At the heart of the instant payment system lies a conflict of interest.

The expectation for the instant payment system in Colombia is very high. This will undoubtedly be one of the most important financial advancements for the country, as an instant payment system could minimize the use of cash to its lowest level.

However, the reality is that the system being developed by the Banco de la República has not met the expectations of the fintech ecosystem. Will we have an instant payment system? Certainly yes, but not like Brazil's, which is the most successful case worldwide.

Here's why.

What is the logic of the payment system? That there are instant payments between accounts or wallets, regardless of whether they come from entities supervised by the Financial Superintendency or not. That is, between banks and fintechs.

Just to give an example, only 12% of transactions in Brazil are made in cash, whereas in Colombia, it's 75%, according to the Banco de la República's payment methods survey.

In 2014, José Dario Uribe, then the manager of Banco de la República, published a paper on low-value payment systems and their future, and he said:

“The regulatory framework must promote competition among payment service providers, facilitate innovation, and ensure equal access to infrastructure without neglecting consumer rights. At the same time, it must lay the foundations for the benefits of network economies and market scale to reach end-users. Otherwise, there is a risk of forming segmented markets, abuses of dominant positions, and opacity and insecurity in transaction flow intermediation.”

What Dr. Uribe stated here is precisely the spirit of an instant payment system, where the user and their benefit are at the center. But it is not that simple.

One of the main debates worldwide regarding instant payment systems is whether they should be managed by private entities or the public system. In most cases, the systems are private (banks managing their own payment networks). Colombia is no exception.

The problem with these systems is conflicts of interest, as banks end up being both judge and jury. Therefore, regulators worldwide have required payment system boards to have very strict corporate governance to avoid system flaws or decisions that affect users, free competition, or the promotion of new players. The purpose of a low-value payment system is to ensure that there can be a diversity of players and that all users who want to participate can do so.

For example, corporate governance measures sought to ensure that the boards of payment systems were balanced among different players within the system, that their boards were monitored, and the same applied to their decisions.

These corporate governance measures are, in any case, extremely unsatisfactory because, despite the rules imposed or monitoring, the conflict remains that the system owners are the banks themselves.

But there are cases where this conflict of interest has been curbed. For example, in 2014 in the United Kingdom, regulators forced a drastic change in the governance of the payment system because decisions were being made that affected free competition. The regulatory pressure was such that to ensure independence, banks had to sell their system to a third party.

A similar situation occurred in Argentina with “Prisma,” the system managed by the top 10 banks. The regulator investigated them for anti-competitive practices, and the pressure led to them selling their shares in the system in 2017.

However, other countries like Brazil or India, which are the most successful cases worldwide, decided to manage this infrastructure through their central banks to ensure independence and force banks to join the instant payment system, or they would practically risk being left out.

And how does it work in Colombia?The banks have owned the payment infrastructure, and this has hardly changed, which is why we are at risk of making mistakes that other countries have already resolved.

As I mentioned, Colombia has been discussing this need for nearly ten years, at least, in a country flooded with cash, with high informality, and limited banking access.

In 2018, while PIX was being drafted in Brazil, the Financial Regulation Unit (URF) in Colombia published a document to start socializing the need for an interoperable and instant system. The following year, the owners of the payment infrastructure (the banks) began creating their own low-value instant payment tools while regulation paved the way, which we are still trying to complete.

The first to officially do so was ACH Colombia, with the creation of the “Transfiyá” tool in 2019; in 2021, Redeban announced its own “Entre-Cuentas” system; and simultaneously, “Visionamos,” the entity that has been connecting cooperatives for 30 years, was strengthened.

Note that Transfiyá has existed longer than PIX (2020), yet we have not seen the green light for a system created by private entities. Transfiyá is a system that banks never openly promoted. It was evident that they were afraid of promoting a system that would take money out of their own networks.

In parallel to Transfiyá, which flew under the radar, there was a huge boom in wallets like Nequi and Daviplata, which ended up creating the perception in society that the issues related to facilitating low-value payments had been resolved, but in reality, users were enclosed within their own systems. In the industry, we call this “walled gardens.”

And it worked because two banks here concentrate the majority of users. The problem is that although the rise of digital wallets helped significantly bring more people into the system, the core need of the user was never at the center of the discussion, but rather the interest in growing their own customer base.

If, at that time, the country had promoted a public system, it could have brought more people into banking with the sole aim of eliminating cash transactions. The cases are documented; just spend a day in Brazil, Singapore, or India.

Here, on the other hand, we are still struggling to pay between accounts of different banks. Despite having Transfiyá for over five years, the system is outdated and forces users to accept incoming transactions. There is nothing instant or intuitive about that.

Finally, in 2022, an article was added to Gustavo Petro's National Development Plan, giving Banco de la República the green light to create its own instant low-value system and set the rules for the overall system.

At that point, Banco de la República took the lead in setting the rules, and the owners of the existing systems began promoting the concept that the system should be “built on what has been built.” In other words, connect all the systems that had already been created, closing the door to a 100% central bank-managed system, closing the door to a PIX.

And that was a tough decision because it could have severely affected ACH, Redeban, and Visionamos, something that banks and cooperatives were, of course, not interested in.

On the other hand, that article in the Development Plan allowed Banco de la República to create its own system, something that will come to light in 2025, but without limiting the coexistence of other systems. This means we will have four systems in operation: ACH, Redeban, Visionamos, and the Banco de la República's public system.

And, of course, the logic is that if we have multiple systems, competition will arise among them, and ultimately the one with the lowest costs will prevail. However, time is running out, and private rails are already doing the work of adding users and merchants to their own systems, while the public system is still delayed by another year. Transfiyá has 6 million users and processes 20 million transactions a month, aiming to reach 40 million by year's end.

However, the biggest challenge for the system is to ensure that transactions are as easy as paying with cash, at zero cost. The problem is that with private infrastructure, they themselves will set the system's usage costs. We'll have to see what costs the public system launches, and undoubtedly they will be able to regulate the price.

Will there be interoperability? Yes, but at what cost? Where is Dr. Uribe's motto of putting the user and the merchant at the center of the discussion?

That is why this problem deepens the conflict of interest situation, because although the Banco de la República's regulations aim to promote competition by allowing both regulated and unregulated entities to be part of the system, and private systems to compete with public ones, banks will have an economic benefit in interoperability itself, which is precisely the heart of the system.

And here come the toughest questions: Will Banco de la República or the Financial Superintendency have the strength to curb abuse if, from its inception, there is a conflict of interest?

As I mentioned earlier, in the United Kingdom and Argentina, banks had to relinquish control of the system. And that is precisely the discussion we want to have from the fintech side: to have a system without conflicts of interest. In Brazil, the State took on the cost of infrastructure, and there was only one system, so they didn't have to think about the problem we are facing today. With this, the idea or dream of replicating the success of PIX is fading.

To conclude, the latest development with the system is that on May 7, 2024, the URF issued a draft decree requiring all major banks to be part of the system and, most importantly, to promote it. Additionally, the draft is very strict and explicit that any price arbitrage or discrimination will be prohibited and that there will be oversight through the creation of the "National Payments Council." If this decree comes to fruition, it will ensure that banks cannot shelve the system or prevent their users from moving money between different entities: banks and fintechs.

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