Alejandro Díaz de León: Pushing the frontiers of payments
towards faster, cheaper, more transparent and more inclusive
cross-border payments
Closing remarks by Mr Alejandro Díaz de León, Governor of Bank of Mexico and Co-Chair of the
FSB Cross-border Payments Coordination Group, at the Committee on Payments and Market
Infrastructures Conference "Pushing the frontiers of payments: towards faster, cheaper, more
transparent and more inclusive cross-border payments", 19 March 2021.
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I would like to thank the Committee on Payments and Market Infrastructures (CPMI) for inviting
me to participate in this conference on a very important initiative aimed at addressing the existing
challenges of cross-border payments.
Recent advances in technology and innovation have created the potential for new payment
infrastructures and arrangements that could be applied to cross-border payments. They have
challenged the cross-border payments system as we already know it. New technologies have
raised the question on how this system can be improved to facilitate fast, low cost and scalable
payments for a broad range of users, thereby potentially combining greater efficiency and wider
access and inclusion.
However, as highlighted during today's sessions, the use of new technologies in cross-border
payments involves challenges and risks.
These can be identified first from an operational and technological perspective, such as the
interoperability of systems and linkages to existing systems. Second, there are issues related to
legal enforceability and jurisdictional conflict as well as to regulatory measures, to ensure
compliance with anti-money laundering and with combating the financing of terrorism and
potential financial stability risks.
In this regard, the emergence of proposals involving central bank digital currencies (CBDCs)
have led to a stimulating debate on their implementation. The main question is not whether to
adopt them or not, but rather to identify the most convenient solution for each jurisdiction based
on its needs and considering consumer protection, monetary policy and the most suitable
technological architecture.
Efficient cross-border payments support economic growth, international trade, global
development, and financial inclusion. Given the cross-border nature of these issues, I want to
highlight that coordinated international actions are key to address them. Also, close collaboration
with the private sector is required.
From that perspective, the roadmap endorsed by the G20 has the right elements to make a real
difference in addressing the existing challenges of cross-border payments. It provides a
highlevel plan, which sets ambitious but achievable goals. It is designed to provide flexibility to
accommodate different starting points for payment system arrangements in countries and
regions around the world. It is also adaptable on how goals are met.
I would like to underline that the involvement of the private sector, sharing their insights and
expertise, as well as promoting change, is also key to support the practical implementation of the
roadmap across the various projects.
It is key to stress that the potential benefits of new payment infrastructures and arrangements will
be improved by making broad progress on all of the building blocks listed in the roadmap. This
strategy will allow to strengthen the existing payments ecosystem and remove barriers to the
emergence of new cross-border payment infrastructures and arrangements.
Based on such interdependences, I want to stress the importance of developing a common
cross-border payment vision and targets. It is a crucial initial task to reinforce momentum by
setting more specific quantitative targets to address the four challenges: cost, speed,
transparency and access. This will ensure a clear sense of overall direction and scope for the
projects to be implemented, will measure progress, and will provide public accountability.
Some of the challenges derived from the COVID-19 pandemic illustrate this point. Prior to the
lockdown, innovative technology in financial services was considered a "relevant priority".
However, the current circumstances have evidenced that availability of digital financial services
to all individuals within a jurisdiction is an "imperative" if said jurisdiction wants to provide a level
playing field and reduce gaps within societies.
The pandemic has disproportionately affected disadvantaged groups and individuals with lower
access to digital technologies, who have had to interrupt their economic activities to a greater
degree, thus widening the so-called digital divide. Financial inclusion has now become more
important than it has ever been in the past. The first step to close the existing gaps starts with
stopping their widening.
To achieve this goal, we need to develop a vibrant payment ecosystem that includes identity
authentication, validation solutions, an open and neutral participation of many players on a level
playing field, and adequate risk mitigation. This applies within and across jurisdictions.
Those with access to more robust, efficient and innovative financial sectors will be able to better
cope with challenging conditions such as the one we are currently facing. Thus, we need to
contribute to a global agenda aimed at providing access to a financial digital infrastructure that
should be considered as a public good at the national and global level. This becomes even more
relevant given the non-rival nature of digital financial goods and their replicability at low costs
resulting in scale and network externalities.
As I highlighted before, cross-border payments are typically seen as facing four challenges: high
costs, low speed, limited access and insufficient transparency. They affect users and service
providers, but 5they do not affect all of them in the same way. Individuals and small companies
face particular challenges, such as retail cross-border payments and financial inclusion for many
of them. Low-value cross-border payments may incur high fees as a percentage of the amount
sent and may face cumbersome processes, and the recipients of such cross-border flows are
usually underbanked in their respective jurisdictions.
Realizing the benefits of the cross-border roadmap comes along with the implicit requirement of
updating domestic payment systems. This can allow for the interconnectedness of payment
systems across jurisdictions, a key ingredient that has usually been relegated from the
international agenda.
Fostering such an aspect of public infrastructure would be aligned with addressing the relevant
frictions in cross-border payments and, at the same time, with creating a robust baseline for new
payment services and arrangements. For example, there are important efforts to develop open
finance, in terms of both technical architecture and regulation. In this regard, authorities should
be mindful about potential suboptimal results if we fail to choose the right development path.
The inclusion of new participants in digital financial ecosystems, the so-called Fintech and
Bigtech, who want to provide integrated financial services solutions on their platforms, and which
vary significantly in size and availability of resources, raises considerable long-term issues.
We clearly need to avoid getting in a position of "too big to regulate". To avoid that, we need to
follow several key public policy anchors:
1. Same risk / same regulation
Under this policy approach, the aim is to align incentives to achieve maximum social benefits,
addressing market failures and promoting an environment for competition. It should be based on
a level playing field to mitigate risks associated with the payment service provided, such as
AML/CFT requirements, legal, financial and operational risks.
2. Interoperability and neutrality
Incentives are set for developing private networks, against the public interest of expanding and
exploiting network externalities and economies of scale. Large existing networks may want to
use their condition as a competitive advantage to carry financial transactions exclusively through
their networks. To avoid this condition, promoting interoperability and neutrality becomes a
crucial objective.
3. No kingmakers
Large networks joint-venturing with specific financial institutions could extend the former's market
power and concentration to financial markets.
4. Business continuity with systemic foreign providers
The failure of a Fintech or Bigtech firm with systemic financial services operations, or the
interruption in the service it provides, could have substantial spill-overs for both the domestic
economy it serves and other economies in the region. The source of such risks - particularly
those related to legal or operational issues - could also originate in a jurisdiction different from
that affected by said issues.
5. Jurisdictional gaps
Bigtech firms operating across multiple jurisdictions could increase the risk of gaps in
supervisory oversight. In order to ensure effective monitoring of Bigtech financial services
activities, efficient cooperation between regulators across jurisdictions is extremely important. In
order for regulators to ensure that new risks are regulated equally, new frameworks and
standards need to be developed.
6. Client protection
Given that risks concerning consumer protection may be larger in the case of Bigtech firms'
activities, the use of financial data must be regulated to avoid its misuse and also because once
Bigtech firms have access to the whole set of data it will be difficult to constrain its use. It is just
as relevant to promote robust and transparent data governance frameworks to provide clarity
regarding the use of consumer data, thus enhancing consumer confidence.
7. Cybersecurity
Since the number and severity of cybersecurity incidents that affect the operation of all types of
companies have been increasing, information technology security is a priority issue for all
industries, and for the entire financial system. Setting minimum standards is crucial to avoid
contagion and risks to the systems. Thus, cyber and operational security should be addressed
through three layers: i) the owner(s) of the infrastructure(s); ii) the participants (setting minimum
requirements to them); and, iii) the users. Even when all layers require the implementation of
measures aimed at making cybersecurity robust, the users' layer could be the weakest link of the
chain and addressing their inherent problems would require creative solutions.
I want to conclude emphasizing that the cornerstone for a healthy payment ecosystem is a safe
and robust infrastructure for low, medium and large value payments, with 24/7 services,
extremely high levels of availability and capable of acting as a hub for the innovation of payment
services to final users.
Developing this public infrastructure should be at the top of the local and international agenda
since payment systems are inherent to central bankers as the provision of money. Thus,
providing the latest technology and, eventually, CBDCs, are of utmost importance for central
banks.
In this effort, we greatly appreciate the role of the BIS in the creation of public goods and as a
global facilitator for cross border payment systems.
Thank you.