xxxxx 8.5 Public Disclosure Authorized COMPETITION IN RETAIL PAYMENT SYSTEMS PAYMENT COMPETITION IN RETAIL Public Disclosure Authorized BALANCING COOPERATION AND BALANCING COOPERATION FINANCIAL INFRASTRUCTURE SERIES PAYMent SYsteMS POlicY anD researcH 47500 11 Payment Systems Development Group The World Bank 1818 H Street, NW Washington, DC 20433 BALANCING COOPERATION www.worldbank.org/paymentsystems AND COMPETITION IN Public Disclosure Authorized RETAIL PAYMENT SYSTEMS LESSONS FROM LATIN AMERICA CASE STUDIES November 2008 PAY FINAN M ENT SY C IAL Study Coordinated by Mario Guadamillas I N S F TE RA Public Disclosure Authorized MS S TRU POLI C TURE SERIE C Y AND R E S S EAR FINANCE AND PRIVATE SECTOR, LATIN AMERICAN AND THE CARIBBEAN VICE PRESIDENCY C H FINANCIAL AND Private SECTOR DEVELOPMENT VICE PRESIDENCY THE WORLD BANK FINANCIAL INFRASTRUCTURE SERIES PAYMent SYsteMS POlicY anD researcH FINANCE AND PRIVATE SECTOR, LATIN AMERICAN AND THE CARIBBEAN VICE PRESIDENCY FINANCIAL AND PRIVATE SECTOR DEVELOPMENT VICE PRESIDENCY BALANCING COOPERATION AND COMPETITION IN RETAIL PAYMENT SYSTEMS LESSONS FROM LATIN AMERICA CASE STUDIES Study Coordinated by Mario Guadamillas © 2008 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved. This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pu- [email protected]. Book cover and interior design by Michele de la Meardiere. FOREWORD How do financial institutions process payments, check potential borrowers’ past experiences with credit or evaluate the suitability of a security interest to be used for a loan? For many consumers in the financial marketplace, the an- swers to these questions are taken for granted, just part of the “black box” of tools and technologies used by lenders as they transfer funds between institutions or decide on credit applications. In this “black box” are the different elements of a country’s financial infrastructure. The World Bank Group is focusing on financial infrastructure development in emerging markets, including payment systems and remittances, credit reporting and secured lending. Moreover, the Bank is intensifying its commitment to promote and disseminate the policy and research debate on these and other topics within the scope of financial infrastructure, including corporate governance, auditing and accounting standards, and financial literacy. For this purpose, the Financial Infrastructure and Policy Research Series has been created to host original contribu- tions in the form of policy notes, studies, and essays led by World Bank Group experts, as well as initiatives carried out in cooperation with or by other experts and relevant institutions in the various fields of financial infrastructure. The third document appearing in this Series is “Balancing Cooperation and Competition in Retail Payment Systems: Lessons from Latin America Case Studies” and has been prepared by a team of experts from the Bank’s Finance and Private Sector Development Unit and the Chief Economist Office under the Latin America and The Caribbean (LAC) Vice Presidency together with experts from Payment Systems Development Group of the Financial and Private Sec- tor Development Vice Precidency. The Bank has been a very active player in the area of payment systems in the LAC Region for more than a decade, on a continuous and structured basis since 1998 with the launch of the Western Hemisphere Payments and Securities Clearance and Settlement Forum (WHF). The WHF has undertaken 25 country assessments from May 1999 to November 2008 and the Bank has helped with the implementation of payment sys- tems reforms in most of the countries assessed. The overall objective being the development of more secure, efficient payments, remittances and securities clearance and settlement systems, capable of satisfying the needs of the local and regional markets. These reform efforts have been accompanied by the development of tools, methodologies and research studies that have contributed to knwoledge dissemination. “Balancing Cooperation and Competition in Retail Payment Systems: Lessons from Latin America Case Studies” presents the findings of four case studies in Latin America (Argentina, Brazil, Colombia and Mexico) that have explored the is- sue of cooperation and competition in different retail payments markets, such as the automated clearinghouse (ACH) and cards markets. The study includes an overview of the main issues and policy guidelines derived from the case studies but also from the accumulated expertise of the Bank around the world and available literature on the topic. Thus, the study defines a conceptual framework to better identify the issues involved and propose policy guidelines for the authorities and stakeholders to consider in advacing reforms in the area of retail payment systems and achieve the right balance for a cooperative infrastructure development among market competitors. Pamela Cox Michael Klein Vice President Vice President Latin America and the Caribbean Financial and Private Sector Development World Bank Group World Bank Group ACKNOWLEDGEMENTS The overall study has been coordinated by Mario Guadamillas, Senior Financial Economist in the World Bank’s Latin America and the Caribbean Region (LAC). The coordinators of the different studies have been: • Overview and policy paper: Mario Guadamillas. • Argentina case study: Sergio Gorjón, Financial Sector Specialist in the World Bank’s LAC Region on secondment from the Bank of Spain. • Colombia case study: Constantinos Stephanou, Senior Financial Economist in the World Bank’s Financial and Private Sector Development Vice Presidency. • Brazil case study: Massimo Cirasino, Head of the Payment Systems Development Group, World Bank. • Mexico case study: Tito Cordella, Lead Economist in the World Bank’s LAC Chief Economist Office. • Main Trends in Payment Instruments and Infrastructure Usage: Jane C. Hwang, Consultant in the World Bank’s LAC Region. The team appreciates comments from the reviewers of the study: Bob Keppler (Consultant, World Bank), Fernando Montes-Negret (Director Finance and Private Sector Europe and Central Asia, World Bank), Ignacio Mas (Consulta- tive Group to Assist the Poor, CGAP), Sean O’Connor (Bank of Canada and Chairman of the CPSS Working Group on Guidance for National Payments System Development) and Ceu Pereira (European Commission). The team also appreciates comments from Michael U. Klein (Finance and Private Sector Development Vice President, World Bank), Augusto de la Torre (Chief Economist LAC, World Bank), Lily L. Chu (Finance and Private Sector Manager Latin America and The Caribbean, World Bank), Peer Stein (Manager Financial Infrastructure and Institu- tions Building, IFC), Ole Andreassen (former Financial Specialist, World Bank) and José Antonio García García Luna (Senior Financial Sector Specialist, World Bank). Finally, the team also appreciates contributions and comments from the counterparts of the case studies: Julio César Pando (Banco Central de República Argentina-BCRA), Juan Carlos Navas (BCRA), José Antonio Marciano (Banco Central do Brasil, BCB), Mardilson Fernandes (BCB), Joaquín Bernal (Banco de la República de Colombia, BR), Caro- lina Merlano (BR), Ricardo Medina (Banco de México, BM), Sara Castellanos (BM), José Luis Negrín (BM) and Francisco Solís (BM). TABLE OF CONTENTS Abbreviations V Introduction VII Policy Brief XI I BALANCING Cooperation AND COMPETITION IN Retail Payment SYSTEMS: OVERVIEW AND POLICY ISSUES 1 II Cooperation VERSUS COMPETITION IN ARGENTINA’S AUtomated CLEARING HOUSE (ACH) MARKET 53 III Cooperation VERSUS COMPETITION: EFFICIENCY ISSUES IN BRAZIL’s RETAIL PAYMENT SYSTEMS 83 IV Cooperation VERSUS COMPETITION IN COLOMBIA’S AUtomated CLEARING HOUSE (ACH) MARKET 129 V THE ROLE OF INTERCHANGE FEES IN MEXICO’S Retail Payment SYSTEM: FROM THEORY TO PRACTICE 161 VI MAIN TRENDS IN Payment INSTRUMENTS AND INFRASTRUCTURE Usage IN SELECTED Latin AMERICAN COUNTRIES 209 Annex: ACH Market Structure and