The Basel Committee on Banking Supervision today published a report that considers the implications of the ongoing digitalisation of finance on banks and supervision.

The report builds on the Sound Practices: implications of fintech developments for banks and bank supervisors published in 2018, and takes stock of recent developments in the digitalisation of finance.

The report reviews the use of key innovative technologies across various aspects of the banking value chain, including application programming interfaces, artificial intelligence and machine learning, distributed ledger technology and cloud computing. It also considers the role of new technologically enabled suppliers (eg big techs, fintechs and third-party service providers) and business models.

While digitalisation can benefit both banks and their customers, it can also create new vulnerabilities and amplify existing risks. These can include greater strategic and reputational risks, a larger scope of factors that could test banks’ operational risk and resilience, and potential system-wide risks due to increased interconnections. Banks are implementing various strategies and practices to mitigate these risks, but effective governance and risk management processes remain fundamental.

The Bank of Namibia has called in NPCI International Payments to help the southern African country develop an instant payments system based on India’s hugely successful UPI. Namibia will tap into the technology and expertise behind India’s UPI to develop real-time P2P and merchant payments. NIPL says it will help Namibia modernise its financial ecosystem, boosting the accessibility, affordability and connectivity for both domestic and international payment networks.

Launched in 2016, the UPI has been central to India’s efforts to use digital payments to boost financial inclusion and has now handled well over 100 billion transactions.

The NPCI international subsidiary was set up in 2020 to push the UPI, as well as the RuPay card network, outside of India. Earlier this year, the unit struck a deal with Nepal’s largest payment network and it has also joined forces with Google Pay to accelerate global expansion.

Johannes Gawaxab, governor, Bank of Namibia, says: “Our objective is to enhance accessibility and affordability for underserved populations, achieve full interoperability of payment instruments by 2025, modernize the financial sector, and ensure a secure and efficient National Payment System.

The G20 has identified service level agreements (SLAs) as a priority in helping to achieve its targets in cross-border payment by end-2027. The SLAs define minimum service levels for correspondent banking relationships, the links between payment systems and payment instrument rulebooks.

This can help to meet the G20 goals of making cross-border payments cheaper, faster, more transparent and more accessible, while also ensuring their safety.

The report contains high-level recommendations, key features and guiding questions to inform parties involved in such arrangements. Payment service providers, correspondent banks and/or payment system operators are encouraged to consider the recommendations when establishing new agreements or reviewing existing ones.

The recommendations, key features and guiding questions were informed by a year-long interaction with public and private stakeholders. The recommendations were deliberately kept at a high level. They should not put an undue burden on new and smaller payment arrangements, while still contributing to increased harmonization of new and existing agreements.