The country intends to modernize its banking so that the financial system is more competitive and flexible. Infrastructure and data protection, the challenges.
Colombia has made efforts to modernize its regulations, in search of a more competitive and flexible financial system, whose purpose is to increase the use of digital payments.
In the 21st century, in Colombia it is still difficult to pay with a debit or credit card, especially in small and medium-sized stores, since they avoid the high commissions charged on transactions. And to this is added that sending money from one fintech or one bank to another can take up to 72 hours, so we are facing a financial outlook that continues to lag.
However, although it is evident that there are still gaps that must be closed, for several years Colombia has made efforts to modernize the current regulations, in search of a more competitive and flexible financial system, whose purpose is to increase the use of means of digital payment.
Thus, with this firm purpose, the country has already laid the foundations to promote the emergence of its own Immediate Digital Transfer System (SPI) —inspired by the Brazilian PIX platform—, for which a roadmap has already been drawn up in the Plan National Development Program (PND), which also covers the opening and exchange of account information and financial products, called open banking or open finance.
These initiatives will be led by Banco de la República and the Financial Superintendency of Colombia.
Immediate payments, how will they be?
A survey by the Centro Nacional de Consultoría, hired by Banco de la República, showed that cash continues to be the usual form of payment preferred by Colombians (78.4%), followed by electronic transfers (12.6%), debit card (7.9%) and credit card (1.2%). In fact, the trade perceives that cash is the means of payment most used by its customers.
The report showed that among the main reasons that justify the greater preference for cash are the ease and speed of paying; the possibility of reusing it immediately, and the habit of using it for low-value purchases or on the street.
Precisely, this diagnosis has made banking discussions now focus on the user experience, interoperability and usability of electronic payments. For this reason, in order to modernize the operations of low-value domestic payments, a range of options was created in which the implementation of an SPI in the country is one of the first and most important strategies to reduce transaction costs. , and bring the financial system closer to more people and companies.
What does this mean? Technically, immediate or instant payments are defined as those in which the money is available in a few seconds, almost in real time, in a user's account, at any time of the day and every day of the year.
For Juan Pablo García, director of Digital Transformation at Asobancaria, this system would have a direct effect on the financial inclusion of people and businesses, since the immediate availability of money when payments and digital transfers are made encourages the reduction of overuse of cash, decreases the size of the informal economy and facilitates the development of new products and services for micro-businesses and SMEs.
“Having an updated regulatory framework for payments in Colombia has provided the basis for developing a more modern infrastructure and payment system. An example of this is the creation of new products, such as savings accounts with simplified processing and the emergence of digital payment platforms (PSE, NFC, QR codes), which have allowed the population to receive their income and carry out transactions safe and easy,” Garcia said.
In this way, with the purpose of continuing to modernize the payment system in the country, the Banco de la República presented the project for the creation of the SPI in the second half of 2022, and proposed the intention of creating a public chamber for the connection of all players in the financial system.
And this year, after the approval of the PND, an article was approved that will allow low-value payment systems (as Nequi or Daviplata is technically known) to have to interoperate with each other, according to the regulation that establish the Board of Directors of Banrep.
For now, according to Leonardo Villar, general manager of the Issuer, the objective is to "open the space for the exchange of ideas with market participants and with other authorities on the decision to move towards a system of immediate, safe and efficient transfers, which is fully interoperable and that contributes to the competitiveness of the markets, financial inclusion and the development of the country”.
For her part, the director of the Banrep Payment Systems Department, Ana María Prieto, stated that two important issues have emerged from the discussion tables: the need to have a brand and the need to standardize the user experience.
And he pointed out that by the second quarter of 2023 the tender would come out so that all interested technology providers could present themselves. And by the third quarter of the year the selection and contracting process for the immediate payment system in Colombia would be carried out.
The Issuer's goal is to close this 2023 with a contract already made and a defined implementation plan with the selected suppliers. There would still not be an estimated cost of the project, because first, Prieto said, the commercial offers of the suppliers must be known, who will deliver the requirements and values.
towards an open bank
The countries of Latin America are facing a true revolution in their financial services and products, thanks to technological advances and new regulations that allow the insertion of models such as open banking or open banking, which seeks the transfer of consumer data between financial entities. .
In Colombia, the National Government also endorsed this model in the PND, where it recognizes open data as a key tool to achieve greater financial inclusion, as well as more innovation in services and products.
The country becomes the third in the region, after Brazil and Mexico, with greater advances in the establishment of a regulation for open banking.
And this means? According to Asobancaria, this model would mark a break and evolution in the technological trends that will define the banking business, going from a traditional model, where the bank is the owner of the customer's data, to an open banking model that seeks to give greater control over data to consumers.
"This means, to mention a few cases, that certain processes that are complex for users today, such as the pre-approval of credit products or the allocation of quotas, will be more efficient and will generate greater opportunities for the market," said Camilo Restrepo Saldarriaga, functional leader of Bancolombia's Customer Knowledge EVC.
In short, a fruit vendor, a shopkeeper or a taxi driver, who have handled only cash for much of their life and/or who only use digital wallets such as Nequi or Daviplata, and who for that reason find it difficult to access any bank credit, with open banking they could do it more easily.
And it is that for some analysts that data exchange model would allow financial institutions to have the data of their clients in real time, have a clear and reliable income verification and offer a better credit offer.
However, they also highlight that the implications of both this new open finance model and that of immediate payments are greater for the banking industry, since these new trends completely change the way in which the financial business has operated for years.
Is Colombia ready?
The challenges brought about by the transformation that traditional Colombian banks want to carry out are not few: they range from increasing bank usage, overcoming Internet connectivity gaps and the lack of electronic devices, to updating and adapting new technologies, and investment in proper infrastructure.
For this reason, for Rafael Felipe Gómez, a lawyer specializing in commercial law, there are several aspects that must be worked on first, such as the infrastructure and design of the system, because, otherwise, these would become major bottlenecks.
“The risk of fraud will always exist. Criminals can use false information or identities to defraud through transactions. Human errors must also be taken into account, either by the person who sends the payment or by the person who receives it, since this can lead to the fact that, due to the incorrect completion of data, the transaction is automatically carried out in favor of a third party, that it was not the initial recipient,” Gómez explained.
And it is that for the SPI to work successfully it requires a robust, reliable and solid technological infrastructure, so advancing in this becomes one of the main challenges. In addition to this, work must be done on the integration of cross-border payments, automatic payments to facilitate recurring payments such as a public service bill, and transactions without Internet connection, due to the challenge that connectivity represents.
“Unfortunately, most of the banking entities present a series of errors and permanent failures, either due to network interruptions, processing errors, among others. These factors could seriously affect the immediate payment system,” said Gómez.
And he stressed that one of the focuses should also be on avoiding money laundering and capital laundering that may arise, since these immediate payment systems are susceptible to being used by those who carry out this type of activity, seeking to transfer illicit funds, and hide or automatically legalize their origin.
“There is also a matter of data protection and privacy, because an SPI implies the transfer of financial and personal information of a sensitive nature. These risks can be reduced and mitigated if adequate security measures are taken, such as establishing double authentication and data encryption, monitoring of suspicious transactions, robust security policies, etc.", noted Gómez and opined that Colombia would not yet be prepared for this type of systems, because he believes that some first steps should be taken in technological improvement and strengthening.
On the side of open banking or open banking, although its multiple benefits have been highlighted, such as the reduction of costs for consumers, since new companies will be able to offer financial services at lower prices than traditional banks, there are also some challenges that must be overcome.
Víctor Ramírez, Audit and Assurance partner of the BDO firm in Colombia, explained that one of the main dangers is cybersecurity, since the data handled by the financial sector is highly desired by criminals.
“To mitigate this, it is important that strong security measures are put in place and the use of financial information is properly regulated. In addition, it is important to educate consumers about the risks associated with the use of digital financial services and how to protect their financial information,” said Ramírez.
From Gómez's point of view, another of the risks of open banking is in terms of regulatory compliance, because it is more difficult to control, since it becomes so vulometric that it is difficult for the State to exercise control and guarantee the security of transactions.
"From my perspective, without refusing financial openness, first the supervision, surveillance and control authorities must demonstrate greater effectiveness, in order to generate consumer confidence," the lawyer pointed out.
Thus, the implementation of this new banking model implies that the financial system must make administrative and investment efforts to take the next step in terms of digital transformation, allowing it to be more competitive and efficient. However, one cannot lose sight of the fact that there are barriers to overcome, such as greater access to banking services, training of people in technological skills, security and trust in the platforms, and better internet connectivity.
These are some success stories of this type of payment systems in Latin American countries.
Brazil: Pix and disruptive payments
One of the most recent milestones that highlights Brazil within the region is the implementation of an instant payment system, called PIX, as the only centralized infrastructure for the settlement of instant payments between different service providers. This system is operated by the Central Bank of Brazil (BCB).
According to Asobancaria, PIX is a neutral, open, interoperable and non-discriminatory infrastructure, through which private entities, financial or not, can operate and offer payment solutions that will be settled instantly.
Thus, this system can be used through checking, savings or prepaid accounts and seeks to encourage financial democratization, ensuring speed, availability, versatility, ease, cost reduction, security and convenience for payments made in the country.
In Colombia, for example, a PIX would end the dependency that exists on payment methods such as PSE and Transfiya, since these would not be enough.
Sweden: Swish Pay
Denmark, Finland, Iceland, Norway and Sweden are some of the countries that use less cash.
For example, since 2012, the largest private banks in Sweden have launched Swish Pay, an instant mobile payment platform that connects the user's phone number with their bank account, facilitating transactions in real time 24/7. Among the services offered by Swish are high-speed payments in affiliated businesses; digital payment service; generation of QR codes for physical and digital payments; and an application for businesses that allows managing expenses, paying the payroll and charging customers.
In the country, Swish is the main application for payments and transfers, 73% of the population over 16 years of age use it.
Argentina: Transfers 3.0
The Central Bank of Argentina launched Transferencias 3.0 at the end of 2020. The project is based on the interoperability of QR codes for payment. This means that any virtual wallet or banking application can read any QR code to make transfer payments. One of the strategies for this ecosystem to work is that all companies must have their credentials integrated to allow interoperability.
However, one of the challenges is that although this model was launched only a month after the Brazilian Pix, in Argentina it has not had the same success, since there are challenges in terms of enabling QR Codes in some electronic wallets, banking as well as cultural barriers.
Article taken from elcolombiano.com
By Alejandra Zapata Quinchía