Colombia PSE Case Study Long ENG Jan 2015

BTCA Case Study No.
3
B E T T E R THANC A S H EVIDENCE PAPER
A L L I A N C E Empowering People Through Electronic Payments
January 2015
Colombias Online
E-Payments Platform:
Private Sector Innovation
Inspired by Government Vision
By Bankable Frontier Associates (BFA) under the supervision of Beatriz Marulanda

ABOUT BTCA
The Better Than Cash Alliance (BTCA) is an alliance of governments and private sector and development
organizations committed to replacing the use of cash payments with electronic payments, where
appropriate, and to promoting a cash-lite economy.
Shifting payment of salaries, social welfare and relief payments, payments to suppliers, and remittances from
cash to electronic has the potential to improve the lives of low-income people, particularly women, while
giving governments, the private sector, and the development community a more transparent, time- and cost-
efficient, and often safer means of making and receiving payments.
The Better Than Cash Alliance:

1. Advocates for the use of all forms of electronic payments where they provide a preferable payment
option to cash;
2. Collaborates with program partners to mobilize available technical expertise and resources to identify
and implement the most effective approach to make the transition from cash to electronic payments; and
3. Conducts research, documents good practices, and produces knowledge products to address the barriers
to adoption and to drive the effective shift from cash to electronic payments globally.
BTCAs Development Results Focused Research Programme (DRFRP) accelerates the generation and
dissemination of knowledge and tools for stakeholders transitioning part of their payments from cash to
electronic. The DRFRP has three components: 1) Readiness diagnostics, which compile existing data on the
volumes, values, and payment means for each kind of payment made by governments, the private sector,
and development community partners, and assess a countrys readiness to replace cash payments with
electronic payments; 2) Case studies of on-going shifts; and 3) Toolkits to provide practical steps for BTCA
stakeholders to plan, measure, and implement shifts.
The DRFRP is managed, on behalf of BTCA, by a consortium led by Bankable Frontier Associates, a Boston-
based consulting firm, with advice from experts from the World Bank Payments Group and the CGAP
Technology Team, as well as local research staff.
BTCA Case Study No.3
B E T T E R THANC A S H EVIDENCE PAPER
January 2015
Colombias Online
E-Payments Platform:
Private Sector Innovation
Inspired by Government Vision
By Bankable Frontier Associates (BFA) under the supervision of Beatriz Marulanda

BTCA CASE STUDY SERIES
The BTCA case study series seeks to highlight specific examples of shifts to electronic payments by
government agencies, businesses, or development partners. Each case study documents the extent
of the shift and the factors that have helped or hindered it, to provide insights that are relevant to a
wide readership interested in how to shift from cash to electronic payments.
AUTHORS
The lead authors of this case study are Beatriz Marulanda and Mariana Paredes for Marulanda
Consultores, which is part of the Bankable Frontier Associates-led consortium responsible for the
Better Than Cash Alliances Development Results Focused Research Programme.
ACKNOWLEDGMENTS
We are grateful to ACH Colombia for making this research possible and appreciate its support and
that provided by all those interviewed for sharing information and discussing different perspectives
that helped us understand the achievements and the challenges faced in this project.
All photos Marulanda Consultores, except: see directly on photos.
Cover photo: Konstantin Chagin / Shutterstock.com
ii COLOMBIAS ONLINE E-PAYMENTS PLATFORM: Private Sector Innovation Inspired by Government Vision
TABLE OF CONTENTS
I INTRODUCTION........................................................................................................... 1
II PSE DEFINED............................................................................................................... 5

III CREATION OF PSE...................................................................................................... 9
3.1 Governments policy push......................................................................................................................... 9
3.2 Limits of card payment usage................................................................................................................. 11
3.3 Financial sector initiative........................................................................................................................... 12
3.4 The government again steps in to push............................................................................................14
3.5 Merchants and billers emerge as major PSE users.......................................................................18
IV USAGE OF PSE AND EMERGING TRENDS............................................................. 21

4.1 Payments to merchants are increasing more quickly than payments
to government...............................................................................................................................................22
4.2 Businesses payments over PSE are now high by volume, but not yet by value...........24
4.3 Banks offering e-payment services to save costs........................................................................26
4.4 Hosting services and e-payment gateways are also playing a greater role....................27
V CHALLENGES RELEVANT TO OTHER CONTEXTS............................................... 29
VI LESSONS LEARNED.................................................................................................. 33
6.1 For government............................................................................................................................................33
6.2 For providers and businesses................................................................................................................35
Annexes.............................................................................................................................. 36
ANNEX A: LIST OF ACRONYMS......................................................................................................................36
ANNEX B: INTERVIEWEES.................................................................................................................................37
Note: Content and data in this document are based on information gathered during the fourth
quarter of 2013, and therefore represent data prior to this date.
TABLE OF CONTENTS iii

EVIDENCE PAPER
iv COLOMBIAS ONLINE E-PAYMENTS PLATFORM: Private Sector Innovation Inspired by Government Vision
Andresr / Shutterstock.com
COLOMBIAN CASE STUDY
1 Introduction
Over the past 10 years in Colombia, payment approaches, notably cash,

the banking sector and a private check, and bank drafts, which take
clearing house, ACH Colombia, have longer and are more expensive.2
developed and expanded an online
payment instrument, embedded Securing the adoption and usage
in government and business of any new electronic payment
websites, that allows businesses instrument on a large scale is never
and consumers to authorize assured. The story of how Colombia
electronic payments directly from came to set up this instrument,
their bank accounts to government and then to build up its usage to a
agencies and to other businesses. critical mass, provides useful insights
In the past five years to 2013, the for countries that are ready for what
number of payments made this the BTCA White Paper3 described
way had increased by more than as the second shift, where large
tenfold to almost a million a month. numbers of bill payers start to switch
By March 2014, it had already their payment behavior to electronic
reached 2 million transactions. instruments.
This is significant growth for a new
payment instrument in a country The instrument is called Pagos
where the total number of electronic Seguros en Lnea (Secure Online
payments per month was estimated Payments, or PSE for its acronym
at only 80 million in 2013.1 in Spanish). Although PSE is a
private sector innovation, owned
For online purchases, this new and operated by the countrys
electronic payment platform gives main private clearing house, the
consumers another option in Colombian government played an
addition to their existing credit and essential role at every step of PSEs
debit cards, and its fast-growing development. The central bank
usage for this purpose indicates that encouraged banks to form ACH
it has become a viable alternative. Colombia in the first place, and it
For utility and bill payments, this created its own clearing house when
instrument is replacing other older the banks hesitated.
SECTION 1: INTRODUCTION 1
EVIDENCE PAPER
Next, the office of the President a goal to promote electronic

began requiring government agencies payments. Using PSE, businesses
to accept online payments. This and consumers can today make
spurred the banks to create a new online payments for purchases and
service so as not to be preempted bills, from any bank to any bank in
by a third-party service. Finally, the Colombia. And the private sector
government required that payments has quickly become a key user of
to social security operators (for PSE. Merchants, schools, utilities, and
health insurance and pensions, among other billers now routinely accept
other contributions or payments) be transfers initiated through PSE. This
made through a centralized electronic electronic payments success is all the
platform. PSE became the central more remarkable in a context with
payment platform for this purpose; low card usage.
as these payments4 became less
complex and faster for employers, This case study draws on interviews
they provided scale and helped build with ACH Colombias management
users trust in the system and in as well as representatives of PSEs
electronic payments generally. stakeholders and users. The focus
of this case is on businesses and
Catalyzed by government action, individuals as the payers, which
Colombian banks, with a wide complements other BTCA case
range of profiles and interests, had studies that focused on business
to define commercial agreements and individuals as the recipients of
that would support PSE without payments.5 In fact, private social
damaging their existing business. security operators and private
The eventual charging arrangements businesses have been the main
embodied in the current PSE recipients of payments over PSE,
fees may not be optimal (the fee although several government
structure disincentivizes low-value agencies have received payments this
bill payments, for example), but it is way, as well.
also likely not final. ACH Colombia
recognizes these challenges and Section 2 explains the main attributes
is working on improving the fee of PSE, which can be difficult
structure and the acquiring model. to understand at first. Section 3
traces the creation of PSE, from the
The compromise that resulted in PSE catalytic government policy to the
still represents a marked success financial sector initiative. Section 4
of public-private collaboration presents the data on PSE usage and
resulting from a process of work emerging trends. Section 5 highlights
on all sides that ended up sharing some challenges faced by PSEs
2 COLOMBIAS ONLINE E-PAYMENTS PLATFORM: Private Sector Innovation Inspired by Government Vision
implementers and stakeholders that providers, and businesses in other

would be relevant to similar efforts in contexts seeking to expand electronic
other countries. Section 6 concludes payments where card usage has yet
with lessons for governments, to take hold.
FIGURE 1 Payment grid and focus of case study6
PAYEE
G B P D
B
PAYER
Focus of case study Secondary focus
G = Government; B = Business; P = Individuals; D = Development partners
SECTION 1: INTRODUCTION 3
EVIDENCE PAPER
2 PSE defined
PSE is a payment platform that banks, and to which almost all banks
enables consumers to pay bills and are connected.
make purchases online by taking them
from the merchant or billers website As Figure 2 below shows, when
to the banks website, so that they a user visits the website of a
can debit their own bank accounts government agency or a merchant
and credit the seller or billers bank or biller7 (Steps 1 and 2), PSE routes
account at the same moment. PSE her (Step 3) to her banks website
is owned and operated by ACH (not necessarily the merchants
Colombia, the electronic payments bank) using encrypted channels and
clearing house owned by Colombian digital certificates, where she logs
FIGURE 2 PSE e-payment system
Source: ACH Colombia
SECTION 2: PSE DEFINED 5

EVIDENCE PAPER
in and authorizes a payment of the 8), which deposits the funds in the
amount already defined (Step 4). merchants account (Step 9).8
Her bank uses its specific security
arrangements to authenticate her as PSE payments are so-called push
a client and verifies that the funds transactions, meaning the user
are available in her account (Step 5). initiates and authorizes the instruction
The user is returned to the merchants directly. This is different from pull
website (Step 6) to finalize the transactions, such as a payment card
purchase (Step 7); and the funds are or direct debit, where the merchant
routed from the users bank, via ACH uses the buyers card payment details
transfer, to the merchants bank (Step to complete the payment or the user
FIGURE 3 Example of PSE payment options
pre-authorizes a biller to debit her is no upfront confirmation that

bank account each month (as is now the amount transferred matches
common in the United States). what is expected or agreed
to, since the sender enters the
Though PSE operates on the amount. In a credit transfer used
electronic rails provided by ACH for purchases, for example, the
Colombia, transactions through PSE merchant would have to make
differ from other common payment the effort to reconcile and carry
types made through the switch in the risk (and expense) of frequent
three related ways: over or underpayments.
The basic difference between A typical ACH transfer would

ACH transfers and PSE not send a real-time purchase
transactions is that the latter confirmation to both the
start on the vendors website for merchant and consumer. PSE
the exact price of the goods or does send this confirmation,9
services. From there, the vendors as ACH Colombia clears the
website connects to the PSE payments in real-time; however,
platform using secured channels the payments are settled in
that in turn direct the customer batches (as are typical ACH
to a special secure session in his payments).
bank website, where availability
of funds is confirmed online and A typical ACH transfer allows the
withdrawn to pay the vendor. As payer to send a small amount
soon as this happens, the banks of identifying information
special Web session returns with the transfer. The amount
the customer to the seller, thus of information is usually just
confirming the transaction. This enough for a customer account
allows the merchant to explicitly number, so this method can be
identify the transaction, so used by utilities to issue bills for
reconciliation effectively occurs services already rendered.10 In
online in real time. This kind of the case of purchases, this may
advantage is part of the value not be enough information to
proposition of PSE. properly identify the consumer
and match her with her invoice
With a typical ACH electronic or bill. So when ACH payments
credit, the payment transaction are used, they entail the
starts on the clients website at additional time and risk for
a different moment from the the recipient of matching and
actual purchase. This means there verifying payments.
SECTION 2: PSE DEFINED 7

EVIDENCE PAPER
Jess Kraft / Shutterstock.com

3 Creation of PSE
The service described in the bank decided to establish its own

previous section was developed by clearing house.11 Launched in 1999
ACH Colombia, the bank-owned and called ACH CENIT, it connects
private clearing house, in response the central bank to all private
to government initiatives. Indeed, commercial banks, the state-owned
government policy was instrumental Banco Agrario, and other financial
in driving usage in PSEs early years, institutions such as cooperatives and
though more recently the platform has trust fund companies. Even though
seen increased usage by the business CENIT accounts for only 8% of total
sector. ACH transactions, both the Treasury
and central bank consider it to be
3.1 Governments policy push important in promoting competition.12
The government of Colombia has
been instrumental in promoting and Banks initially had difficulties
encouraging electronic payments reconciling their divergent interests.
through several initiatives focused on On one hand, they were trying to
improving public budget control and consolidate their card infrastructure
efficiency, dating back to the mid- to cut costs and increase scale. On
1990s. Three government policies, in the other hand, big banks, which had
particular, were key to the development spent heavily on branches, saw more
of PSE. to lose than did medium- and small-
sized banks from establishing an
Promoting interoperability
electronic transfer platform. Initially,
In 1995, the central bank, Banco de la two private ACHs were created, one
Repblica, spurred by the Treasury and by the big banks and the other by
Ministry of Finances goal of shifting to the small and medium ones. In 2000,
electronic payments, asked banks to set they eventually merged, to form ACH
up an ACH to enable those transactions. Colombia.13
Due to the initial lack of response Figure 4 below shows the events
from the private sector, the central leading to ACH Colombias formation.
SECTION 3: CREATION OF PSE 9

EVIDENCE PAPER
FIGURE 4 Timeline of ACH Colombia milestones
Automatic Collection Service (SAP) was created as an ACH ACH S.A. was created resulting from the
business unit within Servibanca. First electronic transfer to go agreement of all networks. Together with SAP, November: ACH
through. ACH Colombia started. and each network's ACH there were 3 ACHs. Colombia as it is
today was born.
Servibanca ATM network develops Banks started considering using only one payment
Servirecaudo for small banks: network: Red Colombia. Aimed at merging all payment Decision to merge into one ACH.
businesses sent tapes with networks existing at the time. Lack of agreement impaired Ownership agreements
information of bill collection. the merge. including 10% max ownership.
1991 1993 1995 1996 1997 1998 1999 2000
4G project fails and owners try to sell it to ACH

Colombia that had bought all equipment from
POS network administrators considered
Servibanca. Finally, decide to merge into ACH
creating an ACH each, so with SAP it
Colombia.
would have been 3 private ACHs. Then a
Strategic plan in Servibanca: study ACH consultancy recomended the creation of 6
business in other countries to buy ACHs: one for each POS, and ATM netwoks. ACH CENIT in Banco de la Repblica
software. was launched.
Banco de la Repblica
Disagreements with largest banks led to them creating another
reaches out to banks to set up
ACH which was to be called 4G. Even though all the investments
a private ACH.
were made, it never got to start operations.
Mandating electronic procurement Mandating acceptance of online

payments by government electronic payments by government
The creation of the public clearing In February 2000, the government

house and then the private clearing launched an ambitious public policy
house followed the adoption of an initiative to promote the use of
integrated financial management information technology to improve
information system in the Ministry of government operations, facilitate
Finance (called Sistema Integrado interaction with citizens, and promote
de Informacin Financiera, or SIIF14), transparency. The connectivity agenda17
created by law in 1996.15 The existence mandated the creation of a website18
of SIIF enabled the Treasury to order Gobierno en Lnea (or government
that all payments to government online) by October 2000. The policy
vendors be made directly into their further stipulated that all public entities
bank accounts and when CENIT should launch their own websites
came online, these payments were by December of 2000, and that by
executed through that switch. This 16
December of the following year, they
shift to electronic payments provided should provide services through their
a model for the use of ACH Colombia websites and accept online payments
by businesses. using electronic means.
FIGURE 5 Purchases and withdrawals per card (2011-2012)
30.00
28.35
25.00 Debit purchases
No. of Transactions
Debit withdrawals
20.00
15.00
13.24 Credit purchases
10.00 9.13 Credit withdrawals
5.00
2.51
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Banco de la Repblica, Reporte Sistema de Pagos 2012.

Excepted from BTCAs Colombia Diagnostic
At the time, each public entity at the competition. Ultimately these banks
federal level used different banks, decided that achieving scale required
so any solution to the Gobierno en interoperability, and they accepted
Lnea mandate would rely on the and supported the PSE initiative.
interoperability long promoted by
the government, in the face of strong Low Internet penetration has been
market concentration (four banks a barrier, too, but penetration more
controlled 57% of deposits in 2000) than doubled from 21.8% in 2007 to
that would otherwise encourage 48.9% in 2012.19
closed-loop intra-bank systems.
Some banks had already developed 3.2 L
imits of card payment
Web-based payment solutions, which usage
were not interoperable, to facilitate Whereas in other contexts, debit
online payments at merchants that and credit cards have played a
were corporate accountholders. substantial role in fulfilling mandates
Lack of interoperability made these like Gobierno en Lnea, in Colombia
closed-loop systems very difficult to card usage has been rather modest,
sell to businesses since customers although it is increasing. As Figure
had to be clients of the same bank. 5 shows, the main use of debit
Still, the predominantly large banks cards in Colombia has been for
behind these systems would see cash withdrawals, not purchases,
any new interoperable approach as in common with most emerging

EVIDENCE PAPER
markets. Credit cards are used for saw a clear business opportunity to
purchases only slightly more than are build on ACH Colombias existing
debit cards. infrastructure and develop an online
e-payment system that would meet the
This relatively low usage for purchases governments needs without having to
is despite the fact that debit cards per pay card franchises fees. The banks
capita in Colombia increased 2.4 times were also afraid the government would
between 2001 and 2012 (from 0.44 look elsewhere for a solution like it
to 0.91), and credit cards per capita had done by developing CENIT while
increased 5 times in the same time the banks stalled on ACH Colombia
period, from 0.05 to 0.27, ending 2012 and this approach was indeed
with 28.6 million total active cards contemplated at the government level,
in the market. An important factor
20
according to interviews.
limiting credit and debit card usage
for Internet purchases has been the Solving the challenges posed by
unwillingness of individuals to enter the requirements of the new model
their cards information on a merchants took nearly three years (2001-2003)
website for security reasons.21 Being of discussions within the banking
directed to a banks website, as PSE sector. These negotiations were
does, is perceived as more secure. For helped by the sectors experience
businesses, card usage is hindered by with the merger that led to ACH
the low penetration of corporate credit Colombia and the 1990s negotiations
and debit cards. on interoperability between the
two low-value payment operators
A still greater barrier to card usage (originally owned by different
and indeed to usage of all electronic banks), one exclusively working for
payment methods in Colombia is the Visa, Credibanco, and the other one
low level of financial inclusion. Colombia operating for MasterCard, Redeban.
has made impressive improvements:
The number of people with an account To get ideas for PSEs design, ACH
at a formal financial institution increased Colombia staff looked at similar
from 15.7 million in 2009 to 21.1 million initiatives in Brazil and travelled
in 2013 (over half the adult population); there to meet with a software
but only 42% of adults have active company that had helped a local
savings accounts. 22
bank design a service for online
purchases. Based on the basic
3.3 Financial sector initiative concept of a Web service provider,
In this context, the banks, through beginning in 2004 ACH Colombia
ACH Colombia, sought to create a new worked with its own technology
electronic platform. The banking sector provider to design a custom
product. PSE had to adapt an decided to impose a fixed monthly

online payment platform designed fee, regardless of actual usage, in
mainly for government bill and fees a tiered structure based on each
payments, which evolved to allow banks transactional volume. The
purchases online. resources this monthly fee provided
gave ACH Colombia the financial
Once PSE was designed, the independence to invest in the
next technological challenge development of PSE and the
was developing secure interfaces investment requirements were not
with banks, government, and an issue, as the members of the
businesses websites. This Board at the time recalled.25 PSEs
challenge explains the time that start-up and operating costs were
elapsed between PSEs original funded out of ACH Colombias
launch (2005) and the time that all revenues and did not require
banks were connected and using additional contributions from ACH
PSE (2009-2010). By 2013 only Colombias member banks.
state-owned Banco Agrario had
not implemented PSE, since it was The main negotiations were not
not a member of ACH Colombia (it about technology. Finding the correct
uses only CENIT). The attraction incentives for all participants was
of being able to receive deposits not easy, and negotiations over the
as guarantees in legal proceedings acquiring model to be used in other
(judicial deposits ) using PSE
23
words, who would be responsible
finally encouraged Banco Agrario for signing up merchants to use PSE
to join ACH Colombia effective generated tensions. On the one
2014.24 The technical challenges hand, banks that had a large share
faced by Banco Agrario in using of deposits and were large issuers of
PSE have slowed down its ability debit cards to their accountholders
to start using the service, to worried that PSE would bring
the point that ACH Colombia is competition (cutting into the
supporting the bank in designing interchange fees the banks received
and developing the necessary from acquiring banks). On the other
adjustments to its platform. hand, banks that had many merchant
clients and profitable acquiring
In the first years of ACH Colombias businesses worried that their clients
operations, transaction volumes would increasingly migrate toward
were low, and member banks were online debit payments using PSE and
concerned that switching fees alone away from accepting card payments
would not make ACH Colombia online; merchant discount fees were
sustainable. In response, the banks misaligned.

EVIDENCE PAPER
After long discussions, the banks in the interviews ranged around

decided to simply replicate the card US$0.50) and in others would agree
industry business model: an acquiring to leave a certain balance derived
bank (the payees bank), an issuing from payments as float for a certain
bank (the payers bank), and the number of days. Some banks also set
requisite infrastructure for switching, minimum and maximum fees, ranging
clearing, and settlement (managed by from US$0.40 to US$8.40. These fees
ACH Colombia). are proportionally higher for low-
value bill payments, thus discouraging
The final fee structure for PSE is those kinds of transactions through
somewhat more complicated, but PSE. (The banks are currently
in terms of rates, it was designed discussing this issue.)
explicitly to mirror the costs of cards
for purchases so as not to favor After some early hesitancy, especially
PSE over cards or vice versa and on behalf of the big banks, by the
to mirror the costs of other payment time of the launch, the banking sector
mechanisms (like cash and checks) for had come to terms with the scale and
bill payments. Regardless of the type network benefits of interoperability
of transaction involved, banks would and had largely balanced the business
pay a fixed fee of around US$0.42 per case incentives for PSE against the
PSE transaction, which includes PSE other payment mechanisms on offer.
fees and interbank fees.
3.4 The government again
For purchases, just like when paying steps in to push
with cards, the acquiring bank would Unfortunately, just as ACH
pay a fee to the issuing bank to Colombia and its member banks
encourage banks with large deposit were addressing the technical and
bases to promote usage of the service. financial barriers to implementing
Merchant discount rates were set PSE, the governments Connectivity
equivalent to those of other available Agenda ground to a halt when
payment mechanisms, such as debit a new government took office in
cards, which range between 1% and 5% 2002. By then, most of the changes
of the value of each transaction. were in place, but public entities did
not prioritize receiving payments
In the case of bill and fees electronically through their websites.
collection, since banks use different
fee arrangements, alternative ACH Colombia needed to find
mechanisms are used: In some cases alternatives to promote the usage
they would charge a fixed fee per of PSE. Even though ACH Colombia
transaction (the levels mentioned had already begun to encourage
Box A The complex social security system
In the social security system in Colombia, private and public providers coexist under government
regulations.
The pension system was reformed in the mid-1990s. Today, a private savings model (based on individual
savings accounts and managed by five funds) coexists with a public solidarity fund, and workers are
allowed to choose between them. Health social security was reformed in 2002 and allows private and
public providers, called Empresas Promotoras de Salud (EPS), to operate as insurers; workers can choose
between 24 of these providers. In addition, employers have to contribute to professional risk insurance
(they can choose between 10 insurance companies).
Until 2006, employers had to fill out one form per provider and pay each one independently, which could
mean processing 10-15 forms and payments each month for all types of social security contributions.
Payments had to be made through institutions (mainly banks) approved to collect social security
contributions, as well as the low-value payment systems.
By mid-2008, once the PILA unified format was implemented, 390,000 social security contributions were
processed in electronic form; by 2012 that had increased to 2.2 million unified formats (called planillas)
every month, which represent the contributions of 9.2 million workers.
e-commerce, it was a government security contributions and facilitate

initiative that gave PSE a significant the electronic payment of those
push forward. contributions. The platform, Planilla
Integrada de Liquidacin de Aportes
Social security contributions
(PILA), would interface with the
The push came in the form of various operators for health and
social security contributions, which pension payments (see Box A).
businesses must pay on behalf of their
employees, as must the self-employed. The initial goal was to roll out PILA,
This push is cited by many as a turning which would accept payments
point for electronic payments generally, through PSE, by February 2005.
not only for PSE, in Colombia. However, the systems technical
complexity forced delays, and
Again, the timing was fortuitous. the deadline was extended to
At the end of 2004, the Ministry of June of that year, largely due to
Social Protection issued a decree26 the difficulties of creating the
aimed at creating a unified electronic information systems that calculated
platform that would calculate social and processed the social security

EVIDENCE PAPER
FIGURE 6 PILA and PSE connection
contributions and then assigned By integrating PSE and SOI, banks

them to each of the participating offered a comprehensive solution,
institutions.27
allowing individuals (P2B) and
businesses on behalf of their
ACH Colombia needed to build employees (B2B) to make all social
another platform alongside PSE contribution e-payments gathered into
to manage this task. The platform a single PSE payment. On the back-
it developed, called SOI,28 offered end, ACH Colombia transfers allocate
PSE as a payment mechanism the contributions corresponding
for all operators of social security to each person (individuals and
contributions. 29
employees) into the social security
companies bank accounts.
For PSE, PILA plays the role of one
merchant, receiving one payment As of 2012, an average PILA
from each employer; that payment is e-payment contribution to the social
then divided and disbursed into each security system using PSE generated
social security provider using ACH 5.21 ACH transfers to the accounts
transfers. of each social security operator. This
means that by the end of 2012, the Foreign trade fees

6.4 million annual PSE transactions
Following soon after PILAs rollout,
made by SOI and other social security
another government entity adopted
information operators translated into
PSE to receive payments. The Ventanilla
33.3 million ACH transfers a big Unica de Comercio Exterior (Single
increase in the volume of electronic Window for Foreign Trade, or VUCE
payments. According to BTCAs for its acronym in Spanish) is a Web-
country diagnostic of Colombia, based platform that allows electronic
an estimated 80% of all social processing of the permits and
security contributions on behalf authorizations required to carry out
foreign trade operations in Colombia.31
of employees (calculated over the
number of workers that contribute on VUCE, launched by the Ministry of
average) were paid electronically by Commerce, Industry and Tourism in
September 2013.30 2002, was one of the few government
initiatives to gain momentum before
Not only did the development of the change of government; it went
PILA allow PSE to reach large scale, into effect in 2005. VUCE connects
because businesses were forced to 21 public agencies related to foreign
use PILA, but also employers and trade and three private companies that
employees learned the PSE system process e-signature certificates, as well
and developed trust in electronic as information on registered traders.
payment mechanisms. An average of approximately 9,480

EVIDENCE PAPER
FIGURE 7 PSE option on the VUCE website
monthly VUCE transactions are now payments waned (aside from the
made through PSE. As of 2014, 99% of partnership of PILA and PSE),
all VUCE transactions were electronic banks and ACH Colombia identified
using PSE. the potential for using PSE in
e-commerce transactions.32
Though payments to government
agencies (person- or business-to- Hosting service providers33 and
government, P2G or B2G) other e-payment gateways, called
than PILA were the impetus for the pasarelas,34 played an important
creation of PSE, these services were role in accelerating merchants
hampered by a lack of consistency and adoption of PSE. Web-hosting
persistence from the government. companies helped businesses with
a diversity of e-commerce services,
3.5 Merchants and billers from hosting an information-only
emerge as major PSE users website, to more complex services,
As the public sectors interest such as billing administration
in promoting online electronic and database management, and
FIGURE 8 Web hosting and e-payment gateways
connecting businesses individually companies, the first businesses

to PSE. E-payment gateways, on the interested in using PSE were private
other hand, provided an aggregation schools, which may not have sought
service, whereby several businesses out a payment provider on their own.
would be connected to PSE under a
single connection. Gateways typically Both types of service provider not
give customers the choice of several only reduce the initial investment
payment methods, among them PSE. merchants must make,36 they
also facilitate the management,
These technology companies played maintenance, and administration of
an important role in linking businesses payments. In the case of pasarelas,
to PSE and making them aware of the since they act as aggregators, they
systems benefits.35 These companies may also offer lower merchant
were very successful in sourcing new discounts, since they negotiate in
businesses as merchants in unusual volume with the acquiring banks to
places: Even before large companies reduce these rates, part of which is
like telcos, airlines, or public utility the margin in their operation.

EVIDENCE PAPER
4 Usage of PSE and

emerging trends
The majority of the payments made transactions (Internet and ACH) is

in Colombia are still made in cash: partly attributable to PSE.
The BTCA diagnostic estimated
that 828 million payments are made Total ACH transactions increased
every month (by government, almost six-fold from 20.3 million per
businesses, and individuals), and of year in 2005 to 116 million by 2012,
those only 9.7% are made through and by value almost five-fold from
electronic means. US$54 billion to US$246 billion
annual growth rates of 67% and65%.37
Electronic transactions have increased
as a share of total transactions: Even with that growth, the
Those involving electronic payments percentage of ACH transactions
(including Internet, ACH, IVR, initiated through PSE has increased
and POS) increased from 28% to nearly every year: from 4% of ACH
34% between 2009 and 2012. The Colombia transaction volume in 2007
increased share of Web-based to 14.5% in 2013.
FIGURE 9 Transactions using PSE as a percentage of total ACH Colombia transactions
16.0%
14.0%
PSE transactions / ACH
12.0%
10.0%
Colombia
8.0% Volume
6.0% Value
4.0%
2.0%
0.0%
2007 2008 2009 2010 2011 2012 2013
SECTION 4: USAGE OF PSE AND EMERGING TRENDS 21

EVIDENCE PAPER
FIGURE 10 PSEs annual transactions by volume
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2008 2009 2010 2011 2012 2013
Gov Business PILA

Source: A
CH Colombia
4.1 P
ayments to merchants in 2013 for the first time there were
are increasing more more payments to businesses.
quickly than payments to
government
8,000,000 By value, though, social security
7,000,000
In PSEs early days, social security contributions still make up the
6,000,000
contributions were the predominant biggest share. PSE transactions
# transactions
payment 5,000,000
type over the system. totaled US$35.4 billion as of 2013, of
4,000,000
Though those payments, and which PILA represents about 70%,
payments3,000,000
to government agencies, down from 95% in 2008.
continue 2,000,000
to grow in volume, payments
to private1,000,000
businesses make up an Part of the slowing growth in
increasing share-of PSEs transactions. payments to government using
2008
By the end of 2012, business 2009 2010 2011
PSE can 2012 by 2013
be explained the
transactions nearly equaled social level of complexity. For example,
PILA Government
security contributions by volume, and the Federal Tax Administration
10%
0%
2008 2009 2010 2011 2012 2013
Gov Business PILA COLOMBIAN CASE STUDY
FIGURE 11 Volume of payments to government over PSE
8,000,000
7,000,000
6,000,000
# transactions
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
-
2008 2009 2010 2011 2012 2013
PILA Government
(Direccin de Impuestos y Aduanas even smaller sample than the

Nacionales, or DIAN) has developed banked population. The BTCA
an online tax assessment and diagnostic estimated that only
payment platform. But it has strict 30% of individual taxes and 40%
requirements: The citizen needs of business taxes by volume
to be pre-registered and to have were paid electronically in 2012.
previously registered an electronic
signature. So ACH Colombia had Challenges defining an adequate
to develop another special module tariff structure also may have
to facilitate interaction with DIANs slowed government usage of
systems. Further complicating PSE. For example, the most
matters, although PSE allows important local government
interoperability among banks and using PSE, the Secretary of
other financial institutions, the Finance of the city of Bogot
bill collection agreements that (Secretara de Hacienda de
each public entity reaches with Bogot, or SHD), developed
some banks can be obstacles. a platform in-house to link to
For example, DIAN has collection PSE in 2007 because it was
agreements with only certain banks; convinced of the benefits
therefore citizens ability to pay of reducing cash. But as of
taxes online is constrained to an 2013 only 50% of transactions

EVIDENCE PAPER
were made electronically, in part and government entities received

because some banks have resisted 975,227 monthly payments in 2013,
being compensated through float an impressive increase since 2008s
commitments rather than per- monthly average of 78,000.
transaction fees, and have not
allowed their accountholders to pay Total PSE transactions made to
them through PSE. The city treasury private businesses in 2013 reached
also faces technical challenges US$4.2 billion by volume, 73% came
accommodating the flood of from bill collection and 23% from
transactions its system must handle purchases. However, the potential
as the tax deadline approaches. This for further growth in purchases is
has overloaded the SHD website and promising; it is estimated that there
caused it to lock out some users. are between 3 and 4 million online
buyers in Colombia38 with purchases
Still, some public entities seem to already worth US$3 billion.
be pressing for more electronic
payments. For example, the entity Though they were not the first to
in charge of property registries and take advantage of PSE, telcos and
other types of small certification communications companies now make
procedures (Superintendencia up the largest sector of PSE users.
de Notariado y Registro, or
Superintendency of Notaries and For large companies like Telefnica,
Registration) offers a 6% discount for PSE has reduced costs for bill
payments made online instead of in collection, compared to other
person. channels including in-person
payments at company outlets.
4.2 Businesses payments Telefnica first accepted bill payments
over PSE are now high through PSE directly, but the need to
by volume, but not yet offer new services to its customers,
by value
without diverting resources from its
In 2013, private businesses 3,996 core business, led the company to
are now using PSE accounted for switch to an e-payments gateway.
almost half (45%) of PSE transactions This switch gives Telefnica more
by volume although only an eighth flexibility in accepting payment for
(12%) by value. This means these mobile devices and phone lines.
business transactions tend to have
lower values (US$500 on average, A businesss decision to accept
which is consistent with individual payment over PSE takes many
purchases and bill collection) than factors into account. According to
PILA or government payments. Private an e-payment gateway that services
FIGURE 12 Number of PSE transactions by sector (2013)
46,976 522,613 661,880

0% 4% 6% 593,995
5% Commerce
128,112
1% 208,787
Education
2%
893,286 Other
141,051
8%
1% Housing
Financial
2,176,863 Entertainment
2,791,061 19%
24%
Government
Tech & communications
Transport
287,913
3,250,181 Health
2%
28%
theatre ticket-sellers, its clients like at all of their customers banks to

PSE because it ensures that the receive payments; through PSE they
purchasers funds are available at can accept payments from any bank.
the time of purchase unlike with PSE also gives businesses control over
credit cards. (From the payers point the amount paid, since the transaction
of view, PSE and debit cards are originates on their website, reducing
more comparable to cash payments, mistakes and the need to confirm the
according to interviews with PSE funds match an actual sale or invoice.
merchants.) And, once funds are confirmed, the
PSE transaction cannot be charged
Furthermore, businesses that issue back, thus strengthening businesses
bills do not have to have an account trust in the system.

EVIDENCE PAPER
4.3 B
anks offering e-payment Not all banks have developed
services to save costs their own platforms to deliver
To make a profit from their PSE these services; some use hosting
services and to increase usage of PSE companies, as they have faced
by their corporate clients, many banks difficulties of their own in interfacing
have developed special products, with PSE.
including:
According to banks interviewed
Web-hosting services: ACH for this case, in comparison to
Colombia manages websites other bill collection mechanisms
offered by some banks, linking available in the financial system,
the banks website to the PSE has the lowest cost from
businesss website. According to the banks point of view: When a
those interviewed, this kind of banks corporate client accepts
service may cost US$94 a month a bill payment in cash through
plus US$0.52 to US$0.63 per the banks branch network, each
transaction. 39
transaction may cost the bank
US$1.30, whereas the cost to
E-payment gateways (pasarelas): the bank of a client using PSE
Some banks offer websites to allow ranges from US$0.30 to US$0.40.
different businesses to sell their For banks, PSE reduces the use
goods and services or even collect of branches. Some banks are
bills, using PSE. For example, beginning to use PSE themselves,
Banco de Occidente, BBVA, and in their role as billers for loan
Colpatria offer websites that allow repayments from their debtors.41
their clients to receive payments
using PSE from any bank, without Not surprisingly, PSE transactions
the need to even have individual are concentrated in a few big
websites. 40
banks. Bank 1 (individual bank
names have been withheld at the
Including PSEs link on businesses request of ACH Colombia) is clearly
websites: For this service, the dominant player. The top two
businesses pay a fixed fee per banks accounted for almost 68% of
transaction to the bank, most total transactions as of 2013, which
often in the case of bill collection, corresponds to their dominance
though sometimes the agreement of the market for bank deposits:
includes leaving funds in the bank Combined, these two also had
for a certain period of time (called 66% of the total deposits (savings
reciprocidad in Spanish). accounts and checking accounts).
FIGURE 13 Banks shares of total PSE transactions by volume (2013)
Bank 7, 3.0%
Others,
Bank 6, 2.8% 10.5%
Bank 5, 3.5%
Bank 4, 5.1%
Bank 1, 54.9%
Bank 3, 6.5%
Bank 2,
13.6%
4.4 H
osting services and using PSE both for sales and bill
e-payment gateways are collection. Since 2009, the number
also playing a greater role of businesses using Web-hosting
PSE transactions through Web- services to make PSE transactions
hosting service providers and has increased almost five times: As
e-payment gateways have been of 2013, 39% of businesses (private
increasing in importance: By the end and public) using PSE relied on
of 2013, 24.9% of PSE transactions hosting and other e-payment service
were initiated using Web-hosting providers.
companies while e-payment
gateways, provided mainly by five Web-hosting and e-payment
banks and companies, 42
accounted gateways charge businesses a fixed
for almost 6% of PSE transactions. value plus fees per transaction
that may decrease as value per
As discussed above, Web-hosting transaction increases. Fixed fees
services have greatly helped charged by one of the pasarelas
increase the number of companies interviewed for this case are

EVIDENCE PAPER
FIGURE 14 Transactions originated by hosting FIGURE 15 Number of businesses using

companies or payment gateways, Web-hosting services
as a share of total PSE transactions
35.0% 2,500
2,372
30.0% 2,000
1,887
5.7%
25.0% 1,319
1,500
3.2% 5.3%
20.0%
1,000
15.0% 642
1.5% 24.9% 464
10.0% 0.7% 500
15.7% 18.2%
5.0% -
6.5% 9.0%
2009 2010 2011 2012 2013
0.0%
2009 2010 2011 2012 2013 Source: ACH Colombia
Hostings Gateways
approximately US$0.50, plus per- service in 2010, called PSE Hosting.

transaction fees ranging from 3.5% of This allowed ACH Colombia to
value for transactions over US$52,241 compete with these third parties
to 4.5% for transactions below and drive down prices for hosting,
US$2,612. The lowest total charges helping lower the costs of using
are estimated to be 5.2% of the PSE for businesses. This in turn has
transaction value. But if transactions encouraged hosting companies to
have very low values, the rates are offer even more services to clients.
higher; for transactions less than And because of the importance of
US$15.67, fees are US$0.26, plus 8%. PSE to these companies business,
ACH Colombia has sought to have
Just as banks have entered the them pay for some of PSEs costs
marketplace for hosting, ACH (like ACH Colombias member
Colombia launched its own hosting banks do).
5 Challenges relevant
to other contexts
The above sections have described methods for bill collection, it is not
the outcomes particular to the clear that PSEs fee structure is
Colombian context. Policymakers properly incentivizing merchants and
and providers in other countries, bill collectors to accept payments
however, are likely to face challenges with PSE, which could slow its
in planning and implementation growth rate in the future. (Recall
similar to those faced by ACH the discussion of PSEs fixed per-
Colombias PSE project. transaction rate for bill collection,
particularly affecting low-value bills,
One of these challenges is certain where a US$5.20 bill could carry a
to be the technical complexity in fee of US$0.50.)
connecting a wide variety of bank
payment platforms to one central This may explain why overall
system. These challenges also average transaction size using PSE
apply to merchants (especially has remained around US$1,908
smaller ones), for whom managing well above the values that would
and upgrading technology can displace the most common cash
be difficult and expensive, often transaction.43 And PSE may not
requiring an outside hosting service. compete with cards in all cases,
either; checks are the most likely
Even though fees were set on par alternative for utility bills and tax
with those for cards and other payments.
SECTION 5: CHALLENGES RELEVANT TO OTHER CONTEXTS 29

EVIDENCE PAPER
FIGURE 16 Annual average transaction value per user over PSE
3,500
3,000
2,500
2,000
US$
1,500
1,000
500
-
2008 2009 2010 2011 2012 2013
Gov Business PILA Total

Source: A
CH Colombia
One option being explored to in part because of the anonymity

make acquiring more attractive cash provides. Large companies
is to charge part of the cost to interviewed that receive low-value
the payer, as well as to the payee payments still do so in cash in their
(merchant), differentiating clearly offices or even in bank branches.
the cost of collecting payments In Colombia, this challenge
in cash vis-a-vis electronically. is compounded by a tax on
In Colombia though, this is not withdrawals from the formal financial
allowed in the case of utility system, an issue explored in detail in
payments, since public service the BTCA Colombia diagnostic.
providers argue that they are
forbidden by regulation from Another challenge PSE has faced
increasing the cost to clients. is that, while businesses make 2.4
million monthly utility payments
Like people in other countries with (valued at US$ 308 million)
a large informal sector, Colombians electronically, through the PSE
exhibit a high preference for cash system or directly through banks
in most day-to-day transactions, websites, individuals make only
an estimated 2% of the 34 million of which can be easily reversed, a

utility payments (9.7% of the US$501 burden for billers.
million in value) by electronic
means. This is likely to change due Though all stakeholders are concerned
to shifting demographics; 47% of about this issue, not all are willing
Internet users already buy online.44 to take responsibility. Utilities and
Estimates by the E-Commerce businesses think the banks should be
Chamber of Colombia indicate that held responsible because the fraud is
by 2012, purchases online tripled initiated on their websites as it occurs
over the level in 2010, and for 2013, due to identity and bank password
growth reached 40%. theft, while banks say businesses
should be more careful in verifying the
Lastly, in common with all electronic identity of the payer. In any system
payment instruments, PSE has like this, charge-back rules need to be
encountered some instances of harmonized so that fraudulent behavior
fraud. According to ACH Colombia, does not have negative consequences,
as of 2013, fraud claims were highly and systems for handling disputes
concentrated in social security need to provide a fair allocation of
contributions and taxes, neither responsibilities and costs.
SECTION 5: CHALLENGES RELEVANT TO OTHER CONTEXTS 31

EVIDENCE PAPER
Jess Kraft / Shutterstock.com

6 Lessons learned
Drawing on these challenges, governments, providers, and businesses in other

contexts should follow the lessons below to maximize the chances of success for
an online credit transfer platform.
6.1 For government
1
A long-term policy commitment can spur financial service
providers to develop effective, efficient payment products.
The Colombian government was a constant presence in the development
of ACH Colombia in general and PSE specifically. When the push toward
e-government flagged on the policy side, it was taken up by the payment
regulators. The creation of PSE was driven in part by banks fear of losing out in
the market for electronic payments, although the central bank was itself a direct
advocate and supporter of clearing houses as a bank-driven solution.
A consistent policy from the government is key in sending the private sector
(merchants and banks) a clear message that it will maintain the conditions
necessary to justify long-term investments in new e-payment instruments and
systems. The Colombian case also shows the need to involve all levels of the
public sector, especially local governments, to promote the scale necessary for
long-term sustainability of electronic payments.
This consistency broke down in Colombia. The government did not fully enforce
its rule ordering all public institutions to use electronic payment systems to collect
taxes, so public sector agencies were left at liberty to make different kinds of
arrangements and negotiate individually with each bank, disrupting the main
concept of a successful e-payment system, multi-bank, multi-client.
SECTION 6: LESSONS LEARNED 33

EVIDENCE PAPER
2
Government mandates can be effective in driving usage of
electronic payments.
Requiring the public sector to accept only electronic payments also serves
the purpose of forcing the general public to adopt e-payments. Because at the
outset, all social security payments were to be made electronically, the PILA
policy forced people and businesses to start making e-payments and was vital
in spreading awareness of PSE. However, not all people had bank accounts or
Internet access, and not all of those who did knew how to use online payments
systems. Though the Ministry of Health had to pull back from the electronic
mandate and create another option within the electronic PILA that allowed people
to make payments in cash, the majority of payments had to be electronic.45
Many of the providers and users interviewed for this case said that, despite the
relatively modest values involved, linking PILA to PSE was an important factor in
promoting electronic payments because it built consumer trust in the system and
instilled payment habits that could be applied to new services offered through
PSE. Customer confidence, combined with the addition of new services, has
enabled PSE to increase not only in absolute terms but also to represent a higher
proportion of total transactions made by ACH Colombia: Starting from 4% in 2007,
by 2012 it represented 12% of total transactions cleared through the switch.
Building confidence has been one of the key factors in the governments push
to use PSE and other e-payment mechanisms. In addition, all the technological
mechanisms that had been developed over the years to avoid mistakes and
address discrepancies have had a positive demonstration effect on day-to-day
e-payment users.
3
This kind of platform can be leveraged to promote electronic
payments, once a financial inclusion strategy is in place.
PSE usage is limited to those with bank accounts. To further expand usage,
and deepen the systems benefits, the government must have an active financial
inclusion strategy that helps overcome limits on access to, and usage of, financial
products. The financial inclusion strategy needs to address and tackle the reasons
why usage of financial products remains low, deterring or preventing people from
using e-payments. This issue is now identified as part of the Colombian financial
inclusion strategy.46
PSEs ultimate barrier is reaching customers without bank accounts. Some banks
and businesses are trying to overcome this by issuing electronic invoices that can
be paid later in a branch. Obviously this is a half-measure and eventually involves
cash, but at least it can serve as a vehicle to inform people about electronic
payment mechanisms. Even people with accounts are not all willing to use
electronic mechanisms. Introducing PSE to customers not using PILA (employees
whose contributions to social security system are made by their employers) has
been quite difficult.
6.2 For providers and businesses
1
The interface between PSE and its merchant users is not easy for
banks to develop and offer alone.
Hosting-service providers linking businesses to PSE were vital to the
development and consolidation of the system by helping banks overcome the
technical problem of connecting to PSE. Government, businesses, and even banks
found this kind of service very useful to avoid using their own scarce internal
resources and manpower to develop and update something they dont see as a
core business. As those interviewed mentioned, in the absence of these providers,
it would have been much more difficult for PSE to gain traction with businesses.
2
The business model needs to incentivize usage by merchants
for both high- and low-value payments.
PSE was designed to facilitate payments of both purchases and bills
payment streams that entail different payment behaviors, average values,
and processes. The fee structure has to allow for both types of transactions.
It is not clear how the business case for users of PSE will evolve and how they will
perceive and stimulate the usage of PSE compared with card payments in card-
not-present transactions. The initial decision by the members of ACH Colombia to
recreate the card sectors business model may need to change. With PSE, after all,
the banks do not have to pay franchise fees to the card networks, so the end-user
cost could be lower.
Transaction fees would need to decline to make lower-value transactions

attractive. To do this, all the factors affecting price structure must be addressed,
including lowering operational costs, strengthening information, and developing
value-added services.
3
Potentially opposing interests have to be reconciled.
Finally, the case of PSE shows that the success of an interoperable
e-payment system depends on a deep understanding of all the interests
and market positions of providers and users alike. This is needed to reach
agreements that allow for the alignment of often conflicting interests around the
general benefit of having an e-payment system that reduces costs and increases
efficiency for the market and consumers.
SECTION 6: LESSONS LEARNED 35

Annexes
EVIDENCE PAPER
ANNEX A: LIST OF ACRONYMS
ACH
Automated Clearing house
ACH CENIT Banco de las Repblicas ACH
ATM Automated Teller Machine
BR
Banco de la Repblica
DIAN Direccin de Impuestos y Aduanas Nacionales
EPS Empresas Promotoras de Salud
IVR
Interactive Voice Response
OBPeP
Online Bill Presentment and Electronic Payment
PILA
Planilla Integrada de Liquidacin de Aportes
POS
Point of Sale
PSE
Pagos Seguros en Lnea
SIIF Sistema Integrado de Informacin Financiera
SOI ACH Colombia social security information operator
VUCE Ventanilla Unica de Comercio Exterior
ANNEX B: INTERVIEWEES
Name Title Organization
Gustavo Vega President ACH Colombia
Rodolfo Serna Former Board Member ACH Colombia
Augusto Restrepo Former Board Member ACH Colombia
Carolina Merlano Director Payment Systems Banco de la Repblica

Transactional Services Colombia - Executive
Juan Carlos Andrade BBVA
Director
Carlos Adolfo Valencia Electronic Channels Manager Banco de Occidente
Sandra Flrez E-Service Online Channel Movistar/Telefnica
Erika Maldonado E-Service Online Channel Manager Movistar/Telefnica
Nicols Revollo Technology Director TuBoleta
Edilson garzn System Administrator TuBoleta
Ruffo Pinilla General Director Avisor Technologies
Nasly Jennifer Ruiz District Treasurer Secretara de Hacienda de Bogot
Jackeline Angel Electronic Operations Manager e-Business Avianca
Carlos Andrs Rodrguez Cash Management Bancolombia
ANNEXES 37
EVIDENCE PAPER
End Notes
1 BTCA country diagnostic of Colombia, 2013. 13 Founded as an independent private company in November 2000 as
a result of the merging of 2 former private small ACHs. Today it has
2 In Colombia there is no explicit legal framework for payments, 17 shareholders and 19 users including banks, some cooperatives,
but since 2005 all low payment systems (defined as payment and trust fund companies. The 6 largest banks own 60% of shares
platforms which interconnect more than 3 financial institutions and and 40% is distributed among the other shareholders.
undertake transactions of less than a daily average of US$ 1,800
million) are regulated by the Ministry of Finance and supervised 14 The SIIF process involves different stages: All the federal institutions
by the Financial Superintendence (Decree 1400 de 2005). Specific have to upload their detailed budget and each time they have
regulations on operational risk and AML are applicable for this type to pay, they need to validate the expenditure and ask for the
of institution. funds indicating the account of the recipient (they have 500,000
registered accounts). When authorized, payments are ordered
3 Better Than Cash Alliance (2012), The Journey Toward Cash Lite, by the Treasury and are processed through the accounts at the
available at http://betterthancash.org/wp-content/uploads/2012/09/ Central Bank through CENIT-ACH to the accounts of providers or
BetterThanCashAlliance-JourneyTowardCashLite.pdf. beneficiaries at the banking institutions. SIIF has databases needed
to identify the bank account for each intended individual payee.
4 As the case study explains, these payments are mostly business-to- http://www.minhacienda.gov.co/HomeMinhacienda/siif.
business: employers making government-mandated social security
contributions on behalf of their employees to private social security 15 Law 298, 1996. http://www.suin-juriscol.gov.co/contenidos.
operators. dll?f=templates&fn=default.htm&form_busqueda=leyes#LPHit1.
5 See http://betterthancash.org/resources/publications/#BTCA. 16 Included all 170 institutions at the Federal level. Decree
2806, 2000. http://www.suin-juriscol.gov.co/contenidos.
6 G: Government. B: Business (non-financial private sector). P: Person dll?f=templates&fn=default.htm&form_busqueda=decretos.
(individuals). D: Development community partner. For further
explanation of the payment grid, see The Journey Toward Cash Lite. 17 Conpes Document 3072, February 2000. https://www.dnp.gov.co/.
7 Unless otherwise noted, merchant will also refer to government 18 https://www.gobiernoenlinea.gov.co/.

entities accepting payment over PSE. The technical underpinnings of
the transaction are no different. 19 World Telecommunication/ICT Indicators Database, available at
http://www.itu.int/en/ITUD/Statistics/Pages/publications/wtid.aspx.
8 All ACH Colombia transactions are based on ISO 270001, 2005
standards. 20 Credit cards doubled in number in the past four years due to an
active expansion scheme of big retailers such as Exito, the biggest
9 Credit and debit card purchases, when used online, would also supermarket in Colombia, with its Tuya card in an alliance with
generate a confirmation message. Cash and checks, when presented Bancolombia (approx 1.5 million) Codensa, an electricity utility
in person, would, too; because merchants and consumers value this which sold its portfolio to Banco Colpatria 2 years ago, (0.75 million
notification, electronic payment instruments need to provide it to cards); and Falabella, a bank that belongs to a department store
compete with cash and checks. It is especially valuable for high- (0.9 million). All of these, except 40% of Falabella, are all of them
value purchases like airline tickets. with non-franchise cards. Debit cards have been expanding also very
rapidly due to the efforts.
10 ACH transfers can also be used in utility bill payments, but these
bill payments are conducted after a service has been rendered, 21 According to interviews with banks and other stakeholders
and the provider has issued a bill (or invoice), normally on a big interviewed for this case study.
scale, requesting payment by a due date. The banks have received
beforehand the number of the invoice and the amount to be paid. 22 See http://www.asobancaria.com/.
The payer just needs to order the payment from the banks online
service, for the amount set in the original invoice. These payments 23 Banco Agrario, as a public bank, is the only one allowed to receive
are already related to a specific account number identifying the and keep this kind of deposit.
service being paid and the amount, so that possible mistakes are
greatly reduced. 24 This required coming to an agreement on a fee structure that
considered the banks geographical outreach as the largest in
11 During the 1990s the Central Bank of Colombia undertook various Colombian financial system. Banco Agrario has 1044 branches in 717
infrastructure investments which enable it today to have the CUD, a municipalities, in another 200 musicalities it operates with agents,
RTGS which supports CEDEC, an electronic clearing system for high- and in 94 very distant and small municipalities it is the only bank
value checks; DCV a Central Securities Depository which administers available. The fee structure agreed upon includes the recognition
de-materialised securities; SEN, the Electronic Trading System in of a special price for ACH transfers into accounts in those
which securities are traded between financial institutions; and CENIT, municipalities where Banco Agrario is the sole financial presence.
the ACH which today could support up to 300,000 transactions
per cycle. Apart from these, the Central Bank also administers the 25 Up until 2008, ownership was a prerequisite to use ACH transfers. By
Central Counterpart Clearing house and the Foreign Exchange 2010, this requirement was eliminated allowing financial institutions
Clearinghouse, of which its monetary operations are settled through to use ACH transfers without becoming owners, and to have the
the CUD. Source, Banco de la Repblic, Reporte De Sistemas De guarantee of service in the same conditions as the shareholders.
Pagos, Subgerencia de Operacin Bancaria, Junio de 2010. Nowadays, 17 banks own ACH Colombia.
12 The Ministry of Finance continues to use CENIT in part because it 26 Decree 3667, 2004. http://www.suin-juriscol.gov.co/contenidos.
gets a preferential rate for transactions (US$ 0.08), lower than would dll?f=templates&fn=default.htm&form_busqueda=decretos.
have been possible if it depended only on the private ACH.
27 For example, one challenge was to decide who would administer and 35 In all cases, the business wanting to use PSE has to be acquired, by
save, in a centralized form, the information of all the contributions a bank as well, to be able to receive payments.
and payments. It was decided that the Central Bank would use its
ACH platform, CENIT, to process and store the information. 36 Interviews with companies suggest that developing a platform in-
house may cost US$3,000- US$5,000 up front, and would require
28 https://www.nuevosoi.com.co/inicio. Other social security constant upgrading.
information operators designed similar electronic platforms. To date,
there are eight electronic platforms that end up in PSE payments 37 The annual inflation rate was 4.3% during the same period.
and ACH transfers.
38 Interview with the president of the Colombian E-commerce
29 There are six social security subsystems whose contributions have Chamber, El Universal, December 24 2013.
to be made using PILA: health, pension funds, severance funds,
insurance, family compensation funds, being the most important. 39 This is the case for example, of a hosting service that specializes in
schools.
30 Though the PILA system was meant to be totally electronic, the
government had to design a mechanism (PILA asistida) for people 40 http://portal.psepagos.com.co/web/banco-de-occidente/busador
without accounts in the banking sector, allowing them to use the http://www.zonapagos.com/t_portalbbva/default.asp.
electronic PILA to calculate the contribution, but ending up paying https://www.banco.colpatria.com.co/PagosElectronicos/
in cash in a branch. AgreementCategory.aspx.
31 http://www.vuce.gov.co/. The Doing Business Report for 2014 41 For example, Colpatria is already using PSE to collect all loan
recognizes Colombias VUCE as an example of a Trade Single payments, including credit cards. https://www.colpatria.com/.
Windows with Singapore, and Azerbaijan. (p. 62 and 63).
42 Red Multibanca Colpatria, Pagosonline, Portal Zona Pagos Bbva,
32 The regulatory environment by this time was clear. In 1999 Law 527 Banco Comercial Av Villas, and Mercadolibre Colombia S.A.
regulated access and the use of data messages, e-commerce, and
electronic signatures, defining the entities allowed to certify their 43 According to a Com Score survey, 35% of Colombian online
validity. The regulations main objective was to set an adequate shoppers spent between US$500 and US$1,000 online while 34%
legal framework allowing e-commerce development within a safe exceeded these amounts. http://www.iabcolombia.com/lo-ultimo/e-
environment. This kind of framework was key to the development of commerce-incremente-sus-ventas-gracias-a-internet/.
e-commerce schemes.
44 http://www.slideshare.net/JosLuisValdivielso/internet-and-e-
33 Hosting services help businesses connect their webpage to PSE, can commerce-report-for-latinamerica-2012.
host the webpage, or can merely provide service to link them. In any
case, transactions occur between each business and PSE directly,
45 All businesses with more than 30 employees are required to pay
and the resources of each payment are credited to the businesses
electronically. Smaller businesses and independent workers are
banks immediately.
exempt.
34 Pasarelas or e-payment gateways, are aggregators that interconnect
46 Colombias new financial inclusion strategy has emphasized
onto its own platform many businesses and from there link to PSE.
electronic payments and transfers as a focus for the next four
Transactions are undertaken on behalf of each pasarela, which
years. See http://www.minhacienda.gov.co/portal/page/portal/
negotiates merchant discounts taking advantage of volume offered
HomeMinhacienda/saladeprensa/MinHacienda-lanza-Estrategia-
to its acquiring bank. Funds are transferred to each establishment
Nacional-de-Inclusion-Financiera.
several days after the purchase is confirmed, depending on the
negotiation.
ANNEXES 39
COLOMBIAN
COLOMBIANCOUNTRY
COUNTRYDIAGNOSTIC
DIAGNOSTIC
About the Better Than Cash Alliance

The Better Than Cash Alliance is an alliance of governments, private sector,
and development organizations committed to accelerating the shift from
cash to electronic payments. The Better Than Cash Alliance is funded by
the Bill & Melinda Gates Foundation, Citi, Ford Foundation, MasterCard,
Omidyar Network, USAID, and Visa Inc. The UN Capital Development Fund
serves as the secretariat.
B E T T E R THANC A S H
To learn more, visit www.betterthancash.org and follow @BetterThan_Cash.

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BTCA Case Study No.

By Bankable Frontier Associates (BFA) under the supervision of Beatriz Marulanda

The Better Than Cash Alliance:

By Bankable Frontier Associates (BFA) under the supervision of Beatriz Marulanda

IV USAGE OF PSE AND EMERGING TRENDS............................................................. 21

V CHALLENGES RELEVANT TO OTHER CONTEXTS............................................... 29

TABLE OF CONTENTS iii

Over the past 10 years in Colombia, payment approaches, notably cash,

Next, the office of the President a goal to promote electronic

implementers and stakeholders that providers, and businesses in other

FIGURE 1 Payment grid and focus of case study6

Focus of case study Secondary focus

G = Government; B = Business; P = Individuals; D = Development partners

FIGURE 2 PSE e-payment system

Source: ACH Colombia

SECTION 2: PSE DEFINED 5

FIGURE 3 Example of PSE payment options

pre-authorizes a biller to debit her is no upfront confirmation that

The basic difference between A typical ACH transfer would

SECTION 2: PSE DEFINED 7

Jess Kraft / Shutterstock.com

The service described in the bank decided to establish its own

SECTION 3: CREATION OF PSE 9

FIGURE 4 Timeline of ACH Colombia milestones

1991 1993 1995 1996 1997 1998 1999 2000

4G project fails and owners try to sell it to ACH

Mandating electronic procurement Mandating acceptance of online

The creation of the public clearing In February 2000, the government

FIGURE 5 Purchases and withdrawals per card (2011-2012)

Source: Banco de la Repblica, Reporte Sistema de Pagos 2012.

SECTION 3: CREATION OF PSE 11

product. PSE had to adapt an decided to impose a fixed monthly

SECTION 3: CREATION OF PSE 13

After long discussions, the banks in the interviews ranged around

Box A The complex social security system

e-commerce, it was a government security contributions and facilitate

SECTION 3: CREATION OF PSE 15

FIGURE 6 PILA and PSE connection

Source: ACH Colombia

contributions and then assigned By integrating PSE and SOI, banks

means that by the end of 2012, the Foreign trade fees

SECTION 3: CREATION OF PSE 17

FIGURE 7 PSE option on the VUCE website

Source: ACH Colombia

FIGURE 8 Web hosting and e-payment gateways

Source: ACH Colombia

connecting businesses individually companies, the first businesses

SECTION 3: CREATION OF PSE 19

4 Usage of PSE and

The majority of the payments made transactions (Internet and ACH) is

FIGURE 9 Transactions using PSE as a percentage of total ACH Colombia transactions

SECTION 4: USAGE OF PSE AND EMERGING TRENDS 21

FIGURE 10 PSEs annual transactions by volume

Gov Business PILA

Gov Business PILA COLOMBIAN CASE STUDY

FIGURE 11 Volume of payments to government over PSE

(Direccin de Impuestos y Aduanas even smaller sample than the

SECTION 4: USAGE OF PSE AND EMERGING TRENDS 23

were made electronically, in part and government entities received

Source: Banco de la Repblica, Reporte Sistema de Pagos 2012.

Box A The complex social security system

Source: ACH Colombia

Source: ACH Colombia

Source: ACH Colombia

Source: ACH Colombia

Source: ACH Colombia

Source: ACH Colombia

6.2 For providers and businesses