Central banks in the Gulf Cooperation Council (GCC) region operate financial market infrastructures (FMIs, also known as payment rails). Payment rails are the lifeblood of the financial system and the economy, allowing money to circulate easily and at little cost. The challenge for central banks is how to price payment rails so that they encourage adoption, ensure cost recovery, and create adaptable, resilient payment strategies for the future. Central banks inform their pricing decisions with economics, particularly public economics and two-sided market theory.
Payment rails come in different forms. They include Real-Time Gross Settlement Systems (RTGS, which happen immediately between banks), Instant Payment Systems (IPS, which handle payments immediately), Domestic Card Schemes (DCS, which allow for card payments without going through international channels), and International Central Securities Depositories (ICSD, which allow for securities settlements).
Pricing influences payment rail adoption, market competitiveness, innovation, financial sustainability, and public welfare. Effective pricing should simultaneously achieve the following goals:
- Sustain infrastructure quality without excessive burdens on financial institutions and retail users
Central banks should recover the costs of running payment rails, including technology investments, ongoing operational expenses, security enhancements, and system upgrades. - Incentivize widespread use without sacrificing long-term viability
High fees discourage participation. Low, or no, fees jeopardize financial sustainability. Pricing affects adoption and the volume of transactions processed through payment rails.
- Promote fairness and transparency
Fee structures should be clear, predictable, and simple. That fosters user confidence and appealing services that people will adopt. - Harmonize markets
Central banks should align pricing strategies across similar types of transactions. Consistent pricing prevents unnecessary competition or cannibalization of transaction volumes among multiple payment infrastructures.
Central banks have a range of fee options:
These allow for infrastructure cost recovery and reinforce long-term commitment from financial institutions. Some central banks waive fees to promote financial inclusion and stimulate adoption.
These can incentivize efficient use and drive volume growth. They can be flat per-transaction fees, which are simple and transparent. Or they can be tiered. Central banks can charge higher fees for late-day RTGS settlements, or lower fees as transaction volumes increase.
Central banks can charge for technical support, data retrieval, integration assistance, or apps that financial institutions can rebrand. They can charge tailored service fees based on usage and complexity for ICSD and DCS.
Central banks can impose penalty fees to maintain order and reduce systemic risks. The point is not to make money, but to enforce compliance with operational standards, liquidity requirements, and reporting obligations.
Six paths to better pricing
Central banks can take six paths to better price their payment rails. These paths achieve all the desired goals while exploiting all the fee options.
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Ensure clear and transparent pricingSuch pricing fosters user trust and compliance. It promotes broad market acceptance and smooth operational integration. It reduces friction and confusion.
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Price value-added services independentlyCentral banks should price their value-added services independently. They should make the charges for value-added-services transparent to users. The aim should be cost recovery.
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Perform international benchmarkingCentral banks should monitor continuously global leading practices. That allows central banks to adapt pricing strategies, keeping them competitive, innovative, and effective in promoting national policy objectives.
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Align pricing with maturityCentral banks should price payment rails in line with how they mature. Central banks can turn initial flat-fee models into tiered or hybrid structures, as adoption increases and they better understand aggregate user. At the beginning, payment rails can have flat fees, or can be free, to encourage adoption. However, once there are large volumes and central banks understand how people use these payment rails, they should use tiered pricing. That can mean higher charges on lower value transactions, so people spend more.
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Conduct periodic cost analysisPricing maturity requires periodic, detailed cost analyses which consider direct and indirect costs. Often central banks are unaware of the true cost of payment rails. Central banks can use a dedicated pricing committee to review the fees.
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Offer selective fee waivers and subsidiesCentral banks should waive fees or offer subsidies to achieve strategic aims, such as boosting initial user adoption and system usage.
By taking these six paths, central banks can be ready for the future of payments. Already the next challenge is emerging in the shape of Central Bank Digital Currencies (CBDCs). The growing use of CBDCs, which GCC countries are pioneering, will pose unique pricing issues although with similar considerations related to when and how to charge fees. With the right strategy, central banks can be ready for the future.
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