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Payments Systems Presented By Wayne Shah. Discussion. Discussion. Trends 2009+. Discussion. Concepts. A payment system is a system used for the transfer of money What makes it a "system" is that it employs cash-substitutes

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Payments Systems Presented By

Wayne Shah


Discussion

Discussion



Discussion

Concepts

  • A payment system is a system used for the transfer of money

  • What makes it a "system" is that it employs cash-substitutes

  • Payment systems are used in lieu of tendering cash in domestic and international transactions

  • Payment systems are require processing, cut off times and currency specifications


Discussion

Pays

SWIFT

ATMs

On Line Banking

Internet Payment – Paypal, Amazon, Face Book

Mobile Phone Payment

Wire transfer

Book transfer

Domestic ACH

Letters of credit

Hawala

  • Cash Substitute

  • Checks

  • Drafts

  • Credit Card – Visa, MasterCard, Discover American Express,

  • Diners Club

  • Debit Card

  • Stored Value card

  • International ACH

  • E commerce Payments


CSM

CAD

RUB

$

£

CSM

FI

CSM

FI

MXN

INR

CSM

CSM

AED

BRL

ARS

FI

ZAR

CSM

¥

CSM

¥

  • FX

  • Markets

  • Language

  • Regulation

  • Time Zones

  • Local Banking Practices

AUD

FI


Discussion

Major Markets

  • USA

  • Japan

  • China

  • India

  • Europe

  • Latin America and Caribbean

    • Brazil, Chile, Mexico

    • Panama, Guatemala


Discussion

Payments - USA

  • Wholesale (High Value/Low Volume)

CHIPS

Fedwire

  • Retail (Low Value/High Volume)

Automated Clearing House

Check Clearing System

Debit/Credit Cards

  • Book Transfer ?


Credit card payment clearing process

1. Credit Card Presented toMerchant for Purchase

Merchant

Merchant Bank

2. Authorization Request

5. Charges sent for clearing

Consumer

Account

5. Hold Convertedto Charge

3. Hold Placed on Credit Limit

5. Funds Remitted

Issuing Bank

Credit CardNetwork

6. Settlement

4. Authorization Granted

Settlement =

Authorization =

Clearing =

Credit Card Payment Clearing Process


Discussion

Payments - Japan

  • There are 4 major clearing systems for settling inter-bank payments in Japan

  • Three are private and one is operated by the BOJ

  • The 3 private systems are

    • Zengin System – retail credit transfers

    • FXYCS – Yen legs of FX transactions

    • BCCS – Bills and Checks collected at regional Clearing houses

  • BOJ Net – settles inter-bank transactions

  • Net positions calculated by these clearing systems are settled through current accounts at the Bank of Japan


Discussion

Payments - China

  • 4 Large State-Owned Commercial Banks dominate banking system

    • Bank of China (120) (11,608)

    • Industrial and Commercial Bank of China (134) (24,129)

    • Agricultural Bank of China (110) (48,163)

    • China Construction Bank (131) (16,472)

    • 4 banks control 55% of the banking assets and 60% of the market share

  • Extensive nationwide branch network w/ as many as 5 tiers or layers in some cases


  • People’s Bank of China

    State-owned Policy banks

    State Administration of Foreign Exchange

    State-owned Commercial banks

    State Council

    Shareholding Commercial banks

    China Banking Regulatory Commission

    City Commercial banks Foreign Banks & JVs

    Chinese Banking System




    Indian banking structure
    Indian Banking Structure

    68,300 branches

    Can have FX acctounts

    FX and Rupee.

    No positions in FX rupees only


    Discussion

    Payments - Europe

    The Pre Euro Landscape

    • Large differences in payment practices and price levels

    • Every country has it’s own clearing systems

    • Difference in local data formats and contents (e.g. account number)

    • Substantial differences in tax, legal and central bank reporting requirements

    • “Fragmented”


    Retail clearing systems in euro area
    Retail Clearing Systems in Euro Area

    • CEC - Belgium

    • CHS -Brussels

    • PMJ - Finland

    • SIT - France

    • RPS -Germany

    • ACO - Greece

    • DIAS - Greece

    • IRECC - Ireland

    • IPCC - Ireland

    • BI-COMP - Italy

    • LIPS-Net - Luxembourg

    • CSS - Netherlands

    • SICOI - Portugal

    • SNCE - Spain

    • STEP 2 - European Banking Association


    Euro eur payment systems

    Euro (EUR) Payment Systems

    TARGET – RTGS (being replaced by TARGET2)

    EURO 1 - Netting System

    STEP 1 – A sub-system of Euro 1

    STEP 2 – European ACH system (SEPA)

    Domestic Schemes – RTGS/Net/ACH – Phased out

    Revenue Loss as a Consequence ?


    Discussion

    The Caribbean


    Where is the Caribbean headed

    • Government and regulation

    • Policy

    • Technology

    • Foreign Banks

    • Globalization

    Are we a geography or a financial region?



    REGULATION AND COMPLIANCE

    • Compliance and regulation have dominated the banking sector.

    • Several banks have been levied heavy fines by regulatory authorities in the past 5 years for failure to comply with regulations

    • As regulatory bodies are highly reactive to world events, compliance and regulations will remain a top priority for banks to survive.


    Managing risk
    Managing Risk

    • Regulatory Environment

    • FIU

    • SEC

    • CATF

    • CRA

    • BASEL

    • FDIC

    • BIS

    • ISO

    • BSA

    • PAC

    • KYC

    • KYCC

    • AML

    • EDD

    • FATF

    • FINCEN

    • OFAC

    • PEP



    Discussion and regulation

    Trends


    AML Sensitivity and regulation

    34


    PAYMENTS - TRENDS and regulation


    PAYMENTS - TRENDS and regulation

    • North America

    • Debit card use continues to grow rapidly

    • Demand for more detailed remittance data

    • Europe

    • Credit cards have not been embraced

    • Significant margin pressure across region due to SEPA

    • Asia Pacific

    • Fast growth in domestic non-cash payments

    • Significant payments innovation

    • Mobile Phones

    • Middle East and Africa

    • Individuals more likely to have a relationship with a mobile network operator (MNO) than a bank

    • Latin America

    • Credit cards are growing rapidly

    36

    Source: BCG, KPMG, and McKinsey reports, and EPS analysis


    Discussion and regulation

    How do I choose the right system



    Discussion and regulation

    Things to consider

    • Type of bank in food chain

      • Retail, Corporate, Private/Wealth

      • Footprint, Scale, Reach

    • Tactics and Strategy - direction

    • Target Market – level of sophistication, technology adoption of customers

    • Spend and Budget

    • Human capital


    Discussion and regulation

    Things to consider

    • Ease of expansion and upgrades

    • Product deployment - modular

    • Product development - Business

    • Independence from vendor

    • Trainability

    • Open Architecture – Hardware Independence

    • Standards and best practices – SWIFT, IACH

    • References that are relevant – right sizing


    Discussion and regulation

    Things to consider

    • Reporting and Metrics

    • TRX Tracking and research

    • Workflow

    • Compliance interface – AML, OFAC

    • Enhanced data capture and transfer – e.g. Travel Rule and Bene Information

    • FX and Multicurrency

    • Customer Pricing and Flexibility - IQ


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