Financial Infrastructure and Payment Instruments Report 2024

Las opiniones contenidas en el presente documento son responsabilidad exclusiva de los autores y no comprometen al Banco de la República ni a su Junta Directiva.

The opinions contained in this document are the sole responsibility of the author and do not commit Banco de la República or its Board of Directors.

Description

During 2023, the local financial infrastructure provided its services normally, demonstrating its proper functioning. Thanks to efficient management, the infrastructure provided stability and confidence to participants in the payment system and financial markets. The activity of the large-value payment system of Banco de la República (the Central Bank of Colombia, Banrep), through the Deposit Accounts System (CUD in Spanish), increased compared to the previous year, as a result of greater transactions in the public debt market (sell/buy-backs and purchase/sales), expansion repos, and direct transfers of funds between participants. Similarly, there was greater dynamism in other financial market infrastructures, such as the Central Securities Depository (CSD) and the Central Counterparty Clearing House (CCP), reflecting an increase in flows in local financial markets. In the retail payments market, according to the most recent survey by Banco de la República (2023), cash remains the most used for low amount routine payments by Colombians. The most important reasons explaining cash preference are the ease and speed of paying, and the tradition of users to make low-cost purchases. However, the share of cash in routine purchases decreased in favor of greater use of electronic payment instruments, such as electronic funds transfers and debit and credit cards, which increased significantly in 2023, continuing its growth path of recent years. This edition of Report includes a new section on payment instruments, which presents a complete overview of trends in the use of different instruments, as well as international comparisons. Consequently, as of this edition the name of this publication changes to Report on Financial Infrastructure and Payment Instruments (RIFI in Spanish). The payments industry in the goods and services market is constantly evolving and innovating throughout its value chain. There is a tendency in the world to move towards immediacy in payments and towards the creation of new payment initiation options for electronic funds transfers and the use of electronic commerce. Colombia has not been oblivious to these trends, which is why these issues are addressed in this edition of RIFI. At the end of 2023, a new private initiative system called Entre-Cuentas, offered by Redebán, began to operate, which helps facilitate payments from people to businesses. Banco de la República, for its part, is advancing all the necessary developments to guarantee the full interoperability of the instant payments ecosystem through instruments complementary to those developed by the private sector, which will become operational in 2025. In that context, Banco de la República will create its own instant payments chamber and provide existing chambers with centralized directory and real-time settlement services (Operational Settlement Mechanism). The latter will contribute to mitigate the settlement, credit, and system liquidity risks. In addition to monitoring the performance and operation of the payment system in figures, this RIFI has developments in applied research to detect possible challenges to financial stability that could arise from problems or disruptions in financial market infrastructures (FMI). In particular, some results of simulation exercises are presented in order to make the first approximations to estimate potential effects of simultaneous cyberattacks on systemically important entities in the Deposit Accounts System (CUD) or on the telecommunications providers of the participants in that system. The results of these exploratory years indicate that, in the face of a hypothetical and extreme scenario, it would be possible for significant defaults to be caused in the payment system. However, the effects would largely depend on the active reactions of CUD participants, by continuing to make payments with the available liquidity, thereby mitigating the effect on the payment system. In addition, a series of recommendations are proposed to promote higher levels of cyber resilience. Finally, this RIFI describes some international projects and initiatives aimed at understanding in depth the possible use of wholesale digital currency issued by central banks (known as wCBDC). Such a digital currency would essentially consist of tokenizing deposits of financial institutions in the central bank and could help lower costs, increase speed, and improve the clearing and settlement of wholesale payments between such entities. Similarly, the wCBDC could complement the traditional channels through which cross-border payments are processed, thus helping to reduce inefficiencies and costs in these payments. It should be noted that Banco de la República recently published on its website a document discussing the relevance of issuing in Colombia a central bank digital currency. The document concludes that, in contrast to the issuance of wCBDCs (which may contribute to the development of payments in the future), a retail central bank digital currency (rCBDC) could generate significant risks and it is not clear that its eventual benefits will be greater than those that can be expected from an interoperable instant payments system such as the one to be launched by Banrep in 2025.