Colombia sets new rules for low-value payment schemes

    Insights » Americas » Colombia sets new rules for low-value payment schemes

    The Banco de La República has issued a resolution that outlines new standards for low-value immediate payment players, pushing them to talk to each other.

    Low-value payments : Colombia sets rules for immediate schemes

    Valentina Meneses

    Sr. Analyst

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    In October 2023, Colombia’s Central Bank issued a resolution outlining the first interoperability parameters for the so-called “immediate low-value payment systems1.” Gradually, these parameters will allow digital wallets like Nequi and Daviplata to talk to each other. Most importantly, they lay the foundations for the country to have a real-time payment system like those present in Brazil, Mexico, and Costa Rica2 by 2025.

    Interoperable instant payment systems in Latin American and the Caribbean. The case of Mexico, Brazil, Argentina, Costa Rica, Bolivia, Colombia, Chile and Panama.

    What Colombia’s Central Bank Says on Connecting Immediate Payments

    The resolution states that Administrators of Immediate Low-Value Payment Systems (EASPBVI) — entities in charge of receiving, processing, clearing, and settling payment or funds transfer orders such as Credibanco, Redeban, ACH Colombia, etc. — must talk to each other. Currently, these platforms work on separate tracks that do not connect.

    It also introduces key concepts for players’ interoperability. The first concept is that of a “seal,” a logo designed by the EASPBVI to clearly identify providers that are part of the interoperability scheme. These institutions must develop advertising campaigns to publicize and educate users about the seal and cannot impose conditions that lead to discriminatory practices against other entities.

    Another concept introduced by the resolution is the “key,” that is, the piece of information or alias through which users will be identified and that will link them to their payment provider of choice. Additionally, the resolution describes how access to technologies like keys and QR Codes will trigger immediate funds transfers.

    Regulators appear to be moving towards a more centralized model, defining rules and obligations and forcing participants to follow them. However, it is unclear whether it will be as centralized a model as the Brazilian Pix. In the largest economy in Latin America, the instant payment system is controlled and operated by the Central Bank, and the participation of large banks in the scheme is mandatory.

    The new resolution in Colombia briefly lists some aspects linked to user experience and data protection that the Central Bank is already showing interest in regulating, such as interoperability. Deciding how players will manage the “masking of beneficiaries’ identities,” that is, how they will hide users’ sensitive data, is also a top area of interest.The central bank plans to gradually establish these technical and operational interoperability standards in upcoming regulations.

    All these rules should gradually lead to a standardized and unified user experience, avoiding a challenge that CoDi faced in Mexico — the lack of uniformity was one of the main reasons for Mexicans’ low adoption of the system.

    Instant Payments to Follow a Similar Route to QR Codes

    QR Code "readable" by users of various banks and wallets that can be entered thanks to interoperability agreements between the EASPBVI.  Source: Bancolombia website
    QR Code “readable” by users of various banks and wallets that can be entered thanks to interoperability agreements between the EASPBVI.  Source: Bancolombia website

    Since March 2023, an ordinance from the Financial Superintendence obliges the EASPBVI to collectively define interoperability rules for making payment orders and fund transfers via QR Codes. All players have up to two years to adapt. The new rules for instant low-value payments are expected to follow a similar path.

    In the case of QR Codes, there are already notable examples of partial interoperability from players such as Davivienda, Grupo Aval, and Bancolombia, in collaboration with Redeban. merchants receive payments from all leading banks and digital wallets through the interoperability standards they created. It is expected that these interoperable QR codes will also be enabled for online payments soon.

    What Will Become of Existing Interoperability Solutions?

    With the rapid evolution of low-value immediate payment systems regulation and the Central Bank moving towards a unified scheme, questions arise about the future of PSE — an electronic payment system that allows users to make online transfers without leaving the merchants’ checkout — and Transfiya — a solution that allows immediate transfers between individuals from different financial entities. Both are solutions developed by the Colombian banking clearinghouse ACH.

    It can be speculated that, given the great popularity PSE among online shoppers and the country’s tendency for payment solutions to establish themselves first in the physical world and then migrate to the online environment, the PSE will continue to lead as one of the principal online payment methods for some years.

    There are more doubts surrounding Transfiya, as it currently offers different experiences depending on each financial institution participating in the scheme — to receive transfers, users must follow some unintuitive steps that vary from bank to bank. On top of that, financial institutions do not actively promote it, making the solution’s adoption curve slower than it could be.

    Despite these challenges, considering that the new regulation aims to imbue the entire low-value payments system with immediacy and interoperability, Transfiya can continue to operate as is for a few more years, looking to the Central Bank’s future instant system as a future competitor. When the rules come into effect, Transfiya will be approximately three years old and averaging more than 8 million monthly transactions, giving it a competitive advantage — whether this will be enough for it to continue operating without being swallowed up by the new system remains to be seen3.

    While PSE handles around COP 40 billion (USD 10M) in monthly transactions, Transfiya moves COP 5 billion (USD 1.2M).

    The key numbers behind Colombia's PSE

    Players Still Need to Win Over Users’ Trust

    Weeks ago, Bancolombia experienced disruptions after a digital system update, preventing thousands of users accustomed to paying through QR codes and bank transfers from using such solutions. Consequently, it forced small businesses to accept only cash. Often, other players experience similar difficulties. For many users, these incidents raise doubts about the industry’s ability to offer and improve its online services4.

    To win the battle against cash, industry and regulators need to improve reliability in the system. To do so, they need to answer a series of questions: How will users’ perspectives change with the complete interoperability of low-value payment systems? Will users be able to choose the bank they prefer/trust? To what extent will this challenge large banks to retain customers so as not to see them migrate massively to other platforms? It remains to be seen whether the regulator’s first steps towards true interoperability will encourage institutions to face all these challenges.

    Next Steps

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    Valentina Meneses

    Valentina Meneses supports PCMI practice by conducting desk research, interviews and analysis focused on different markets, consumption variables; as well as social, political, and economic contexts.