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El Salvador’s Payment System Set for Overhaul with Launch of New Banking Network

EL SALVADOR - El Salvador’s limited interoperability in retail payments is set to change with the launch of a new banking network operated by the country’s central bank, BCR. The new network is expected to begin operations in late 2009 and will enable customers to deposit or withdraw money from any bank branch, as well as transfer funds online.

Current Challenges

Currently, limited interoperability between banks hinders customers’ ability to access their accounts across different branches, with some charges applying for withdrawing cash from an ATM not belonging to the customer’s bank. Mobile banking is also in its early stages, available only to those who already have a bank account and requiring a monthly fee of approximately USD2.33.

  • Cash remains the preferred medium for low-value payments.
  • Utility bill payments are made at banks, directly with utility companies or through retail stores like supermarkets.
  • Several banks have piloted services allowing agents to receive credit card bill payments.

Money Transfers: A Significant Portion of El Salvador’s Economy

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International remittances play a significant role in El Salvador’s economy, accounting for approximately 20 percent of GDP and 80 percent of foreign exchange. Over one-quarter of the adult population receives remittances, with an average annual amount of USD1,000.

  • The government agency for statistics reports that 65 percent of households have at least one mobile phone in use.

Regulatory Environment for Branchless Banking

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The regulatory environment for branchless banking in El Salvador is overseen by the Superintendency of Financial Institutions (SupFin) and the Central Reserve Bank (BCR).

  • The BCR has a broad mandate to maintain stability and liquidity of the financial system, promote an efficient competitive financial system, and foster the normal functioning of payment systems.
  • A draft law modifying the regulatory authority of both SupFin and BCR is currently being discussed in the executive branch. If passed, the law would transfer most regulatory topics from the BCR to the SupFin, while the BCRA would retain its authority over payment systems and a few other topics.

Conclusion

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El Salvador’s new banking network is expected to improve the country’s payment system, increasing convenience for customers and promoting financial inclusion. As the economy continues to rely heavily on international remittances, it is crucial that the regulatory environment supports innovative solutions that can increase accessibility and efficiency in the financial sector.