Payment and market infrastructure development: Central Bank of Paraguay

The Paraguayan economy has traditionally featured a heavy reliance on cash, high transaction costs and limited access to digital payments in rural areas. The landlocked country, bordering Argentina, Bolivia and Brazil, was viewed as something of a laggard when it came to embracing financial services technology. But that is now changing, due to the Central Bank of Paraguay’s efforts to digitalise transactions, reduce fees for consumers and promote financial inclusion through the implementation of its market infrastructure and payments system modernisation strategy.

A critical element in this transformation was the launch in 2023 of Paraguay’s SPI instant payments system. SPI is the fifth component of the broader Paraguayan Payment System (Sipap), administered by the Central Bank of Paraguay, which was first launched in 2013. Sipap already included a real-time gross settlement system, an automated clearing house and a depository for government bonds. In 2018, the ‘local currency system’ was introduced, which provided interconnection with the RTGS systems of Argentina, Brazil and Uruguay. But it is the introduction of SPI that is revolutionising transactions in Paraguay.

The first phase of SPI involved the establishment of electronic fund transfers 24 hours a day, seven days a week (24x7). This allowed Paraguayans to make bank transfers free of charge and with funds available in less than one minute.

By August 2024, Sipap averaged 560,000 daily transactions, up from 141,000 before SPI’s implementation – representing a fourfold increase in two years. Sipap now handles in a month what would have taken a year to carry out just four years ago. The instant payments system is projected to surpass 172 million transactions by the end of 2025, representing a 113% increase since 2023.

Diego Legal, sub-general manager of financial operations at the Central Bank of Paraguay, tells Central Banking that the impact of payments digitalisation on financial inclusion has been “huge”. He cites the creation of more than two million new accounts related to the use of the instant payments system.

Legal says the central bank views the instant payments system as a ‘public good’. “We keep improving the instant payments system to incorporate more participants, such as regulated fintechs and credit unions, that fall out of the regulation umbrella of the central bank,” says Legal. The inclusion of credit unions, in particular, offers an access point for citizens that are often removed from the core of the financial system.

Fintechs or any other service provider can charge merchants for use of the instant payments system for retail, but there is a cap of 1%. This compares favourably with credit or debit card service fees, which are generally around 3%, with some charging up to 5%, says Legal.

The Central Bank of Paraguay is “very committed” to the payments system, according to Liana Caballero, a board director at the central bank. “In 2024, we launched a project to modify the law to give the central bank greater capacity to regulate the payments system.”

Resolution No 9, Act No 41 passed on September 5, 2024, and approved modifications to the regulation on electronic payment methods, with the aim to improve financial inclusion and improve the regulation of non-bank electronic transfers and electronic money.

Outstripping cash

Legal says cash usage in Paraguay is being replaced by e-payments, with instant payment volumes now outstripping the volume of ATM withdrawals. The instant payments system processes 37% of all low-value transactions, with 71% of low-value amounts settled through 24/7 operations. “This is a big win for us in terms of digitalisation,” he says.

Indicative of increased financial inclusion, throughout 2024, an average of 170,000 new users joined SPI each month via basic savings accounts, digital accounts and co-operatives. The system has an average transaction time of 2.8 seconds. By September 2024, 26% of active accounts in Paraguay were transacting through the instant payments system, doubling the previous year’s figure.

Additionally, the central bank launched a ‘sponsorship service’, allowing co-operatives and electronic payment service providers to join Sipap as sub-participants, representing 5% of all Sipap transactions.

In the past, since the market was small, one card processor dominated the market, says Legal. This processer, Bancard, is owned by the banks. Since card usage has increased, two new competitors have entered the market. But it’s a challenge to connect all the banks to process the payments, Legal adds. As a result, merchant acquirers can check the validity of the cards using Visa and MasterCard’s systems, but the payments process can be handled using the central bank’s system to ensure payment to the merchant. This should make the market attractive to new players as the card processor doesn’t need to be connected to the bank or the store to take the payment through the central bank, he adds.

Looking forward, the central bank is working now to incorporate QR payments into the instant payments system.

The Central Banking Awards 2025 were written by Christopher Jeffery, Daniel Hinge, Daniel Blackburn, Joasia Popowicz, Riley Steward, Jimmy Choi, Levente Koroes, Thomas Chow and Blake Evans-Pritchard