The U.S. payment system is not one system, but many. Systems within the U.S. payment system effect different types of transfers, such as credit card transactions, bank-to-bank transfers, and foreign exchange. Effecting these and other payment transfers require some degree of communication and information exchange both within and across these different systems. This exchange is broadly described as "interoperation." Most people comprehend the word and its basic definition, but like many words in common use, the meaning individuals ascribe to interoperability depends not only on the context of the discussion, but on their understanding and experience of its effects. The way the term is used in payments today generally lacks clarity and can lead to confusion. A structured way to think about and discuss interoperation may reduce ambiguity and support substantive, nuanced assessments on ways interoperability could enhance the efficiency, safety, and accessibility of electronic retail payment options. This paper aims to provides this structure through a simple, four-part framework for building a shared understanding of how payment system interoperation could be designed to fit a purpose—such as increased efficiency of the system or increased access to it. We propose fit-for-purpose interoperation results from both the clear articulation of the expected behavior of the system and agreed-upon definitions and descriptions of the appropriate relationships between constituent elements of a payment system or across payment systems.
This paper is organized as follows. First, we provide an overview of payment system interoperation, and define payment instruments, payment messages, conceptual units of value, and components in a system for the purposes of this paper. Next, we discuss interoperation, differing definitions of the term, why it is important, and the challenges of achieving payment system interoperation. Then, we describe our framework for analysts, technologists and members of the public interested in payments to gain a contextual understanding of payment system interoperation. Finally, we apply our four-step framework by sketching a hypothetical discussion between participants seeking to describe fit-for-purpose interoperation in a payment system where central bank digital currency (CBDC) and stablecoins co-exist. . . .
This paper offers a discussion on the challenges analysts, technicians, and interested members of the public face when discussing how interoperation in a payment system can support goals of efficiency, security, and accessibility. We deconstructed elements of the payment system and defined these elements to support a deeper analysis of where and how the term interoperation can be appropriately applied. The fit-for-purpose framework offers a simple, four-step approach to increasing the depth and clarity of discussions about payment system interoperability and how it may be used as a tool to support various goals. The approach focuses on defining the boundaries of a system within the context of the discussion, adopting common terminology, describing the degree of interoperation required, based on agreed-upon descriptions, and mapping the current state of existing structures (where applicable). Finally, we sketched preliminary results of a hypothetical discussion where participants used our framework to discuss the topic of interoperation with respect to how a potential CBDC and stablecoins could technically co-exist in payment systems.