Retail Payment Systems Research Articles

Simulating the Adoption of a Retail CBDC

Abstract We use agent-based modelling to build a digital twin of the retail payment system, where heterogeneous consumers and merchants interact, learn, and adapt as they meet and use different monies and payment instruments. As we introduce an rCBDC, the model simulates its adoption. We calibrate this digital twin to Spain’s retail payment ecosystem. We run hypothetical scenarios that correspond to public discussions about the digital euro. Results show that introducing an rCBDC without attractive design options and stimulus results in low and slow adoption. Results suggest that the reverse waterfall functionality, a positive remuneration spread, and the distribution of government subsidies via rCBDC are effective in fostering adoption; yet, the distribution of government subsidies via rCBDC is the only one that creates incentives to reduce the use of cash. Balance limits and top-up limits are effective in restraining adoption. Results also suggest that combining design options and stimulus with limits to holding rCBDCs could aid in achieving a sweet spot of adoption.

MARKETING STRATEGY INNOVATION IN THE FRAMEWORK TOWARDS EXPANSION OF DIGITAL BANK ACCESS AROUND STUDENTS (A CASE STUDY ON BLU BCA)

Blu is a mobile banking service from BCA Digital which is designed and developed to make it easier for its customers to make financial and non-financial transactions via mobile phones. Currently, Blu already has a BI Fast Payment system for its services. BI Fast Payment is infrastructure. A national retail Payment System that can facilitate retail payments in real-time, safe, efficient, and available at any time. With the BI Fast Payment system, customers can make inter-bank transfers more efficiently and effectively than usual, which is IDR 2,500 per transaction. Not only can it be used to make payments, Blu can also be used for various purposes related to banking with various features such as: Blu Account for making purchases and withdrawals, Blu Saving for saving, Blu Gether which can plan finances with other users, and Blu Deposit opens a time deposit service of at least IDR 1,000,000. Due to the Covid-19 pandemic, the use of digital banks is increasing in Indonesia due to the cashless system when making payments. Therefore, Blu is here to support the system. Blu still has many systems and features that need to be developed to make users more comfortable.

Catching the Fast Payments Trend: Optimal Designs and Leadership Strategies of Retail Payment and Settlement Systems

Recent financial technologies have enabled fast payments and are reshaping retail payment and settlement systems globally. We developed an analytical model to study the optimal design of a new retail payment system in terms of settlement speed and system capability under both bank and fintech firm heterogeneous participation incentives. We found that three types of payment systems emerge as equilibrium outcomes: batch retail (BR), expedited retail (ER), and real-time retail (RR) payment systems. Although the base value of the payment service positively affects both settlement speed and system capability, the expected liquidity cost negatively impacts settlement speed, and total transaction volume and technological effectiveness positively impact system capability. We identified three leadership strategies to maximize social welfare: the government mandate (GM) strategy, the fintech-inclusive (FI) strategy, and the fintech-exclusive and bank-exclusive (FE+BE) strategy. When the base value of the payment service is either low or high, the GM strategy leads to a socially optimal unified system. When the base value of the payment service is in the intermediate range, and if fintech firms have a significant technological advantage over banks, then both GM and FI strategies result in a socially optimal unified system; otherwise, the FE+BE strategy results in a socially optimal fragmented system. Further, we proposed a Shapley-value-based cost-sharing rule under the GM strategy to fairly allocate social welfare among the system participants. Our findings offer important policy insights into the optimal system designs, leadership strategies, and the government regulator’s role in shaping future innovations in the payments industry.

Distributed ledger technology experiments in retail payments: Evidence from Turkey

A growing number of central banks are exploring the potential introduction of a central bank digital currency (CBDC), and authorities are conducting distributed ledger technology (DLT) proof-of-concept experiments and pilot programmes. While these pilot projects have confirmed the feasibility of using DLT platforms for large-value wholesale payments, it is not yet clear whether these platforms will provide major advantages in terms of speed and scalability for small-value/large-volume retail payments. In Turkey, the existing instant payment system has already demonstrated that it can settle as many as 1,980 transactions per second (TPS) and 11.5 million transactions per day, across its 25 participant institutions. Moreover, simulations in test conditions suggest that it has the potential to deliver thousands of transactions per second, and that it is scalable to hundreds of participant institutions. Any retail payment system built on a DLT platform must therefore, at the very least, perform at a comparable level. Using actual retail payment data from the day on which the peak TPS was observed, this paper describes a novel experimental investigation into the TPS and scalability performance of two open source DLT platforms (Hyperledger Fabric and Quorum) and Turkey’s instant payment system for retail payments, with the aim of providing valuable insights for the design of alternatives for future CBDC launches. The study presents several empirical findings. First, it demonstrates that the speed and scalability of selected DLT platforms are not yet mature enough to establish an enterprise retail payment solution. Secondly, the experimental design enables us to determine precisely which DLT platform is facing a performance and capacity bottleneck and under what circumstances. One of the most critical findings is that platforms with a modular architecture and more efficient transaction life cycle perform relatively better, although still lack the requirements for achieving reliable and efficient retail payments. Lastly, we suggest that it could be worth developing an integrated approach in which the central instant payment system and DLT-based digital currency solution communicate via a bridge platform.

Toward a cashless society. Cash and non-cash payments in Spain, 1989-2014

This work investigates the relationships between the retail payment system, monetary aggregates and economic activity in Spain from a long-run perspective. This approach is considered from the perspective of the transformations favored by ICT in the payment system, which incorporates increasingly more and more cashless instruments. The methodology used is based on cointegration analysis and error correction models. Likewise, a new indicator of some trends in the implementation of cashless transactions in payment systems is proposed; this measure has been applied to Spain and other European countries. With respect to long-run relationships, we demonstrate the relevant (and direct) impact of changes in the monetary system and national income on the value of cashless transactions. Regarding the short run, the most important relationships in terms of the value of cashless transactions are those related to the real estate sector. The empirical results evidence the intensive progress of the cashless society in Spain, where the banking sector, regulatory changes and ICT development have played a key role.

Digital Finance on Stability among Philippine Banks

To promote financial inclusivity while being responsive to technology demands, the Philippine government implemented a framework that requires banks to improve and innovate their payment systems. The introduction of the National Retail Payment System raises the question of whether the aim of Bangko Sentral ng Pilipinas in advancing digital financial inclusion significantly impacts the financial stability of universal and commercial banks. This correlational study examines the impact of digital financial inclusion on bank stability utilizing principal component analysis and linear regression analysis from a dataset of 19 universal and commercial banks from 2017 to 2019. Findings showed that a higher level of digital financial inclusion is associated with higher banking stability for Philippine universal and commercial banks. While the results support the study hypothesis of a positive relationship between the two (2) variables, the statistical significance cannot be guaranteed at the outset of this analysis due to the limited number of years examined.

New trends in retail payments: How technological changes are reshaping the payments system. Introducing a proposal for a new pan-European instant payment system

Since the institution of a unified European market, the retail payment system has changed significantly. In September 2020, the European Commission adopted the Digital Finance Package, that includes a digital finance strategy, legislative proposals on crypto-assets and digital resilience, as well as a renewed strategy for retail payments. This work proposes the framework for a new pan-European retail payment system based on public identity recognition and disintermediation of currently used devices: Euro-PaID. The aim is to have a competitive EU financial sector that gives consumers access to innovative financial products whilst ensuring consumer protection and financial stability. The new system is designed in compliance with existing regulations. However, because certain aspects do not fall within the scope of applicable EU law, ad hoc regulation should be enacted. We concluded that a holistic approach is essential in rethinking regulation to address the numerous social implications of a hypothetical change in the payments system.

A path towards enhancing cross-border payments: Breaking down the realities

If the future of payments, as envisaged by the Financial Stability Board, is to be delivered, it will require industry and regulatory investment. Improvements will be incremental and slow in adoption unless a number of significant challenges outside pure technical capabilities are addressed. These challenges are a result of diverse national legal and regulatory regimes; varying standards and practices in financial messaging; the different channels for reaching end users; the difficulty of interlinking multiple retail payment systems; data management and storage constraints; supplier and network oversight; and, not insignificantly, clarity on the business case for change, when revenue for payments is on the wane. This paper evaluates the importance and implications of managing these challenges in a way that does not increase the levels of risk in payment processes and, most importantly, does not impede the ability of the authorities to manage financial stability. It proposes the selection of a few key corridors with high volumes of worker remittances and the development of path-finding market practices as a prelude to agreed global standards. Finally, the paper concludes with a few ideas on what cross-border payments could look like by 2030.

Transformation of the retail payment system in the context of digitalization

Aim. The presented study aims to identify key factors that currently determine the spread and development of various payment methods and that will determine their development in the future.Tasks. The authors analyze the fundamental concepts of digital retail payment methods in Russian and foreign economics; identify factors affecting the emergence and development of payment methods; conduct a survey of students and teachers of economic universities in St. Petersburg regarding the payment methods they use and method choice factors; present results and formulate conclusions.Methods. This study uses general and specific scientific methods, as well as a formal-logical approach. In the course of the study, a survey was conducted with subsequent analysis of its results. Materials for analysis were collected in the major Russian city of St. Petersburg, where many significant financial organizations are located. Google Forms features were used to collect data. The obtained materials were analyzed and systematized.Results. The major factors determining the development of the retail payment system and its prospects in the context of widespread digitalization are identified. According to the authors, these include the minimization of the risks of using payment methods, the convenience of their use, nativeness — intuitive clarity, the efficiency of calculations, and financial benefits (the bank’s business partners, cashback, etc.). Other factors turned out to be less significant from the user perspective.Conclusions. Factors affecting consumer choice when using a particular payment method are usually considered together: the desire to mitigate risks is considered along with convenience, the speed of money transfer — with the possibility of obtaining benefits. The results can be useful for all financial institutions that develop new tools and services and create strategies for promoting retail instruments. Making allowance for user preferences will allow payment service providers to create products of higher quality and develop effective strategies for working in the payment services market.

Financial technologies’ evolution and traditional banking: A study of retail payments in Nigeria

Abstract The world of digitalisation is impacting on all aspects of socioeconomic life. This notable change also applies to the financial sector of the global economy. The activities and services of financial technology (FINTECH) overlap with that of traditional banking services. The study seeks to investigate the impact of FINTECH evolution on traditional banking institutions to picture the future of payment systems in Nigeria. Two methods of data analysis were used in the study. An econometric method of data analysis was used to conceptualise the findings of the study. Results from the test of hypotheses reveal that FINTECH affects traditional banking. In conclusion, the present FINTECHs in the Nigerian financial system seem to be slow but are positioned to provide better financial services, especially in payment systems than the traditional banking. The study recommends that the regulators of the Nigeria financial system should incorporate policies into the retail payment system that would ensure full application. Keywords: Financial technologies, generalised linear method, system theory, traditional banking, retail payments;

CENTRAL BANKS DIGITAL CURRENCIES AND PROSPECTS FOR THE UKRAINIAN ECONOMY

The article is devoted to the study of the main directions of research on the introduction of digital money of the world's leading central banks. The paper analyze the experience of the central banks of Saudi Arabia and the United Arab Emirates in implementing a single digital dual-issue currency and cross-border payment system (Aber project). Also we found the Helvetia project, a joint experiment of the BIS Innovation Hub, SIX Group AG and the Swiss National Bank. The project provided issuance of a new wholesale digital currency by the central bank and can be classified as a private permissioned peer-to-peer network with hierarchical access to the ledger. Interesting for our study was the experience of creating a CBDC in Uruguay (E-Peso), where CBDC have been issued in form of unique digital banknotes of several denominations. The article considers the main prospects for the implementation of CBDC in Ukraine. The paper studies the use and legal status of electronic digital signatures in Ukraine. Today, only reporting to regulatory authorities and document flow between users is carried out using electronic digital signatures. CBDC and blockchain network can provide secure storage of information by data centers of regulatory authorities and a common operational space in the financial information channels. The blockchain network should be token-based, and service providers could use an account-based retail payment system. The article defines the main characteristics of token-based and account-based distributed ledgers. Attention is also paid to the anonymity of transactions in payment systems, protection of personal data and the cultural component of cash circulation. Most likely the introduction of CBDC will reduce the total amount of bank financing and banks need to consider how to respond to potential loss of deposit funding. The most likely changes associated with CBDC is the redistribution of profits that banks receive from cheap liabilities in favor of customers. This applies to the owners of operating accounts, on which banks usually charge symbolic interest and which users keep in a liquid form for making payments.

Shallow or deep? Training an autoencoder to detect anomalous flows in a retail payment system

Our paper applies a deep neural network autoencoder (AE) to detect anomalous payment flows in Canada's retail batch clearing payments system, the Automated Clearing Settlement System (ACSS). We aim to investigate an AE's potential for detecting complex changes in the liquidity outflows between participants, which could provide an early warning indication for exceptionally large outflows for a participant. As the Canadian financial system has neither faced bank runs nor severe liquidity shocks in recent history, we trained our models on “normal” data and evaluated them out-of-sample using test data drawn from two constructed scenarios: a sample derived from the largest 1% of observed historical multilateral net outflows and a sample drawn from a simulated bank run. In both cases, the trained AE performed well by producing larger than usual reconstruction errors. Our approach highlights the efficacy of a class of unsupervised machine learning methods as a useful component of a system operator's risk management toolkit.

Внедрение розничных расчетов по QR-коду в России как фактор развития национальной платежной системы (экономические аспекты)

Problem statement. Drawing on macroeconomic analysis (2011-2019), the author formulates the key problems in the functioning of retail segment of the national payment system: a) differentiation of regions according to the degree of payment infrastructure development; b) disproportion in the availability of trace elements of the payment infrastructure; c) high cost of acquiring services. The underlying scientific hypothesis is the possibility to overcome the above-mentioned problems by introducing retail payments using QR codes. The study examines economic relations arising in calculations using QR codes in Russia’s retail payment system. The methodological base of the study includes theoretical assumptions of banking management, as well as a problem-oriented approach. The study identifies a range of economic problems in the implementation of QR settlements in Russia which include: the need to upgrade mobile banking; banks’ lack of interest in promoting QR code settlements due to fears of lower transaction returns; a decrease in citizens’ interest in cashless payments caused by a contraction in bank loyalty programs; the inertia of entrepreneurs unwilling to switch from cash-based interaction with customers; the inertia of some customers and their lack of financial literacy; cyber threats; risks of unfair behavior of buyers. The author offers and justifies the ways to overcome them. The findings may help improve state regulation in Russia’s financial and banking sector.

Digital financial inclusion - demand side vs. supply side approach

This paper explores the measurement of digital financial inclusion (DFI) in India by analysing the parameters such as per capita bank accounts, cards, retail payment systems, internet and broadband connections from both the supply side and demand side data. We observe substantial gaps in the level of DFI brought out by these two datasets, with the supply side seeming to overestimate the level of digital financial inclusion. We also propose a theoretical model for equilibrium in demand and supply sides of DFI. Supply of DFI is divided into two components of 'autonomous' and 'induced' supply. We find that demand for and (induced) supply of DFI is directly proportional to the income level of users and the incentives provided for the usage of DFI products/services. For a sustainable model of DFI, both the demand and supply sides should balance and complement each other, and supply-side infrastructure should be available and scalable, to meet a higher level of demand for DFI.

Digital financial inclusion - demand side vs. supply side approach

This paper explores the measurement of digital financial inclusion (DFI) in India by analysing the parameters such as per capita bank accounts, cards, retail payment systems, internet and broadband connections from both the supply side and demand side data. We observe substantial gaps in the level of DFI brought out by these two datasets, with the supply side seeming to overestimate the level of digital financial inclusion. We also propose a theoretical model for equilibrium in demand and supply sides of DFI. Supply of DFI is divided into two components of 'autonomous' and 'induced' supply. We find that demand for and (induced) supply of DFI is directly proportional to the income level of users and the incentives provided for the usage of DFI products/services. For a sustainable model of DFI, both the demand and supply sides should balance and complement each other, and supply-side infrastructure should be available and scalable, to meet a higher level of demand for DFI.

Private and Central Bank Digital Currencies: An Uprising of New Retail Payment Systems?

Private and Central Bank Digital Currencies: An Uprising of New Retail Payment Systems?

Using payments data to nowcast macroeconomic variables during the onset of Covid-19

The spread of COVID-19 has caused large-scale loss of life and economic damage. This pandemic has had a swift effect on the macroeconomy, posing a new and different shock to the Canadian economy. Governments have responded in many ways, including through public health measures, fiscal stimulus and monetary policy. Policy-makers seek to understand the current state of the economy for their COVID-19 support to be effective. However, major economic indicators are released with a substantial delay. This problem is usually dealt with by using a linear model of past economic variables. But this is not the best approach presently, given the large and nonlinear effects of COVID-19 on the economy. In this paper, we develop a model to predict the current state of the economy—known as nowcasting—using retail payments system data and machine learning. The Canadian retail payments data aid in understanding the current state of the economy because they include many types of transactions and are available daily. These data features are ideal for macroeconomic nowcasting during a crisis. The flexibility of machine learning can help capture the large and nonlinear effects of the COVID-19 shock. We find that our model—compared with a benchmark model—has a significant increase in prediction accuracy, measured as a 15 to 45 percent reduction in forecast error.

Real-time retail payments or faster payments: Evidence from select countries on consumer attitudes and the importance of dependability

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.

Real-time retail payments system or faster payments: Implementation considerations

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.

The Economics of Cryptocurrencies Bitcoin and Beyond

How well can a cryptocurrency serve as a means of payment? We study the optimal design of cryptocurrencies and assess quantitatively how well such currencies can support bilateral trade. The challenge for cryptocurrencies is to overcome double-spending by relying on competition to update the blockchain (costly mining) and by delaying settlement. We estimate that the current Bitcoin scheme generates a large welfare loss of 1.4% of consumption. This welfare loss can be lowered substantially to 0.08% by adopting an optimal design that reduces mining and relies exclusively on money growth rather than transaction fees to finance mining rewards. We also point out that cryptocurrencies can potentially challenge retail payment systems provided scaling limitations can be addressed.