Page 61 - ITU-T Focus Group Digital Financial Services – Interoperability

ITU-T Focus Group Digital Financial Services
Interoperability

International Interlinking of Payment System Infrastructures 4

A. Drivers of international payment system infrastructures (PSIs) interlinking

5. Several factors may prompt the international interlinking of PSIs. In most cases, linking national PSIs
to achieve international interoperability of certain payment services comes from a country’s decisions to
exploit the benefits of international economic and financial integration (i.e., greater international trade and
investment activities, attraction of foreign investment capital, risk diversification, and deepening and broadening
domestic financial and capital markets), since integration requires economic units to have convenient access
to cross-border payment service facilities. A powerful driver to regional PSI interlinking is constituted by the
political agreements among countries in a region on a broad, long-term economic and financial development
cooperative program. Usually, in this case, the efforts to link payment system (as well as other financial market)
infrastructures are supported actively by a core group of countries in organized regional development policy
and planning forums . In some cases, interlinking may result from decisions by national financial authorities
5
to address the demand from market participants (and/or their customers, including asset managers, other
securities servicers, and other types of businesses) for cross-border access to international markets at lower
end-to-end transaction costs .
6
6. Market incentives can also be effective drivers of international PSI interlinking. Expanding operations
across borders may strongly incentivize private-owned payment systems to extend and improve existing
access channels and means by using or sharing international platforms that allow for greater speed of service
or lower costs and risks. Such "supply-side-led" initiatives are most likely based on competitive, commercial,
operational, risk management, and legal considerations. Another driver of international PSI interlinking is the
growth-orientation of existing financial market infrastructures and their imperative to expand into new market
areas within or across regions.

B. Modalities of international PSI interlinking

Interlinking solutions

7. International PSI interlinking can take different forms and feature various levels of depth and
sophistication. Interlinking solutions range from simple agreements among national payment systems aimed
to facilitate direct or indirect cross-participation of the participants in each of the systems, to full harmonization
of operating systems and integration of technical platforms into a common infrastructure for the execution of
cross-border transactions. In simple interlinking agreements, the relevant systems usually sign contracts that
allow the participants of each national system to participate directly or indirectly in the other national systems .
7
The alternative – which may take the form of a regional or global payment system with a common (unified)
scheme and operating infrastructure – represents the deepest form of interlinking possible and amounts to
full-fledged payment system integration.

4 This section draws on the World Bank’s "Guidelines for the Successful Regional Integration of Financial Infrastructures", January
2014.
5 The integration projects of the Association of Southeast Asian Nations (ASEAN), Central America and the Dominican Republic,
the European Union (EU), and the Southern African Development Community (SADC), among others, are prime examples of this
driver. These projects are discussed in further detail below.
6 Transaction cost reduction is associated with the cost reductions related to straight-through processing of cross-border transac-
tions, clearing, and settlement achievable through harmonization and standardization of regional payment systems, and to scale
economies from commonly shared schemes and systems. Regional payment system integration may deliver liquidity-cost savings.
These are greater where there is a single regional currency used to settle all domestic and cross-border regional payments, since
the markets for the regional currency and assets denominated in it are potentially broader and deeper, making the settlement
asset more available at a lower transaction cost than otherwise. Where there is no single regional currency, liquidity-cost savings
depends on the use of a settlement currency that is highly available throughout the region and has relatively deep and active
markets accessible to the regional financial institutions participating in the regional settlement network.
7 Indirect participation occurs either through the system to which the participant belongs or through an intermediary.

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