1 / 61

Global Reform of payment infrastructure instruments, systems and retail banking

Global Reform of payment infrastructure instruments, systems and retail banking. Finance Forum 2002 - World Bank June 20 Cgarrigues@worldbank.org. Agenda. Introduction (definition) Strategic issues (objectives, stakeholder, scope) Reform Approach (principles, phases, I, II, III)

arista
Download Presentation

Global Reform of payment infrastructure instruments, systems and retail banking

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Global Reform of payment infrastructure instruments, systems and retail banking Finance Forum 2002 - World Bank June 20 Cgarrigues@worldbank.org

  2. Agenda • Introduction (definition) • Strategic issues (objectives, stakeholder, scope) • Reform Approach (principles, phases, I, II, III) • Results (decisions and project implementation) • Conclusions World Bank / FSD / C G

  3. Introduction World Bank experience • World Bank’s experience in many countries in transition or development (more than 50 countries) • Lessons learned • To clearly identify objectives, constraints, opportunities • Stakeholders should be involved early in the process • Cooperation and Competition are not antagonistic • Reform should be “business driven” • Technology is only a powerful mean and an enabler to implement feasible and reliable solutions World Bank / FSD / C G

  4. IntroductionPayment infrastructure objectives • Payment infrastructure final target: to transfer value from one participant’s account to another one (bank’s or customer’s account) • It is composed of several main components • International standards/rules • Legal rules ( laws, regulations, contract) • Instruments (credit/ debit orders ; paper/electronic) • Participants (clients, banks, Central Bank, operators) • IT Infrastructure ( accounting, clearing , settlement, risk management, liquidity management, transfers ) World Bank / FSD / C G

  5. IntroductionPayment Infrastructure Quality • Quality of payment infrastructure covers: • Fast settlement (end to end): instant, end of day • Security (fraud , operational risk) • Finality (value available-in a predictable time) • Cost (acceptable for all participants) • Transparency (clear information is provided to all participants regarding payment process status, results, potential risks) World Bank / FSD / C G

  6. Client B Client A Client A1 Client A2 Client B2 Client B1 Payment System Architecture is composed of three main layers VALUE transferred from Bank to Bank in Central Bank’s Books CENTRAL BANK FINAL SETTLEMENT INTERBANK SYSTEMS Transportation/Exchanges CLEARING Risk/Credit Management Securities Financial markets Head Office BANK B Head Office BANK A BANKS 3 3 2 2 Branch B2 Branch A1 Branch A2 SETTLEMENT between Branches and Customer’s Accounts Branch B1 3 2 1 World Bank / FSD / C G

  7. Functional Architecturecovers many functions/systems CENTRAL BANK layer Real Time Gross SettlementLarge Value, Liquidity INTER-BANK layer NET Clearing LOW VALUE SECURITIES RISK / CREDIT MANAGEMENT CARDS INTRA-BANK layer Commercial Banks’ Head Offices Bank branch Bank branch Bank branch Bank branch Delivery channels ATM, POS, PHONE, INTERNET, E-COMMERCE Clients Clients Clients Clients World Bank / FSD / C G

  8. Complex migration process paper -> electronic, local -> national Low value payments Large value payments Central Bank National Clearing Centres Real Time Gross Settlement System RTGS Electronic Net systems interfaces Settlement accounts CB Interfaces Liquidity General ledger Monitoring Cards End of day Net balances Queuing mechanism Securities Exchange interface Real Time Commercial ‘Banks Interface Balances Electronic transactions HQ commercial banks Regional offices Regional clearing paper Local offices Local clearing paper Commercial banks World Bank / FSD / C G

  9. Large value system=> Low volumesLow value systems => Large volumes • FRANCE: year 1999 • Population: 60 million • Customers accounts: • Banks: 45 million, Post Office: 10 million • Branches • Banks: 25 000, Post Office: 17 000 • Low value net clearing system : value: 4,300 billion Euros (5%) • Checks: 3.4, others: 6 billion (including card transactions) • Large value systems : 6.6 millions , value: 75,000 billion Euros • Cards: (year 2000) dramatic increase after 1985 from 5 to 20% /y • 40 million ; 3.3 b payment, 1 billion cash withdrawal • ATM: 35 000; POS: 740 000; telephone booth: 210 000; • Minitel: 600 000; TV decoder: 1 700 000; mobile phone: 200 000. World Bank / FSD / C G

  10. Large value system=> Low volumesLow value systems => Large volumes • PORTUGAL: year 1999 • Population: 10 million • Customers accounts: • Banks: 20.5 million, Post Office: (negligible) • Branches • Banks: 5,000; Post Office: 1 000 • Low value net clearing systems : • Checks: 870, others: 250 million (excluding card transactions) • Cards: • 12.9 million ; 510 payment, 290 million cash withdrawal • ATM: 8 850; POS: 81 000; • E-money cards: 3.4 million ; transactions 4.9 million World Bank / FSD / C G

  11. Payment Reform Objectives • Economy • Facilitate Industry and economic development • Increase efficiency of Government's tax collection and expenses payments • Population • To offer better banking services to all potential customers (range of payment instruments/ credits) • To prepare easy insertion of e-payment , e-banking and e-commerce environment • To facilitate access to basic needs like water/electricity by pre-paid cards payment World Bank / FSD / C G

  12. Financial sector objectives • To develop business • To increase depth and resistance to shocks • To complying with international standards (BIS CPSS « Core Principles) attached to clearing and settlement systems : • Clear and fair legal framework , • Credit and liquidity risk, • Efficiency, • Transparency World Bank / FSD / C G

  13. Stakeholders consensus is a prerequisite to success GOVERNMENT INDUSTRIES CENTRAL BANK ADVISORY COUNCIL ON PAYMENT REFORM SME’S COMMERCIAL BANKS INDIVIDUALS MERCHANTS World Bank / FSD / C G

  14. Reform Approach • MAIN PHASES • Candid diagnostic (SWOT, BIS/CPSS principles, FSAP) • Strategy and long term vision (business, legal, technology) • Systems' Architecture design (shared / non shared) • Financing and Prioritization (budgeting and planning) • Implementation of systems architecture (project management) • Evaluation (performance indicators) • Evolution and adaptation (quality, costs recovery) • Key issues • Legal framework, standardization, cooperation/competition • Project management/organization World Bank / FSD / C G

  15. List of frequently observed deficiencies • Cash and paper based instruments are dominant, • Transaction processing is unreliable (lengthy delays in clearing and settlement process, uncertainty in finality) • High rate of rejection or return, fraud, • Central bank and commercial banks’ information systems are non compatible ( no straight through processing) • Telecommunication services are underdeveloped • Population access to services is low (10%) • Retail banking and financial services are poor • Lack of transparency in process status World Bank / FSD / C G

  16. How to move • Success conditions • Strong commitment of the Central Bank and Government authorities in Reform process • Long term approach supported by a long term business vision shared by major stakeholders • Development of standards, norms, legal framework • Realistic implementation schedule of components supported by a large cooperation to accelerate and optimize investments in technology, human resources, marketing, culture changes, World Bank / FSD / C G

  17. Participatory reform approachprinciples • 3 to 4 Workshops (4 to 5 full days each) to cover • Analysis and diagnostic • Strategy and business vision, • Global architecture design, • User’s requirements per components • Prioritization, budgeting and planning • Implementation Plan • Evaluation methodology Duration of the study phase 9 to 12 months. World Bank / FSD / C G

  18. Participatory reform approach principles • Workshops/ Seminar organization • Day 1: Plenary session: Experts conferences, example of Reforms, organization of groups and work, • Day 2 to 3: three to five working groups in parallel; themes: business strategy, legal framework, large value transactions, low value transactions, cards, technology • Day 4: Plenary session: Reports of Working groups and discussions • Day 5: General report, working plan, conclusion World Bank / FSD / C G

  19. Participatory reform approach principles Workshop’s Participants ( 80 to 100 /workshop) • Central bank ( national and regional levels) • Commercial banks ( experts and managing directors) • Governments ( Ministry of finance, …) • Consultants ( Legal, Large value, Low value, Cards,Technology) • Central Bank experts ( Tunisia, Swizerland, France) • International institutions ( WB, IMF, BIS) one major condition of success : to maintain continuous work between workshops seminars World Bank / FSD / C G

  20. Participatory reform approach implementation study : phase I First workshop/seminar objectives • to educate and create motivation and consensus • to define (first draft) • A long term and agreed business vision • to identify • Global functional architecture and major components • Legal issues to be addressed • Technology issues to be addressed World Bank / FSD / C G

  21. Phase I: Business strategy Business Strategy should combine 3 dimensions ( at least) Banking products Delivery Channels Home banking Mobile phone Internet ATM POS Branches thousand 10* thousand million access points Telecommunication network Customer’s segments Individuals Merchants SME’s Industry Government World Bank / FSD / C G

  22. Phase I: Payment Instruments strategy : Paper => Electronic => Virtual some (or more) paper transactions Numbers Value thousand million Electronicpurse High value billion thousand ElectronicDebit/Credit orders Cash Cards Checks World Bank / FSD / C G

  23. Phase I : Payment instruments Checks: an obsolete product ? • slow or rapid decline ( % of non cash transactions in nb) World Bank / FSD / C G

  24. Phase I: Payment instruments Direct debit • Direct debit: a random evolution ( % of non cash transactions in nb) World Bank / FSD / C G

  25. Phase I: Payment instruments Debit card • Debit card: a sharp development ( % of non cash transactions in nb) World Bank / FSD / C G

  26. Phase I : Payment instruments a whole range is available to serve the population • Cash • Checks • Direct debit • Cards ( prepaid, debit, charge card, credit) • Credit orders, • Tele-banking ( phone , e-banking, e-payment) • Electronic money/ purse / wallet • Letter of Exchange World Bank / FSD / C G

  27. Phase I: Payment instrumentsconclusion Strategy: to develop a whole range of PAYMENT INSTRUMENTS • Each payment instrument corresponds to a specific requirements depending on the culture and financial education of the customer • Payment infrastructure should be fully adaptable to changes World Bank / FSD / C G

  28. Phase I :Functional Architectureusers and business requirements CENTRAL BANK layer Real Time Gross SettlementLarge Value, Liquidity INTER-BANK layer NET Clearing LOW VALUE SECURITIES RISK / CREDIT MANAGEMENT CARDS INTRA-BANK layer Commercial Banks’ Head Offices Bank branch Bank branch Bank branch Bank branch Delivery channels ATM, POS, PHONE, INTERNET, E-COMMERCE Clients Clients Clients Clients World Bank / FSD / C G

  29. Phase I :Functional Architecturesome findings • One centralized single settlement account per financial institution to reduce liquidity and credit risk • Each function may be processed in one or several systems, shared among banks or not , however one major objective is to avoid duplication and centralize data and processes to reduce costs and enable an efficient risk management mechanism, ( trade off between cooperation versus competition, cost /benefit analysis) • Electronic clearing system should process all payment instruments • Risk/Credit management system should cover all instruments • Anti Fraud fight requires specialists in close relation with police and justice (speedy reaction and decision are key factors of success) • End to end processing and efficient connection between inter-bank and intra bank systems and networks are key factors to be considered in the architecture design, security features, standards, World Bank / FSD / C G

  30. Participatory reform approach implementation study : phase II Second workshop/seminar: in depth work • to confirm and validate the business vision • to define users’ specifications and functions of the infrastructure components to be implemented • to progress on standardization, legal reform and regulations • to identify technical investments to be installed in Central Bank, at inter-bank level and inside each individual bank World Bank / FSD / C G

  31. Phase IILarge value system (RTGS) Central Bank General Ledger RTGS Central Bank Settlement Account Management(debit A and credit B) Real Time Transactions Interface Network Commercial Bank HO B Commercial Bank HO A Participant Interface World Bank / FSD / C G

  32. Phase IILarge value system (RTGS) CB General Ledger LVS/RTGS Central Bank Settlement Account Management(debit A and credit B) Queuing CB Operations Optimization Net Systems Interface Liquidity Real Time Transactions Interface Network and Vor Y Copy Service Commercial Bank HO B Commercial Bank HO A Participant Interface World Bank / FSD / C G

  33. Phase IILarge value system (RTGS) some findings (1) To specify which transactions are processed : credit, debit, balances – money market, foreign - multi-currency, - minimum value- etc.) To define optimum level of liquidity required to avoid settlement delays and grid lock risks on one side and financial costs for commercial banks on the other side To define liquidity management mechanism ( REPO, Guaranty, intra-day credit,…) To define processing of foreign transactions and relations with international systems To define quality of service and acceptable processing costs World Bank / FSD / C G

  34. Phase IILarge value system (RTGS) some findings (2) To select functions to be included in the system and their required sophistication To define queuing processing ( FIFO, cancellation, priorities, ) and optimization methods To define daily processing profile: opening hours, cut(s)-off), and volumes to be processed (how to smooth volumes all along the day) To define messages to be exchanged and information accessed (in real time, at opening and closure, to Central Bank departments, to sender and beneficiary commercial bank, to netting systems operators, etc.) To define level of network security for exchange of financial and information messages World Bank / FSD / C G

  35. RTGS SystemHO Central Bank Phase IILow value net clearing system (ECH) architecture Commercial Banks Paper Transactions Branch A1 Regional Clearing systems/houses Branch B1 Branch C1 Electronic Clearing HouseNational level Automation capture National level HO A1 Electronic Transactions HO B1 Information (debit) balances HO C1 balances OK Clearing houses balances presentation return World Bank / FSD / C G

  36. Phase IILow value net clearing system (ECH) flow of data Payee or Presenting BANK A Payor or Receiving BANK Payor or Receiving BANK Payor or Receiving BANKS B,C,D, MICR Data and image (checks) and other electronic transactions information Continuous flow of files information Central System information Electronic Net Clearing system Settlement in RTGS MULTILATERAL BALANCES World Bank / FSD / C G Once a day or more

  37. Phase IILow value net clearing system (ECH) findings Electronic transactions should be legally or industry wide accepted It is recommended to process all kind of transactions (credit or debit orders, check image, cards, etc.) in a single Electronic Clearing House System (ECH) for economic and risk management reason All electronic transactions are sent by commercial banks to the most convenient regional or national receiving point including “out of station” transactions Paper documents are processed and stored independently from the electronic data and sent to the issuer bank’s branch only for further control , claims or and if it is required, for legal “proof” Rejections cases have to be very carefully regulated (including delays) Protections rules against netting settlement failure and systemic risk have to be efficient, including all messages exchanged between ECH, Banks and RTGS World Bank / FSD / C G

  38. Phase IICheck truncation process example Bank B branches head office Bank A head office branches Clearing based on MICR data calculation --- many schemes for exchange of images exchange of paper MICR data MICR data CheckA CheckA CheckA Image access data and image or Image access Image access Depository/ certification Checks are stored in Bank B CheckA CheckA CheckA on request World Bank / FSD / C G

  39. Phase IICheck truncation process findings • MICR data and imaging are captured by payee bank B and sent to a national clearing house in a centralized process • Checks are stored in Bank B (Payee Bank) • Clearing process is based on data files that can be received and exchanged all day long (continuous day) • More than one cut off time allows to settle balances many times a day • Check images can be exchanged and/or stored in a Central Check Image “Depository” easily accessible on line • Payer Bank controls most check based on data and/or their image (authentication, signature, funds available) and in case of doubt ask for physical paper for further acceptance or rejection World Bank / FSD / C G

  40. Phase IICard based inter-bank architecture National Switch SI SI Card System Card System Inter-bank NETWORK SI BANK A BANK B POS ATM BANK C ATM World Bank / FSD / C G

  41. Phase IIInter-bank card arrangement principles A whole range of products and services should be distributed to customers under free competition (no standard customer’s fees) A Core Inter-bank service for all customers(minimum customer’s rights) should be agreed among banks as well as inter-bank fees Cooperation and sharing of several functions and systems should be agreed among banks Fraud and Incidents support systems have to be shared for better efficiency Service quality common monitoring ( availability and efficiency) is a key success factor Several options are available for authorization’ systems World Bank / FSD / C G

  42. Phase IICard transactions: 4 levels of authorization AcquiringIssuing Authorization center( limits and delegation) 2 Authorization processing ATM network Acquiringof transactions Bank A Authorization byissuing bank’s system(limits) 3 POS network Real time customer account position processing 4 off line 1 Smart card’s function: to secure the card holder identification World Bank / FSD / C G

  43. Phase IICard transactions: batch processing settlement Acquiring BANK or service provider / Acquiring Back Office Telecollection process Sorting (on us transaction) Acquiring of transactions ATM network Credit and debit own customers account POS network Preparation of Files for Electronic Clearing Batch process World Bank / FSD / C G

  44. Phase IICard transactions: authorization and settlement • Several schemes of authorization: trade off between costs and risks between off line or full on line processes • Chip card or smart card can decrease dramatically the level of fraud and enable a secured off line process for payment (POS) • Clear rules should be defined for transferring risk between card holder, merchant, merchant’s and card holder’s banks • Off line transaction collection ( batch processing and reconciliation) may enable easier control of risk and fraud • It is of major importance to differentiate Inter-bank’s fees (cooperation) from customers’ fees (competition) World Bank / FSD / C G

  45. Paiements de gros montant en temps réel Siège banque A Siège banque B RéseauBA ou SWIFT (?) Interface participant RTGS Siège BA Interface des échanges temps réel Opérations BA Files d’attente Gestion des comptes de règlement(débit A et crédit B) Op. compensation Optimisation Système comptable BA World Bank / FSD / C G

  46. Phase IIE-money /purse/wallet process (example) Loading the E-Purse Paying with the E-Purse Customers POS E-purses Merchant + 10,30,50, 10., 50 • - 10 ,30,50, • 10., 50 + 500,200,200, 100, 1000, e-money Loading 150 group of transactions E-money company account - 500,200,200, 100, 1000, 2 000 (credit) 150 (debit) account 150 (credit) Accounts Banks A,B,C Bank’s B 2 000 (debit) World Bank / FSD / C G

  47. Phase IIE-money /purse/wallet findings Several schemes of loading: ATM, POS , home PC readers, etc … and storing the “mirroring” of the e-money: banks, service provider, merchants Potential creation of money has to be carefully controlled Risk : security and safety of transfer of value from one chip card or to another chip card or PC or other memory and on counterfeit chips No matching between loading amount and merchant credit nor between the remaining fund on e-cards and the balance in the e-money company, E-company should guaranty a fully safe cash deposit and should be supervised as deposit taking institutions by the Central Bank E-card individual transactions should be archived somewhere for statistic and trace-ability, fully anonymous cards should be avoided… World Bank / FSD / C G

  48. Phase IIMulti Channel, approach Brick and Click Bank's SERVICES Bank’s Information System Mobile Teller ATM POS Phone PC World Bank / FSD / C G

  49. Phase IIInternet , cross-channel approach Anytime, Anywhere, Anyway Bank’s IS Services Provider IS Merchant's IS World Bank / FSD / C G

  50. Phase IIElectronic, Internet banking, main issues Three main models: • Pure, many failures: Security First Network Bank, Unofirst (BBVA) • Click and mortar, big success: Well Fargo, Nordea • Online extension…from brokers, ( E*Trade) • Success factors: • No revolution=> gradual approach, • Large customer base => a key factor • Sound marketing and business strategy and customer’s needs focus • Issues to address • Economics (costs – iceberg structure-, and revenue -advertisements risk- ) • Standardization (technology, procedures) • Rules and regulation ( privacy, risks, security) World Bank / FSD / C G

More Related