Piero Cipollone: The future of payments and how to get there
Keynote remarks by Mr Piero Cipollone, Deputy Governor of the Bank of Italy, at the
World Bank Global Payments Week 2023 "The Future of Payments", Marrakesh, 18
May 2023.
* * *
Ladies and gentlemen,
I am honoured to address such a distinguished audience at the end of this important
biennial conference on payments, organized by the World Bank and the Committee on
Payments and Market Infrastructures (CPMI) of the Bank for International Settlements
(BIS). The breadth of topics and the quality of the speakers are impressive. This speaks
to the high value that the World Bank places on payments and financial market
infrastructure.
Normally, it is easier to speculate about the future than to figure out how to get there. I
therefore want to talk about the steps central banks and payment system regulators and
supervisors can take in the short term to drive change in the payments area. In so
doing, I will also build on the results already achieved by the G20 Roadmap on
crossborder payments.
The payments ecosystem of the future
Let's start by looking at the future. As public authorities, we want to enhance the
payment options available to households, businesses and financial institutions because
we know that this makes our economies more inclusive, productive and resilient.1
In the payments sector, the advances in digitalization and telecommunications are
transforming the user experience, business models and infrastructure. Fintech
2
operators, e-commerce providers and telecom companies have entered the scene.
Digital wallets, instant payments and the integration of payment services into
nonfinancial services are driving innovation.
What will the payments ecosystem look like in ten years? It is hard to say, but it will
certainly depend on us. Ideally, we are aiming for an economy where households and
businesses can easily switch between payment solutions; where digital payments can
be made in central bank digital currency or other forms of privately issued digital
money; where instant settlement is the norm; where even the less well-off and less
welleducated have access to payment solutions; where remittances and cross-border
payments are as seamless as domestic payments; where financial and non-financial
services can be easily bundled in new ways; where banks and non-bank providers work
together and compete on a level playing field.
3
This is our vision. Will it remain wishful thinking? Obviously, there are obstacles. For
domestic payments costs and inclusion seem to be the key problems we are confronted
with. Indeed many people who are unbanked or offline still have limited or no access to
payments. Cross-border payments remain expensive and inefficient. The regulatory
environment has yet to respond to the growing importance of international payments
and to new forms of payments and providers. This brings me to what needs to be done
now.
For domestic payments many solutions are emerging to lower costs and enhance
inclusion.
Retail CBDC, stablecoins, tokenized deposits, fast payments are all good candidates.
They compose an ecosystem that has not reached an equilibrium yet. It is likely that
every jurisdiction will have a different configuration of this equilibrium, depending on its
specific needs.
My guess is that all these solutions will coexist, each caring for a specific use case. In
this context, central banks need to make sure that a proper regulation is in place to
avoid walled gardens, to foster competition and innovation in a safe environment for the
benefits of households and firms.
Speaking of safety, we need to spend some time thinking on how we can apply
innovation and technology advancement to detect in real time the insurgence of bank
runs.
I am more concerned about cross border payments, to which I will now turn.
A viable path
A lot depends on us as central bankers. One specific responsibility central banks
cannot shirk is to provide infrastructure services that market forces alone cannot afford
to offer. The perfect solution would be a global platform accessible from all countries to
make instant payments in all currencies. While we pursue this goal, let us bear in mind
that there is a much simpler solution at hand, namely linking existing payment systems.
Interlinking, in fact, means reusing existing infrastructure and reducing implementation
times and costs.
Fast payment systems have the greatest potential for interlinking. They operate on a
continuous basis, allowing for a full overlap of operating hours for 24/7 access across
jurisdictions. They generally have a high degree of semantic interoperability (i.e. they
speak the same language) and process payments in a matter of seconds or minutes.
However, interlinking many national systems entails a large number of bilateral
connections. This drawback can be addressed by relying on existing regional platforms.
A telling example is the recent experiment in which the Eurosystem's instant payments
platform TIPS was linked with BUNA, the cross-border and multi-currency instant
payment system owned by the Arab Monetary Fund. With a single link, we were able to
connect the 19 TIPS countries with the 16 BUNA jurisdictions.
In the continent that hosts this conference various regional solutions have proliferated.
There are 5, possibly 6, regional payment systems. Thus linking all the African
economies requires at most 15 connections.
Building key payment infrastructure has traditionally been a direct responsibility of
central banks; bilateral and multilateral cooperation among them can be a game
changer. A sound cost-benefit analysis can be easily carried out. Building a fast
payment system is doable in term of costs and time; the more so if established
experiences are used as a blueprint, as it is only a matter of software and some
standard hardware.
The challenging part: creating the right regulatory environment
Beyond the technical and semantic dimensions of interlinking, we have to ensure that
the business models of the payment systems are also interoperable. This depends on
the regulatory environment, industry standards and market practices.
The G20 Roadmap on cross-border payments has already shed light on many business
interoperability issues. A recent CPMI report on interlinking payment systems published
last July provides a comprehensive overview of the many legal frictions; they range
from currency regulations to the increased legal risks borne by interconnected systems,
especially in terms of participant default, settlement finality, netting, novation and
collateral enforcement provisions. Making cross-border payments also calls for a
consistent implementation of anti-money laundering and countering the financing of
terrorism regulations, mutually agreed data models and identifiers, and data exchange
protocols that ensure data privacy and integrity across jurisdictions.
For central banks, this is the most difficult part of the journey because our mandates
and tools become less and less powerful as we move from technical interoperability to
semantic and to business interoperability. We can still play an important role by using
our power of advocacy, but we must recognize that governments and the private sector
are in the driving seat.
The G20 Roadmap on cross-border payments is an effective framework to facilitate
cooperation between all stakeholders involved in interlinking arrangements. Given the
importance of business interoperability, in the new phase of the Roadmap, the G20
tasked the CPMI with setting up a governance and oversight framework for the
crossborder interlinking of payment systems.
Here the World Bank has a major role to play for at least two reasons; first it has a
global reach and therefore can support all countries included those that do not have
other ways to tap into global knowledge; second it has the power to gather all the key
players around the table: ministries of finance, prudential supervisory bodies, AML
authorities, ministries of domestic affairs and data protection authorities.
One might ask whether it is wise, for the international community to embark on such an
undertaking now. My answer is definitely yes. In fact, ensuring good interoperability of
business environments is a necessary condition for any kind of approach to
crossborder payments, whether based on traditional or new technologies, such as distributed
ledger technology and central bank currency (DLT and CBDC).
* * *
Let me conclude. Progress in payment systems rests upon mutual trust and multilateral
cooperation, both enabling conditions for advancing the G20 Roadmap. Central bank
cooperation has a key role to play in developing payments infrastructures; the
involvement of governments and private sector stakeholders is also essential to create
a sound regulatory and market environment. If we take a holistic approach and focus
our efforts on what is actually achievable, the payments sector will be even more
capable of improving the prosperity of our economies while reducing inequality.
1
Cipollone P. (2021), The Italian G20 presidency and the cross-border payments
agenda, speech at the CPMI Conference on 'Pushing the frontiers of payments', 19
March 2021.
2
McKinsey (2022), The 2022 McKinsey Global Payments Report.
3
Carstens A. (2020), Shaping the future of payments , BIS Quarterly Review, March
2020; Visco I. (2021), Opening remarks at the webinar "Enhancing Digital and Global
Infrastructures in Cross-border Payments", organized on 27-28 September by the Bank
of Italy during the Italian G20 Presidency; Cipollone P. (2022), Keynote speech at the
Conference on Digital Platforms and Global Law, organized on 29 April 2022 by
Unidroit in collaboration with Roma Tre University and the European Law Institute (ELI)
in Rome.