Lessons Learned from Payments System Interoperability ITU Workshop on “Digital Financial Services and Financial Inclusion” (Geneva, Switzerland, 4 December 2014) Lessons Learned from Payments System Interoperability Carol Coye Benson Managing Partner Glenbrook Partners carol@glenbrook.com

Check, ACH, and “open loop” card systems all work this way Payments Systems Payments systems around the world are “bank transfer systems” – consumers and businesses use them through relationships with banks Check, ACH, and “open loop” card systems all work this way End User Bank Transfer System In some countries, regulators are expanding direct participation to non-banks

Payments Systems Bank transfer systems have “built-in” interoperability, and can reach all banked customers in the country The “hub” is often an industry-owned consortium, with a cost-recovery business model for participating banks In some countries, regulators are expanding direct participation in these systems to non-bank payments institutions In some countries, regulators are expanding direct participation to non-banks Banks may have profitable businesses that are built on top of the “utility” payments structure

Payments Systems Functions RULES Law and Operating Rules BRAND Common terms for payer and payee PROCESSING Switching and settlement Balance between law and private operating rules: the stronger the law or regulation, the less important the operating rules are Transaction management Liability Interchange etc.

Payments System Provider Payments Systems Closed-loop systems exist, but are much less common, and struggle to reach ubiquity The “Payments Services Provider” is often (but not always) a non-bank Many mobile wallet products work this way End User Payments System Provider End User Rewards or other incentives necessary to have end-users participate in a system with limited ubiquity

Network Interoperability Possible, but challenging End User Payments System Provider Not a technical problem…. Which network rules apply? Are the networks competitive? End User Bank Transfer System ATM networks are an example Are end-parties confused?

Interoperability and Financial Inclusion The unbanked use cash, which is interoperable: “accepted everywhere” To move away from cash in a manner useful to the unbanked, we need to at least meet the “cash threshold”: Ubiquity Simplicity Low cost Cash is perceived as low cost by end users

Conclusions and Recommendations There are effective models for interoperability among banks that can apply to mobile money systems Cash is the standard against which the unbanked will measure the usefulness of mobile money