Colombia: New Regulation for the Low Value Payment System

The low value payment system (LVPS, or Sistema de Pago de Bajo Valor, SPBJ, in Spanish), which brings together transactions and payments between people and businesses, is essential for the proper functioning of the financial sector and the economy. Financial innovation processes, technological change, and an increase in electronic commerce have accelerated the development of the payments sector, making it possible to carry out transactions digitally and faster, under more competitive and interoperable conditions.

Colombia has not been immune to this trend. The same context of innovation has generated adjustments in the payment system, its participants, and instruments. The concept of a single payment systems administrator in charge of executing the entire transaction flow has been replaced by a broader one: i) activities have been compartmentalized; ii) traditional participants have acquired new roles; iii) new players have entered the market; and iv) last-mile rules for the provisioning of payment services have been adjusted.

At the same time, financial institutions have accelerated the digitalization of their products and services. In this process, the regulatory initiatives to create electronic deposits and simplified KYC requirements for accessing such accounts have been relevant (URF, 2017).

These changes have increased electronic payments in the country, but there is still a long way to go. To face this challenge, the National Financial Inclusion Strategy adopted in 2016 by the Government established the promotion of digital payments as a tool to achieve greater access and usage of financial services.

This is a relevant action, since despite public and private efforts to boost financial inclusion, Colombia continues to be a heavily cash dependent country, as 87.4 percent of the population only uses this means of payment in their monthly expenses (Banco de la República, 2020). Electronic payment acceptance and usage is low, with less than 5 percent of small stores accepting this type of transaction, and only 7.3 percent of the total value of monthly payments made with debit or credit cards (Banco de la República, 2020). Even more, the usage of these cards is mainly cash-out transactions: around 80 percent of debit card operations refer to withdrawals at ATMs (SFC, 2019).

In this context, URF (the Financial Regulation Agency of Colombia) with the technical support of the World Bank, the Inter-American Development Bank, and the Better Than Cash Alliance, published ...

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