of the sector.
    Keywords: payments, trade, regulatory, channels, correspondent banking

  • Building a global digital identity infrastructure
    Gottfried Leibbrandt, Author and Adviser and Daniel Goldscheider, Chief Executive Officer, yes.com

    This paper lays out the need for an electronic identity infrastructure. After describing the landscape, current alternatives and hurdles to overcome, it proposes a way forward, based on the recently launched Global Assured Identity Network, which leverages existing identity and authentication mechanisms. This network uses an architecture that keeps the customer in full control of their personal data, and is based on OpenID Connect and Financial Grade API. The proposed solution is described in detail, including the way to adoption and the trade-offs and considerations that underpin it.
    Keywords: GAIN, digital identity, digital infrastructure, industry initiative, open standards, OpenID, FAPI

  • Geldmaat: An example of ATM pooling in the Netherlands
    Erik Kwakkel, Chief Executive Officer and Victor de Wolff, Chief Financial Officer, Geldmaat

    Geldmaat was established by ABN AMRO, ING Bank and Rabobank in 2019. After three years of working together, the three banks retired their respective automated teller machines (ATMs) on 1st October, 2021, replacing them with a network of ATMs owned and operated by Geldmaat. By combining forces to create Geldmaat, the banks have ensured that cash will continue to be available and accessible over the coming years. Nevertheless, the future of the cash chain in the Netherlands remains a topic of much discussion. This paper explains the transition process, from the initial steps in the pooling process to the rollout itself, in addition to the services now offered by Geldmaat. It then goes on to discuss the future of the cash infrastructure in the Netherlands.
    Keywords: cash, digitisation, ATM pooling, cash chain

  • Country Report
    Retail payment strategies: The approach in Portugal compared with the European Commission and the Eurosystem
    Rui Pimentel, Head of Unit, Payment Systems Department, Banco de Portugal

    In November 2020, the Portuguese Payment Systems Forum issued the Portuguese Retail Payments Strategy | Horizon 2022. The strategy has been formulated to support the implementation of secure, efficient and innovative payment solutions, while promoting broad accessibility to retail payment services. As this paper will discuss, the strategy envisions 42 initiatives for stakeholders in the payments market. These initiatives fall under four pillars: (1) ensuring consumers are better informed about the payment instruments available to them; (2) fostering the benefits of digital transformation; (3) contributing to a regulatory framework that promotes innovation and efficiency; and (4) driving the adoption of safer payment solutions. This paper describes key initiatives under these pillars, and reports on how the strategy is progressing towards its goals.
    Keywords: payments, strategy, Portugal, Europe, COVID-19, innovation

  • Book review
    Payments and Market Infrastructure Two Decades after the Start of the European Central Bank
    Reviewed by Piet Mallekoote, Independent Consultant