Colombia will create its Pix: what would this public digital payment system look like?

By Daniel Salazar Castellanos

Colombia laid the groundwork to drive the emergence of its immediate transfer system inspired by the Brazilian Pix platform.

It already has a roadmap with the National Development Plan, which instructs the country to move in that direction through the central bank.

Amid a growing environment of techno-financial solutions, Colombia wants to centralize payments and immediate transfers to facilitate processes such as the payment of state subsidies.

In that objective, it seeks to develop a system with Pix features, officially launched in 2020 by the Central Bank of Brazil.

According to figures from Statista, in August last year, some 119 million people in Brazil received money through that platform, and 115 million people sent it through Pix.

This method replaces personal bank transfers and gradually displaces traditional methods such as the popular “boleto bancário” (bank slip) .

“I think this is the opportunity for the Colombian State, central bank, Government, Congress, regulators, and supervisors, to kick the table and shake up the whole payment system thinking about what it should be, not what we have,” says the CEO Of Colombia Fintech, Gabriel Santos.

The Pix system instantly allows transfers between people and payments in commercial establishments or service providers, among others, with any type of bank account.

Individuals simply register a key that can be defined from the CPF number (the tax identification number in Brazil) or the cell phone number.

The National Development Plan in Colombia established that “Banco de la República may create and manage an immediate low-value payment system and provide the services and technological components it deems necessary for the interoperability of immediate low-value payment systems, including the management of a directory, databases, and other functional elements”.

BUT WHAT COULD THIS PIX SYSTEM LOOK LIKE IN COLOMBIA?

The executive president of Colombia Fintech, Gabriel Santos, spoke in an interview with Bloomberg Línea about the main points that have been discussed in the meetings with the authorities of the Colombian central bank and his views on how this platform should be structured within the framework of the foundations laid by the government.

“We have a very decided position on how we believe this system should be (…). First, it has to be a system without conflict of interest; that is like the maxim.”

“That is to say; it has to be a system with equal conditions for all.”

“Whoever provides the service should not have a relationship with any player that allows him to generate a conflict of interest,” said Gabriel Santos.

He says that taking into account the Brazilian model, which he considers should be the standard to follow, “there is a public program in which the benefit of the end consumer takes precedence”, highlighting the impact of this system in reducing the use of cash, increased transactions, lower credit card consumption, entry into the digital economy and formality.

“One sees that the path is laid out, and I believe that the less we move away from that path, the better we have it.”

“Whether we’re going to opt for a public development system or we’re going to opt for a private one, the person who is providing that infrastructure must operate within a very aggressive public benefit framework.”

“It cannot be that some controlling owner of the company that ends up providing the service receives preferential attention via costs, via connections, via information, that ends up repeating in some way a model that can generate a negative concentration for the ecosystem”, he warned.

Thus, the executive pointed out that they are more inclined towards a public model such as the one in Brazil, taking the lessons learned in aspects such as security that have been gathered through the experience in that market.

“I fear that in order not to harm the existing developments, we may end up letting this golden opportunity pass us by”.

Asked if there is harmony with the central bank on these issues, he said that from Colombia Fintech, “they have a very good conversation” and that they have discussed issues such as the obligatory nature of the platform, that is, “if with this all the others disappear and they are all forced to connect to a single system”.

Then, what would happen with platforms such as Nequi or Daviplata?

“If more people can make instant transfers to a digital wallet, they end up benefiting.”

“Money may not circulate within this ecosystem, as it has been happening before, but now there will be a much more dynamic flow, and above all, there will be more people who can use it.”

“To have that informal economy not limited to a single product, connected by a rail that is immediate and at a very low cost, or hopefully free of charge”.

“An economy with a very different volume but similar informality and economic development levels has already done this with the good and the bad.”

“The security issue is a perfect example.”

“A system was invented, and the criminals circumvented them and started express kidnappings.”

“What was done? It was limited.”

“Is the same going to happen in Colombia? We do not know.”

“What we do know is that there is an immediate solution that can be implemented,” adds Gabriel Santos

He pointed out that there is still a question mark against the premise of “build versus built”.

“Building on top of the built is not necessarily good. If you build a house on a failed foundation, it will fall.”

“I would like more clarity on what it means to build on the built. And I would also like to see a lot of ambition that does not necessarily have to be building on top of what has been built. Why don’t we even think about proposing a licensing of Pix,” he said.

“If building on what has been built means licensing the Brazilian interoperable payment system and somehow bringing it over, I think it’s fantastic, but if it means working on an existing rail and the owners end up benefiting, then I wouldn’t agree,” he said.

FINANCIAL INCLUSION IN COLOMBIA

An estimated 34.5 million adults, or the equivalent of 92.1%, had at least one deposit or credit financial product as of the third quarter of last year, an increase of about 300,000 people compared to June 2022, according to figures from Banca de Oportunidades.

Meanwhile, the percentage of adults with an active or current financial product rose from 76.9% to 77.7% between June and September 2022.

The most used products in the country are credit cards (8.4 million adults had at least one in force), followed by consumer credit (7.7 million) and microcredit (2.4 million).

In addition, 36% of the adult population in Colombia had at least one credit product in force in the financial system as of the third quarter of last year, 0.7 percentage points more than in the previous period.

The Financial Deepening Index, a measure that indicates the degree to which an economy uses financial services to drive its growth and development, increased from 38.1% in 2011 to 50.9% in 2021 in Colombia, according to figures from the Colombian Banking and Financial Institutions Association (Asobancaria).

This index is calculated as the proportion of total credit concerning Gross Domestic Product (GDP).

According to Asobancaria, “a high financial deepening index means that there is a greater availability of financial services in an economy, which can benefit investment, entrepreneurship, and economic growth”.

But he warns that a high index can also increase the risk of financial crises and exposure to market volatility.

With information from Bloomberg

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