over the next few years, participants ultimately could not agree and asked the payments system board for guidance on the way forward. finally, after much cajoling by the reserve bank, the new arrangements were implemented earlier this month – some eight years after discussions on the issue commenced. ironically, the package implemented differs very little from the proposal put forward by the industry group itself in 2004, which was subsequently abandoned owing to irreconcilable differences between some of the parties. moreover, despite a firm desire by the industry to implement the new arrangements without reserve bank intervention, the industry ultimately asked the reserve bank to use its powers to help finalise the process. this is not a unique example. reforms to most of australia ’ s payment systems including cheques, direct entry and eftpos faced similar challenges. as we have seen, this is not altogether surprising given the network nature of the payments system and the number of players which must co - operate, but also compete. the bilateral architecture that i have already mentioned is also a difficulty. every large bank has an agreement with every other large bank about how to handle payments from one another ’ s customers. the more banks there are, the more agreements are necessary and the more complicated the system becomes. to use the railway line analogy, the more customised tracks are built, the more difficult the task of ultimately converting all tracks to a standard gauge. this has two implications. first, while these bilateral agreements can be helpful in getting a system started initially, and may subsequently work well for those already in the system, potential new entrants face the prospect of negotiating numerous different connections. this can act as a barrier to entry, inhibiting competition. second, because upgrading the network requires participants to agree, since they all must make changes, each participant therefore can effectively veto, or at least delay, any decisions affecting the network. because different participants have different technology cycles and different strategic interests, there is a high probability that some participants will be unwilling to proceed at any given point in time. if a participant thinks a particular change may provide another participant with a potential competitive advantage, it will probably attempt to delay. indeed, if one participant sees a potential competitive advantage in a the loss of network benefits to those who are reluctant or late to change, and these participants may end up remaining on the old standard with a reduced network. see farrel and klemperer ( 2007 ). change, it is almost guaranteed that another will see a disadvantage

##ue external interference. focus should also be given to foster a culture that welcomes active debates and critical thinking at all levels of the organisation to guard against groupthink. last but not least, to sustain effective and high performance, continuous upskilling of the board, senior management and staff is crucial to be able to seize opportunities and overcome challenges as they arise. while the dfis of today have grown in size and outreach, there remain opportunities for them to maximise their full potential. innovation is lacking in developing diversified financial products that are tailored to meet the specific needs of targeted sectors. this is compounded by their limited capacity and capability to manage the potential risks arising from financing high risk sectors due to information asymmetries. dfis should aim to become the centre of reference for new growth sectors and emerging markets and develop expertise in risk assessment and management of high risk projects in those sectors. underlying the strategies for a good business model is the need for dfis to strengthen research and analytical capabilities to address their lending capacity by developing innovative solutions. given the digitalisation of finance and proliferation of technology in financial services, dfis need to remain at the frontier of these developments. this could include leveraging on big data and forging partnerships with technology firms to develop digital solutions at lower cost and increased efficiency. at the broader level, the development finance architecture should also shift to be more effective in channelling resources and catalysing private investment to developmental oriented projects and initiatives. whilst most dfis have been self - sustainable for the past few years, dfis will need to diversify their sources of funding and ensure that the structure of liabilities is appropriate for the assets that they hold to be sustainable in the long run. dfis cannot be dependent on fiscal support to carry out their mandates. dfis should aim to have strong competitive position on new growth sectors supported by a sustainable strategy and management execution capabilities. last but not least, dfis are required to continuously review their institutional fit and business models to increase their development impact while remaining financially sustainable. effective dfis should also be able to act as catalysts to promote private sector investments and support economic growth. one example of a financially sustainable business model is demonstrated by the experience of nacional financiera ( nafin ) as an enabler to mexico ’ s aspiration to combat climate change through the renewable energy financing facility, or reff. as reff provides risk mitigation 2 /