payment systemsan introduction to - bank · pdf filean introduction to payment systems ......

AN INTRODUCTION TO PAYMENT SYSTEMS

DYAH N.K. MAKHIJANIBANK INDONESIA

SEACEN Intermediate Course in Payment and Settlement System for Emerging Economies

Jakarta - June, 2006

1. WHAT2. WHO3. A FLAVOR OF OVERSIGHT4. FUTURE

AGENDA2

A payment system consists of a set of instruments, banking procedures and, typically, interbank funds transfersystems that ensure the circulation of money

Source: CPSS Glossary – March 2003

DEFINITION3WHAT

DEFINITION4WHAT

CreditTransfer • Paper

based

• Cardsbased

• ElectronicbasedDebit

Transfer

• Clearing Houses

• Banks

• Others

Paperbased

Card based

Electronicbased

• BankTeller

• ATM

• EDC

• Computer

• MobilePhones

• Others

PaymentInstrument

PaymentSystemsOperator

PaymentSystems

DeliveryChannels

Payment Instruments and Other Payment Mechanism

5WHAT

CASH PAPER CARD

EFT

Electronic input/orderfrom:• Home banking

system/internet• Mobile phone• Phone (banking)• S/W based e-money

payment • Others

PAPERBASED

TRANSFER ORDER

• Credit Transfer Slip

• Direct Debit Order

CARDBASED

TRANSFER ORDER

• ATM

• Cheque

• Draft

• Direct Debit Order

• Credit

• Debit

• MPSVC

A Bank’s Interaction with Payment Systems & Mechanisms

6WHAT

CommercialBank

E-moneyScheme

Credit/Debit Card System

RTGS/DNSSSSS

ATMPayments

Mobile Payment

Others

CrossBorder

InternetPayment

ChequeClearing

Private SSSS

Bulk TransferSystem

InterbankGiro

System

7WHAT

CommercialBank

E-moneyScheme

Credit/Debit Card System

RTGS/DNSSSSS

ATMPayments

Mobile Payment

Non ACH Bill Payment

CrossBorder

InternetPayment

ChequeClearing

Private SSSS

Bulk TransferSystem

InterbankGiro

System

Global Operator

DomesticOperator

DomesticOperator

Global Operator

MobilePhone

Operator

ISP

SWIFT

CrossBorder Domestic E-money

Operator

CentralBank

ACH /ClearingHouse

ACH /ClearingHouse

ACH /ClearingHouse

PrivateCSD

Others

Billers(utility companies)

A Bank’s Interaction with Payment Systems & Mechanisms

Indonesia National Payment System Blue Print - 1995

How Central Bank Perceives The Nation’s Payment Systems –A Sample From Indonesia

8

Electronic Input- Clearing Systems- Trading Systems

ElectronicInput

- Retail

BankBatches

Clearing HouseBatches

Batch -EOD & Interim Clearing EOD Settlement

Cheque&GIRO

Input

Retail Online -EOD SettlementReal Time Clearing

Wholesale-Real Time ClearingReal Time Settlement

Back-End Switch &Clearing

CardInput

ATMs EFT/POS

TellerInput

Online HighValue Clearing

SettlementSystem

Non-Bank HighValue Payments

Bank High ValuePayments

Electronic BatchClearing

WHAT

Indonesia National Payment System Blue Print – 2004 Revision

9WHATHow Central Bank Perceives The Nation’s Payment Systems –A Sample From Indonesia

Payment Systems and Operators, and Payment Service Providers –A Sample from Indonesia

10WHO

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15WHO

Banks through their creditcard products, e.g. CitibankOne Bill

Bill Payments for billers such astelecom/mobilephone operators,public utilities,Cable TV, ISP,insurance, etc.

Bill Payments (Host to Hostlinkage betweenbanks andbillers)

-Under development: 1. Banks2. Mobile Phone Operators3. Other Non-Bank-Non

Financial Institutions

Micro/Retail/Small Payments replacing cash

Multi PurposeStored ValueCards

��


Players in Payment Systems and Payment Service Providers

16WHO

Evolving to become provider of MPSVCOther Companies8

Provide payment related services (FEDC), Evolving to become provider of MPSVC

Mobile Phone Operators7

Provide remittance servicesPostal / Remittance Companies6

Operate (SWIPS & Non SWIPS)Global / Domestic Payment System Operator / Principal

5

PS operator, member of payment system

NBFI4

PS operator, member of payment system

Commercial Banks3

Regulate (PS related issues, e.g. competition, licensing of certain payment providers)

Other Authorities2Regulate, Oversee, Operate (SIPS)Central Bank1

Relationship Among Players – Clear Cut Interaction

17WHO

Central Bank

RTGSSystem

Bank

OtherAuthorities

Non BankInstitution

Supervision

• Regulation• License

•Supervision

Member

• Develop• Operate• Oversee

Member

Relationship Among Players –Not So Clear Cut Interaction

18WHO

Central Bank

Domestic Principals

Global Principals Members

OtherAuthorities

?

? ?

? ??

?

?

Relationship Among Players –Not So Clear Cut Interaction

19WHO

Central Bank

Domestic Switching

Companies

Visa International

Card IssuingBank

OtherAuthorities

Card IssuingNBFI

Supervision

?

? ?

• Regulation• Supervision

Member

Member

License

Member

??

Relationship Among Players – Not So Clear Cut Interaction - Indonesia Case Study

20WHO

Central Bank

Domestic Principals

Visa Regional

Office

Card Issuing NBFI

OtherAuthorities

Coordination

A Challenge in Oversight

Close Coordination

Close Coordination

VoluntaryReporting

A central bank task, principally intended to promote the smooth functioning of payment systems and to protect the financial system from possible ‘domino effects’ which may occur when one or more participants in the payment system incur credit or liquidity problems. Payment systems oversight aims at a given system (e.g. a funds transfer system) rather than individual participants

Source: CPPS glossary – March 2003

Payment System Oversight 21OVERSIGHT

• Systemically Important Payment System (SIPS) –CP SIPS

• System Wide Important Payment System (SWIPS)• Which SWIPS ? What criteria ?• Which CP’s ?

• The extent of central bank oversight – points to ponder:• Oversight of Payment Service Providers?• What criteria ?• What objective ?• Which CP’s ?

Payment System Oversight22OVERSIGHT

What Do We See In The Horizon

23FUTURE

A Quiet Ocean ?


24FUTURE

A Stormy Sea ?

• Instruments• The rise of e-money• Uprising of card fraud and crime• Enormous costs of chip card migration

• Issuers• The growth of non-bank and non-financial institutions offering Payment

Systems – a direct competitor to banks• Interoperability

• Difficulty to bring competitors together• Legal Robustness of Payment Systems

• Legality of e-payment and electronic proofs• Strong movement in consumer protection and counter terrorism

• Central Bank Oversight• A challenge of scope and coordination• In the wake of “FSA” central banks may need to revisit their oversight

mechanism


25FUTURE

• Banking Infrastructure• Large capital expenditure for infrastructure puts forces to banks for

building shared infrastructure both for back-end and front-end, requiring new linkage to payment system

• Bussiness Continuity Planning• Natural disasters• Pandemi/epidemi


26FUTURE

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