70158 FINANCIAL INFRASTRUCTURE SERIES PAYMENT SYSTEMS POLICY AND RESEARCH PAYMENT SYSTEMS W O R L D W I D E A SNAPSHOT Outcomes of the Global Payment Systems Survey 2010 ©2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved. This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomi- nations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978- 750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Of- fice of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Book cover and interior design by Michele de la Menardiere. FOREWORD The underlying foundation of a country’s financial system – including all institutions, information, technologies, rules and standards that enable financial intermediation – is its “financial infrastructure.� A poor financial infrastructure imposes a considerable constraint upon financial institutions in many developing countries, hindering their efforts to offer financial services to underserved segments of the population and the economy. It also creates risks that can threaten the stability of the financial system as a whole. The World Bank Group is a leader in financial infrastructure development in emerging markets, including payment systems and remittances, credit reporting and secured lending. Moreover, the Bank Group is intensifying its commit- ment to promote and disseminate the policy and research debate on these and other topics in the realm of financial infrastructure. The World Bank also plays the role of international standard-setter in this space. The Financial Infrastructure Policy and Research Series has been created to host original contributions in the form of policy notes, studies and essays led by Bank Group experts, as well as initiatives carried out in cooperation with or by other experts and relevant institutions in the various fields of financial infrastructure. The first document that appeared in this Series is “Payment Systems Worldwide: A Snapshot – Outcomes of the Global Payment Systems Survey 2008.� The report was prepared by a team of experts within the Bank’s Payment Systems Development Group (PSDG). Over the last 15 years, the Bank, through the PSDG – a part of the Financial and Private Sector Development Vice Presidency – has been active in more than 100 countries. It carries out its work through a variety of instruments, such as: 1) supporting comprehensive reform programs in individual countries; 2) undertak- ing initial diagnostics and developing reform strategies; 3) providing specific technical advice on a broad range of top- ics; and 4) coordinating and managing multi-country and regional initiatives that position the Bank at the center of a network of more than 150 relevant institutions in the field of payment systems. In addition, the Bank has been active in launching cooperative arrangements, organizing training activities, supporting the joint World Bank-International Monetary Fund Financial Sector Assessment Program (FSAP), participating actively in task forces of the Committee on Payment and Settlement Systems (CPSS) and International Organization of Securities Commissions (IOSCO), and conducting research. “Payment Systems Worldwide: A Snapshot. Outcomes of the Global Payment Systems Survey 2010� presents the results of the second survey among national central banks that collected information on the status of national payment and securities settlement systems worldwide. Areas covered by the survey include: i) Legal and Regulatory Framework; ii) Large-Value Funds Transfer Systems; iii) Retail Payment Instruments and Systems; iv) Foreign Exchange Settlement System; v) Cross-border Payments and International Remittances; vi) Securities Settlement Systems; vii) Payment System Oversight and Cooperation; and, viii) Planned and On-going Reforms to the National Payments System. The 2010 Survey, like the previous report of 2008, provides a snapshot of the payment and securities settlement systems in both advanced and emerging economies. The outcomes of this survey are expected to identify the main issues that should guide the agenda of authorities and multilaterals in the payment systems field in the years ahead. Janamitra Devan Vice President & Head of Network Financial and Private Sector Development World Bank Group ACKNOWLEDGMENTS This study “Payment Systems Worldwide: A Snapshot� presenting the outcomes of the second iteration of the World Bank Global Payment Systems Survey is the result of collective efforts of the Payment Systems Development Group (PSDG) of the World Bank’s financial inclusion practice. The various products presented in this study, including the detailed questionnaire that was used to survey central banks worldwide, were produced by a team under the leadership of Massimo Cirasino (Head, PSDG) who supervised the process and provided guidance on various steps of this project. Alice Zanza acted as the project team leader. Maria Teresa Chimienti provided key support in the processing and analysis of country qualitative and quantitative data, and was instrumental in ensuring overall consistency. Single chapters of this publication were produced by PSDG colleagues as follows: Maria Chiara Malaguti (Legal and Regulatory Framework), Massimo Cirasino (Large Value Payment Systems), Luchia Christova (Large Value Payment Systems, Foreign Exchange Settlement Systems, Payment Systems Oversight and Cooperation), Harish Natarajan (Retail Payment Instruments and Systems), Carlo Corazza and Isaku Endo (International Remittances and other Cross-border Payments), Froukelien Wendt (Securities Settlement Systems), Alice Zanza (Reforming the National Payments System). Corina Arteche, Hemant Baijal, Sean O’Connor, and Ceu Pereira also participated in the process of reviewing countries’ questionnaires and provided comments and suggestions. The PSDG wishes to thank Jose Antonio Garcia, who acted as peer reviewer of the 2010 iteration and led the publica- tion of the first iteration of this study. The PSDG also thanks European Central Bank (ECB) colleagues, Daniela Russo and Tom Kokkola, for providing specific information on European systems’ features and arrangements. Finally, the PSDG also wishes to thank each and every central bank that participated in this effort. TABLE OF CONTENTS Executive Summary v Abbreviations xiii Introduction xv Methodological Note xix I LEGAL AND REGULATORY FRAMEWORK 1 I.1 BACKGROUND, 1 I.2 SURVEY OUTCOMES, 1 I.2.1 Payment Systems and Related Matters, 2 I.2.2 Central Bank Licensing and Payment System Oversight Powers, 6 II LARGE-VALUE PAYMENT SYSTEMS 13 II.1 BACKGROUND, 13 II.2 SURVEY OUTCOMES, 13 II.2.1 Real Time Gross Settlement Systems, 15 II.2.2 Special Procedures for Large-Value Cheques, 36 II.2.3 Non-RTGS Large-Value Payment Systems, 36 III RETAIL PAYMENT INSTRUMENTS AND SYSTEMS 39 III.1 BACKGROUND, 39 III.2 SURVEY OUTCOMES, 42 III.2.1 Cheques and Cheque Clearinghouses, 43 III.2.2 Credit Transfers, Direct Debits and Automated Clearinghouses, 49 III.2.3 Payment Cards and Related Systems, 56 III.2.4 Affordability of Non-Cash Payment Instrument and Services for Individuals, 65 III.2.5 Government Payments, 69 IV SETTLEMENT OF FOREIGN EXCHANGE TRANSACTIONS 71 IV.1 BACKGROUND, 71 IV.2 SURVEY OUTCOMES, 74 iii iv PAYMENT SYSTEMS WORLDWIDE V INTERNATIONAL REMITTANCES AND OTHER CROSS-BORDER PAYMENTS 81 V.1 BACKGROUND, 81 V.2 SURVEY OUTCOMES, 81 V.2.1 Remittance Service Providers, 82 V.2.2 Payment Instruments in International Remittances, 88 V.2.3. Transparency, Consumer Protection, and Competition in International Remittances, 89 V.2.4. Cross-Border Payments, 97 VI SECURITIES SETTLEMENT SYSTEMS 99 VI.1 BACKGROUND, 99 VI.2 SURVEY OUTCOMES, 99 VI.2.1 General Features of Securities Markets, 101 VI.2.2 Central Securities Depositories and Securities Settlement Systems, 106 VI.2.3 Central Counterparties, 111 VI.2.4 Regulatory and Oversight Issues, 114 VII PAYMENT SYSTEM OVERSIGHT AND COOPERATION 115 VII.1 BACKGROUND, 115 VII.2 SURVEY OUTCOMES, 115 VII.2.1 General Issues, 116 VII.2.2 Objectives of Payment System Oversight, 118 VII.2.3 Scope of Payment System Oversight, 119 VII.2.4 Instruments of Payment System Oversight, 121 VII.2.5 Cooperation with Other Relevant Authorities and Other Stakeholders, 124 VII.2.6 Involvement of Central Banks in the Pricing of Payment Services, 126 VIII REFORMING THE NATIONAL PAYMENTS SYSTEM 129 VIII.1 BACKGROUND, 129 VIII.2 SURVEY OUTCOMES, 129 IX CONCLUDING REMARKS 137 ANNEX I: The Questionnaire, 139 ANNEX II: Classification of Countries According to Level of Per Capita Income, 173 ANNEX III: Classification of Countries According to Geographical Region, 175 ANNEX IV: Classification of Countries According to Population Size, 177 ANNEX V: Chronological List of Country Responses to the Global Payment Systems Survey, 178 EXECUTIVE SUMMARY P ayment systems have moved from the system development as a key component of the finan- backroom to the boardroom of all financial cial infrastructure of a country, and has provided vari- institutions due to the recognition of the ous forms of assistance to over 100 countries. critical role that a well functioning pay- ment system plays in supporting the financial and real In April 2007, the World Bank’s Payment Systems economies, and also because of the increasing atten- Development Group (PSDG) launched the first World tion bank boards pay to the automation of banking op- Bank Global Payment Systems Survey among national erations and services and their impact on bank income central banks to collect information on the status of and profits. From a broader perspective, a less than op- national payment and securities settlement systems timal use of payment instruments and/or inefficient or worldwide. The outcomes of the first Global Payment poorly designed systems to process these instruments Systems Survey were published in June 2008, and are may ultimately have an impact on systemic stability, available on the PSDG website at www.worldbank.org/ economic development and growth. paymentsystems. Based on the feedback received by central banks, the Global Payment Systems Survey has Payment systems are moving from being a narrow greatly enhanced the knowledge on payment systems channel for transferring funds to a much wider inte- matters worldwide, and helped guide reform efforts grated network for transferring additional forms of over the last three years. In line with the undertaking value. Moreover, the creation of networks and sys- made by the World Bank to periodically update the tems for retail payments can have a substantial role in information collected through this Survey, the PSDG supporting financial access in developing countries. has conducted the second Global Payment Systems Indeed, modern retail payment technologies and in- Survey, which was launched in July 2010. A total novative programs to channel recurrent payments effi- of 132 central banks representing 139 countries1 ciently can, and are already being used to, integrate the worldwide participated in this second iteration. previously underserved and non-served population into the formal financial sector. A well-functioning The 2010 questionnaire included the following sec- infrastructure to efficiently and safely process modern tions: i) Legal and Regulatory Framework; ii) Large- payment instruments is necessary to successfully en- Value Funds Transfer Systems; iii) Retail Payment hance a country’s population access to, and widespread Systems; iv) Foreign Exchange Settlement Systems; v) use of, such modern payment instruments. Cross-border Payments and International Remittances; vi) Securities Settlement Systems; vii) Payment System For all these reasons, for more than 15 years the World Bank has been paying increasing attention to payment 1 The General Bank of West African States (BCEAO) represents eight countries. v vi PAYMENT SYSTEMS WORLDWIDE Oversight and Cooperation; and, viii) Planned and ers key issues such as settlement finality, netting, and On-going Reforms to the National Payments System. electronic payment processing. The Survey confirms While keeping the design and structure of the 2008 that other important areas such as the non-existence questionnaire, the 2010 questionnaire was expanded of a zero hour rule, the enforceability of security in- to allow for the collection of more detailed information terest in pledged collateral or repurchase agreements especially on retail payment instrument and services,2 (“repo�), and the protection of collateral pledged in securities settlement arrangements, and international a payment or other type of settlement system are less remittance services. covered in general; on the other hand, such provisions are increasingly more common. Coverage of consumer Global survey outcomes presented in this publication protection and competition issues is limited to high in- are divided into two main sections: come countries. • Chapters I through VIII analyze the survey re- As in 2008, high income and upper-middle income sults and identify trends using various variables countries tend to have stronger legal systems for for cross-country comparisons. In addition to payment systems. From a regional perspective, the worldwide totals, three broad country charac- European Union is confirmed as the area with the teristics exogenous to payment system devel- strongest and most comprehensive legal framework, opment are used as a basis for comparisons: i) especially for securities settlement systems, followed level of per capita income; ii) geographical loca- by ODCs. Significant improvements have been made tion; iii) population size. Details of the meth- in the LAC region. odology used for the analysis are covered in the Methodological Note. Large-value payment systems are typically the most significant component of the national payments sys- • The Appendix contains the full set of country- tem due to their potential to generate and transmit by-country answers to each of the questions in- disturbances of a systemic nature to the financial sec- cluded in the questionnaire. tor. In this area, a total of 116 countries report having a real-time gross settlement (RTGS) system in place, allowing for a significant reduction of systemic risk in MAIN OUTCOMES OF THE GLOBAL such countries when compared to previous arrange- SURVEY ments for processing large-value payments, such as cheque systems.3 The 2010 survey outcomes in this Improvements continue to be made worldwide to the area show little variation from the 2008 iteration. Most legal and regulatory framework underpinning pay- of the RTGS systems in place are secure and have been ment and settlement systems. More than 70% of the designed around international standards and best countries indicate that their legal framework cov- practices. For example, central bank liquidity facilities In recognition of the relevant innovation taking place in the retail payments 2 3 Some of these countries share one system, as in the case of the countries com- arena and the interest on this matter expressed by local authorities as well as prising the West Africa Monetary Union, and the euro-area countries. According international bodies such as the G-8 and the G-20, a dedicated questionnaire to survey data, 19 RTGS systems were implemented since 2007. The PSDG is also to capture developments in this space has been added as an Annex to the Sur- aware that RTGS systems are currently being implemented in Honduras, Papua vey (Annex 1: “Questionnaire for Collecting Information on Innovations in Retail New Guinea, Macao (China), and Paraguay. The RTGS component of the Rwanda Payment Instruments and Methods Worldwide�). The outcomes will be discussed Automated Transfer System (ATS) went live in February 2011. The Ethiopia ATS in a separate World Bank publication. was launched in May 2011. These are not reflected in Table II.1. Global Survey 2010 vii are available to manage payment flows smoothly with- other non-RTGS large value systems (13%). It is well- in the operating day (in about 90% of cases) with high known that cheque systems have special difficulties for quality collateral being required in 90% of cases of this complying with international standards for large-value subset. Optimization tools such as queuing mechanisms payment systems, in particular with regard to manage- are available in 88% of the cases. Survey outcomes also ment of risks, settlement finality, effectiveness and ef- show that RTGS operators have placed operational risk ficiency. Settlement of large-value payments through management at the top of their list of priorities over the cheque systems is especially common in lower-middle last few years, resulting in significantly stronger resil- and low income countries. From a regional perspec- ience and business continuity practices. tive, cheque systems are used alongside RTGS systems especially in the SA, MNA, and SSA regions, while a Adoption of modern, safe and efficient large-value sys- significant reduction from the previous survey was ob- tems is highest among high income and upper-mid- served in the LAC region. dle income countries (more than 90% in each case); on the other hand, percentages for lower-middle in- The retail payment systems area is where the largest come and low income countries have increased since differences continue to exist between higher income 2008. The EAP region shows the lowest adoption of and lower income countries, and between developed RTGS systems. and developing regions. While the vast majority of countries indicate they are already operating one or Compared to 2008, a relatively smaller number of more cashless payment systems, differences in vol- countries still indicate that large-value payments are umes and value of transactions handled through such being processed, exclusively or in parallel to the RTGS systems are still extremely large when comparing de- system, through cheque clearing systems (23%) or veloped countries/regions to developing ones. While, Executive Summary viii PAYMENT SYSTEMS WORLDWIDE CASHLESS RETAIL PAYMENT TRANSACTIONS PER CAPITA (FOR YEAR 2009) 200 100% 190.1 180 169.3 90% 169.3 160 80% 140 70% 117.0 120 60% 60% 55% 100 50% 50% 45% 80 40% 60 30% 27% 27% 40 20% 14% 16% 16% 16% 20.1 18.8 20 13.0 10% 8.5 3.4 0.2 0 0% EAP ECA LAC MNA SA SSA Euro-area Other EU Other countries members Developed Average number of Growth 2009 vs. Countries per capita cashless 2006 transac ons for example, in the EU and ODC regions an individual ii) limited access by individuals to modern pay- performs on average 100 or more cashless transactions ment instruments in most developing countries, per year (and even 300 or more in several cases), this especially outside urban areas; same indicator is around 13 for EAP, 20 for LAC and ECA, and less than 1 for the SSA region (South Africa iii) limited competition among banking institutions excluded). and, where available, between banks and other payment services providers, typically resulting Survey results show that this situation may be ex- in higher costs and more limited coverage of plained by, among others, the following factors: these services; i) the slow development of access channels to initi- iv) the specific needs of the government as one of ate and deliver cashless payments – e.g. point of the major originators and receivers of payments sale (POS) terminals in many developing coun- in the economy, and/or these same needs of util- tries, coupled with limited interoperability of the ities and other large commercial firms not being infrastructure already deployed; adequately addressed by those in charge of re- forming the national payments system, resulting in a preference for cash transactions. Global Survey 2010 ix Another relevant point arising from the survey re- of settlement risks in foreign exchange markets is, in sults is that, notwithstanding some improvement, risk general, still low, particularly in developing countries management in cheque systems and automated clear- and regions. inghouses (ACHs) is still weak. While some operators may argue that tough risk control mechanisms are not The following trends have emerged in the area of necessary for a system that is no longer systemically international remittances and other cross-border important, facts and data in the survey point at cheque payments: systems still having some degree of systemic impor- tance in several countries, and/or cheque systems be- i) In about 79% and 77% of all countries commer- ing the only system for retail payments or the most cial banks and, to a lesser extent, international relevant ones. On the other hand, regardless of their money transfer operators (MTOs) are consid- implications for systemic risk, ACHs are a key tool ered the most relevant types of remittance ser- to facilitate commercial as well as person-to-person vice providers (RSPs) for sending and receiving payment transactions, and as such have a signifi- remittances, respectively. On the other hand, the cant impact in the overall efficiency of the national role of the Postal Service (as well as other non- payments system. bank financial institutions such as microfinance institutions) is confirmed generally limited, with In the area of settlement of foreign exchange transac- some exceptions for specific regional markets. It tions, there are 41 organized markets for the trading is also interesting to note that no central bank and settlement of foreign currencies (FX) worldwide.4 ranked mobile phone providers as the most rel- Similarly to 2008 results, in the majority of these cases evant RSP; it was reported that settlement is made on a payment versus payment (PVP) basis using either central bank ii) RSPs require a license in 66% of the countries. accounts only (12 cases), or a combination of accounts The number of countries where there are no reg- in the central bank for the local currency and accounts istration or licensing requirements for all enti- in foreign correspondent banks for the foreign cur- ties acting as RSPs decreased to 28 from 47 in rency leg. However, in bigger markets the over-the- 2008. Registration is less common in EAP and counter (OTC) market for FX transactions is far more ECA regions, and non-euro EU members, while prevalent. In the latter case, 44 countries reported that licensing is less common in the LAC region and a mechanism is in place to achieve PVP. Most euro- in ODCs. From an income perspective, licensing area countries, 2 non-euro EU members, 8 ODCs and requirements are more common in low income one country from the SSA region specifically indicated countries; the use of the CLS Bank as a major mechanism for re- ducing FX settlement risk. iii) Survey results show very clearly that cash and current account transfers are regarded as the Approximately half of all central banks either re- most relevant payment instruments for both sponded partially or did not respond at all to the vari- sending and receiving remittances. As for pre- ous questions related to FX settlement. This appears paid cards and mobile payments, while there are to be a clear indication that central bank awareness recent and rapid developments of such products, no central bank indicated that prepaid cards are the most relevant payment instrument for send- 4 Based on survey responses. Executive Summary x PAYMENT SYSTEMS WORLDWIDE ing/receiving remittances, and only one country euro EU members, and in all but one country of the indicated that mobile payments are the most rel- euro area.5 The SSA countries show the lowest level of evant instrument for sending/receiving remit- securities dematerialization. Since 2008, the LAC and tances (along with current account transfers). EAP regions have made significant progress in the lev- The relevance of cash is clearly lower in high el of dematerialization. income countries, especially in ODCs; on the other hand more than 60% of central banks in In 49 countries there is a single central securities de- the ECA region and a similar percentage in the pository (CSD) handling all types of securities that are SSA region indicated that cash is the most rel- traded in the country, while in 48 other cases there are evant payment instrument for both sending and two or more “specialized� CSDs. A single CSD is more receiving remittances. common in high income countries, although differ- ent regions seem to have their own preferred model. iv) With regard to transparency and consumer pro- The majority of countries have one or more special- tection, only in 56% of the countries are RSPs ized clearing institutions for the clearing of securities legally required to disclose all transaction de- transactions. Only a minority of countries (34%) has a tails before the transaction itself is performed. central counterparty (CCP) operating either for secu- Although 57% of the countries have legislation rities or derivatives products. Large differences are vis- on consumer protection, in less than a third ible across country types: most high income countries consumer protection legislation for financial have a CCP, whereas this is the case only for 14% of services is in place. These results are correlated lower-middle income and 6% of low income countries. to a significant extent: in many cases inadequate The use of DVP as a measure to reduce principal risk transparency in the market for remittance ser- is widespread. In the EAP region and EU countries all vices (e.g. RSPs being legally required to disclose transactions are settled on a DVP basis. Overall, only fees and other charges, and/or complaint mecha- 8% of responding CSDs do not use a DVP model at all. nisms) is the result of the lack of an appropriate consumer protection framework for financial Significant improvements have been made in the area services users. of resilience and business continuity arrangements for SSSs and CSDs since 2008. Notwithstanding these The 2010 survey provides a more detailed picture of improvements, when compared with RTGS systems, the securities settlement systems (SSSs) worldwide. CSDs and SSSs have weaker business continuity prac- While 102 countries reported having one or more tices. Recent PSDG experience shows, however, that stock exchanges, in general, these tend to exist in high CSDs are increasingly investing in operational reliabil- income countries and countries with a larger popula- ity, which should lead to further convergence of RTGS tion. The securities market is still at a nascent stage in and CSD systems with regard to this specific feature. 35 countries which are mainly located in the SSA and As for CCPS, at present throughout the EU, LAC and ECA regions. EAP regions, these deal with business continuity issues more thoroughly than in other regions. Securities immobilization or dematerialization have been largely accomplished in 71% of the countries, compared to the 66% reported in the 2008 survey. This has been accomplished in all SA countries, in all non- 5 Countries surveyed. Global Survey 2010 xi The development of the payment system oversight region continues to show the highest percentage of function has been one of the key features of recent pay- NPCs in place. ment system reforms. The survey confirms that 99 cen- tral banks (7 more than in 2008) have already estab- Unsurprisingly, central banks play a limited role with lished the payment system oversight function, and this regard to the pricing of payment services, especially in function is performed on an on-going basis. Regions retail payments (including remittances). In contrast, lagging behind in the previous survey show significant 47% of central banks indicate that they actively regu- improvements, especially in the LAC and SA regions, late prices of large-value payment systems. The major and the non-euro EU members. In 85% of the cases factor behind this result is that almost all central banks there is a specific unit at the central bank in charge of operate the large-value payment system in their re- payment system oversight duties. spective countries and, as such, play a major role in pricing the corresponding payment services. To some extent, the 2010 survey shows a shift in the objectives of payment system oversight, from safety The 2010 survey confirms that most countries are en- and efficiency solely to broader goals, such as promot- gaging in reforming payment and securities settle- ing higher levels of competition in the market for pay- ment systems as an on-going effort. More than 80% of ment services, consumer protection, and others. In the countries of all income levels and from all regions are same vein, more central banks are moving towards a currently reforming at least one component of their wider scope, overseeing all relevant payment systems national payments system. Two-thirds of all countries in a country regardless of who the operator of the sys- are currently reforming retail payment systems and/ tem is (64% compared to 57% in 2008). Only 11% of or the legal and regulatory framework. While legal central banks limit their oversight scope to central reforms are being undertaken mainly, though not ex- bank-operated systems. clusively, in lower income countries, reforms to retail payment systems are present with practically the same In general, central banks continue to prefer “soft� over- frequency across all country income categories. This sight instruments, such as monitoring, dialogue and last outcome is especially relevant given that only a moral suasion, and publication of statistics/reports. few years ago most central banks were involved solely Only about one-fourth of central banks reported us- in reforming systemically important payment sys- ing more “formal� oversight instruments, such as the tems. Nonetheless, a relatively large number of coun- application of sanctions. A trend worth noting is the tries are still involved in the reform of large-value increase in the number of countries that rated on-site payment systems. inspections as a highly relevant instrument for pay- ment system oversight. KEY CONCLUSIONS Cooperation remains an issue, since only about half of the countries surveyed state that the relevant au- Of the three variables used throughout the survey to thorities have established formal mechanisms to ex- classify countries and make cross-country compari- change information and coordinate actions with rel- sons, the income per capita variable and the geographi- evant stakeholders. Nevertheless, 49 formal National cal location variable still have a significant correlation Payments Councils (NPCs) have been created in order to promote a more structured cooperation. The SSA Executive Summary xii PAYMENT SYSTEMS WORLDWIDE with the level of payment system development.6 On the level in key aspects such as efficiency and accessibility other hand, with a few exceptions a country’s popula- does not seem likely under the current circumstances. tion size does not appear to have any significant cor- For the World Bank, the Global Survey 2010 exercise relation with development in the various areas of the has been particularly useful to confirm that the increas- payment system. ing attention paid by authorities and market players to payment system development has resulted in numer- The factors mentioned above, however, do not mean ous concrete reforms contributing to the improvement that payment system development will necessar- of the safety and efficiency of financial systems, and ily move pari passu with a country’s overall economic that of the overall economy, in many countries around development. The Global Survey 2010 shows that the world. The recent financial crisis also raised aware- many countries, regardless of income level, are mak- ness on the role of safe and efficient payment systems ing important progress, mainly in those areas where in mitigating risks in financial markets: domestic pay- the central bank is able to exert an important degree ment system (e.g. RTGS systems) and global payment of intervention. Together with the World Bank, other infrastructure (e.g. CLS Bank) were instrumental in international financial institutions such as the Bank facilitating immediate authorities’ action and shock for International Settlements and the International absorbance. Monetary Fund, as well as peers from the central bank community, have directly supported these efforts in The survey results also show encouraging improve- many cases. ment in areas where national central banks and the World Bank’s PSDG have increasingly focused their However, in the area of retail payment systems, prog- efforts over the last few years, such as legal and regula- ress is much slower. The Global Survey 2010 results tory framework and payment system oversight. On the confirm the very high correlation between the level other hand, the Global Survey 2010 confirms that more of development in this subcomponent of the national work is still needed in the areas of retail payment sys- payments system and the overall economic develop- tems, including international remittances. The World ment of any given country. In the retail sector, inter- Bank, together with its partners in the international vention from the central bank not only as operator but community, will continue to support reform efforts for even as payment system regulator or overseer is gen- the years to come. erally very limited and in many cases subject to sub- stantial controversy. Moreover, the traditionally domi- nant position of commercial banks over retail payment systems and services is being increasingly challenged by a variety of non-bank payment service providers. This translates into additional difficulties for payment system overseers and regulatory authorities in defining and carrying out their policy goals in the area of re- tail payment systems. Faster progress at a system-wide 6 These two variables are also correlated between them, given that the various countries in any region would typically, though not necessarily, exhibit a similar level of per capita income. ABBREVIATIONS ACH Automated Clearinghouse Remittance Services AML Anti-Money Laundering IMF International Monetary Fund API Arab Payments and Securities Settlement IOSCO International Organization of Securities Initiative Commissions ATM Automated Teller Machine IT Information Technology ATS Automated Transfer System MOU Memorandum of Understanding BEAC Banque des Etats de l’Afrique Centrale MTO Money Transfer Operator BCEAO Banque Centrale des Etats de L’Afrique NPC National Payments Council de l’Ouest OTC Over-the-Counter BCP Business Continuity Plan PAPRI Pacific Payments and Remittances Initiative BIS Bank for International Settlements POS Point of Sale CCP Central Counterparty PSDG Payment Systems Development Group CFTC Commodity Futures Trading Commission (World Bank) CIS Commonwealth of Independent States PVP Payment versus Payment CISPI Commonwealth of Independent States RSP Remittance Service Provider Payments and Securities Settlement RTGS Real Time Gross Settlement Initiative SADC Southern African Development Community CLS Continuous Linked Settlement SAPI South Asia Payment and Securities CPSS Committee on Payment and Settlement Settlement Initiative Systems SEC Securities and Exchange Commission CSD Central Securities Depository SEPA Single Euro Payments Area DTCC Depository Trust & Clearing Corporation SIPS Systemically Important Payment Systems DVP Delivery versus Payment SML Securities Market Law ECB European Central Bank SRO Self-Regulatory Organization EPC European Payments Council SSS Securities Settlement System EU European Union SWIFT Society for Worldwide Interbank Financial FIFO First in, First out Telecommunication FSAP Financial Sector Assessment Program T2S TARGET2-Securities (World Bank-IMF) USD U.S. dollar FX Foreign Exchange WHI Western Hemisphere Payments and GPs General Principles for International Securities Clearance and Settlement Initiative xiii INTRODUCTION T he payments system is the infrastruc- It was not until the mid-1980s that the debate on pay- ture (comprised of various components ment system reform policies took on greater weight which include institutions, instruments, in countries with more advanced financial systems. rules, procedures, standards, and technical First, early in this decade it became widely recognized means) established to enable the transfer of monetary that payment systems are a primary channel of central value between parties discharging mutual obligations. and commercial bank credit extensions. Moreover, fi- Its technical efficiency determines the efficiency with nancial market liberalization led private sector agents which transaction money is used in the economy, and and national regulators to identify technical and insti- the risks associated with its use. An efficient payments tutional solutions to serve the increasing demand for system reduces the cost of exchanging goods and ser- new payment services, while protecting the economy vices, and is indispensable to the functioning of the from the risks originating from rapidly growing vol- interbank, money, and capital markets. A weak pay- umes of financial transactions. Also, the internation- ments system may severely hamper the stability and alization of financial markets and episodes of financial developmental capacity of an economy; its failures can crisis around the world fostered closer cooperation result in inefficient use of financial resources, inequi- among industrial countries, and between the latter and table risk-sharing among agents, actual losses for par- emerging economies, on how to set up and enforce ticipants, and loss of confidence in the financial system standards to improve payment system performance in and in the very use of money. terms of risk control and shock resilience. Historically, payment systems have lain at the heart of Over the last 15 years the World Bank’s Payment banking. Yet still in the middle of the 20th century, as System Development Group (PSDG) has supported payment technology stabilized, payment system issues payment system reforms in more than 100 countries. were considered less important than other aspects of In addition, the PSDG has facilitated the production of the financial system, and were seen mostly as techni- descriptive reports and statistical information in many cal matters to be dealt with by subunits of information of these countries.7 In more recent years, the PSDG technology (IT) departments in both the central banks and the commercial banks. 7 Descriptive reports are available for Europe (“blue books�), G-10 and other countries (“red books�), Latin America and the Caribbean (“yellow books�), the Commonwealth of Independent States (“silver books�), the Arab region (“white books�), the Southern Africa Development Community (“green books�), South East Asia (“orange books�), and South Asia (“purple books�). References are avail- able at http://go.worldbank.org/FQAXPH80X0 xv xvi PAYMENT SYSTEMS WORLDWIDE COUNTRIES THAT PARTICIPATED IN THE GLOBAL PAYMENT SYSTEMS SURVEY 2010 Albania Eritrea Luxembourg Saudi Arabia Angola Estonia Macao (China) Senegal Argentina Ethiopia Macedonia FYR Serbia Armenia Fiji Madagascar Seychelles Australia Finland Malawi Sierra Leone Austria France Malaysia Singapore Azerbaijan Georgia Mali Slovak Republic Bahamas, The Germany Malta Slovenia Belgium Ghana Mauritania South Africa Belize Greece Mauritius Spain Benin Guatemala Mexico Sri Lanka Bolivia Guinea Bissau Moldova Sudan Bosnia and Herzegovina Honduras Mongolia Swaziland Botswana Hong Kong (China) Montenegro Sweden Brazil Hungary Morocco Switzerland Bulgaria India Mozambique Taiwan (China) Burkina Faso Indonesia Namibia Tanzania Burundi Iran, Islamic Rep. of Nepal Thailand Cambodia Iraq Netherlands Timor-Leste Canada Ireland New Zealand Togo Cayman Islands Israel Niger Trinidad and Tobago Chile Italy Nigeria Turkey China Jamaica Norway Uganda Colombia Japan Oman Ukraine Congo, Dem. Rep. of Jordan Pakistan United Arab Emirates Costa Rica Kazakhstan Peru United Kingdom Cote d’Ivoire Kenya Philippines United States Croatia Korea, Rep. of Poland Uruguay Cyprus Kosovo Portugal Vanuatu Czech Republic Kuwait Romania Venezuela, R. B. Denmark Kyrgyz Republic Russian Federation West Bank and Gaza Dominican Republic Latvia Rwanda Yemen, Republic of Ecuador Lebanon Samoa Zambia Egypt, Arab Rep. of Lesotho San Marino Zimbabwe El Salvador Libya Lithuania has conducted comparative analysis in some regions securities settlement systems worldwide and provide a or sub-regions.8 snapshot in both advanced and emerging economies with a view to identifying the main issues that should In April 2007, the World Bank launched the first guide the agenda of authorities, multilaterals and Global Survey among national central banks to collect market players in the field over the next few years. As information on the situation of national payment and part of the process of refining this survey and updat- ing information collected in the 2008 survey, a second 8 See Cirasino and Guadamillas, “Payment and Securities Settlement Systems iteration of the survey was initiated in July 2010. The in Central America, - Structural Foundations for Regional Financial Integration�, questionnaire was sent to all countries, regardless of IMF, 2006; and Cirasino, Garcia, Guadamillas and Montes-Negret, “Reforming Payments and Securities Settlement Systems in Latin America and the Caribbean�, whether they had participated in the first survey or World Bank, 2007. not. The preliminary results were presented during the Global Survey 2010 xvii World Bank Global Payments Week, which took place Methods Worldwide�). The questionnaire captures in- in Amsterdam, The Netherlands, from the 19th to the novations resulting in new products as well as inno- 22nd of October 2010. This publication therefore con- vations in processing; 98 central banks completed the stitutes detailed outcomes of the 2010 Global Payment Annex on Innovations. The outcomes of the Annex Systems Survey, based on the 132 responses involving will be the subject of a future publication. 139 countries. Countries that participated in the 2010 survey are shown at left in alphabetical order. The study is organized as follows: As in the 2008 survey, the detailed questionnaire con- sists of eight sections covering a broad set of topics Chapters I through VIII analyze the main results and considered an integral part of the national payments trends derived from the responses to the survey. The system. Areas covered by the questionnaire are as outcomes are discussed both at the worldwide level follows: and on the basis of country classifications as discussed in the Methodological Note. Part I: Legal and Regulatory Framework The questionnaire that was distributed to national cen- Part II: Large-Value Funds Transfer Systems tral banks is presented in Annex I. Part III: Retail Payment Systems The full set of tables with country-by-country answers to each of the questions included in the questionnaire Part IV: Foreign Exchange Settlement Systems is shown in the Appendix. Part V: Cross-border Payments and International The World Bank’s PSDG has made an attempt to strike Remittances the right balance between presenting all relevant issues in a level of depth that is appropriate for the various Part VI: Securities Settlement Systems interested audiences, and making the information and data stemming from the Global Survey available to Part VII: Payment System Oversight and the overall public as soon as practicable. For more de- Cooperation tailed or more area-specific analysis, payment system practitioners and scholars have at their disposal the Part VIII: Planned and On-going Reforms to the Appendix with the full dataset of country responses. In National Payments System the following months the World Bank’s PSDG will also produce additional studies and research papers based In recognition of the relevant innovation taking place on this information. in the retail payments arena and the interest on this matter expressed by local authorities as well as in- ternational bodies such as the G-8 and the G-20, a dedicated questionnaire to capture developments in this space was added as an Annex to the survey (Annex 1: “Questionnaire for Collecting Information on Innovations in Retail Payment Instruments and Introduction METHODOLOGICAL NOTE I). THE QUESTIONNAIRE this information was to provide a “sense of magnitude� rather than to build a thorough statistical database for T he primary focus of the questionnaire was cross-country comparisons. to identify the main qualitative features of each national payments system. The scope The questionnaire identified specific features or char- of the questionnaire included the legal and acteristics that have been observed as part of the World regulatory framework, large-value payment systems, Bank’s operational work in the area of payments, remit- retail payment systems, foreign exchange settlement tances, and securities settlement systems in countries systems, cross-border payment systems and interna- with varying degrees of sophistication. In the great tional remittances, payment system oversight and co- majority of questions, respondents were requested to operation features, and securities settlement systems.9 answer yes or no, or to mark with an “X� all possibili- The questionnaire also aimed at obtaining information ties that may apply. In most case respondents provided on on-going reforms, and opinions on the main factors comments whenever a question did not fully adapt to that hinder or facilitate reforms to the national pay- the reality in their country. Such comments are pre- ments system. sented in the Appendix in the corresponding tables with country-by-country answers to the questionnaire. The questionnaire does not aim at obtaining system- atic statistical information on the number of payments and total value settled for each component of the na- II). COUNTRY ANSWERS tional payments system. While some specific data on the total number and value of payment transactions Despite the fact that in some cases specific answers through the various payment instruments and sys- provided by various countries did not fully coincide tems available were requested, the main purpose of with the information the PSDG had collected in the previous iteration of this survey and through country 9 This broad scope and the classification of the various components of a assessments, country answers were taken as “given� national payments system are consistent with the PSDG methodology used by respondents to the extent possible. Solely for the worldwide,(e.g. see the Working Papers produced in the context of the World Bank-led Western Hemisphere Payments and Securities Settlement Forum at purpose of comparative analysis, the PSDG adjusted www.whpaymentsforum.org), and follow the comprehensive approach of the some specific answers of a few countries based on di- CPSS General Guidance for National Payment System Development (BIS, January 2006). xix xx PAYMENT SYSTEMS WORLDWIDE rect knowledge of the systems’ features and/or updates By level of per capita income: countries were classi- and additional comments provided by such countries. fied following the World Bank’s income classifications: i) high income; ii) upper-middle income; iii) lower- It is also worth mentioning that since the survey was middle income; and iv) low income.11 carried out through electronic means rather than through bilateral person-to-person interviews with re- A list of the countries that fall under each of these sub- spondents, it was difficult to ensure a consistent inter- categories is shown in Annex II. pretation of all the various choices in all the questions of the survey. While most questions were answered as By geographical region: developing/emerging coun- expected, in a few others, mainly those in which central tries were classified according to the World Bank’s re- banks were asked to give an opinion or make a judg- gional country classifications: i) East Asia and Pacific; ment on a given issue, the specific manner in which ii) Europe and Central Asia; iii) Latin America and the those questions had to be answered was not uniform. Caribbean; iv) Middle East and North Africa; v) South Asia; and, vi) Sub-Saharan Africa. III). THE ANALYSIS One exception is that of the countries in Eastern Europe that are also members of the European Union: Apart from providing information on worldwide totals these countries were excluded from the Europe and for each of the features or characteristics identified in Central Asia region and were assigned to one of the the survey, this study also aims at identifying trends two “European sub-categories� (see below). on the basis of certain broad variables to determine whether such variables appear to have an explanatory Members of the European Union were divided into effect on each country’s national payments system fea- two sub-categories: Euro area countries and other tures and overall development. European Union members (non-euro area).12 This rep- resents an important deviation from 2008 methodolo- Three broad country characteristics have been selected gy, where European Union member countries were di- for this purpose, all of which are considered exogenous vided into EU-15 (the older 15 members) and EU-NM to national payments system development: i) level of (the newer members or “EU accession countries�). per capita income; ii) geographical location; and, iii) population size.10 For all other developed nations, in order to avoid an excessive number of categories with very few observa- Accordingly, for sections I through VIII of the survey, tions, all these countries were also classified into a sin- countries were classified into each of these categories gle separate sub-category denominated here as “other on the following basis: developed countries�. 11 A case that deserves special treatment is that of the countries belonging to 10 These and other factors have also been identified in the CPSS General Guid- the West Africa Economic and Monetary Union. The questionnaire was sent to, ance for National Payment System Development. More specifically, this report and received from the Central Bank of West African States (BCEAO). Whenever identifies four general factors influencing national payment system development: the issue under discussion related to number of countries, answers received from i) environmental factors, ii) economic factors; iii) financial factors; and iv) public the BCEAO were allocated individually to each of the member countries. In those policy factors. Following the CPSS classification, two of the categories selected for cases in which the issue under discussion relates to the “number of systems� or analysis in this Working Paper (geographical location and population size) would “number of central banks�, answer from the BCEAO are counted as one. fall under the “environmental factors� group, while the “level of income� category 12 For the purposes of this survey, Estonia, who adopted the Euro in January would fall under the “economic factors� group. 2011, is not included in the Euro area sub-category. Global Survey 2010 xxi Annex III shows the list of countries that fall under of each • For the income level, the following criteria were of these sub-categories related to geographical region. used: i) whenever a topic is discussed in terms of number of countries, the BCEAO answer is dis- By population size: countries were classified as fol- tributed as 6 “low income� countries and 2 “low- lows: i) large – population over 30 million; ii) mid- er-middle� income countries; ii) on the other size – population between 5 million and 30 million; hand, whenever a topic is discussed in terms of iii) small – population less than 5 million. World Bank number of systems or number of central banks, data on country populations for year 2009 were used the prevalent income level is considered and for this purpose. therefore the answer for BCEAO falls under the “low income� definition. The definition of these sub-categories was driven solely • For the population size category, the follow- on the objective of having a relatively similar number ing criteria were used: i) whenever a topic is of countries in each of them, and/or with a distribution discussed in terms of number of countries, the lightly skewed to the sub-category in the middle. BCEAO answer is distributed as 7 “mid-size countries� and 1 “small country�; ii) on the other Classification of countries according to population size hand, whenever a topic is discussed in terms of is shown in Annex IV. number of systems or number of central banks, the answer for BCEAO falls under the “large A case that deserves a special treatment is that of the country� definition. countries belonging to the Western Africa Monetary Union for which, in the absence of individual national Number and percentages presented throughout the central banks, the questionnaire was sent to, and re- study and the comparative tables are based on the sim- ceived from, the Central Bank of Western African ple addition of the number of countries in each of the States (BCEAO). The following cases and exceptions previously mentioned categories and worldwide totals. are noted: Different weights to each country on the basis of a country’s economic size, territory or other variables or • Throughout chapter I, whenever the issue under country features are not applied throughout this study. discussion relates to “number of countries�, an- swers received from the BCEAO were allocated Caution must be used when comparing the 2010 results individually to each of their 8 member countries. with the 2008 results: the number of countries/systems • In those cases in which the issue under discus- under the geographical, income, and population cat- sion relates to “number of systems� or “number egories may have changed consistently. Additionally, of central banks�, answers from the BCEAO were in some instances, the above-mentioned change in the each counted as one. geographical classification of European Union mem- ber countries, as well as institutional and infrastruc- • The two possibilities noted above do not affect ture developments in this area may complicate or even the categories under which BCEAO member invalidate comparison of the current results to the past countries are classified, as a group or individu- iteration. These cases have been brought to attention in ally, for what concerns the geographical region.13 Sections I through VIII of the survey. 13 All BCEAO countries share the same geographical location. Methodological Note xxii PAYMENT SYSTEMS WORLDWIDE IV). NOTATION AND CONVENTIONS It should be noted that contrary to the previous it- eration, totals have been calculated for each section, How to read comparative tables throughout rather than for the whole survey. Totals in each sec- Sections I to VIII tion, unless otherwise indicated, represent the number of countries that completed the relative section of the For tables showing comparative information on the survey questionnaire. basis of worldwide totals, country income levels, region, and population size, figures should be inter- STATISTICAL TABLES preted as follows: In the various statistical tables presented in the text a. In the first column, the number in parenthesis and in the Appendix, the following notation and con- indicates the total number of countries in each ventions are used: category. In several tables, however, compari- sons refer to specific features of systems rather • Volume of transactions: means number of than countries. In the latter case, numbers in transactions. parenthesis in the first column refer to the total • Value of transactions: means the amount number of systems with that particular feature of transactions. for which comparisons are being made. • USD: means U.S. dollars. • nav: means data is not available. b. Columns headed with “#� show the number of • nap: means data is not applicable. countries/systems that answered positively to • neg: is used when data are very small and neg- this item. When read vertically, these columns ligible relative to other relevant data in the table show at the top the total numbers of countries concerned. Where data is exactly zero, this is in- that answered positively to the specific issue dicated with “0�. detailed in the header of that column. Moving downwards, the column then shows the distri- All value figures were converted into USD using the bution of the total for each of the three country World Bank’s Development Data Platform (DDP) classifications being used. Exchange Rates for the yearly average. c. Columns headed with a “%� denote the num- ber of countries/systems with a positive answer ACRONYMS FOR REGIONS as a percentage of all countries in the respective sub-category. EAP East Asia Pacific d. When read horizontally, each row shows the ECA Europe and Central Asia14 number of countries/systems in each sub-cate- LAC Latin America and the Caribbean gory, together with the corresponding percent- MNA Middle East and North Africa ages, that answered positively to the aspect de- ODC Other Developed Countries tailed in the header of that column. SA South Asia SSA Sub-Saharan Africa For individual country answers, readers should refer to the Appendix in which tables for each of the ques- Euro area countries and non-euro EU members have tions of the survey have been prepared with country- not been assigned an acronym and are referred to as by-country answers. “euro-area countries� and “other EU members�. 14 As noted earlier, for analytical purposes the ECA region does not include Eastern European countries that have joined the European Union. SECTION I LEGAL AND REGULATORY FRAMEWORK I.1 BACKGROUND to react to a rapidly changing environment. In other cases, specific agreements among participants might A sound and appropriate legal framework is be adequate; however, in such cases, an appropriate generally considered the basis for an effi- professional assessment of the enforceability of these cient payments system. The legal environ- arrangements is usually required. ment should include (i) laws and regula- tions of broad applicability that address issues such as Finally, because the payments system typically in- insolvency and contractual relations between parties; cludes participants incorporated in foreign juris- (ii) laws and regulations that have specific applicabil- dictions and might also operate with multiple cur- ity to payment systems (such as legislation on elec- rencies or across borders, it may be necessary to tronic signature, validation of netting, and settlement address issues associated with foreign jurisdictions. finality); and (iii) the rules, standards, and procedures agreed by the participants of a payments system. The legal infrastructure should also cover other activities I.2 SURVEY OUTCOMES carried out by both public and private sector entities. For example, the legislative framework may establish This chapter first discusses the basic legal references clear responsibilities for the central bank or other for payment and securities settlement issues, and the regulatory bodies, such as oversight of the payment key legal concepts covered in the national legal frame- systems or the provision of liquidity to participants in works, and makes comparison with the earlier survey. these systems. Other relevant pieces of legislation that It also looks at the applicability of such concepts to have impact on the soundness of the legal framework the various types of payment systems. It then turns to on the payments system include laws on transparency the analysis of the formal empowerment of the central and security of payment instruments, terms and con- bank to oversee the national payments system. Finally, ditions; antitrust legislation for the supply of payment this chapter analyses the licensing requirements for services; and legislation on privacy. payment service providers. While laws are normally the appropriate means to Tables shown in this section and the related analysis enforce a general objective in the payments field, in include information on the countries that provided an- some cases regulations might be a more efficient way swers for Part I: Legal and Regulatory Framework of the 1 2 PAYMENT SYSTEMS WORLDWIDE TABLE I.1: PIECES OF LEGISLATION WITH EXPLICIT REFERENCES TO PAYMENT SYSTEMS Central Payment Securities Civil Code/ Bank Consumer Central Banking Competition Systems Markets Commercial Regulation Protection AML/CFT Other Bank Law Law Law Law Law Code with power Law of Law Countries # % # % # % # % # % # % # % # % # % # % Worldwide total (138) 122 88% 86 62% 66 48% 96 70% 57 41% 89 64% 35 25% 35 25% 97 70% 73 53% By income High income (46) 43 93% 31 67% 24 52% 35 76% 19 41% 27 59% 13 28% 8 17% 31 67% 23 50% Upper-middle income (32) 29 91% 15 47% 18 56% 22 69% 13 41% 19 59% 8 25% 6 19% 21 66% 20 63% Lower-middle income (35) 33 94% 22 63% 12 34% 25 71% 17 49% 27 77% 11 31% 8 23% 27 77% 16 46% Low income (25) 17 68% 18 72% 12 48% 14 56% 8 32% 16 64% 3 12% 13 52% 18 72% 14 56% By region East Asia and Pacific (11) 11 100% 5 45% 2 18% 8 73% 3 27% 7 64% 4 36% 3 27% 8 73% 5 45% Europe and Central Asia (16) 16 100% 12 75% 8 50% 12 75% 10 63% 12 75% 3 19% 4 25% 15 94% 12 75% Latin America & Caribbean (20) 18 90% 10 50% 7 35% 14 70% 8 40% 9 45% 7 35% 2 10% 9 45% 12 60% Middle East & North Africa (12) 9 75% 8 67% 2 17% 7 58% 9 75% 12 100% 3 25% 3 25% 10 83% 4 33% South Asia (4) 4 100% 1 25% 3 75% 3 75% 1 25% 4 100% 1 25% 0 0% 3 75% 2 50% Sub-Saharan Africa (34) 24 71% 22 65% 20 59% 19 56% 10 29% 22 65% 4 12% 16 47% 24 71% 17 50% Euro area (16) 16 100% 13 81% 9 56% 11 69% 7 44% 9 56% 7 44% 2 13% 13 81% 11 69% Other EU members (11) 11 100% 7 64% 6 55% 11 100% 2 18% 5 45% 2 18% 1 9% 6 55% 7 64% Other developed countries (14) 13 93% 8 57% 9 64% 11 79% 7 50% 9 64% 4 29% 4 29% 9 64% 3 21% By population size >30 million (35) 34 97% 25 71% 14 40% 30 86% 22 63% 27 77% 14 40% 14 40% 28 80% 20 57% >5 million, <30 million (56) 47 84% 41 73% 31 55% 40 71% 20 36% 34 61% 14 25% 17 30% 38 68% 32 57% 5 million or less (47) 41 87% 20 43% 21 45% 26 55% 15 32% 28 60% 7 15% 4 9% 31 66% 21 45% Questionnaire for Collecting Information to Depict the ticipated in the survey.15 While the same overall trend Situation of Payment and Securities Settlement Systems is observed in general for each of the various country Worldwide 2010. categories, the relevance of the Central Bank Law is highest in EAP, ECA, SA and EU countries, and lowest in the SSA and MNA regions. In the latter case, central I.2.1 Payment Systems and Related Matters bank regulations with power of law were considered as the most relevant legal support to payment systems. At a worldwide level, the Central Bank Law is clearly the basic legal reference for payment and settlement 15 In the 2008 survey, this percentage was 91%. An important reason behind the reduction of this percentage for the 2010 survey is that while in 2008 the BCEAO, issues, as indicated by 88% of all countries that par- which comprises eight different countries, answered positively to this particular item, this was not the case for the actual survey. Global Survey 2010 3 Although Payment System Laws are a relatively new Another relevant outcome of the 2010 survey is the sig- phenomenon, a total of 66 countries (48%) indicated nificant increase in the number of Securities Markets that they have one.16 Payment System Laws are present Laws that now include payment and settlement is- in high, middle and low income countries. According sues (70%18 of all countries compared to only 51% in to PSDG experience, in countries with a weak legal the 2008 survey). The relevance of Securities Markets infrastructure for financial transactions enacting a Laws for payment systems is higher in larger countries, Payment System Law is seen as a straight forward solu- possibly explained by the presence of deeper securities tion compared to reforming the Central Bank Law or markets in such countries. the Banking Law. This is particularly true in low in- come countries.17 Table I.2 analyzes the extent to which some of the key payment and securities settlement concepts are cov- On the other hand, 53% of countries indicate that rel- ered in the legal framework. evant payment system concepts can be found in laws and regulations other than the ones mentioned in this Worldwide, most countries indicate that their legal question of the survey. This figure is highest in EU and framework provides proper provisions for settlement ECA countries. finality (72%), netting (81%), or the electronic process- ing of payment orders (77%). These percentages are The survey also shows that, from the various legal piec- slightly higher compared to 2008. Figures are some- es mentioned in this question, the Civil Code and/or what lower for other important concepts such as the the Commercial Codes are not relevant laws for pay- non-existence of zero hour rule, the enforceability of ment systems. Indeed, PSDG field work confirms that, security interests in pledged collateral or repo agree- over the years, many countries have evolved from gen- ments, and the legal protection to collateral pledged eral references to payment instruments and concepts through such agreements. such as netting in Civil or Commercial Codes, to more explicit descriptions in laws that are more specific to Additional concepts such as consumer protection is- payment systems and in general to financial activities. sues and fair and competitive practices in the provision The influence of Consumer Protection Laws and of payment services were included in the 2010 survey. Competition Laws in payment systems is still low. One Due coverage of such issues is highest among high in- clear exception is that of low income countries, par- come countries, especially those in the EU. Altogether, ticularly those in the SSA region, where Competition ODCs rank higher than the worldwide figure, but sig- Laws do have explicit references to payment systems nificantly lower when compared to EU countries. and related issues. Provisions to grant legal protection of collateral pledged in a payment system from third-party claims 16 Albania, Fiji, Lesotho, Philippines, Tanzania, and West Bank and Gaza in- are becoming increasingly common: from slightly dicated that a Payment Systems Law was in the process of being drafted or pro- more than half of the total in 2008, 64% of respondents mulgated. The current status of these drafts is not known. In June 2011, the State Duma of the Russian Federation adopted a federal law “On the National answered positively to this question in the current it- Payment System�. eration. This last element is particularly noticeable in It should be noted, however, that some countries have recently adopted a SSA countries (62% compared to 37% in 2008), and 17 payment systems law for other reasons. Commonly, a Payment System Law can be designed as an overarching law that ensures the consistency of the various elements of the legal and regulatory framework already contained in other legal 18 At the time of data collection, Swaziland’s Securities Act 2010 was still to be pieces (e.g. Central Bank Law, the Banking Law, etc.). assented by the Head of State. Section I. Legal and Regulatory Framework 4 PAYMENT SYSTEMS WORLDWIDE TABLE I.2: PAYMENT SYSTEM CONCEPTS COVERED IN THE LEGAL FRAMEWORK Enforceability Fair and Protection Consumer Bilateral Non- of security competitive Electronic of collateral protection Settlement and existence interests practices in processing of pledged in for retail finality multilateral of zero in repos/ the provision payments a payments payment netting hour rules collateral of payment system services arrangements services Countries # % # % # % # % # % # % # % # % Worldwide total (138) 99 72% 112 81% 106 77% 68 49% 90 65% 88 64% 75 54% 80 58% By income High income (46) 41 89% 39 85% 38 83% 37 80% 41 89% 37 80% 35 76% 35 76% Upper-middle income (32) 27 84% 29 91% 27 84% 19 59% 22 69% 20 63% 19 59% 19 50% Lower-middle income (35) 18 51% 24 69% 24 69% 8 23% 13 37% 17 49% 16 46% 14 40% Low income (25) 13 52% 20 80% 17 68% 4 16% 14 56% 14 56% 5 20% 15 60% By region East Asia and Pacific (11) 5 45% 8 73% 5 45% 3 27% 4 36% 5 45% 6 55% 5 45% Europe and Central Asia (16) 11 69% 14 88% 14 88% 10 63% 8 50% 8 50% 8 50% 9 56% Latin America & Caribbean (20) 17 85% 15 75% 15 75% 8 40% 12 60% 9 45% 9 45% 6 30% Middle East & North Africa (12) 6 50% 7 58% 7 58% 2 17% 5 42% 6 50% 4 33% 5 42% South Asia (4) 3 75% 3 75% 4 100% 2 50% 2 50% 3 75% 2 50% 3 75% Sub-Saharan Africa (34) 19 56% 28 82% 23 68% 7 21% 20 59% 21 62% 10 29% 19 56% Euro area (16) 16 100% 15 94% 15 94% 16 100% 16 100% 16 100% 16 100% 14 88% Other EU members (11) 11 100% 11 100% 11 100% 11 100% 11 100% 11 100% 11 100% 10 91% Other developed countries (14) 11 79% 11 79% 12 86% 9 64% 12 86% 9 64% 9 64% 9 64% By population size >30 million (35) 21 60% 29 83% 30 86% 20 57% 22 63% 22 63% 22 63% 21 60% >5 million, <30 million (56) 43 77% 48 86% 48 86% 29 52% 38 68% 38 68% 30 54% 36 64% 5 million or less (47) 35 74% 35 74% 28 60% 20 43% 30 64% 28 60% 23 49% 23 49% especially in low income countries (56% compared to tries, and slightly less in ODCs, and in the ECA and 27% in 2008). SSA regions. The weakest legal frameworks are, ac- cording to survey data, those of the EAP, MNA and When viewed from a country income perspective, high LAC regions, although in the latter case some progress income and upper-middle income countries tend to is evident from the 2008 survey. In general terms, the have stronger legal systems for payment systems. From identified trends confirm PSDG field work experience. a regional perspective, legal aspects related to payment On the other hand, the numbers in Table I.2, based on systems are covered extensively in EU member coun- self-ratings, seem a bit too optimistic when compared Global Survey 2010 5 TABLE I.3: APPLICABILITY OF PAYMENT SYSTEM CONCEPTS COVERED BY THE LEGAL FRAMEWORK Apply to all Apply only to payment Apply to all systemically important systems operated by the payment systems in payment systems in Central Bank the country the country Countries # % # % # % Worldwide total (138) 22 16% 59 43% 88 64% By income High income (46) 5 11% 17 37% 31 67% Upper-middle income (32) 4 13% 15 47% 20 63% Lower-middle income (35) 10 29% 14 40% 23 66% Low income (25) 3 12% 13 52% 14 56% By region East Asia and Pacific (11) 2 18% 5 45% 4 36% Europe and Central Asia (16) 4 25% 5 31% 11 69% Latin America & Caribbean (20) 3 15% 10 50% 10 50% Middle East & North Africa (12) 1 8% 2 17% 6 50% South Asia (4) 0 0% 1 25% 3 75% Sub-Saharan Africa (34) 8 24% 22 65% 23 68% Euro area (16) 1 6% 4 25% 14 88% Other EU members (11) 2 18% 6 55% 9 82% Other developed countries (14) 1 7% 4 29% 8 57% By population size >30 million (35) 5 14% 15 43% 23 66% >5 million, <30 million (56) 5 9% 28 50% 35 63% 5 million or less (47) 12 26% 16 34% 30 64% Note: Some countries provided more than one answer to this question. For instance, while laws dealing with finality may be applicable only to sys- temically important payment systems, other laws are applicable to all payment systems in the country. Hence, the percentages for each row do not necessarily add up to 100%. to numbers obtained through World Bank country Table I.3 shows the types of systems to which the key assessments as part of Regional Initiative programs payment system concepts discussed earlier are applica- and through the IMF-World Bank Financial Sector ble. A clear trend shown in the survey is that, through Assessment Program (FSAP).19 legal enhancements, more countries are requiring all payment systems within their jurisdiction to observe The World Bank’s PSDG has gained detailed knowledge of many countries such key payment system provisions. While this trend 19 through Regional Initiatives on Payment and Securities Settlement Systems. There are active programs of this kind in: ECA (Commonwealth of Independent States had already been observed in the 2008 survey, it is Payment and Securities Settlement Initiative – CISPI); LAC (Western Hemisphere more noticeable in the current iteration. Indeed, 64% Payments and Securities Settlement Forum – WHF, see www.whpaymensforum. org); MNA (Arab Payments and Securities Settlement Initiative, API); SA (South Asia Payments and Securities Settlement Initiative, SAPI); EAP (Pacific Payments and Remittances Initiative, PAPRI); SSA – of various nature (Bank of Central African States-BEAC, Central Bank of West African States-BCEAO). Section I. Legal and Regulatory Framework 6 PAYMENT SYSTEMS WORLDWIDE of all countries now indicate that key legal concepts I.2.2 Central Bank Licensing and Payment are applicable to all payment systems in the country, System Oversight Powers regardless of who the operator of such systems is or the nature of the systems in terms of their systemic im- While Section VIII: Payment System Oversight and portance. This figure is highest for EU countries (86%) Cooperation analyzes the payment system oversight and lowest for EAP countries (36%). function in detail, issues related to the formal empow- erment of the central bank to perform this function As for those key legal concepts that are more closely re- are included here as part of the analysis of the legal and lated to securities settlement systems, the EU countries regulatory framework. show the strongest legal framework. Table I.4 shows that in approximately 3 out of every 4 countries world- Table I.5 shows six variables that relate to the legal ba- wide, the legal underpinning for the dematerialization sis of the payment system oversight function. These of securities, for transferring securities ownership by can be grouped into two broad categories: i) the law or means of book entries and for ensuring the finality of laws where oversight powers are conveyed to the cen- such transfers exists. Percentages are higher for high tral bank, and ii) whether such powers are implicit or and upper-middle income countries and lower for explicit. lower-middle and low income countries. Overall, these results are almost identical to those of the 2008 survey. Only 8 countries, 3 of which are in the LAC region, indicate that their central banks have no formal legal Regarding the legal protection for custody arrange- powers to perform the payment system oversight func- ments, 64% of all countries pointed out that their le- tion. This figure is lower than that of the 2008 survey gal framework provides adequate legal protection. where 12 countries, 8 of which in LAC, indicated such This figure shows an improvement compared to the a situation. 2008 survey where only 50% of countries responded positively to this item. While the 2010 survey shows Payment system oversight powers are to be found that high income countries still maintain the lead in mainly in Central Bank Laws (71%), followed by providing adequate legal protection to securities un- Payment Systems Laws and other laws (34% and 26%, der custody, there is significant improvement in low respectively). In the 2008 survey, the corresponding income countries (48% in 2010 vs. only 23% in 2008). percentages were 60%, 35% and 25% respectively. Notwithstanding this positive development, faster progress in this particular area is desirable. Indeed, the The issue of whether the payment system oversight PSDG stresses that guaranteeing the protection of cus- function is stated explicitly or only implicitly in the le- tomer assets in the event of bankruptcy or insolvency gal framework is subject to a wide range of interpreta- of the custodian is a key element for the development tions. Indeed, the PSDG experience shows that many of a deeper secondary market for securities, including Central Bank Laws around the world contain one or in particular the retail market. more articles with very similar or even identical text in relation to payment system oversight. In some coun- tries this text is regarded as explicitly stating the over- sight function, while other countries interpret this as the opposite. Global Survey 2010 7 TABLE I.4: SECURITIES SETTLEMENT CONCEPTS COVERED IN THE LEGAL FRAMEWORK Securities Finality of Protection of De- ownership settlement Protection Securities the operation Immobilization materialization transfers (securities of custody lending Novation in the event of of securities of securities through book and funds arrangements arrangements a participant’s entries transfers) insolvency Countries # % # % # % # % # % # % # % # % Worldwide total (138) 99 72% 74 54% 108 78% 103 75% 88 64% 63 46% 39 28% 79 57% By income High income (46) 35 76% 26 57% 41 89% 39 85% 37 80% 28 61% 22 48% 37 80% Upper-middle income (32) 26 81% 21 66% 27 84% 24 75% 21 66% 14 44% 8 25% 17 53% Lower-middle income (35) 23 66% 14 40% 25 71% 25 71% 18 51% 15 43% 8 23% 17 49% Low income (25) 15 60% 13 52% 15 60% 15 60% 12 48% 6 24% 1 4% 8 32% By region East Asia and Pacific (11) 7 64% 3 27% 7 64% 7 64% 5 45% 6 55% 3 27% 4 36% Europe and Central Asia (16) 14 88% 10 63% 13 81% 12 75% 10 63% 8 50% 3 19% 6 38% Latin America & Caribbean (20) 12 60% 10 50% 14 70% 14 70% 9 45% 8 40% 7 35% 10 50% Middle East & North Africa (12) 6 50% 5 42% 9 75% 8 67% 6 50% 5 42% 1 8% 6 50% South Asia (4) 3 75% 1 25% 4 100% 3 75% 3 75% 3 75% 1 25% 3 75% Sub-Saharan Africa (34) 23 68% 19 56% 23 68% 23 68% 19 56% 7 21% 2 6% 15 44% Euro area (16) 15 94% 10 63% 16 100% 16 100% 14 88% 12 75% 9 56% 15 94% Other EU members (11) 11 100% 9 82% 11 100% 10 91% 11 100% 8 73% 5 45% 11 100% Other developed countries (14) 8 57% 7 50% 11 79% 10 71% 11 79% 6 43% 8 57% 9 64% By population size >30 million (35) 29 83% 26 74% 31 89% 27 77% 26 74% 21 60% 17 49% 20 57% >5 million, <30 million (56) 40 71% 30 54% 45 80% 44 79% 39 70% 29 52% 13 23% 37 66% 5 million or less (47) 30 64% 18 38% 32 68% 32 68% 23 49% 13 28% 9 19% 22 47% At a global level, 50% of the countries indicate that the Table I.6 shows those authorities other than central payment system oversight powers are explicitly stated banks that are empowered to oversee payment and se- in the law, while 46% indicated that such powers are curities settlement systems. By far, securities regulators only implicit, slightly reversing the trend observed in were the most frequently identified in this instance. the previous survey where 48% of countries indicated Percentages are clearly higher for higher income and that empowerment was explicit and 50% stated it was larger countries, which, as earlier observed, can be ex- implicit.20 plained by securities markets being more relevant in such countries. According to the survey, the relevance of Ministries of Finance and Anti-Trust Authorities for Some countries indicated both the “implicit empowerment� and “explicit payment system oversight is practically negligible. 20 empowerment� options, and few others did not respond this question. For further details refer to individual country answers in the Appendix. Section I. Legal and Regulatory Framework 8 PAYMENT SYSTEMS WORLDWIDE TABLE I.5: CENTRAL BANK LEGAL POWERS TO OVERSEE PAYMENT SYSTEMS Central Bank Oversight Oversight Oversight Empowerment has no formal powers are powers are powers to be is implicit/in Empowerment powers in Central in Payment found in other general is explicit for oversight Bank Law Systems Law laws terms only Countries # % # % # % # % # % # % Worldwide total (138) 8 6% 98 71% 47 34% 36 26% 63 46% 69 50% By income High income (46) 2 4% 34 74% 15 33% 16 35% 26 57% 22 48% Upper-middle income (32) 1 3% 21 66% 14 44% 9 28% 13 41% 24 75% Lower-middle income (35) 4 11% 24 69% 8 23% 7 20% 18 51% 14 40% Low income (25) 1 4% 19 76% 10 40% 4 16% 6 24% 9 36% By region East Asia and Pacific (11) 2 18% 8 73% 2 18% 2 18% 5 45% 3 27% Europe and Central Asia (16) 0 0% 12 75% 6 38% 2 13% 11 69% 8 50% Latin America & Caribbean (20) 3 15% 12 60% 5 25% 8 40% 8 40% 11 55% Middle East & North Africa (12) 1 8% 4 33% 0 0% 5 42% 6 50% 6 50% South Asia (4) 0 0% 3 75% 3 75% 0 0% 2 50% 4 100% Sub-Saharan Africa (34) 1 3% 26 76% 17 50% 5 15% 6 18% 16 47% Euro area (16) 1 6% 15 94% 5 31% 6 38% 9 56% 8 50% Other EU members (11) 0 0% 9 82% 3 27% 3 27% 8 73% 7 64% Other developed countries (14) 0 0% 9 64% 6 43% 5 36% 8 57% 6 43% By population size >30 million (35) 3 9% 26 74% 10 29% 13 37% 18 51% 19 54% >5 million, <30 million (56) 2 4% 41 73% 21 38% 13 23% 23 41% 27 48% 5 million or less (47) 3 6% 31 66% 16 34% 10 21% 22 47% 23 49% Finally, among the 38 countries that answered “other banks or other authorities. Non-traditional payment authorities� to this question, 16 indicated that the service providers such as mobile phone operators and central bank shares responsibility with the financial/ telecoms were also included. banking supervision authorities for the oversight of payment and securities settlement systems. For “traditional� payment service providers, Table I.7 shows figures that are very similar to those of the 2008 Regarding licensing powers over non-bank payment survey. One interpretation is that licensing powers for service providers, in the 2008 survey the relevant payment services are heavily concentrated in central question focused on central banks as the key licensing banks. Specialized service providers such as clearing- authority. In the current survey, the aim was to deter- houses, central counterparties (CCPs), central secu- mine whether such non-bank payment services pro- rities depositories (CSDs), money transfer operators viders were required to be licensed by either central (MTOs) and payment card processing companies re- Global Survey 2010 9 TABLE I.6: OTHER AUTHORITIES LEGALLY EMPOWERED TO SUPERVISE OR OVERSEE PAYMENT AND SECURITIES SETTLEMENT SYSTEMS Securities Ministry of Anti-trust Other regulator Finance authority Countries # % # % # % # % Worldwide total (138) 67 49% 13 9% 5 4% 38 28% By income High income (46) 26 57% 6 13% 1 2% 16 35% Upper-middle income (32) 18 56% 2 6% 2 6% 5 19% Lower-middle income (35) 16 46% 5 14% 2 6% 8 23% Low income (25) 7 28% 0 0% 0 0% 8 32% By region East Asia and Pacific (11) 5 45% 1 9% 1 9% 2 18% Europe and Central Asia (16) 9 56% 1 6% 0 0% 4 25% Latin America & Caribbean (20) 11 55% 2 10% 2 10% 4 20% Middle East & North Africa (12) 5 42% 1 8% 1 8% 1 8% South Asia (4) 3 75% 1 25% 0 0% 0 0% Sub-Saharan Africa (34) 10 29% 2 6% 0 0% 12 35% Euro area (16) 9 56% 2 13% 1 6% 6 38% Other EU members (11) 6 55% 0 0% 0 0% 3 27% Other developed countries (14) 9 64% 3 21% 0 0% 6 43% By population size >30 million (35) 29 83% 10 29% 2 6% 10 29% >5 million, <30 million (56) 21 38% 0 0% 2 4% 19 34% 5 million or less (47) 17 36% 3 6% 1 2% 9 19% quire a license in about half of all countries. Licensing sults for the 2010 survey are similar (57%), a significant is generally less frequent in lower income and smaller change is evident. The previous survey showed that li- countries, possibly explained by the fact that some censing MTOs was a common feature mainly in lower market infrastructures such as CCPs and CSDs do not income countries; in the current iteration, the EU has exist in these countries. taken the lead. Largely as a result of the adoption of the Payment Services Directive (see Box 1), more than In the 2008 survey it was highlighted that the results 90% of EU countries answered positively to this ques- shown for MTOs – 61% of countries requiring MTOs tion, compared to 65% in 2008. to be licensed in order to engage in payment services – were relatively surprising given that, according to The licensing of mobile phone operators and other PSDG experience, the overall awareness about these telecoms for payment services purposes is relatively types of firms was typically low. While the overall re- frequent only in EAP and EU countries. By far, the lowest figures are those of ECA and LAC. Section I. Legal and Regulatory Framework 10 PAYMENT SYSTEMS WORLDWIDE TABLE I.7: LICENSING OF NON-BANKS PROVIDING PAYMENT SERVICES Non-bank Central Money Payment card Tele- Clearing Central Mobile phone financial securities transfer processing communication houses counterparties operators institutions depositories operators companies companies Countries # % # % # % # % # % # % # % # % Worldwide total (138) 111 80% 66 48% 41 30% 71 51% 79 57% 59 43% 59 43% 53 38% By income High income (46) 35 76% 24 52% 24 52% 26 56% 32 70% 22 48% 26 57% 25 54% Upper-middle income (32) 26 81% 18 56% 9 28% 23 72% 17 53% 11 34% 12 38% 8 25% Lower-middle income (35) 26 74% 17 49% 6 17% 16 46% 16 46% 18 51% 11 31% 9 26% Low income (25) 24 96% 7 28% 2 8% 6 24% 14 56% 8 32% 10 40% 11 44% By region East Asia and Pacific (11) 9 82% 5 45% 3 27% 7 64% 4 36% 5 45% 7 64% 7 64% Europe and Central Asia (16) 11 69% 8 50% 4 25% 12 75% 3 19% 3 19% 2 13% 1 6% Latin America & Caribbean (20) 17 85% 9 45% 5 25% 13 65% 10 50% 8 40% 2 10% 1 5% Middle East & North Africa (12) 9 75% 7 58% 2 17% 6 50% 9 75% 9 75% 4 33% 4 33% South Asia (4) 4 100% 3 75% 1 25% 1 25% 3 75% 3 75% 3 75% 1 25% Sub-Saharan Africa (34) 30 88% 12 35% 2 6% 7 21% 19 56% 11 32% 13 38% 12 35% Euro area (16) 14 88% 8 50% 11 69% 11 69% 15 94% 8 50% 13 81% 13 81% Other EU members (11) 11 100% 8 73% 6 55% 7 64% 9 82% 7 64% 9 82% 9 82% Other Developed Countries (14) 6 43% 6 43% 7 50% 7 50% 7 50% 5 36% 6 43% 5 36% By population size >30 million (35) 25 71% 19 54% 18 51% 21 60% 17 49% 14 40% 13 37% 11 31% >5 million, <30 million (56) 51 91% 28 50% 15 27% 30 54% 33 59% 28 50% 27 48% 27 48% 5 million or less (47) 35 74% 19 40% 8 17% 20 43% 29 62% 17 36% 19 40% 15 32% Global Survey 2010 11 BOX 1: LEGAL ARRANGEMENTS IN THE EUROPEAN UNION Within the European Union (EU), EU legislation provides for the Concerning market infrastructure, a key pillar to maintain sys- harmonization of the legal frameworks within all 27 EU Member temic stability in the EU is the Settlement Finality Directive States (it also extends to the European Economic Area, which (98/26/EC), which stipulates that transfer orders and netting are comprises Iceland, Norway and Liechtenstein in addition to the legally enforceable and binding on third parties and allows sys- EU27). The main legally binding instruments used as the Eu- tems designated under the Directive to operate within a safe ropean Union’s legislature are Regulations (directly applicable legal environment in all Member States. The Financial Collateral throughout the EU – i.e. without any further action or involve- Directive (2002/47/EC) harmonized the legal rules governing ment on the part of national parliaments) and Directives (must be the provision of financial collateral in the EU. Further relevant implemented at the national level – i.e. transposed into national provisions regulating the clearing and settlement of financial in- legislation and approved by the respective national parliaments). struments can be found in the Directive on markets in financial These legislative instruments are used to harmonize existing instruments or “MiFID� (2004/39/EC). It establishes a compre- rules at the EU level or to establish new legislation where na- hensive regulatory framework governing the organized execu- tional rules do not exist, but are deemed necessary. tion of investors’ transactions by exchanges, other trading sys- tems and investment firms. To some extent, specific provisions A single market for financial services has been under construc- on solvency ratios in the Banking Directive (2006/48/EC) relating tion in the EU since 1973. An important achievement was the to the taking up and pursuit of the business of credit institutions 1986 Single European Act, which inter alia provides for a single and Capital Requirements Directive (2006/49/EC) are also rel- license (“free passport�) for banking services in the EU (a bank evant. Finally, some of the provisions of Directive 2001/24/EC on licensed in one Member State can provide its services and par- the reorganization and winding up of credit institutions, and the ticipate in systems in all EU Member States on the basis of that Regulation (EC) No 1346/2000 on insolvency proceedings have single license). a bearing on protecting certain financial transactions, ensuring that there is a clear protection of certain risk management fea- In the area of payments, since the mid-1990s a number of bind- tures (such as netting and set-off), as well as clear procedures ing legal instruments have been adopted in the EU. The Direc- for dividing up assets in the event of the insolvency or reorgani- tive on Payment Services (2007/64/EC) creates a harmonized zation of credit institutions established in the EU. legal framework for payments (seeking in particular to establish a legal basis for credit transfers, direct debits and card pay- Further important EU legislative initiatives are under way. The ments), thereby ensuring that cross-border payments within European Commission has prepared a comprehensive legisla- the EU are as safe and secure as national payments within the tive proposal, in the form of a Regulation on European market various Member States. The Regulation (EC) No 924/2009 on infrastructure (EMIR), establishing, among other things, common cross-border payments in the Community provides for the prin- safety, regulatory and operational standards for over-the-counter ciple of equal charges for national and cross-border payments (OTC) derivatives, CCPs and trade repositories. The Commission and strengthens the role of the competent national authorities in has also been working on a draft directive to harmonize the law the areas of supervision and resolution of complaints, and pro- governing securities holding and transfers (Securities Law Direc- vides for the establishment of out-of-court redress procedures. tive) and also plans to put forward a proposal for a regulation on The Regulation (EC) No 1781/2006 on information on the payer CSDs and a legal act to clarify the protection of netting arrange- accompanying transfers of funds aims to prevent, investigate ments. Furthermore, the Commission has issued a proposal for and detect money laundering and the financing of terrorism. a regulation setting end dates for migration to SEPA credit trans- The E-Money Directive (2009/110/EC) on the taking up, pursuit fers and SEPA direct debits by means of establishing technical and prudential supervision of the business of electronic money requirements for credit transfers and direct debits in Euro. institutions provides for a specific light supervisory regime for e-money institutions. The European Central Bank (ECB) takes a close interest in the relevant legal acts, particularly through its advisory role in the EU’s legislative process. Section I. Legal and Regulatory Framework SECTION II LARGE-VALUE PAYMENT SYSTEMS II.1 BACKGROUND the need for sound risk management in large-value funds transfer systems. RTGS systems can offer a pow- L arge-value systems are the most significant erful mechanism for limiting settlement and systemic component of the national payments sys- risks in the interbank settlement process because they tem. This is because large-value systems are can effect final settlement of individual funds transfers able to generate and transmit disturbances on a continuous basis during the processing day. In ad- of a systemic nature to the financial sector. In order dition, RTGS systems can contribute to the reduction of to cope with these systemic risks, several measures are settlement risk in securities and foreign exchange trans- adopted, depending on the nature of the large-value actions by facilitating the “delivery versus payment� payment system. If the system is characterized by a (DVP) and “payment versus payment� mechanisms deferred net settlement of payment transactions, risk (PVP). Variants of the basic RTGS system, the so-called control measures include the introduction of bilateral hybrid systems that take into account liquidity-saving and multilateral caps, the implementation of loss-shar- features that exist in net settlement systems have been ing agreements, and the pledging of collateral to cope introduced in some countries over recent gears. with the inability of one or more participants to pay. Until not very long ago the concept of large-value II.2 SURVEY OUTCOMES systems was related almost exclusively to the value of the individual payments that are channeled through The questionnaire gave three options for central banks it. More recently, large-value systems are also related to indicate system(s) through which large-value pay- to the processing of time-critical payments. While in ments are channeled: RTGS systems, cheque systems, general the average value of each individual payment and “other� systems. Answers related to RTGS systems that is processed by these systems is high when com- are analyzed in sub-section II.2.1. Special cheque clear- pared to other systems (e.g. clearinghouses or payment ing procedures are revised in sub-section II.2.2, while cards), many so-called large-value systems now also selected features of the non-RTGS large-value systems process payments of relatively low value. qualified as “other� are discussed in sub-section II.2.3. The development of real-time gross settlement (RTGS) The tables in this section and related analysis report systems is one response to the growing awareness of information on all countries that have responded 13 14 PAYMENT SYSTEMS WORLDWIDE TABLE II.1: MAIN SYSTEM(S) USED FOR LARGE-VALUE FUNDS TRANSFERS RTGS system Cheque clearinghouse Other Countries # % # % # % Worldwide total (139) 116 83% 32 23% 18 13% By income High income (46) 43 93% 4 9% 4 9% Upper-middle income (33) 31 94% 8 24% 4 12% Lower-middle income (35) 27 77% 11 31% 5 14% Low income (25) 15 60% 9 36% 5 20% By region East Asia and Pacific (11) 7 64% 3 27% 2 18% Europe and Central Asia (16) 15 94% 0 0% 2 13% Latin America & Caribbean (20) 17 85% 7 35% 3 15% Middle East & North Africa (13) 11 85% 6 46% 2 15% South Asia (4) 3 75% 2 50% 1 25% Sub-Saharan Africa (34) 24 71% 13 38% 5 15% Euro area countries (16) 16 100% 0 0% 0 0% Other EU members (11) 11 100% 0 0% 0 0% Other developed countries (14) 12 86% 1 7% 3 21% By population size >30 million (35) 32 91% 6 17% 3 9% >5 million, <30 million (57) 48 84% 14 25% 7 12% 5 million or less (47) 36 77% 12 26% 8 17% to Part II: Large-value Funds Transfer Systems of the RTGS system as of December 2010.21 22 The equiva- Questionnaire for Collecting Information to Depict the lent figure for the 2008 survey was 79%. According to Situation of Payment and Securities Settlement Systems survey data, 19 new RTGS systems have been imple- Worldwide 2010, and on those systems for which infor- mented since 2007.23 The percentage of countries with mation was provided. a RTGS system is higher in high and upper-middle Results for the type of system that processed large- 21 In both the BCEAO and the Euro area there is currently only one RTGS sys- value payments are shown in Table II.1. Answers do tem. However, data in Table II.1 reflects, respectively, 8 and 16 different countries using each of these. not necessarily add up to 100% since several countries 22 The PSDG is also aware that RTGS systems are currently being implemented indicated more than one system through which large- in Honduras, Papua New Guinea, Macao (China), and Paraguay. The RTGS com- ponent of the Rwanda Automated Transfers System (ATS) went live in February value payments are executed. 2011. The Ethiopia ATS was launched in May 2011. These are not reflected in Table II.1. As shown in Table II.1, a total of 116 countries out of 23 Including TARGET2. Previous euro-area individual or country systems are not reflected in this number. Migration dates to TARGET2 vary between 2007 and 139 (83%) advised that they were using at least one 2010. Details are available in the Annex. Global Survey 2010 15 TABLE II.2: RTGS SYSTEMS WORLDWIDE Number of countries Number of systems Number of Number of countries where the Countries with where the Central Bank that also process countries using a Central Bank is the operator more than one is the settlement agent transactions in RTGS system of the RTGS system RTGS system for the RTGS foreign currency 112 countries 115 countries Brazil, China, Ecuador, 116 countries Exceptions: Canada, 10 systems Hong-Kong Exception: Namibia Hong Kong (China), Malaysia, Switzerland income countries. From a regional perspective, RTGS the management of credit and liquidity risk (Principles systems exist in all EU countries and in most of ODCs, 4 and 7), prompt final settlement and completion of ECA and LAC. The lowest percentage of RTGS sys- timely settlement if the participant with the largest net tems is observed in the EAP region, where only 7 debt fails to settle (Principle 8), and the system provid- out of 11 countries have implemented such a system. ing a means of making payments that is practical to its Interestingly, contrary to the 2008 survey, adoption of users and efficient for the economy (Principle 21). a RTGS system shows some correlation with a coun- try’s population size: 92% of large countries report to A total of 18 countries indicated that they use a system have a RTGS, compared to only 77% of small countries. other than RTGS or cheques for large-value payments. PSDG experience in developing countries shows these Less than one-fourth of the countries surveyed in 2010 are usually systems that process payments on a gross report that cheque systems are still used for large-val- basis with deferred settlement (e.g. end-of-day), us- ue payments, against about one third (34%) in 2008. ing extensive manual procedures. In other cases, e.g. Table II.1 shows that cheque systems continue to be CHIPS in the United States or Euro 1, these systems used for large-value payments especially in some lower are highly sophisticated. More detailed analysis of income economies. In the SA, MNA and SSA regions, these systems will follow in section II.2.3. cheques are used for large-value payments jointly with the RTGS system, while a significant reduction from the previous survey can be observed in LAC. II.2.1 Real-Time Gross Settlement Systems In this regard, it is worth keeping in mind that cheque As shown in Tables II.1 and II.2, a total of 116 coun- systems that process large-value payments face special tries out of 139 (or 83%) informed they were using a difficulties to comply with international standards (i.e. RTGS system as of December 2010. the forthcoming CPSS-IOSCO Principles for Financial Market Infrastructures24), in particular with regard to To clarify this figure, several caveats are necessary: • In both the BCEAO and the euro area there 24 The CPSS and the International Organization of Securities Commissions (IOSCO) have issued new standards for public consultation. The new “Principles is only one RTGS system, however, figures in for Financial Market Infrastructures� are expected to be finalized in 2012. The consultative report is available at www.bis.org Section II. Large-Value Payment Systems 16 PAYMENT SYSTEMS WORLDWIDE Tables II.1 and II.2 reflect each of the countries and where entities other than central banks seem to using these systems.25 have a bigger role.27 • The World Bank PSDG is aware that RTGS A total of 10 countries indicated that their RTGS sys- systems are currently being implemented in tem handles transactions both in local currency and Honduras, Macao (China), Papua New Guinea, in at least one foreign currency. These are: Argentina, and Paraguay.26 The RTGS component of the Armenia (ADD), Bolivia, Costa Rica, Dominican Rwanda Automated Transfer System (ATS) went Republic, Guatemala, Jordan, Republic of Korea, Peru, live in February 2011. The Ethiopia ATS was and Uruguay. In addition there are designated foreign launched in May 2011. These are not reflected in currency systems in China and Hong Kong (China).28 the total of 116 countries. As mentioned above, Bulgaria, Estonia, Latvia, Poland have a TARGET2 component for the settlement of • Four countries indicated that they have more transactions in euro in addition to their domestic than one RTGS system (see Table II.2). Bulgaria, RTGS systems. UK CHAPS Euro ceased operations in Estonia, Latvia, Poland have a TARGET2 com- May 2008. ponent for the settlement of transactions in euro in addition to their domestic RTGS systems. Table II.3 shows some basic statistics for RTGS systems Brazil’s SITRAF is a hybrid RTGS-like system. worldwide for year 2009. Though figures for previous years are not presented here, total settlement through- Canada defines its large-value system as a RTGS equiv- put in RTGS systems is expanding at a fast pace in alent. The Canadian large-value system is however in- almost every country. Indeed, in U.S. dollar terms, in cluded here in Table II.2 and throughout section II.2.1. the three-year period of 2006-2009 total settlement With regard to the year of implementation, survey throughput increased by an average of slightly more information shows that 19 RTGS systems were imple- than 100%,29 with a median value of about 40%. mented between 2007 and 2010, 32 systems between 2003 to 2007, and 25 systems between 2000 to 2002. The last column to the right in Table II.3 indicates the The rest were implemented in 1999 or before, though number of times an amount equivalent to the value of many have since undergone substantial upgrades. 27 For these other RTGS systems, the operators and settlement agents are as fol- The second and third columns of Table II.2 indicate, lows: Brazil-Sitraf (operator and settlement agent: CIP – a private clearinghouse); respectively, the number of countries using a RTGS Ecuador Sistema Swift (operator: Central Bank; settlement agent: Central Bank) Hong Kong-USD RTGS (operator: Hong Kong Interbank Clearing Limited; settle- system where the central bank acts as operator and ment agent: HSBC); Hong Kong-Euro RTGS (operator: Hong Kong Interbank settlement agent for such system. Overwhelmingly, Clearing Limited; settlement agent: Standard Chartered Bank); Hong Kong-RMB RTGS (operator: Hong Kong Interbank Clearing Limited; settlement agent: BOC- central banks play the key role as both operators and HK); Malaysia (operator: MyClear; settlement agent: Central Bank); Namibia settlement agents when it comes to RTGS systems. (operator: Central Bank; settlement agent: Payment Clearing House). Note that Numbers in these columns do not reflect those few the Hong Kong Interbank Clearing Limited, the system operator of HKD CHATS, USD CHATS, EUR CHATS and RMB CHATS is jointly owned by the Hong Kong cases which reported more than one RTGS system, Monetary Authority and the Hong Kong Association of Banks. In United King- dom, CHAPS is operated by the CHAPS Company, but this outsources technical operations to the Central Bank. 25 For the purpose of this Survey, Estonia is not considered part of the Euro 28 In Hong Kong (China), there are three designated foreign currency systems: area. The euro replaced the kroon as the official currency of Estonia on January one for US dollar, one for euro, and one for Chinese yuan. 1st, 2011. 29 Simple average. Calculated for 87 countries for which the necessary informa- 26 These projects are in different stages of development. tion was available. Global Survey 2010 17 TABLE II.3: BASIC STATISTICS FOR RTGS SYSTEMS WORLDWIDE (2009) Number of transactions/ Total value settled Average value of each Turnover of GDP settled payments (in USD million) payment (in USD) Albania 55,701 49,679 891,883 4.1 Angola 117,314 273,385 2,330,367 3.6 Argentina 1,333,049 905,067 678,945 2.9 Armenia 2,614,527 105,094 40,196 12.1 Australia 7,990,698 41,279,314 5,165,921 44.6 Austria 1,374,968 12,925,775 9,400,782 33.9 Azerbaijan 393,000 90,644 230,646 2.1 Bahamas, The 53,227 10,803 202,965 1.5* BCEAO 460,160 170,924 371,445 2.5 Belgium 2,180,243 37,545,668 17,220,864 79.7 Bolivia 45,473 21,802 479,441 1.3 Bosnia and Herzegovina 629,669 37,136 58,977 2.2 Botswana 63,777 271 4,256 0.0 Brazil (STR) 10,500,000 70,620,191 6,725,733 44.3 Brazil (SITRAF) 67,400,000 2,650,758 39,329 Bulgaria 993,375 496,671 499,983 10.2 Canada 5,607,000,000 33,852,052 6,037 25.3 Chile 283,908 2,824,746 9,949,514 17.3 China (Hi-Value) 248,000,000 117,684,239 474,533 23.6 China (Domestic-Foreign Currency) 565,900 50,154 88,627 Colombia 2,010,000 3,693,700 1,837,662 15.8 Costa Rica 1,431,669 93,090 65,022 3.2 Croatia 291,085 576,475 1,980,437 9.1 Cyprus 92,000 420,731 4,573,161 16.8 Czech Republic 450,000,000 6,924,409 15,388 36.4 Denmark 750,000 13,104,971 17,473,294 42.3 Dominican Republic 151,030 343,162 2,272,143 7.3 Ecuador (Pago en Linea) 458,304 22,499 49,092 0.4 Ecuador (SWIFT) 206,068 29,157 141,491 0.5 Egypt, Arab Rep. of 1,200,000 2,615,179 2,179,316 13.9 Estonia 50,126 121,880 2,431,480 6.4 Euro area countries (TARGET 2) 87,600,000 738,488,435 8,430,233 59.2 Fiji 47,121 38,098 808,521 13.5 Finland 714,932 14,385,213 20,121,093 60.4 France 7,618,586 130,246,391 17,095,875 49.2 Georgia 5,756,658 20,309 3,528 1.9 Germany 44,698,117 237,967,049 5,323,872 71.5 Ghana 199,814 162,864 815,076 6.2 Greece 1,457,164 10,368,399 7,115,465 31.4 Guatemala 49,372 55,696 1,128,097 1.5 Hong Kong, China (HKD) 5,158,467 16,881,865 3,272,652 80.2 Hong Kong, China (USD) 2,616,206 2,134,000 815,685 Hong Kong , China (EUR) 62,873 213,935 3,402,660 Hong Kong , China (RMB) 127,149 14,199 111,673 Hungary 980,752 4,645,257 4,736,424 36.0 India 33,240,000 8,150,634 245,206 5.9 Indonesia 11,200,000 4,127,840 368,557 7.6 Iran, Islamic Rep. of 4,663,588 429,166 92,025 1.3 Section II. Large-Value Payment Systems 18 PAYMENT SYSTEMS WORLDWIDE TABLE II.3: BASIC STATISTICS FOR RTGS SYSTEMS WORLDWIDE (2009) (continued) Number of transactions/ Total value settled Average value of each Turnover of GDP settled payments (in USD million) payment (in USD) Iraq 13,000 97 7,454 0.0 Ireland 1,234,879 10,769,010 8,720,700 47.4 Israel 197,649 15,843,930 80,161,952 81.1 Italy 8,658,900 44,788,911 5,172,587 21.2 Jamaica 97,430 84,192 864,130 7.0 Japan 12,314,000 291,219,131 23,649,434 57.5 Jordan 358,481 385,731 1,076,015 15.4 Kazakhstan 9,990,600 1,064,453 106,545 9.2 Kenya 390,734 192,566 492,832 6.6 Korea, Rep. of 2,754,291 36,100,192 13,106,891 43.4 Kuwait 710,181 612,458 862,396 4.1** Kyrgyz Republic 109,000 9,733 89,297 2.1 Latvia 200,200 331,322 1,654,957 12.6 Lesotho 16,605 2,795 168,339 1.8 Lithuania 302,000 132,848 439,896 3.6 Luxembourg 754,980 14,015,549 18,564,133 268.0 Macedonia FYR 4,718,965 31,584 6,693 3.4 Madagascar 24,197 2,718 112,329 0.3 Malawi 144,949 27,334 188,580 5.8 Malaysia 3,001,700 10,571,391 3,521,801 54.7 Malta 14,000 125,044 8,931,705 15.7 Mauritius 280,976 48,640 173,111 5.7 Mexico 62,213,271 9,509,478 152,853 10.9 Moldova 626,400 68,712 109,693 12.7 Mongolia 280,349 5,849 20,864 1.4 Montenegro 5,099,093 11,659 2,287 2.8 Morocco 124,400 314,133 2,525,184 3.4 Namibia 40,515 53,529 1,321,219 5.8 Netherlands 9,385,778 88,467,858 9,425,735 111.7 New Zealand 1,812,888 5,795,688 3,196,936 45.8 Norway 265,233 7,474,158 28,179,595 19.6 Oman 301,000 174,554 579,914 3.8 Pakistan 258,365 808,710 3,130,105 5.0 Peru 573,000 1,109,505 1,936,309 8.5 Philippines 749,591 3,953,088 5,273,660 24.5 Poland 1,811,899 13,521,637 7,462,688 31.4 Portugal 1,520,000 7,942,700 5,225,461 34.1 Romania 2,521,876 1,677,767 665,285 10.4 Russian Federation 63,000 3,359 53,310 0.0 Saudi Arabia 32,830,000 16,329,067 497,382 43.5 Serbia 119,800,000 448,947 3,747 10.4 Singapore 3,630,000 9,380,448 2,584,146 51.5 Slovak Republic 155,000 1,222,660 7,888,129 14.0 Slovenia 784,788 794,060 1,011,814 16.4 South Africa 2,844,028 8,831,344 3,105,224 30.9 Spain 9,356,793 136,161,874 14,552,195 93.2 Sri Lanka 232,567 288,443 1,240,257 6.9 Swaziland 19,069 7,015 367,867 2.3 Sweden 2,581,871 22,807,176 8,833,585 56.2 Global Survey 2010 19 TABLE II.3: BASIC STATISTICS FOR RTGS SYSTEMS WORLDWIDE (2009) (continued) Number of transactions/ Total value settled Average value of each Turnover of GDP settled payments (in USD million) payment (in USD) Switzerland 381,650,000 52,222,886 136,834 106.2 Taiwan (China) 726,534 9,453,508 13,011,790 24.2 Tanzania 283,332 51,673 182,378 2.4 Thailand 2,067,121 14,397,947 6,965,218 54.6 Trinidad and Tobago 46,166 62,768 1,359,609 3.0 Turkey 129,450,000 15,290,719 118,121 24.9 Uganda 294,117 34,873 118,569 2.2 Ukraine 311,222,000 791,669 2,544 7.0 United Arab Emirates 1,687,000 2,542,446 1,507,081 11.0 United Kingdom 31,926,000 100,662,192 3,152,985 46.3 United States 124,731,244 631,127,108 5,059,896 44.7 Uruguay 238,262 36,352 152,570 1.2 Zambia 148,147 41,281 278,648 3.2 Zimbabwe 678,321 6,700 9,877 1.2 Notes: *calculated using 2007 GDP; **calculated using 2008 GDP 1. Only those countries with a RTGS system in place as of end-2009 were included in this Table. Madagascar’s system went live in October 2009. 2. Czech Republic and Switzerland systems process both large-value and retail payments. 3. All figures in local currency were converted into USD at the official exchange rate (LCU per US$, period average). 4. Source for GDP data: World Bank DDP time series. Source for exchange rates: World Bank DDP time series. the gross domestic product (GDP) in each country is While, to some extent, a smaller average value of indi- settled in a year by the RTGS system. In general, the vidual payments is due to the fact that RTGS systems GDP turnover of RTGS systems is higher in high in- are the only interbank payment system in several of come/developed countries where RTGS systems sup- these countries, in several other cases the RTGS sys- port the settlement of transactions in very active se- tem was expressly designed to handle both large-value curities markets. Nevertheless, many middle-income and small-value transactions. Indeed, as technological countries also show large numbers, which, when advances increase the flexibility of RTGS systems, and viewed in conjunction with growth trends, stress the the cost of telecommunications and data processing increasingly systemic importance of RTGS systems all keep decreasing on a per transaction basis, an increas- over the world. ing number of countries are designing their systems with this principle in mind. The column showing the average value of a payment that goes through the RTGS system indicates impor- II.2.1.1 Detailed Features of RTGS Systems Worldwide tant differences between countries. One would natu- rally expect higher per transaction values in higher in- The discussion below shifts the basis of the analysis come countries, and the data in Table II.3 does reflect from countries to systems. In other words, each indi- this to a large extent. Interestingly, this average is much vidual RTGS system, regardless of how many coun- smaller in many of the countries in the ECA region. tries or financial systems it serves, is counted as one for comparison purposes. The percentages presented throughout this sub-section, including Tables II.4 through II.11, are related to the number of systems Section II. Large-Value Payment Systems 20 PAYMENT SYSTEMS WORLDWIDE with a given feature (this number is shown in paren- thesis in the first column) and not to the total number BOX 2: TARGET2 – of countries participating in the survey. THE RTGS FOR THE EURO Some of the percentages shown in Tables II.4 through The Trans-European Automated Real-Time Gross Settlement II.11 are not comparable to those of the 2008 survey Express Transfer 2 system or “TARGET2� is a Eurosystem since in the latter euro-area RTGS systems were ana- service that provides real-time gross settlement in central lyzed separately for each of the countries comprising bank money of euro payment transactions. TARGET2 is the euro area, while in the current survey only one sys- implemented as a single shared platform system, which is tem (i.e. TARGET2) is reflected for all these 16 coun- jointly operated by three euro area national central banks tries.30 This affects primarily inter-survey comparisons on behalf of the entire Eurosystem. It provides harmonized for “worldwide totals�, “high income countries�, and, RTGS services to all TARGET2 participants based on a single naturally, “euro area countries�. pricing structure. TARGET2 can be considered as the back- bone for all payment and settlement arrangements in euro. Once the various exceptions are accounted for, the A unique feature of TARGET2 is the option for central banks survey presents information on 94 RTGS systems and banking communities of EU Member States outside the worldwide.31 euro area to connect to TARGET2 (this option is being used by Bulgaria, Denmark, Latvia, Lithuania, Poland and, as of Communication Channels for the RTGS System mid-2011, Romania). Once a Member State joins the euro The questionnaire explicitly asked for the primary area, participation in TARGET2 becomes mandatory. means through which direct RTGS participants send their payment orders to the RTGS systems. Despite Although primarily designed to settle large-value and urgent this, several countries indicated more than one op- payments (including monetary policy and money markets- tion. One possible interpretation of those responses is related operations), TARGET2 can be used for all credit that central banks are stressing the fact that it is now transfers in euro, as there is no upper or lower limit on the relatively common for RTGS systems to have two or value of payments. The use of TARGET2 is mandatory for payments involving the Eurosystem, and all euro large-value even more access channels, one serving as the primary net settlement systems have to settle in the system. For channel and the other as a back-up. The World Bank’s any other payments in euro, such as customer payments, PSDG has observed that several developing countries market participants are free to use alternative payment ar- that are already operating a proprietary network are rangements. also increasingly opting for SWIFT’s international network as a back-up channel, in substitution of other TARGET2 has about 930 direct and about 3,600 indirect par- electronic and paper-based procedures. ticipants, while approximately 52,000 BICs are addressable via those participants. Some 67 ancillary systems, such as Duplicate responses make it somewhat difficult to large-value and retail payment systems, securities settle- extract a detailed analysis from the data, shown here ment systems or central counterparties settle in TARGET2. In 2010, TARGET2 processed a daily average of more than 340,000 payments with a value of about 2,300 billion euro. 30 For the purpose of this Survey, Estonia is not considered part of the euro This represents a market share of 60% in volume and 90% area. The euro replaced the kroon as the official currency of Estonia on January 1st, 2011. in value of all payments settled through euro area large- 31 In this number, TARGET2 is considered, and euro area countries are counted value payments systems. as one. The 8 BCEAO countries are served by one RTGS system. Global Survey 2010 21 TABLE II.4: PRIMARY MEANS THROUGH WHICH PAYMENT ORDERS ARE SENT TO THE RTGS SYSTEM SWIFT Proprietary Other electronic SWIFT closed Other paper International telecommunications means users’ group means Network network (e-mail, etc.) RTGS systems # % # % # % # % # % Worldwide total (94) 14 15% 43 46% 50 53% 6 6% 3 3% By country income level High income (28) 3 11% 16 57% 13 46% 1 4% 1 4% Upper-middle income (31) 5 16% 12 39% 19 61% 0 0% 0 0% Lower-middle income (25) 3 12% 9 36% 14 56% 4 16% 1 4% Low income (10) 3 30% 6 60% 4 40% 1 10% 1 10% By region East Asia and Pacific (7) 1 14% 2 29% 6 86% 0 0% 1 14% Europe and Central Asia (15) 2 13% 4 27% 10 67% 1 7% 0 0% Latin America & Caribbean (17) 3 18% 5 29% 9 53% 3 18% 0 0% Middle East & North Africa (11) 2 18% 2 18% 8 73% 0 0% 0 0% South Asia (3) 0 0% 1 33% 2 67% 0 0% 0 0% Sub-Saharan Africa (17) 5 29% 13 76% 5 29% 1 6% 1 6% Euro area countries (1) 0 0% 1 100% 0 0% 0 0% 0 0% Other EU members (11) 1 9% 7 64% 4 36% 1 9% 1 9% Other developed countries (12) 0 0% 8 67% 6 50% 0 0% 0 0% By country population size >30 million (30) 3 10% 11 37% 21 70% 2 7% 2 7% >5 million, <30 million (34) 4 12% 19 56% 15 44% 4 12% 1 3% 5 million or less (30) 7 23% 13 43% 14 47% 0 0% 0 0% in Table II.4. Nevertheless, some broad trends can be speculate that limitations in local infrastructure in observed. At a global level, SWIFT closed-user groups many of the countries in this region have prompted and proprietary telecommunications networks are by central banks to turn to the infrastructure provided by far the most common alternatives, each serving ap- SWIFT. proximately half of all RTGS systems. Some differences are observed when the information is analyzed from a Another point for discussion is to what extent coun- country’s population size angle, with larger countries tries that use SWIFT-like message formats over a pro- favoring proprietary networks while smaller countries prietary telecommunications network actually indicat- preferring SWIFT closed-user groups. SWIFT closed- ed the SWIFT closed-user group option. Judging from user groups are more common throughout the EU and World Bank experience in developing countries, this ODCs, and also in SSA. In the latter case, one could seems to be the case in at least 10 countries. Section II. Large-Value Payment Systems 22 PAYMENT SYSTEMS WORLDWIDE TABLE II.5: PRICING AND CHARGES IN RTGS SYSTEMS Charges Full recovery Full recovery applied have Partial Full recovery of Operator Full recovery of operational of operational no particular recovery of operational makes no of operational costs + partial costs and relation to operational and investment charges costs recovery of investment cost recovery costs costs investment plus profit RTGS systems # % # % # % # % # % # % # % Worldwide total (94) 10 11% 14 15% 24 26% 12 13% 9 10% 27 29% 4 4% By countryIncome level High income (28) 2 7% 3 11% 8 29% 3 11% 3 11% 10 36% 2 7% Upper-middle income (31) 4 13% 3 10% 4 13% 4 13% 3 10% 13 42% 2 6% Lower-middle income (25) 3 12% 5 20% 7 28% 5 20% 1 4% 4 16% 0 0% Low income (10) 1 10% 3 30% 5 50% 0 0% 2 20% 0 0% 0 0% By region East Asia and Pacific (7) 0 0% 0 0% 2 29% 1 14% 0 0% 4 57% 0 0% Europe and Central Asia (15) 1 7% 1 7% 4 27% 2 13% 2 13% 6 40% 1 7% Latin America & Caribbean (17) 4 24% 3 18% 1 6% 2 12% 2 12% 5 29% 1 6% Middle East & North Africa (11) 2 18% 3 27% 3 27% 3 27% 1 9% 0 0% 0 0% South Asia (3) 2 67% 0 0% 1 33% 0 0% 0 0% 0 0% 0 0% Sub-Saharan Africa (17) 1 6% 6 35% 8 47% 1 6% 2 12% 0 0% 0 0% Euro area countries (1) 0 0% 0 0% 0 0% 0 0% 0 0% 1 100% 0 0% Other EU members (11) 0 0% 1 9% 1 9% 2 18% 0 0% 8 73% 0 0% Other developed countries (12) 0 0% 0 0% 4 33% 1 8% 2 17% 3 25% 2 17% By country population size >30 million (30) 4 13% 4 13% 7 23% 5 17% 2 7% 9 30% 2 7% >5 million, <30 million (34) 2 6% 6 18% 8 24% 4 12% 4 12% 9 26% 2 6% 5 million or less (30) 4 13% 4 13% 9 30% 3 10% 3 10% 9 30% 0 0% In only 10 out of 94 RTGS systems (or 11%) the opera- Pricing and Charges tors apply no charges. The same figure in 2008 was 8, Table II.5 shows seven pricing options that try to ac- representing 8% of the total. Although the question- commodate the various alternatives observed in devel- naire did not include a similar question for cheque oped and developing countries when it comes to the systems or other large-value systems operated by the RTGS operator applying charges for the services pro- central bank, the World Bank’s PSDG has observed vided. Reading this table from left to right, the alterna- that charging for central bank payment and settlement tives range from the operator making no charges at all services is much less common in cases where a RTGS to the operator seeking full recovery of all costs plus system does not exist. In many such cases, a common obtaining a profit. explanation for that situation would be that due to Global Survey 2010 23 tradition, commercial banks and other participants of transactions going through the RTGS, either be- were used to having payment and settlement services cause of the small size of the population or because of for free. One possible interpretation of the results in the developing nature of the economy. Whatever the Table II.5 is that the implementation of a RTGS sys- conclusion on the country size is, it is interesting to see tem helped break this inertia, and gave central banks a that central banks in smaller (5 million or less) or low chance to price their services and recover costs. income countries continue to embrace RTGS systems, with the 77% and 60% respectively (see Table II.1). Results concerning the objective of the pricing policy in relation to cost recovery vary widely. PSDG experi- Of the 54 countries32 that answered positively to one ence indicates that while some central banks/operators of the three last columns to the right in Table II.5 (i.e. may emphasize cost recovery from a financial perspec- partial to full recovery of investment costs), 45 pro- tive, others are more interested in the social benefits vided additional information on the number of years stemming from the implementation of such a system, in which such costs are expected to be recovered. On in particular the reduction of systemic risk. In the lat- average, the recovery period is 6 years, with a maxi- ter case, the recovery of operational and investment mum of 30 years in the case of Chile and a minimum costs from a financial perspective is not a priority. of 1 year in the case of Serbia. The same results were observed in 2008. The median value was 5 years. The option with more responses was that of full recov- Additionally, of the countries that also aim at obtain- ery of both operational and investment costs: 27 cases ing a profit, Serbia and Switzerland indicated 2 years, or 29% of the total. Only 4 systems aim at obtaining Moldova 4 years, Malaysia and Indonesia 6 years each, a profit. and Kyrgyz Republic more than 7 years to start gener- ating profit. Individual country responses are available More systems in higher income countries aim at full in the Appendix. cost recovery, particularly in the European Union member countries, while 30% of RTGS operators in Liquidity low income countries (40% in 2008) indicate their With regard to liquidity in RTGS systems, operators pricing policy does not have a particular relation to were asked to indicate the main source(s) of transfer- cost recovery. In the SSA region, for instance, 35% of able funds in their systems. Results are summarized in RTGS operators (the highest percentage observed in Table II.6. the regional grouping) indicate their pricing policy falls in this last category. At the same time, none of the With very few exceptions (7 out of 94), opening bal- operators in the SSA region aims at recovering opera- ances and funds received from other participants dur- tional and investment costs in full. Interestingly, the ing the day can be used as a source of liquidity for ex- percentage of systems aiming at full recovery of op- ecuting payments. erational costs and partial recovery of investment has almost doubled since 2008. In 80 out of 94 systems, participants can mobilize their reserve requirements either fully or partially during Contrary to the 2008 results, the population size does the operating day as an important source of liquidity. not seem to be related to the pricing policy adopted. In Central banks/operators that allow RTGS participants 2008, it was concluded that full cost recovery was more difficult to achieve in countries with a smaller number 32 Euro area countries individually considered. Detailed responses can be found in the Appendix. Section II. Large-Value Payment Systems 24 PAYMENT SYSTEMS WORLDWIDE TABLE II.6: SOURCES OF LIQUIDITY IN RTGS SYSTEMS Opening balances The RTGS Participants The RTGS and funds Participants operator grants The RTGS can use all Lines of operator allows received from can use part collateralized operator allows their reserve credit between collateralized other of their reserve credit, either uncollateralized requirements banks current account participants requirements in the form of credit balance overdrafts during the day a loan or a repo RTGS systems # % # % # % # % # % # % # % Worldwide total (94) 87 93% 31 33% 49 52% 44 47% 21 22% 71 76% 3 3% By country income level High income (28) 26 93% 5 18% 13 46% 10 36% 12 43% 21 75% 1 4% Upper-middle income (31) 27 87% 10 32% 17 55% 15 48% 6 19% 26 84% 2 6% Lower-middle income (25) 24 96% 11 44% 14 56% 12 48% 2 8% 17 68% 0 0% Low income (10) 10 100% 5 50% 5 50% 7 70% 1 10% 7 70% 0 0% By region East Asia and Pacific (7) 6 86% 4 57% 4 57% 3 43% 1 14% 6 86% 0 0% Europe and Central Asia (15) 15 100% 8 53% 8 53% 7 47% 3 20% 10 67% 0 0% Latin America & Caribbean (17) 15 88% 4 24% 9 53% 7 41% 3 18% 14 82% 1 6% Middle East & North Africa (11) 9 82% 3 27% 3 27% 6 55% 3 27% 8 73% 1 9% South Asia (3) 3 100% 2 67% 3 100% 1 33% 0 0% 3 100% 0 0% Sub-Saharan Africa (17) 16 94% 8 47% 8 47% 11 65% 2 12% 13 76% 0 0% Euro area countries (1) 1 100% 0 0% 1 100% 0 0% 0 0% 1 100% 0 0% Other EU members (11) 10 91% 0 0% 7 64% 3 27% 3 27% 9 82% 0 0% Other developed countries (12) 12 100% 2 17% 6 50% 6 50% 6 50% 7 58% 1 8% By country population size >30 million (30) 29 97% 8 27% 18 60% 16 53% 9 30% 22 73% 2 7% >5 million, <30 million (34) 31 91% 11 32% 16 47% 19 56% 7 21% 26 76% 1 3% 5 million or less (30) 27 90% 12 40% 15 50% 9 30% 5 17% 23 77% 0 0% to use reserve requirements in full are a majority: 49 In general, low income countries, especially through- compared to 31 that allow participants to use only a out the SSA region, tend to rely more on lines of credit portion of their reserve requirements. between banks as a source of liquidity in the RTGS sys- tem, although according to survey data this liquidity From a regional perspective, flexibility in the use of source is also commonly used – 50% or more of the required reserves is lowest in MNA countries: in only systems – in MNA and ODCs. about one-half of the systems participants can use their reserve requirements either partially or fully to execute Where credit facilities are provided by the RTGS op- payments during the day in the RTGS system. erator as a means to enhance system liquidity, one Global Survey 2010 25 TABLE II.7A: OPERATOR’S MANAGEMENT OF ITS CREDIT RISK EXPOSURE Collateral required in all Account overdrafts and/ No limits or collateral Suitable collateral cases, but quality not or credit is limited, but no requirements for required in all cases always suitable collateral required overdrafts/credit RTGS systems where credit is # % # % # % # % granted by operator Worldwide total (86) 77 90% 6 7% 1 1% 2 2% By country income level High income (28) 25 89% 1 4% 1 4% 0 0% Upper-middle income (29) 26 62% 2 10% 0 0% 1 3% Lower-middle income (20) 18 90% 3 15% 0 0% 1 5% Low income (9) 8 89% 0 0% 0 0% 0 0% By region East Asia and Pacific (7) 6 86% 1 14% 0 0% 1 14% Europe and Central Asia (12) 12 100% 1 8% 0 0% 1 8% Latin America & Caribbean (14) 13 93% 0 0% 0 0% 0 0% Middle East & North Africa (10) 8 80% 2 20% 0 0% 0 0% South Asia (3) 2 67% 1 33% 0 0% 0 0% Sub-Saharan Africa (16) 14 88% 0 0% 0 0% 0 0% Euro area (1) 1 100% 0 0% 0 0% 0 0% Other EU members (11) 11 100% 0 0% 0 0% 0 0% Other developed countries (12) 10 83% 1 8% 1 8% 0 0% By country population size >30 million (26) 22 85% 4 15% 1 4% 0 0% >5 million, <30 million (32) 30 94% 2 6% 0 0% 0 0% 5 million or less (28) 25 89% 0 0% 0 0% 2 7% would expect such credit facilities to exist in RTGS Yet, as shown in Table II.6, many of these countries systems that experience a relatively high daily turn- report that credit facilities are available. Indeed, at a over ratio (i.e. total value of payments processed/av- global level, the vast majority of RTGS systems rely erage required reserves). According to PSDG experi- on the central bank providing some form of credit, ence, in many developing countries this ratio is clearly either in the form of a loan or repo (76%), or collater- less than 1 (i.e. average required reserves are more than alized account overdrafts (22%).33 As a group, ODCs enough to cover the average daily payments needs of participants). 33 The third and fourth columns to the right in Table II.6 do not necessarily ex- clude each other: several central banks indicated they provide credit both through loans/repos, and through account overdrafts. Section II. Large-Value Payment Systems 26 PAYMENT SYSTEMS WORLDWIDE are outliers for this particular issue, with the highest ticipant, the system operator typically applies penalty percentage (50%) of cases where collateralized current rates (in more than half of the respondents). In only account overdrafts are used, and the lowest (58%) for 18 systems, the participant is charged the market over- liquidity being provided through a loan or repo. night rate. Central banks were also asked whether the RTGS From a regional perspective and excluding the case of operator allows uncollateralized credit: only 3 central TARGET2, transforming intraday loans into overnight banks answered positively, one of which is in LAC, one loans at penalty rates is more common in ODCs, fol- in MNA and one is ODC. lowed by the MNA and SA regions. Further details on the features of credit facilities pro- In some countries, more than one option or a com- vided by RTGS operators are analyzed in Tables II.7A bination of options is applied: the approach varies and II.7B. These two tables contain information only depending on the frequency of such failure, or of the for the 86 RTGS systems in which the operator grants participant’s preference. For example, both market and some form of credit. penalty rates can apply, and in one system the partici- pant can choose between immediate seizing of collat- Results in Table II.7A are quite straightforward: in all eral and borrowing funds overnight at penalty rate. but 9 RTGS systems where participants have access to credit facilities, the operator demands high quality col- Among systems that reported “other� options (13), lateral to minimize its own credit exposure. According 6 central banks indicated that the intraday credit is to survey data, there are only two systems in which transformed into overnight in the form of central bank the central banks grant unlimited credit and do not standing facilities and the respective standing facilities require any collateral from the participants to protect overnight rates, or other interest rates set by the central themselves from credit exposures. bank in implementing its monetary policy, are applied. If a participant does not have access to the central bank Table II.7B refers to issues related to how the operator lending facility and is unable to reimburse the intraday handles those intraday loans/repos/overdrafts that are credit at the end of the day, it is subject to penalties. not repaid by the end of the day. The penalty rate may be increased if the same partici- pant defaults more than once within a specific period If a participant in a RTGS system is unable to repay of time. One central bank reported that in the rare case the intraday credit or overdraft by the end of the sys- where intraday liquidity may be needed this is effec- tems’ operating day, the system operator can seize the tively provided on an overnight basis. Some operators collateral (if such collateral is required by the rules of apply transaction cancellation charges in addition to the system) immediately thereafter. Such approach seizing the collateral (one case). aims at containing counterparty risk of the provider of intraday liquidity (typically the central bank) and When asked what mechanism becomes applicable if a is reportedly used in 10 systems. In most cases, how- participant does not have enough balance (or credit) ever, intraday credit can be converted into overnight in its current account with the RTGS operator to pro- credit (in 65 systems).34 To penalize the defaulting par- cess new payments, 85% of central banks responded that the payment order would go into a queue for later 34 The sum of the second and third column of table II.7b is 67. However, two processing. In these cases, liquidity optimization algo- systems have indicated both options. Global Survey 2010 27 TABLE II.7B: NON-REPAYMENT OF INTRADAY LIQUIDITY AT THE END OF OPERATIONAL DAY Operator Operator seizes Operator transforms transforms the the collateral the intraday credit intraday credit into Other immediately thereafter into overnight at overnight at penalty rates market rates RTGS systems where credit is granted # % # % # % # % by operator Worldwide total (86) 10 12% 18 21% 49 57% 13 15% By country income level High income (28) 4 14% 4 18% 19 68% 3 11% Upper-middle income (29) 2 7% 8 28% 14 48% 8 28% Lower-middle income (20) 2 10% 4 20% 10 50% 2 10% Low income (9) 2 22% 1 11% 6 67% 0 0% By region East Asia and Pacific (7) 0 0% 2 29% 3 43% 2 29% Europe and Central Asia (12) 0 0% 3 25% 4 33% 4 33% Latin America & Caribbean (14) 3 21% 2 14% 9 64% 3 21% Middle East & North Africa (10) 0 0% 2 20% 8 80% 0 0% South Asia (3) 1 33% 0 0% 2 67% 0 0% Sub-Saharan Africa (16) 2 13% 5 31% 8 50% 1 6% Euro area (1) 0 0% 0 0% 1 100% 1 100% Other EU members (11) 4 36% 4 36% 3 27% 1 9% Other developed countries (12) 0 0% 0 0% 11 92% 1 8% By country population size >30 million (26) 3 12% 2 8% 22 85% 1 4% >5 million, <30 million (32) 4 13% 7 22% 17 53% 6 19% 5 million or less (28) 3 11% 9 32% 10 36% 6 21% rithms can be used once or more times a day in order of payments such as net clearing positions originating to settle as many transactions as possible with the lim- from other systems, central bank credit facilities may ited amount of intraday funds. The payment order is be available automatically or upon request. In some rejected immediately in 23% of the cases: this is more systems, participants can choose whether to initiate a prevalent in low income countries and SSA region.35 payment for immediate processing and subject to re- In some systems various types of payments can be pro- jection by the system if funds are not available, or to cessed in different ways. For example, for certain types send the payment to a central queue. In most of those cases, payments placed in the queue can be settled 35 Detailed information and countries’ answers are available in the Appendix. Section II. Large-Value Payment Systems 28 PAYMENT SYSTEMS WORLDWIDE TABLE II.8A: QUEUING ARRANGEMENTS, PRIORITIZATION, PRICING POLICY Participants can Pricing policy is A centralized queuing Participants can set change priorities to used to incentivize facility is in place in priorities to their their payment a smooth flow of the RTGS system payment orders orders while these are payment throughout waiting in the queue the day RTGS systems # % # % # % # % Worldwide total (94) 83 88% 70 74% 64 68% 33 35% By country income level High income (28) 27 96% 21 75% 18 64% 6 21% Upper-middle income (31) 26 84% 24 77% 23 74% 13 42% Lower-middle income (25) 22 88% 18 72% 16 64% 6 24% Low income (10) 8 80% 7 70% 7 70% 8 80% By region East Asia and Pacific (7) 7 100% 7 100% 7 100% 1 14% Europe and Central Asia (15) 14 93% 13 87% 13 87% 7 47% Latin America & Caribbean (17) 13 76% 7 41% 6 35% 7 41% Middle East & North Africa (11) 10 91% 9 82% 7 64% 1 9% South Asia (3) 3 100% 3 100% 3 100% 0 0% Sub-Saharan Africa (17) 13 76% 11 65% 11 65% 11 65% Euro area countries (1) 1 100% 1 100% 1 100% 0 0% Other EU members (11) 11 100% 11 100% 9 82% 2 18% Other developed countries (12) 11 92% 8 67% 7 58% 4 33% By country population size >30 million (30) 26 87% 24 80% 22 73% 11 37% >5 million, <30 million (34) 31 91% 26 76% 23 68% 14 41% 5 million or less (30) 26 87% 20 67% 19 63% 8 27% through liquidity optimization algorithms. Typically, and any payment order that would result in a breach of all transactions that remain unsettled by the end of the that cap would be rejected. day are rejected. Queuing Facilities and other Liquidity Management One central bank that applies limits on the intraday Tools credit reported that overdrafts are generally monitored The tables in this sub-section show some of the tools ex-post, allowing the payment to go through. In this that RTGS operators may include as part of system particular system, in limited circumstances a partici- design and/or system operation in order to facilitate a pant’s intraday position may be monitored in real time smoother flow of payments in the system throughout the operational day. Global Survey 2010 29 TABLE II.8B: FEATURES OF QUEUING RESOLUTION MECHANISMS IN RTGS SYSTEMS Multilateral Both Offsetting Offsetting A FIFO Bilateral Offsetting can offsetting bilateral & triggered triggered resolution offsetting used be triggered used as multilateral automatically automatically algorithm is as resolution manually by resolution offsetting are every certain by non-time- used algorithm the operator algorithm used period of time parameters RTGS systems with centralized # % # % # % # % # % # % # % queuing facilities Worldwide Total (83) 74 89% 3 4% 28 34% 21 25% 33 40% 12 14% 44 53% By country income level High income (27) 22 81% 2 7% 8 30% 11 41% 13 48% 8 30% 14 52% Upper-middle income (26) 23 88% 0 0% 10 38% 4 15% 12 46% 2 8% 13 50% Lower-middle income (22) 22 100% 1 5% 7 32% 5 23% 5 23% 1 5% 11 50% Low income (8) 7 88% 0 0% 3 38% 1 13% 3 38% 1 13% 6 75% By region East Asia and Pacific (7) 6 86% 0 0% 0 0% 1 14% 3 43% 1 14% 3 43% Europe and Central Asia (14) 14 100% 0 0% 6 43% 2 14% 4 29% 0 0% 6 43% Latin America & Caribbean (13) 12 92% 0 0% 4 31% 0 0% 6 46% 1 8% 6 46% Middle East & North Africa(10) 8 80% 0 0% 7 70% 3 30% 2 20% 2 20% 6 60% South Asia (3) 3 100% 0 0% 2 67% 0 0% 0 0% 0 0% 3 100% Sub-Saharan Africa (13) 12 92% 1 8% 4 31% 3 23% 3 23% 1 8% 7 54% Euro area (1) 1 100% 0 0% 0 0% 1 100% 1 100% 1 100% 1 100% Other EU members (11) 8 73% 0 0% 4 36% 4 36% 5 45% 1 9% 8 73% Other developed countries (11) 10 91% 2 18% 1 9% 7 63% 9 82% 5 45% 4 36% By country population size >30 million (26) 23 88% 0 0% 9 35% 9 35% 11 42% 7 27% 14 54% >5 million, <30 million (31) 27 87% 2 6% 13 42% 4 13% 13 42% 2 6% 18 58% 5 million or less (26) 24 92% 1 4% 6 23% 98 31% 9 35% 3 12% 12 46% Centralized queuing facilities are the most common Uganda, United States, Venezuela R. B., West Bank and liquidity management tool, with 83 of 94 systems (or Gaza, and Zimbabwe.36 Queuing mechanisms are dis- 88%) allowing payment orders to wait in a queue until cussed in more detail below (see Table II.8B). all the required conditions for the processing of such payment orders are met. As observed in the 2008 sur- Another common tool for liquidity management gen- vey, centralized queuing exists in all types of coun- erally embedded in the RTGS system is the ability for tries. According to survey information, RTGS systems participants to set priorities for the processing of their that do not have this facility are those of Argentina, payment orders. Priority setting is used in many RTGS Armenia, Bolivia, Costa Rica, Namibia, South Africa, 36 Queuing arrangements in Zimbabwe have been suspended since the intro- duction of the multicurrency system in 2009. Section II. Large-Value Payment Systems 30 PAYMENT SYSTEMS WORLDWIDE systems around the world (74%). Moreover, in 64 out The basic FIFO (first-in, first-out) queuing resolution of 70 cases in which priority setting is available, par- mechanism is present in most queuing facilities (89%). ticipants are able to change the priorities for payments In the previous survey it had been noted that offset- already sent but which are waiting in the central queue ting of payment orders waiting in a queue had become to be processed by the system. increasingly popular. The current survey shows that it is currently used in approximately half of all RTGS While priority setting is now a standard feature in off- systems with queuing facilities. Within the various op- the-shelf RTGS systems, PSDG experience shows this tions for offsetting of payment orders, multilateral off- is not necessarily the case for some systems developed setting ranks at the top. Bilateral offsetting is only pres- in-house, especially those that were developed some ent in 2 ODCs and in 1 country from the SSA region, 10 years ago or more. This might explain why priority while using both bilateral and multilateral offsetting is setting is less common in countries in the LAC region only common in ODCs and in TARGET2. and ODCs.37 The survey also collected information on whether The use of the pricing policy by RTGS operators to the offsetting is executed manually by the RTGS promote a smooth flow of payment throughout the operator, or triggered automatically based on either day (i.e. using differentiated charges according to the time-related parameters (i.e. every certain period of time of the day in which payment orders are sent to time) or otherwise.38 While survey data show that ei- the system for processing, with lower charges applying ther alternative is not uncommon, more RTGS opera- to those payments sent during RTGS off-peak hours tors are still able to trigger the offsetting mechanism – usually early in the morning) is less common at a manually based on their monitoring of the system. The worldwide level, with only slightly more than a third relevant percentage dropped from 61% in the 2008 of RTGS operators relying on this tool. Nevertheless, survey to 53%, which is basically explained by euro- PSDG experience in developing economies over the area countries now being counted as one.39 Manual last few years shows that the number of central banks/ offsetting is more common in low income countries: 6 operators that have adopted this practice is growing. out of 8 systems or 75%. Automatic offsetting, on the other hand, is more common in higher income coun- Table II.8B contains further information on the spe- tries, especially in ODCs and in TARGET2. cific features of centralized queuing mechanisms used in RTGS systems. At the outset, it should be noted that RTGS System Resilience and Business Continuity many RTGS system operators use a combination of the Ever-increasing attention is being paid to the topic of alternatives stated in each of the columns of this table. enhancing the resilience and ensuring proper business Moreover, Table II.8B does not allow drawing conclu- continuity of systems that are critical for the financial sions on what specific combination(s) are more com- system.40 In this area, the survey aimed to collect in- monly used. Readers interested in this last issue can formation on some of the key practices performed by refer to individual country answers in the Appendix for this purpose. 38 Caution should be exercised when analyzing these features. For example, while three out of three systems in the SA region can only trigger the offsetting mechanism manually, euro area countries can also trigger the offsetting mecha- nism manually (i.e. in the latter case offsetting is also triggered automatically). 39 In the 2008 survey 8 individual responses euro-area countries were counted 37 Implementation dates for individual RTGS systems are presented in the in the total. Appendix. 40 Some relevant papers and policy documents in this area include those issued by the Bank of England, the European Central Bank (ECB), and the Federal Re- serve System of the United States. See for instance, “Payment Systems Oversight Report� and “Financial Stability Report� (Bank of England, various years), “Pay- ment Systems Business Continuity� (ECB, 2006), and “Business Continuity Over- sight Expectations for Systemically Important Payment Systems� (ECB, 2006), “Payments System Risk� (The Federal Reserve Board, 2007). Global Survey 2010 31 TABLE II.9: RESILIENCE AND BUSINESS CONTINUITY Operator has BCP includes Routine Data storage Back-up A fully Business documented procedures for procedures media kept in servers have equipped continuity formal information are in place for sites other than been deployed alternate arrangements Business dissemination periodical data the main at the main processing are regularly Continuity and for crisis back-ups processing site processing site site exists tested Plan (BCP) management RTGS systems # % # % # % # % # % # % # % Worldwide total (94) 92 98% 83 88% 71 76% 79 84% 81 86% 79 84% 73 78% By country income level High income (28) 28 100% 27 96% 25 89% 23 82% 26 93% 25 89% 25 89% Upper-middle income (31) 31 100% 28 90% 24 77% 26 84% 26 84% 25 81% 23 74% Lower-middle income (25) 23 92% 20 80% 15 60% 21 84% 21 84% 20 80% 17 68% Low income (10) 10 100% 8 80% 7 70% 9 90% 8 80% 9 90% 8 80% By region East Asia and Pacific (7) 7 100% 5 71% 5 71% 7 100% 7 100% 7 100% 6 86% Europe and Central Asia (15) 15 100% 11 73% 8 53% 11 73% 12 80% 11 73% 11 73% Latin America & Caribbean (17) 16 94% 15 88% 14 82% 13 76% 13 76% 12 71% 11 65% Middle East & North Africa (11) 11 100% 10 91% 7 64% 9 82% 8 73% 8 73% 8 73% South Asia (3) 3 100% 3 100% 3 100% 3 100% 3 100% 3 100% 3 100% Sub-Saharan Africa (17) 16 94% 15 88% 13 76% 14 82% 14 82% 15 88% 10 59% Euro area countries (1) 1 100% 1 100% 1 100% 1 100% 1 100% 1 100% 1 100% Other EU members (11) 11 100% 11 100% 9 82% 9 82% 11 100% 11 100% 11 100% Other developed countries (12) 12 100% 12 100% 11 92% 12 100% 12 100% 11 92% 12 100% Bycountry population size >30 million (30) 29 97% 27 90% 24 80% 29 97% 29 97% 30 100% 29 97% >5 million, <30 million (34) 33 97% 30 88% 27 79% 30 88% 30 88% 29 85% 28 82% 5 million or less (30) 30 100% 26 87% 20 67% 20 67% 22 73% 20 67% 16 53% central banks that operate RTGS systems. In Table II.9, ed as only 1 system is accounted for, the 2010 survey these practices are organized, from left to right, begin- shows significantly stronger resilience and business ning with those that are more basic to the more sophis- continuity practices. Especially noteworthy are the ticated ones. cases of the European Union (both euro and non-euro areas), ODCs, and the SA region. Significant improve- In general, the outcomes are quite positive, show- ments are also evident in the ECA, LAC and MNA ing high percentages for all of the selected practices. regions. Indeed, once the effect of the euro area being count- Section II. Large-Value Payment Systems 32 PAYMENT SYSTEMS WORLDWIDE TABLE II.10A: RTGS SYSTEM ACCESS RULES AND POLICIES Access is granted on Formal rules exist There is an explicit Access is granted the basis of the to allow operator access/exclusion on the basis of fulfillment of a set of to exclude a policy for the system institutional standing objective criteria participant timely RTGS systems # % # % # % # % Worldwide total (94) 88 94% 76 81% 59 63% 79 84% By country income level High income (28) 25 89% 25 89% 16 57% 26 93% Upper-middle income (31) 30 97% 24 77% 20 65% 26 84% Lower-middle income (25) 23 92% 19 76% 16 64% 18 72% Low income (10) 10 100% 8 80% 7 70% 9 90% By region East Asia and Pacific (7) 7 100% 6 86% 4 57% 7 100% Europe and Central Asia (15) 13 87% 11 73% 6 40% 11 73% Latin America & Caribbean (17) 16 94% 14 82% 11 65% 12 71% Middle East & North Africa (11) 11 100% 8 73% 8 73% 10 91% South Asia (3) 3 100% 2 67% 2 67% 2 67% Sub-Saharan Africa (17) 16 94% 13 76% 13 76% 15 88% Euro area countries (1) 1 100% 1 100% 0 0% 1 100% Other EU members (11) 9 82% 11 100% 7 64% 11 100% Other developed countries (12) 12 100% 10 83% 8 67% 10 83% By country population size >30 million (30) 30 100% 23 77% 21 70% 28 93% >5 million, <30 million (34) 32 94% 27 79% 23 68% 27 79% 5 million or less (30) 26 87% 26 87% 15 50% 24 80% A total of 79 operators (84%) report they have imple- Eighty-six percent of RTGS system operators inform mented a fully-equipped alternate processing site for they have already documented a formal business con- the RTGS system. Such alternate sites are more com- tinuity plan (BCP), and that in the majority of cases mon in large countries (97% versus only 67% in small where such a BCP exists (73 out of 94), it is tested on countries), reflecting, probably, the availability of larg- a regular basis. These practices are more common er financial and human resources. No significant dif- throughout the EU, ODCs, and the EAP and SA re- ferences are evident when this issue is viewed from the gions. On the other hand, while numbers are still rela- country-income perspective. tively high, the SSA, ECA, LAC and MNA regions lag behind in this particular area. Global Survey 2010 33 TABLE II.10B: PARTICIPANTS IN THE RTGS SYSTEM Banks (other Banks (other Non-bank All commercial All commercial than commercial Non-bank than commercial institutions have banks have banks have direct banks) have institutions have banks) have direct access to direct access access to Central direct access direct access to direct access to Central Bank to the RTGS Bank credit to Central Bank the RTGS the RTGS credit credit RTGS systems # % # % # % # % # % # % Worldwide total (94) 88 94% 68 72% 51 54% 34 36% 60 64% 24 26% By country income level High income (28) 24 86% 22 79% 18 64% 12 43% 22 79% 10 36% Upper-middle income (31) 31 100% 23 74% 18 58% 13 42% 19 61% 7 23% Lower-middle income (25) 24 96% 17 68% 10 40% 6 24% 16 64% 5 20% Low income (10) 9 90% 6 60% 5 50% 3 30% 3 30% 2 20% By region East Asia and Pacific (7) 7 100% 5 71% 4 57% 4 57% 5 71% 2 29% Europe and Central Asia (15) 15 100% 8 53% 5 33% 1 7% 11 73% 1 7% Latin America & Caribbean (17) 17 100% 13 76% 13 76% 10 59% 13 76% 5 29% Middle East & North Africa (11) 10 91% 7 64% 6 55% 3 27% 5 45% 1 9% South Asia (3) 3 100% 3 100% 2 67% 1 33% 3 100% 2 67% Sub-Saharan Africa (17) 16 94% 13 76% 7 41% 4 24% 3 18% 3 18% Euro area countries (1) 1 100% 1 100% 1 100% 1 100% 1 100% 1 100% Other EU members (11) 10 91% 9 82% 5 45% 3 27% 7 64% 1 9% Other developed countries (12) 9 75% 9 75% 8 67% 7 58% 12 100% 8 67% By country population size >30 million (30) 27 90% 21 70% 22 73% 16 53% 22 73% 9 30% >5 million, <30 million (34) 33 97% 26 76% 19 56% 14 41% 22 65% 11 32% 5 million or less (30) 28 93% 21 70% 10 33% 4 13% 16 53% 4 13% Finally, RTGS system operators were asked to pro- Participation in the RTGS System vide a target time for recovery of the system in case of In this area, the survey aimed at obtaining information failure. A total of 79 responses were received for this on two main issues: i) what are the rules that govern particular question. On average, the recovery period is access to the RTGS systems, and ii) what broad types 104 minutes, with a maximum of 240 minutes, and a of participants are allowed direct access to the system. minimum of 5 minutes (mainly those cases that refer to system recovery in the primary site). The median Survey outcomes for the first issue are reflected in value is 120 minutes. Individual country answers to Table II.10A. Ninety-four percent of all RTGS system this last question are presented in the Appendix. operators indicate there is an explicit policy statement that deals with granting direct access to, and exclud- Section II. Large-Value Payment Systems 34 PAYMENT SYSTEMS WORLDWIDE ing participants from, the system upon the fulfill- All commercial banks have direct access to the RTGS ment of a certain set of criteria. The same figure in systems in all but 6 systems worldwide. Such systems the previous survey was 85% which, based on PSDG are located in ODCs (3), MNA (1), SSA (1), and other experience, was judged unexpectedly high, leading EU members (1). to warning against different interpretations central banks may give to the concept of “explicit�. This same Sixty responses indicated that the RTGS operator disclaimer is still valid in the current iteration. also grants direct access to non-banks, while only 51 systems can be accessed directly by banks other than In the majority of cases (81%), direct access to the commercial banks (e.g. investment banks). Direct ac- RTGS system depends on the institutional standing cess by non-banks is significantly more limited in low of participants, i.e. whether participants are banks or income countries. Direct access by both non-banks other types of financial or even non-financial insti- and banks other than commercial banks is relatively tutions. A total of 59 RTGS system operators (63%) more restricted in the SSA and MNA regions, and in indicate direct access is also related to the fulfillment smaller countries. In the latter case, one possible ex- of a set of objective criteria (e.g. minimum capital or planation is that smaller countries usually have a less technological requirements). It is worth noting that diversified financial system, therefore relying more this number had a relevant increase from the last sur- heavily on commercial banks. vey which, excluding euro-area countries totaled 47 positive responses to this item (54%). Out of the 59 Access to central bank credit is granted to commer- central banks that grant access on the basis of objec- cial banks by 72% of the systems, to banks other than tive criteria, 49 also indicated the other option (i.e. commercial by 36% of the systems, and to non-banks direct access being based on institutional standing). by 26% of the systems. Interestingly, notwithstand- ing a higher number of systems granting access to The issue of the RTGS operator having formal rules non-banks compared to banks other than commercial that allow it to exclude a participant from the sys- banks, access to central bank credit is more limited tem in a timely fashion seems to be increasingly rel- for non-banks than for banks other than commercial evant as well. In the current survey, 79 operators or banks. In line with what was observed in the previous 84% answered positively to this question while the survey, the number of systems granting credit to enti- equivalent figure for the 2008 survey was 67 (exclud- ties other than commercial banks is especially low in ing euro-area countries). the ECA, SSA and MNA regions, and in non-euro EU members. Table II.10B focuses on direct access to RTGS systems by banks and non-banks as well as direct access to The survey also asked for the types of non-banks hav- central bank credit. It should be noted that the 2008 ing direct access to the RTGS system. In most cases survey implicitly assumed that commercial banks al- these are payments clearinghouses, card processing ways had access to RTGS systems and to central bank companies, stock exchanges, securities depositories, credit, wherever such credit existed. Therefore, in government agencies, and other similar entities. that regard the particular question reflected in Table II.10B focused on non-banking institutions only. The RTGS System Governance 2010 survey requested information for commercial Most of the aspects that affect the governance of a banks and other institutions alike. payments system are heavily dependent on interpreta- tions and require a thorough knowledge of the system Global Survey 2010 35 TABLE II.11: MAIN FEATURES OF SPECIAL PROCEDURES FOR LARGE-VALUE CHEQUES As part of this Guarantee fund As part of this As part of this procedure, net for cheques processed procedure, large-value procedure, balances are under the cheques can be large-value cheques calculated and special procedure settled with are processed on settled more than (on a net basis) same-day value a gross basis once a day is in place Central banks with special procedures # % # % # % # % for large-value cheques Worldwide total (24) 18 75% 10 42% 2 8% 2 8% By income High income (10) 8 80% 4 40% 1 10% 0 0% Upper-middle income (2) 1 50% 1 50% 0 0% 0 0% Lower-middle income (9) 6 67% 4 44% 0 0% 1 11% Low income (3) 3 100% 1 33% 1 33% 1 33% By region East Asia and Pacific (3) 3 100% 1 33% 0 0% 0 0% Europe and Central Asia (0) nap nap nap nap nap nap nap nap Latin America & Caribbean (4) 2 50% 2 50% 0 0% 0 0% Middle East & North Africa (3) 2 67% 1 33% 1 33% 1 33% South Asia (1) 1 100% 0 0% 0 0% 0 0% Sub-Saharan Africa (5) 4 80% 2 40% 1 20% 1 20% Euro area countries (6) 4 67% 3 50% 0 0% 0 0% Other EU members (0) nap nap nap nap nap nap nap nap Other developed countries (2) 2 100% 1 50% 0 0% 0 0% By population size >30 million (5) 2 40% 4 80% 0 0% 1 20% >5 million, <30 million (9) 6 67% 4 44% 1 11% 1 11% 5 million or less (10) 10 100% 2 20% 1 10% 0 0% and the related institutional and regulatory settings. Users’ Groups.41 A total of 77 countries (16 more than Modeling these types of variables in a questionnaire of in the previous survey) indicated that such a group has the sort that was used for this survey is a difficult task. been created for the RTGS operator to better address participant needs. Hence, in this area, the questionnaire focused on gath- ering information on the existence of so-called RTGS 41 The typical core objective of a RTGS Users’ Group is to promote a more active involvement and empowerment of participants in the decision-making framework of the system in order to better address the needs of the financial market on an on-going basis. Section II. Large-Value Payment Systems 36 PAYMENT SYSTEMS WORLDWIDE RTGS Users’ Groups are quite common in all coun- in 75% of all cases. The equivalent figure for the 2008 try income groups, ranging from 80% of high income survey was 81%. Processing large-value cheques on a countries to 60% of lower-middle income countries. gross basis rather than on a net basis is observed in Central banks in the euro area and SSA and EAP re- 42% of the cases. Two central banks reported the ob- gions seem to have found more usefulness in having jective is to have cheques cleared and settled more than such groups. once in one day. II.2.2 Special Procedures for Large-Value II.2.3 Non-RTGS Large-Value Payment Cheques Systems Earlier in this section it was discussed that in 35 coun- Based on Table II.1, some or all large-value payments tries throughout the world some or all large-value pay- in 18 countries worldwide are channeled through “oth- ments are channeled through cheque clearinghouses er� systems. The 2010 survey included four new ques- (see Table II.1). While cheque systems will be ana- tions on non-RTGS large-value payment systems. The lyzed in detail in section III of this study, the survey following paragraphs analyze the responses provided included one question on the special procedures that by 18 central banks on non-RTGS large-value payment central banks may use for the clearance and settlement systems. of large value cheques in what is usually an attempt to by-pass the limitations of cheque systems as safe and The regional distribution of the 18 central banks which efficient means to settle payments discussed earlier. It provided information on non-RTGS large-value sys- has therefore been deemed convenient to discuss this tems varies widely, as do the corresponding country specific sub-set of cheque systems in the current sec- income levels and country population size. The only tion of large-value systems. regional groups not represented in this group of 18 central banks are ECA region and other EU members. A total of 24 central banks replied that they have insti- tuted a special procedure for the clearance and settle- In half of the non-RTGS large-value systems for which ment of large-value cheques. Special procedures for information was provided, settlement of payments is large-value cheques seem to be especially relevant in executed on a gross basis but not in real time; another those high income and lower-middle income coun- half settle payments on a net basis at the end of the day. tries that use cheques for large-value payments. In 33% of these latter cases there are multiple clear- ing sessions during the day. No specific regional or Some of the objectives that are typically sought for income-related trend is observed. through the implementation of this type of arrange- ments are depicted in Table II.11, which contains in- The vast majority of these systems (89%) settle through formation exclusively for the 24 central banks that re- accounts held at the central bank. Settlement through ported they have instituted the mentioned procedures the RTGS system was reported for only 11% of the for large-value cheques. cases or 2 systems, one in the euro area and one in the LAC region. Three other non-RTGS large-value pay- Achieving same-day settlement is clearly the main ob- ment systems have opted for settlement in commercial jective of special procedures for large-value cheques, bank money. Global Survey 2010 37 The survey also asked respondents to indicate the primary means through which participants in these systems send their payment orders for processing. As highlighted in the analysis of communication channels for the RTGS systems, some countries indicated more than one option. From answers to this question, no clear preference is noticeable: more than a third of the central banks have opted for SWIFT international net- work, while another third operate a proprietary net- work. Other paper-based procedures are more com- mon in SSA and low income countries. Credit facilities of such systems were also investigated. In about 40 % of the cases, the system operator extends some form of credit. In case a participant does not have enough balance to process new payments, 83% of central banks indicate that the payment order is de- layed until funds are available. Finally, central banks were asked to indicate which dependencies are applicable to non-RTGS large-val- ue payment systems. Network availability (56%) is the most selected dependency, followed by electricity (44%), and central bank liquidity (39%). The latter ap- pears to be more common in high income (ODCs) and low income countries. Section II. Large-Value Payment Systems SECTION III RETAIL PAYMENT INSTRUMENTS AND SYSTEMS III.1 BACKGROUND struments reduces the cost of exchanging goods and services. T he existence of a wide range of payment instruments is essential to support cus- Setting up such circuits does not just require efforts to tomers’ needs in a market economy. A less improve technology and networks; it implies also that than optimal use of payment instruments banks and payment service providers, who are com- may ultimately have a negative impact on economic petitors in the end-user market, agree on the features development and growth. Moreover, the safe and of a shared infrastructure and on basic common rules efficient use of money as a medium of exchange in to exchange and settle the payment transactions, thus retail transactions is particularly important for the overcoming possible coordination problems. stability of the currency and a foundation of the trust people have in it. Cooperation problems may be especially important when considering interbank clearing and settlement The use of retail payment instruments differs among systems. Most recently, the emergence of new types countries due to a variety of factors, including cultural, of non-bank intermediaries acting as payment service historical, economic, and legal reasons. However, the providers has strengthened the need for a comprehen- supply of different payment instruments to customers sive level of cooperation in the payments system. depends, to a significant extent, on the levels of finan- cial inclusion, the existence of certain infrastructure In recognition of the importance of such issues, and like centralized automated customer account manage- to help countries design and implement holistic and ment systems – core banking systems, and the devel- coherent reforms, the World Bank’s PSDG has devel- opment at the interbank level of specific circuits and oped guidelines for a comprehensive retail payments systems for the exchange of relevant information and strategy to be discussed in an upcoming publication for the settlement of payment transactions. Thus, ef- (details are in Box 3 below). forts to significantly and successfully expand the range of available payment instruments rely on the existence of efficient, convenient and safe payment systems and circuits. Indeed, the existence of efficient, secure and reliable payment systems to process these payment in- 39 40 PAYMENT SYSTEMS WORLDWIDE BOX 3: WORLD BANK GUIDELINES FOR DEVELOPING A COMPREHENSIVE RETAIL PAYMENTS STRATEGY Efficient retail payments systems have a significant posi- Guideline IV: Competitive market conditions should be fos- tive impact on the broader economy. There are a number of tered in the retail payments industry, with an appropriate bal- public policy objectives that need to guide the policies and ance between cooperation and competition to foster, among actions of national authorities in countries with under-devel- other things, the proper level of interoperability in the retail oped retail payments systems, the key public policy objectives payment infrastructure. being: (i) Safety and efficiency; (ii) Affordability and ease of access to payment instruments and services; (iii) Availability of Guideline V: Retail payment systems and services should an efficient infrastructure to process electronic payment be supported by appropriate governance and risk management instruments; and, iv) Availability of a socially optimal mix of practices. payment instruments. Guideline VI: Public authorities should exercise effective over- These public policy goals should guide the actions of the public sight over the retail payments market and consider proactive authorities, specifically the central bank, to positively impact the interventions where appropriate. drivers of retail payments system development. In this regard, the following six guidelines can be used by the central bank to Implementing the retail payments system development agenda develop its national retail payments development agenda: requires public authorities, in particular the central bank, to take an active role in coordinating and catalyzing action from all the Guideline I: The market for retail payments should be transpar- stakeholders including not only retail payments industry but ent, have adequate protection of payers and payees interests also the other corporate and government authorities. Creating and be cost-effective. a national retail payment systems development plan and en- trusting its implementation to an energized National Payments Guideline II: Retail payments require a reliable underlying fi- Council (NPC) would ensure orderly and self-sustaining reforms. nancial, communications and other types of infrastructure; The key components of an effective plan would need to include: these infrastructures should be put in place to increase the (i) stock-taking of current situation; (ii) establishment of internal efficiency of retail payments. These infrastructures include, at organizational arrangements; (iii) development of a co-ordina- a minimum, interbank electronic funds transfer systems, inter- tion framework to involve all stakeholders; (iv) development of bank card payment platforms, credit bureaus, data sharing plat- a common vision, objectives and standards; (v) agreement on forms, interbank real-time gross settlement systems, reliable actions that need to be taken; (vi) development of an implemen- communications infrastructure and also a national identification tation plan; and, (vii) monitoring progress. system for individuals. Source: World Bank Guideline III: Retail payments should be supported by a sound, predictable, non-discriminatory and proportionate legal and regulatory framework. Global Survey 2010 41 TABLE III.1: CASHLESS RETAIL PAYMENT TRANSACTIONS PER CAPITA (2009) Growth Growth Growth Country Number 2009 Country Number 2009 Country Number 2009 vs. 2006 vs. 2006 vs. 2006 Albania 2.2 nav Hungary 35.5 38% Oman 1.2 74% Angola 2.4 nav India 4.7 82% Pakistan 2.0 7% Argentina 3.4 18% Indonesia 7.8 64% Peru 5.3 12% Armenia 2.2 nav Iran, Islamic Rep. of 22.7 nav Philippines 1.8 2% Australia 263.3 30% Iraq 0.5 9765% Poland 53.2 67% Austria 254.8 15% Ireland 173.5 37% Portugal 152.1 15% Azerbaijan 5.9 160% Israel 143.3 nav Romania 13.3 22% Bahamas, The 10.4 -11% Italy 59.6 11% Russian Federation 20.0 75% BCEAO 0.1 137% Jamaica 28.4 nav Rwanda 0.2 1329% Belgium 205.7 18% Japan 11.9 nav San Marino 134.7 8% Belize 5.1 nav Jordan 66.5 nav Saudi Arabia 6.5 40% Bolivia 0.6 62% Kazakhstan 10.3 54% Serbia 55.5 nav Botswana 6.3 nav Kenya neg 15% Seychelles 8.2 nav Brazil 94.5 nav Korea, Rep. of 218.0 38% Sierra Leone 0.1 nav Bulgaria 8.8 -10% Kosovo 2.1 280% Singapore 73.9 16% Canada 283.7 14% Kuwait 36.9 43% Slovak Republic 76.7 58% Cayman Islands 21.8 -29% Kyrgyz Republic 1.2 149% Slovenia 164.8 0% Chile 26.4 2% Latvia 96.3 29% South Africa 21.8 nav China 38.9 80% Lebanon 5.2 38% Spain 79.3 24% Colombia 7.5 36% Lesotho 0.2 -43% Sri Lanka 3.4 7% Congo, Dem. Rep. of neg nav Libya neg nav Sudan 0.3 2726% Costa Rica 30.7 47% Lithuania 65.0 47% Swaziland 5.2 nav Croatia 61.4 27% Luxembourg 270.3 31% Sweden 306.0 39% Cyprus 97.6 24% Macao (China) 4.0 18% Switzerland 164.1 18% Czech Republic 16.7 87% Macedonia FYR 40.3 126% Taiwan (China) 39.5 7% Denmark 265.9 19% Madagascar 0.3 28% Tanzania 0.1 147% Dominican Republic 21.3 nav Malawi 0.1 10% Thailand 10.0 20% Ecuador 3.2 nav Malaysia 19.5 24% Timor-Leste neg 55% Egypt, Arab Rep. of 15.7 215% Malta 70.8 24% Trinidad and Tobago 38.4 35% El Salvador 2.2 nav Mauritius 4.2 nav Turkey 25.8 43% Eritrea neg -10% Mexico 15.3 40% Uganda 0.9 nav Estonia 193.9 33% Moldova 7.5 nav United Arab Emirates 26.8 nav Ethiopia neg 123% Mongolia 0.3 nav United Kingdom 232.3 13% Finland 370.2 17% Montenegro 14.2 116% United States 339.9 12% France 259.9 10% Morocco 1.7 52% Uruguay 19.7 25% Georgia 7.5 nav Mozambique 0.3 -80% Venezuela, R. B. 4.8 37% Ghana 0.2 13% Nepal neg nav West Bank and Gaza 1.4 nav Greece 13.7 8% Netherlands 290.8 18% Yemen, Republic of 0.5 141% Guatemala 1.9 nav Nigeria 0.2 95% Zambia 0.4 38% Hong Kong (China) 613.8 nav Norway 380.3 26% Zimbabwe 0.1 nav Notes: 1.This table includes information for all the countries that provided relevant data. Data may not include all payment instruments in use in the country. In particular, figures on credit cards are not available for Japan and Singapore. 2. Growth rates were calculated based solely on the information provided in the context of the 2010 survey. Section III. Retail Payment Instruments and Systems 42 PAYMENT SYSTEMS WORLDWIDE TABLE III.2: RELATIVE IMPORTANCE OF NON-CASH PAYMENT INSTRUMENTS (Based on Number of Transactions) Direct credits/credit Direct debits Debit cards Credit cards Cheques transfers Central banks # % # % # % # % # % Worldwide total (123) 31 25% 4 3% 42 34% 10 8% 34 28% By Income High income (45) 11 24% 2 4% 20 44% 5 11% 6 13% Upper-middle income (31) 10 32% 2 6% 9 29% 4 13% 6 19% Lower-middle income (30) 8 27% 0 0% 9 30% 1 3% 11 37% Low income (17) 2 12% 0 0% 4 24% 0 0% 11 65% By region East Asia and Pacific (8) 2 25% 0 0% 2 25% 2 25% 2 25% Europe and Central Asia (14) 7 50% 0 0% 1 7% 6 43% 0 0% Latin America & Caribbean (19) 3 16% 0 0% 2 11% 6 32% 8 42% Middle East & North Africa (13) 3 23% 1 8% 1 8% 4 31% 4 31% South Asia (4) 1 25% 0 0% 0 0% 1 25% 2 50% Sub-Saharan Africa (25) 1 4% 1 4% 0 0% 7 28% 15 60% Euro area (15) 7 47% 0 0% 2 13% 4 27% 2 13% Other EU members (11) 5 45% 0 0% 0 0% 6 55% 0 0% Other developed countries (14) 2 14% 2 14% 2 14% 6 43% 1 7% By population size >30 million (34) 8 24% 0 0% 13 38% 4 12% 9 26% >5 million, <30 million (47) 12 26% 2 4% 16 34% 4 9% 12 26% 5 million or less (42) 11 26% 2 5% 13 31% 2 5% 13 31% Note: This table is based on the 2009 number of cashless retail payments transactions, and reflects the number of countries that provided the necessary information. Each payment instrument has been ranked in terms of relative importance based on the number of transactions reported by each central bank, from “1� to “5� with “1� being the most important (highest number of transactions per instrument) and “5� being the least important (lowest number of transactions per instrument). This table shows the results for score “1�, i.e. illustrates the number and percentage of countries worldwide in which each payment instrument is to be considered the “most important� based on the number of transactions. III.2 SURVEY OUTCOMES Table III.1 shows the number of cashless payment The tables in this section and related analysis report in- transactions per capita during 2009, together with formation on all countries that have responded to Part growth rates for this variable for the period 2006-2009. III: Retail Payment Systems of the Questionnaire The number represents the sum of payment transac- for Collecting Information to Depict the Situation of tions made with cheques, direct credit transfers, direct Payment and Securities Settlement Systems Worldwide debits, and payments with debit cards and credit cards. 2010, and on those systems for which information was Payments made with e-money and prepaid and stored- provided. Global Survey 2010 43 value cards will be discussed in a separate upcoming transfers, credit cards, debit cards and cheques. On a publication.42 worldwide basis, debit cards are the most used means of payment in 34% of countries, followed by cheques. The first observation that emerges when examining An analysis by income level shows that cheques are Table III.1 is that the extreme values observed in the the most used payment instrument in 65% of low in- 2008 survey when comparing developed countries come countries compared to only 13% in high income with many developing ones persist. While in most eu- countries, 19% in upper-middle income countries, and ro-area countries and ODCs it is typical to see 100 or 37% in lower-middle income countries. In geographi- more cashless transactions per capita in a year, in many cal terms, cheque usage is substantial in SSA, SA and low income countries this number is still less than 1. LAC regions. With very few exceptions, the number of cashless The remainder of this section analyzes the availability transactions per capita grew in 2009 when compared of processing infrastructure and access channels, clear- to 2006. Many low and lower-middle income coun- ing and settlement arrangements for the most relevant tries have seen very high growth rates in cashless payment instruments for retail transactions. Two new transactions per capita, though to a certain extent such sub-sections have been added in the 2010 survey: i) high growth rates reflect a lower starting point or com- central banks’ opinions on the cost of non-cash pay- parison base. ment instruments and services for individuals; and, ii) basic information on retail payments made to/from Caution should be exercised when analyzing the data governments. in Table III.1. Several countries did not provide in- formation for all payment instruments, and in a few cases figures might be significantly altered by the lack III.2.1 Cheques and Cheque Clearinghouses of information on one or more payment instrument. A separate forthcoming publication will provide details Countries reported the existence of a total of 10643 on non-traditional retail payment products such as cheque clearinghouses serving 112 countries.44 e-money, prepaid cards, and stored-value cards, Countries without a cheque clearinghouse totaled 28, among others (for preliminary key findings refer to and are mainly concentrated in Eastern Europe (Bosnia Box 4). Moreover, while information on both inter- and Herzegovina, Bulgaria, Croatia, Hungary, Czech bank and intra-bank transactions was requested, some Republic and Slovenia), the three Baltic Republics, and countries provided information only on interbank the CIS region, where cheques are not heavily used or transactions. For detailed information on exceptions, not used at all. Other countries without a cheque clear- readers are urged to refer to the statistical tables in inghouse are Austria, Finland,45 Libya, Luxembourg, the Appendix. Mongolia, Netherlands and Switzerland. Table III.2 analyzes the relative importance of differ- ent payment instrument in terms of usage (number of transactions). The payment instruments included in Greece provided answers for two cheque clearing systems. Both have been this analysis are: direct credits/credit transfers, debit 43 included. 44 For number of countries, BCEAO is counted as eight. 45 Cheques are bilaterally cleared in Finland, in a system called POPS and 42 See Box 4 below. settled in the RTGS system. Section III. Retail Payment Instruments and Systems 44 PAYMENT SYSTEMS WORLDWIDE BOX 4: WORLD BANK SURVEY ON INNOVATIVE PAYMENT PRODUCTS In recognition of the relevant innovation taking place in the protection) and some statistical data was requested. Central retail payments arena as well as the interest on this matter banks were also asked to provide information on whether re- expressed by local authorities and international bodies such forms on any of these matters are being sought. as the G-8 and the G-20, a dedicated questionnaire to cap- ture developments in this space has been added as an annex Some preliminary findings are discussed below: (Annex 1: “Questionnaire for Collecting Information on Innova- tions in Retail Payment Instruments and Methods Worldwide�) • There is a fairly widespread adoption of electronic to the World Bank Global Payment Systems Survey 2010. payment channels for initiation of payment trans- A total of 101 central banks completed the Annex and reported actions and in particular for retail payments. A total 173 innovative retail payment products/product groups. Most of 91 countries reported having internet banking ser- of the central banks provided information on a product group vices and 76 countries reported having mobile-based basis and not on individual products. access to bank accounts. Practically all central banks reported having the traditional payment channels of The questionnaire was based on the 2004 CPSS Survey of ATMs and POS terminals. Developments in Electronic Money and Internet and Mobile Payments.1 The purpose was to collect information on inno- • While non-banks have an important role in the vative payment instruments and products such as electronic provision of innovative retail payment products/ money, mobile and internet payments as well as prepaid card mechanisms, banks still remain a significant play- services and process-related innovations. In order to capture er in this field. In 73% of the innovative retail pay- all the different types of innovations, for the purposes of the ment mechanisms, banks are actively involved in the survey, “innovative products� were defined as products that provision of the services. Collaboration amongst vari- are not based on cheques, traditional credit and debit cards ous types of entities is widespread, with over one-third or traditional direct credit and debit services. Therefore, pre- of the products involving joint provision of products/ paid cards, card-based e-money products and other types of services, of which almost all involve a bank and a tele- e-money products including those developed around mobile com company. In over 65% of the cases, the underly- phones and mobile technology, among others, are all intended ing account of the customer is a bank account. Over to be captured under the previous definition. 38% of the reported products use agent services, with two-thirds using non-banking agents, like retailers. The questionnaire covered general information on the types of innovative products and on innovative access channels to • Customer funds are protected fully in about 60% bank accounts used in a country, as well as more specific in- of the cases. For one-third of the products, customer formation on the design features of the relevant innovations funds are protected by deposit insurance and in an (e.g. protection of the monetary value created, stakeholders, additional one-fourth of the cases customer funds are usage of the product, pricing, clearing and settlement, secu- fully backed-up by deposits. Around one-fifth of the rity and fraud issues). In addition, several legal and regula- products however are not protected at all. tory issues were covered (e.g. legal provisions, main regulator and overseer, licensing and reporting requirements, consumer CPSS, “Survey of Developments in Electronic Money and Internet and Mobile Payments�, Bank for International Settlements, Basel, Switzerland, 2004. 1 Global Survey 2010 45 • Innovative payment products appear to have fairly only around 24% settle in central bank money. Less than well-developed pricing models. Only around 10% of 40% of the products settle on T+0. the products were reported to have no fees. Around 80% of the products have a per-transaction fee, with a higher • Security and fraud risks seem to be getting inad- proportion of multiple fee components in products that equate attention. In general, central banks do not seem use a collaborative model involving multiple entities. to have formed a clear opinion on the likelihood of fraud and other security risks related to innovative payment • Merchant payments, utility bill payments and person- products. For over 60% of the products, central banks re- to-person transfers are the most common transaction ported having no specific views on the fraud and security types supported by the innovative payment mecha- risk perception and for around 10% of the products the nisms. Less than 10% of the products support govern- fraud risk perception was reported as being higher than ment-to-person payments. for traditional payment products. • A majority of the innovative products/mechanisms • Central banks identified themselves as the overseers have very limited interoperability. Less than 20% of the for around 60% of the products. About 10% of the products were reported to be fully or partially interopera- products are subject to collaborative oversight. A small ble. Around 25% of the products/mechanisms have some percentage – around 6% – were identified as not being form of interface with traditional payment products. overseen by any public authority. • Innovative products generally do not use the tradi- tional interbank clearing and settlement infrastruc- ture. More than 50% of the innovative products reported in the survey are settled in the books of the issuer, while Source: World Bank In 53% of all cases, the central bank is the operator of ing devices such as readers and sorters. Percentages the cheque clearinghouse. This percentage is very sim- are particularly high in ECA and the non-euro EU ilar to that of the 2008 survey (57%). Particularly note- members (both 100%) as well as in euro-area countries worthy are low income countries, where in 16 out of 19 (92%), while the lowest are seen in SA. cases (84%) the central bank operates the system, while for upper-middle income and high income countries The last two columns to the right in Table III.3 show this percentage is less than 40%. Regions with heavy that automated cheque processing is increasingly com- involvement of the central bank as the operator of the mon (91%). In particular, compared to the 2008 sur- cheque clearing system are MNA and SSA, and to a vey there is an increase in the percentage of countries lesser extent EAP. where cheque truncation is used (35% vs. 28%). The largest increase in the number of clearinghouses with Regarding efficiency issues, cheques are standardized cheque truncation features is in low income coun- in the great majority of cases (80%), which should al- tries (32% compared to only 16% in the 2008 survey). low for a more intensive and efficient use of process- Despite these results, percentages for this particular Section III. Retail Payment Instruments and Systems 46 PAYMENT SYSTEMS WORLDWIDE TABLE III.3: CHEQUE SYSTEMS WORLDWIDE – BASIC OPERATIONAL FEATURES Processing of cheques Processing of cheques Cheque clearinghouse Cheques are is automated, but is automated, and is operated by the standardized physical exchange is cheque truncation Central Bank required is used Cheque clearinghouses # % # % # % # % Worldwide total (106) 56 53% 85 80% 59 56% 37 35% By country income level High income (36) 14 39% 30 83% 18 50% 20 56% Upper-middle income (24) 8 33% 19 79% 15 63% 6 25% Lower-middle income (27) 18 67% 25 93% 18 67% 5 19% Low income (19) 16 84% 11 58% 8 42% 6 32% By region East Asia and Pacific (10) 6 60% 8 80% 6 60% 2 20% Europe and Central Asia (3) 1 33% 3 100% 1 33% 2 67% Latin America & Caribbean (20) 9 45% 17 85% 16 80% 4 20% Middle East & North Africa (12) 10 83% 10 83% 5 42% 2 17% South Asia (4) 2 50% 2 50% 3 75% 2 50% Sub-Saharan Africa (27) 20 74% 19 70% 14 52% 6 22% Euro area countries (12) 5 42% 11 92% 5 42% 8 67% Other EU members (5) 0 0% 5 100% 1 20% 4 80% Other developed countries (13) 3 23% 10 77% 8 62% 7 54% By country population size >30 million (34) 18 53% 30 88% 21 62% 15 44% >5 million, <30 million (40) 19 48% 31 78% 20 50% 16 40% 5 million or less (32) 19 59% 24 75% 18 56% 6 19% feature are still low. PSDG experience in this particular It is also worth noting that 50% of the central banks area points at legal and regulatory issues as a key bar- representing low income countries that have adopted rier impeding further adoption of cheque truncation. cheque truncation do not have an automated clearing- house (ACH) for fully electronic instruments such as Throughout Table III.3, a country’s population size electronic credit transfers and direct debits. This per- only seems to make a difference when it comes to the haps indicates the fact that such central banks priori- adoption of cheque truncation. Only 19% of small tize cheque truncation over the implementation of an countries have adopted this technology compared to ACH, despite the fact that the latter is a more efficient 40% or more for larger countries. This might be an option for the processing of retail payments. indication that budget constraints are also an impor- tant obstacle. Global Survey 2010 47 TABLE III.4: CHEQUE SYSTEMS WORLDWIDE – BASIC SETTLEMENT FEATURES Final settlement Net balances Net balances takes place Customer Multilateral net are calculated Final settlement are calculated in Central accounts are balances are and settled takes place and settled once Bank money, credited no later calculated more than through RTGS a day but not than T+2 once each day through RTGS Cheque clearinghouses # % # % # % # % # % # % Worldwide total (106) 71 67% 76 72% 30 28% 80 75% 21 20% 79 75% By country income level High income (36) 20 56% 26 72% 7 19% 29 81% 5 14% 30 83% Upper-middle income (24) 18 75% 17 71% 8 33% 22 92% 0 0% 18 75% Lower-middle income (27) 19 70% 17 63% 13 48% 20 74% 8 30% 20 74% Low income (19) 14 74% 16 84% 2 11% 9 47% 8 42% 11 58% By region East Asia and Pacific (10) 5 50% 8 80% 4 40% 7 70% 3 30% 6 60% Europe and Central Asia (3) 2 67% 3 100% 0 0% 3 100% 0 0% 2 67% Latin America & Caribbean (20) 15 75% 12 60% 7 35% 16 80% 3 15% 15 75% Middle East & North Africa (12) 9 75% 10 83% 3 25% 9 75% 3 25% 11 92% South Asia (4) 3 75% 3 75% 2 50% 3 75% 2 50% 4 100% Sub-Saharan Africa (27) 20 74% 18 67% 7 26% 17 63% 6 22% 15 56% Euro area countries (12) 7 58% 9 75% 3 25% 11 92% 2 17% 8 67% Other EU members (5) 2 40% 4 80% 2 40% 4 80% 1 20% 5 100% Other developed countries (13) 8 62% 9 69% 2 15% 10 77% 1 8% 13 100% By country population size >30 million (34) 24 71% 24 71% 12 35% 29 85% 5 15% 27 79% >5 million, <30 million (40) 30 75% 32 80% 9 23% 29 73% 11 28% 33 83% 5 million or less (32) 17 53% 20 63% 9 28% 22 69% 5 16% 19 59% Table III.4 discusses some of the most relevant settle- Multilateral net balances are calculated in 67% of all ment issues associated with cheque clearinghouses. In cases, compared to 76% in the 2008 survey. The survey the majority of the cases (72%), net balances are calcu- did not ask for information on what the clearing mech- lated and settled once every day; two or more clearing anism is in all other cases, but the PSDG has observed sessions per day occur only in 30 systems or 28% of all that several countries still use bilateral netting, either cases. The latter represents an important improvement due to legal restrictions or as a risk management tool. compared to the 2008 survey, where only 23 systems reported this feature (none in ECA, MNA or in the The final settlement of participant positions in the EU). Also, 35% of clearinghouses in larger countries cheque clearinghouse is made in a RTGS system in now settle more than once a day compared to only 13% 75% of the systems, a significant increase versus the in the 2008 survey. 67% observed in the previous survey. Although not Section III. Retail Payment Instruments and Systems 48 PAYMENT SYSTEMS WORLDWIDE TABLE III.5: CHEQUE SYSTEMS WORLDWIDE – RISK CONTROL MECHANISMS Risk management mechanisms Should a Participants There are ensure The Central participant have access to limits in There is completion Bank/ No be unable information place to a specific of daily operator specific risk to settle on their protect guarantee settlements provides management its debit preliminary netting fund in in case of ultimately mechanism position, an position in the systems place for the inability to liquidity is in place unwinding clearinghouse from system settle by the to the procedure during the day significant participant system is initiated exposures with the largest obligation Cheque clearinghouses # % # % # % # % # % # % # % Worldwide total (106) 20 19% 45 42% 67 63% 21 20% 18 17% 34 32% 40 38% By country income level High income (36) 7 19% 17 47% 17 47% 5 14% 5 14% 11 31% 7 19% Upper-middle income (24) 4 17% 13 54% 18 75% 1 4% 2 8% 9 38% 13 54% Lower-middle income (27) 4 15% 10 37% 16 59% 9 33% 8 30% 8 30% 10 37% Low income (19) 5 26% 5 26% 16 84% 6 32% 3 16% 6 32% 10 53% By region East Asia and Pacific (10) 3 30% 3 30% 5 50% 4 40% 3 30% 3 30% 3 30% Europe and Central Asia (3) 0 0% 3 100% 1 33% 0 0% 0 0% 0 0% 1 33% Latin America & Caribbean (20) 4 20% 11 55% 16 80% 4 20% 5 25% 7 35% 9 45% Middle East & North Africa (12) 1 8% 3 25% 8 67% 2 17% 3 25% 6 50% 4 33% South Asia (4) 1 25% 3 75% 3 75% 0 0% 0 0% 0 0% 1 25% Sub-Saharan Africa (27) 5 19% 7 26% 19 70% 8 30% 3 11% 7 26% 17 63% Euro area countries (12) 2 17% 5 42% 5 42% 2 17% 1 8% 4 33% 2 17% Other EU members (5) 1 20% 0 0% 3 60% 0 0% 1 20% 4 80% 1 20% Other developed countries (13) 3 23% 10 77% 7 54% 1 8% 2 15% 3 23% 2 15% By country population size >30 million (34) 6 18% 16 47% 21 62% 5 15% 8 24% 14 41% 12 35% >5 million, <30 million (40) 8 20% 17 43% 29 73% 9 23% 7 18% 14 35% 17 43% 5 million or less (32) 6 19% 12 38% 17 53% 7 22% 3 9% 6 19% 11 34% through a RTGS system, settlement is done in central either of the options pertaining to settlement in central bank money in 20% of the systems. In any case, accord- bank money. ing to survey information, the settlement of cheque clearinghouse obligations in commercial bank money The last column to the right in Table III.4 shows that is extremely rare, with only 9 countries not choosing customer accounts are credited by T+2 in 75% of all Global Survey 2010 49 TABLE III.6: AUTOMATED CLEARINGHOUSE INFRASTRUCTURE WORLDWIDE Worldwide total By income By region By population size EAP (6 of 11) ECA (10 of 16) High income (35 of 46) LAC (16 of 20) Large size (31 of 36) MNA (6 of 13) Upper middle income (26 of 33) SA (2 of 4) 87 systems Medium size (31 of 50) SSA (13 of 27) Lower middle income (18 of 33) Euro area (12 of 16) Small size (25 of 46) Other EU (11 of 11) Low income (8 of 20) ODC (11 of 14) cases. Increasingly, according to PSDG experience, tems using a guarantee fund, are also shown in the cheque clearinghouse operators and/or authorities current one. are setting a time limit for banks to credit customer accounts. Until recently, many operators (including Overall, Table III.5 shows that risk management in many central banks) did not have a standard limit, cheque systems is still weak. While some operators as it was felt that customer-related issues such as this may argue that tough risk control mechanisms are not were solely the domain of commercial banks and other necessary for a system that is no longer systemically cheque system participants. important, facts and data in the survey point at cheque systems still having some degree of systemic impor- Table III.5 shows some improvement, albeit little, in tance in several countries, and/or cheque systems be- relation to risk control mechanisms used in cheque ing the only system for retail payments or the most clearing and settlement systems. No risk control relevant one. mechanism is used to limit credit and liquidity risks in cheque clearing systems in 19% of the systems (24% in the previous survey). Moreover, in 42% of all cases, III.2.2 Credit Transfers, Direct Debits and if a participant is unable to settle, net positions are re- Automated Clearinghouses calculated after removing some or all of the payments involving that failed participants. This so-called “un- Survey results show that a total of 87 automated winding� procedure is quite common in cheque sys- clearinghouses (ACH) systems serve 92 countries tems in the ECA and SA regions as well as in ODCs. for the processing of retail electronic credit transfers Moreover, survey information shows that in many and direct debits.46 With the exception of MNA and cases (38%) the central bank or other cheque system SA, this percentage is relatively similar across regions. operator would ultimately provide liquidity if the sys- Moreover, ACH systems are more common in larger tem is not able to close settlement positions. countries. Other risk management mechanisms such as limits It should be noted, however, that in some countries and guarantee funds are still relatively rare in cheque where an ACH does not exist, interbank retail elec- systems. The same figures observed in the 2008 sur- vey, i.e. 20% of systems using limits and 17% of sys- 46 This total includes the ACH system of the BCEAO which serves eight different countries. Colombia and the United Kingdom reported having two ACHs each. Section III. Retail Payment Instruments and Systems 50 PAYMENT SYSTEMS WORLDWIDE BOX 5: THE SINGLE EURO PAYMENTS AREA (SEPA) The SEPA project is a major undertaking in the creation of an roles and procedures of the processing infrastructures that pro- integrated retail payments market in euro. SEPA consists of a vide clearing and settlement services. This forms the basis for series of initiatives aimed at the introduction of common instru- cooperation between schemes and infrastructures and should ments, standards and practices, and interoperable infrastruc- ensure that providers of processing services can compete with tures for retail payments in euro, allowing users to make euro one another and offer their services to schemes throughout SEPA. payments throughout Europe from a single bank account, using Based on the new SEPA schemes, banks and service providers a single set of payment instruments, as easily and securely as in will be able to develop and offer tailored products to their clients the national context. all over the euro area, and can compete with each other in terms of price, the level of service or any of the other features of those To coordinate all work, banks established the European products.zeved. Therefore, end-2010 the European Commission Payments Council (EPC) in June 2002. Today, the EPC made a legislative proposal to establish one or more binding end consists of members (banks, banking associations and pay- dates for migration by means of legislation at EU level. ment institutions) from 32 countries (the 27 EU countries, plus Iceland, Liechtenstein, Norway, Switzerland and Monaco). The With SEPA well under way, the EPC’s focus was broadened from Eurosystem and the European Commission set public policy ob- the bank-to-bank domain to also address inefficiencies in the jectives and facilitate the project. customer-to-bank and bank-to-customer domains. The ultimate aim is to allow all payments in euro to be made solely electroni- The focus of SEPA is payments in euro, and so it is primarily cally and be entirely cleared and settled via straight-through pro- a euro area project. Nevertheless, the non-euro area countries cessing. The EPC is working on common rules and standards for represented in the EPC have chosen to adopt the SEPA standards online payments and developing a framework for mobile pay- and practices for their payments in euro. They may also adopt ments, while also initiatives to align existing e-invoicing solu- them for payments in their national currency. tions and to set up pan-European e-invoicing are under way. This should avoid that innovation leads to new fragmentation, as new The SEPA project focuses on three payment instruments: credit euro payment solutions should be offered not only in the national transfers, direct debits and cards. In addition, a cash payment context, but throughout Europe, with the same user experience framework was set up in order to improve cash handling ser- and high level of service. vices in the euro area. For credit transfers and direct debits the EPC has developed new payment schemes (launched in January Source: ECB 2008 and November 2009 respectively), which cover the rules, practices and standards applicable to the new SEPA payment instruments. They define a common service level and maximum time frame for processing. For card payments, a set of high-level principles were developed with which card schemes, together with their issuers, acquirers and operators should comply. The card framework seeks to achieve euro area-wide acceptance for the various card schemes. The SEPA payment instruments are designed to eventually replace national euro payment instru- ments existing today. In this respect it is expected that cheques will be gradually phased out, as SEPA does not support their cross-border use. A common feature of all three payment instruments is the sepa- ration between schemes and processing infrastructures. To this end, the EPC has established a framework which clarifies the Global Survey 2010 51 TABLE III.7: ACH SYSTEMS WORLDWIDE – BASIC OPERATIONAL AND SETTLEMENT FEATURES ACH Net balances Final The ACH is Non-bank Final processes calculated settlement in operated by institutions settlement both direct and settled Central Bank the Central can be direct takes place credits and at least once money, but not Bank participants through RTGS direct debits every day through RTGS Automated clearinghouses for direct # % # % # % # % # % # % debits / direct credits Worldwide total (87) 35 40% 67 77% 32 37% 77 89% 75 86% 10 11% By country income level High income (35) 10 29% 29 83% 13 37% 31 89% 30 86% 4 11% Upper-middle income (26) 12 46% 21 81% 11 42% 23 88% 26 100% 0 0% Lower-middle income (18) 7 39% 11 61% 5 28% 16 89% 13 72% 4 22% Low income (8) 6 75% 6 75% 3 38% 7 88% 6 75% 2 25% By region East Asia and Pacific (6) 3 50% 2 33% 1 17% 4 67% 5 83% 0 0% Europe and Central Asia (10) 8 80% 5 50% 7 70% 9 90% 9 90% 1 10% Latin America & Caribbean (16) 4 25% 15 94% 5 31% 15 94% 14 88% 2 13% Middle East & North Africa (6) 4 67% 4 67% 2 33% 6 100% 6 100% 0 0% South Asia (2) 1 50% 2 100% 0 0% 2 100% 2 100% 1 50% Sub-Saharan Africa (13) 5 38% 9 69% 4 31% 10 77% 10 77% 2 15% Euro area countries (12) 6 50% 11 92% 3 25% 11 92% 11 92% 1 8% Other EU members (11) 3 27% 9 82% 6 55% 10 91% 8 73% 2 18% Other developed countries (11) 1 9% 10 91% 4 36% 10 91% 10 91% 1 9% By country population size >30 million (31) 11 35% 24 77% 10 32% 28 90% 27 87% 3 10% >5 million, <30 million (31) 12 39% 28 90% 12 39% 29 94% 26 84% 5 16% 5 million or less (25) 12 48% 15 60% 10 40% 20 80% 22 88% 2 8% tronic credit transfers are nevertheless common. In dle both large-value and retail payments. Elsewhere, most of these countries (e.g. Czech Republic, Saudi however, new ACHs are being implemented in some Arabia, Turkey or Ukraine) retail credit transfers are countries (e.g. West Bank and Gaza). processed through the RTGS system. Table III.7 analyzes operational and settlement features ACH infrastructures worldwide are undergoing sig- of ACH systems for electronic payment instruments. nificant changes. In some European Union countries, At the worldwide level, the central bank is the opera- local ACHs have already been discontinued and tor of the ACH in 40% of the cases. This number is moved to the pan-European platform. In other significantly smaller than the one reported for cheque countries, especially where direct debits are not very clearing systems (53%). As noted in the 2008 survey, popular, older RTGS and ACH systems are being re- most cheque clearinghouses were originally operated placed by new or upgraded RTGS systems which han- by central banks, and this tradition still endures, with Section III. Retail Payment Instruments and Systems 52 TABLE III.8: ACH SYSTEMS WORLDWIDE – RISK CONTROL MECHANISMS Risk management Participants have mechanisms ensure No specific risk access to information There are limits in The Central Bank or There is a specific completion of daily management on their preliminary place to protect the operator provides guarantee fund in settlement in case of mechanism is in positions in the netting systems from liquidity to the place for the system inability to settle by place clearinghouse during excessive exposures system ultimately the participant with the day the largest obligation Automated clearinghouses for # % # % # % # % # % # % direct debits/direct credits Worldwide total (87) 26 30% 67 77% 32 37% 19 22% 42 48% 28 32% By country income level High income (35) 12 34% 26 74% 13 37% 7 20% 17 49% 8 23% Upper-middle income (26) 10 38% 24 92% 7 27% 6 23% 12 46% 11 42% Lower-middle income (18) 3 17% 11 61% 7 39% 5 28% 9 50% 6 33% Low income (8) 1 13% 6 75% 5 63% 1 13% 4 50% 3 38% By region East Asia and Pacific (6) 0 0% 3 50% 0 0% 1 17% 3 50% 2 33% Europe and Central Asia (10) 2 20% 10 100% 6 60% 2 20% 6 60% 3 30% Latin America & Caribbean (16) 10 63% 15 94% 3 19% 4 25% 6 38% 9 56% Middle East & North Africa (6) 1 17% 5 83% 6 100% 3 50% 3 50% 2 33% South Asia (2) 1 50% 1 50% 0 0% 0 0% 1 50% 1 50% Sub-Saharan Africa (13) 2 15% 8 62% 7 54% 2 15% 6 46% 4 31% Euro area countries (12) 4 33% 9 75% 2 17% 3 25% 4 33% 1 8% Other EU members (11) 1 9% 8 73% 5 45% 3 27% 7 64% 3 27% Other developed countries (11) 5 45% 8 73% 3 27% 1 9% 6 55% 3 27% By country population size >30 million (31) 8 26% 23 74% 11 35% 9 29% 19 61% 7 23% >5 million, <30 million (31) 11 35% 24 77% 9 29% 4 13% 11 35% 13 42% 5 million or less (25) 7 28% 20 80% 12 48% 6 24% 12 48% 8 32% PAYMENT SYSTEMS WORLDWIDE Global Survey 2010 53 many central banks having dedicated clearinghouse Table III.8 shows survey outcomes on the types of departments. Also, while cheque systems in many mechanisms used in ACH systems to control or limit countries were systemically important not so long ago credit and liquidity risks. In general, management of (and some still are), ACHs have been identified with credit and liquidity risks in ACHs is even weaker than low-value payments. This may explain why more cen- in the case of cheque systems. tral banks have refrained from having an operator role in ACH systems. A clear exception to this are low in- Two aspects in particular are worth noting. First, the come countries, where in 6 out of the 8 cases or 75% percentage of ACHs without any form of risk manage- the central bank is the ACH operator. From a regional ment is higher than cheque systems (30% compared to perspective, the ECA region shows the highest per- 19%). However, in comparison to the 2008 survey, the centage (80%) of central banks assuming this role. number of ACHs without any form of risk management has decreased from 40% to 30%. On the one hand, the Approximately 3 out of 4 ACH systems worldwide absence of these mechanisms is more evident in high can process both electronic credit transfers and di- income countries. At the other extreme, risk manage- rect debits. The proportion is practically the same as ment tools are very common in SSA, MNA, EAP and in the previous survey: 77% vs. 76%.With few excep- ECA and non-euro EU members.48 This could perhaps tions, mostly in European Union countries, electron- be explained by the fact that the majority of the newer ic credit transfers are far more popular than direct ACHs were implemented already incorporating risk debits.47 Direct debits, as well as other debit instru- management features. ments, are less common in the countries of the ECA and EAP regions. Second, the percentage of central banks that would ul- timately provide liquidity to the ACH is smaller than Clearing and settlement features are, in general, simi- the equivalent for cheque systems (32% compared lar to those of cheque clearing systems. When com- to 38%), one possible explanation being, once again, pared to the latter, fewer ACHs clear transactions more that a smaller percentage of central banks worldwide than once every day. Despite the fact that fewer cen- are ACH operators. However, the percentage of ACH tral banks are acting as ACH operators, 86% of ACHs systems with access to central bank liquidity increased settle final positions in a RTGS system (compared to (from 25% in the 2008 survey). 75% in the case of cheque systems). As in the case of cheque systems, the percentage of systems settling in a In 48% of the ACH systems, there are risk manage- RTGS system has increased significantly over time. ment mechanisms in place to handle the inability of the The largest increases are in the LAC and MNA regions, participant with the largest net debit position to settle. with LAC moving from 50% to 88%, and MNA from There are few differences across regions and practically 60% to 100%. none when viewed from the income level perspective. Also, just like it is the case with cheque systems, settle- In the 2008 survey it was argued that the various num- ment of ACH obligations in commercial bank money bers and percentages shown in Table III.8 seemed con- is extremely rare: only 3 out of 87 cases according to sistent with the idea that ACH systems are perceived to survey data. be of little systemic importance, and therefore do not 47 For detailed information on number of transactions for the various payment 48 SSA and ECA are, at the same time, the regions where more central banks instruments used in retail transactions refer to the Appendix. act as ACH operators. Section III. Retail Payment Instruments and Systems 54 PAYMENT SYSTEMS WORLDWIDE TABLE III.9: STATISTICS ON AVAILABILITY OF ATMS AND POS TERMINALS (per 1 million inhabitants, as of end-2009) Growth Growth Growth Growth 2009 POS 2009 2009 POS 2009 Country ATMs Country ATMs vs. terminals vs. vs. terminals vs. 2006 2006 2006 2006 Albania 235 137% 1,385 250% Libya 3 nav 0 nav Angola 54 183% 410 2037% Lithuania 462 37% 11,606 90% Argentina 277 47% nav nav Luxembourg 940 2% 21,372 16% Armenia 228 288% 882 104% Macao (China) 1,110 105% nav nav Australia 1,237 -1% 31,900 16% Macedonia FYR 407 180% 15,396 785% Austria 1,004 4% 11,956 0% Madagascar 8 70% 59 31% Azerbaijan 193 52% 986 304% Malawi 13 85% 120 nav Bahamas, The nav nav nav nav Malaysia nav nav 5,841 63% BCEAO nav nav nav nav Malta 431 12% 27,563 37% Belgium 1,415 1% 12,520 15% Mauritania nav nav nav nav Belize 225 28% 12,005 57% Mauritius 299 15% nav nav Bolivia 87 58% 344 85% Mexico 316 28% 4,159 42% Bosnia and Herzegovina 360 153% 4,317 46% Moldova nav nav nav nav Botswana 131 60% 1,464 4% Mongolia 104 nav 1,266 nav Brazil 855 9% 17,589 70% Montenegro 473 137% 11,538 263% Bulgaria 721 52% 7,838 91% Morocco 130 45% nav nav Burundi nav nav nav nav Mozambique 27 53% 204 27% Cambodia 27 349% 223 nav Namibia 186 nav 6,788 nav Canada 1,808 5% 21,014 16% Nepal 22 1064% 65 238% Cayman Islands nav nav nav nav Netherlands 515 4% 20,577 27% Chile 446 36% nav nav New Zealand nav nav nav nav China 161 107% 1,810 189% Nigeria 58 nav nav nav Colombia 203 31% 3,031 71% Norway 467 -3% 27,155 29% Congo, Dem. Rep. of 1 nav 14 nav Oman 303 nav 2,247 nav Costa Rica 441 12% 20,155 nav Pakistan 25 99% 300 24% Croatia 812 37% 19,360 56% Peru 150 62% nav nav Cyprus 768 24% 24,873 19% Philippines 92 17% nav nav Czech Republic 341 7% 7,416 23% Poland 415 59% 6,044 31% Denmark 533 -6% 18,809 -5% Portugal 1,614 18% 25,531 56% Dominican Republic 181 27% 4,901 38% Romania 452 62% 4,586 108% Ecuador 215 42% nav nav Russian Federation 652 135% 2,498 108% Egypt, Arab Rep.of 50 74% 442 46% Rwanda 3 -20% 9 -33% El Salvador 197 25% 2,693 51% Samoa 123 nav 2,091 nav Eritrea nav nav nav nav San Marino 1,876 11% 60,507 2% Estonia 751 10% 13,184 21% Saudi Arabia 392 53% 3,254 35% Ethiopia 1 370% 6 465% Serbia 372 105% 8,068 24% Fiji 193 32% 2,102 46% Seychelles 341 nav 10,844 nav Finland 317 0% 32,969 51% Sierra Leone 6 nav 4 nav Global Survey 2010 55 TABLE III.9: STATISTICS ON AVAILABILITY OF ATMS AND POS TERMINALS (continued) Growth Growth Growth Growth ATMs 2009 POS 2009 2009 POS 2009 Country Country ATMs vs. terminals vs. vs. terminals vs. 2006 2006 2006 2006 France 873 12% 22,225 19% Singapore 431 6% 16,336 4% Georgia 320 nav 1,358 nav Slovak Republic 421 14% 6,636 48% Germany 1,030 57% 7,242 3% Slovenia 874 15% 16,094 10% Ghana nav nav nav nav South Africa 426 nav 4,798*** nav Greece 704 17% 42,219 36% Spain 1,335 1% 30,306 4% Guatemala nav nav nav nav Sri Lanka 97 67% 898 104% Honduras nav nav nav nav Sudan 13 360% 36 nav Hong Kong (China) 429 9% 55,115* nav Swaziland 123 51% 480 nav Hungary 474 25% 7,080** 56% Sweden 356 16% 19,739 1% India 52 113% 420 44% Switzerland 806 5% 18,549 19% Indonesia nav nav nav nav Taiwan (China) 1,101 1% nav nav Iran, Islamic Rep. of 241 127% 15,971 481% Tanzania 18 427% 96 291% Iraq 6 nav 15 nav Thailand 582 76% 3,657 16% Ireland 763 6% 17,976 45% Timor-Leste 6 6% 388 -65% Israel 435 nav 14,125 nav Trinidad and Tobago 265 17% 9,450 56% Italy 898 21% 21,079 6% Turkey 318 39% 23,240 31% Jamaica 155 11% 4,942 -3% Uganda 16 1106% 12 244% Japan 1,086 0% 13,510 11% Ukraine 629 100% 2,240 69% Jordan 169 65% nav nav United Arab Emirates 783 nav 11,191 nav Kazakhstan 438 196% 1,494 88% United Kingdom 1,006 1% 19,069 13% Kenya 46 129% nav nav United States 1,384 5% nav nav Korea, Rep. of 2,083 17% nav nav Uruguay 242 nav 22,788 nav Kosovo 188 188% 2,909 193% Vanuatu 83 nav 250 nav Kuwait 399 45% 8,052 55% Venezuela, R.B. nav nav nav nav Kyrgyz Republic 59 615% 261 168% West Bank and Gaza 75 86% 432 15% Latvia 585 41% 10,554 49% Yemen, Republic of 15 105% 91 27% Lebanon 286 17% 4,189 43% Zambia 33 201% 69 142% Lesotho 32 46% nav nav Zimbabwe 47 12% 200 61% Notes: * Total number of POS points instead of POS terminals. Some terminals can be used to process different types of payment cards. ** Includes POSs installed at bank branches and post offices for cash withdrawals. *** Refers to “bank owned� POS devices only. The number of POS devices that the retailers own is unknown. Section III. Retail Payment Instruments and Systems 56 PAYMENT SYSTEMS WORLDWIDE seem to warrant risk management techniques similar • Availability of ATMs and POS terminals is to those intended for a system processing larger shares clearly higher in high income countries, though of the total settlement throughput in the country. It within this group of countries there are signifi- was also argued back then that regardless of their im- cant differences, particularly with regard to POS plications for systemic risk, PSDG field work had con- terminals (e.g. Spain or Greece compared to firmed that ACHs are a key tool to facilitate commer- Germany). cial as well as person-to-person payment transactions, and as such have a significant impact in the overall effi- * For a few upper-middle income economies like ciency of the national payments system. 49 The current Brazil, Croatia, Serbia, or Turkey, to name only survey shows some improvements in the area of ACH some, the infrastructure for payment cards is risk management, precisely reflecting the growing im- comparable to that of high income economies, in portance of ACHs as a key component of the national particular with regard to the availability of POS payments system in many countries. terminals. However, many other upper-middle income economies still lag far behind high in- come countries in this area. III.2.3 Payment Cards and Related Systems • In all regions and throughout all country income This section presents the analysis of the survey ques- levels, the payment card business continues to tions covering payment cards, payment card switch- expand. es50 and other related aspects. • ATMs and POS terminals are growing at a very Table III.9 shows data on the number of ATMs and POS fast pace in many lower-middle income econo- terminals per every 1 million inhabitants, and growth mies, though in some cases the very high growth rates over a three-year period for these devices.51 rates observed in the 2002-2006 period seem to have moderated. To a great extent, this modera- Some of the general trends that can be identified are tion reflects the very low levels of these variables as follows: as of 2002, used as a basis for comparisons in the previous survey. 49 See, for example, the Bank of England Payment System Oversight Reports • Growth in upper-middle income economies is for discussions on retail payment systems and the concept of system-wide more stable, with growth rates of two, or in a importance. 50 For the purposes of this report, a payment card switch is defined as a mecha- few cases low three digits (equivalent to between nism that connects various institutions allowing interchange of payment cards 10% and 30% per annum). transactions of participating institution cardholders at other participating institu- tion merchants, ATMs and other card acceptance devices. A payment card switch is typically used for routing authorization and authentication-related messages • Growth rates are lower in high income countries between participating institutions, and can also generate and distribute clearing and also in low income economies. Moreover, and settlement files. In some settings, the individual institutions could themselves have payment card switches to connect their own ATMs and POS terminals to in most high income economies POS terminals their own internal card processing systems, and these payment card switches are are growing at a faster rate than ATMs, while the then connected to a central inter-institution payment card switch. This is also opposite is true for low income economies. This referred to as a payment card network. Payment card switches are also beginning to be used for processing of card transactions initiated through other channels appears to be correlated with the significantly like internet and mobile phones. higher per capita cashless transactions for high 51 Detailed per country statistics on ATMs, POS terminals and payment cards, among others, are presented in the Appendix. income countries. Global Survey 2010 57 TABLE III.10: ATM SERVICES Cash Purchases (e.g. Bill payments Cash deposits Credit transfers Other withdrawals tickets, airtime) Central banks # % # % # % # % # % # % Worldwide total (132) 131 99% 81 61% 82 62% 67 51% 79 60% 52 39% By income High income (46) 46 100% 31 67% 39 85% 21 46% 33 72% 18 39% Upper-middle income (33) 33 100% 21 64% 23 70% 21 64% 22 67% 18 55% Lower-middle income (33) 33 100% 21 64% 15 45% 18 55% 18 55% 8 24% Low income (20) 19 95% 8 40% 5 25% 7 35% 6 30% 8 40% By region East Asia and Pacific (11) 11 100% 8 73% 6 55% 9 82% 8 73% 2 18% Europe and Central Asia (16) 16 100% 11 69% 9 56% 7 44% 6 38% 7 44% Latin America & Caribbean (20) 20 100% 10 50% 15 75% 10 50% 13 65% 8 40% Middle East & North Africa (13) 13 100% 7 54% 6 46% 6 46% 9 69% 5 38% South Asia (4) 4 100% 3 75% 3 75% 1 25% 2 50% 2 50% Sub-Saharan Africa (27) 26 96% 13 48% 9 33% 16 59% 13 48% 11 41% Euro area countries (16) 16 100% 12 75% 12 75% 7 44% 13 81% 9 56% Other EU members (11) 11 100% 7 64% 11 100% 5 45% 6 55% 4 36% Other developed countries (14) 14 100% 10 71% 11 79% 6 43% 9 64% 4 29% By population size >30 million (36) 36 100% 29 81% 26 72% 23 64% 23 64% 13 36% >5 million, <30 million (50) 49 98% 26 52% 28 56% 20 40% 26 52% 27 54% 5 million or less (46) 46 100% 26 57% 28 61% 24 52% 30 65% 12 26% The first two bullet points above suggest that factors petition and innovation in the banking industry, and other than country income have an important influ- lack of knowledge and trust by the average customer ence in the development and expansion of payment in payment cards and related systems. Fortunately, card circuits. This may include the level of competi- survey data shows that some lower income countries tion in the banking industry, government programs appear to be overcoming these obstacles. promoting the use of payment cards, or the wide use of other payment instruments such as direct debits, Table III.10 shows the types of services offered at the among others. ATM.52 Information on such services was not included in the previous survey. Over 60% of the ATMs offer at According to PSDG experience, obstacles for a faster development of payment card systems, especially in 52 For further information on the payment services offered by ATMs, see Gua- lower income countries include the very limited acces- damillas, et. al., “Balancing Cooperation and Competition in Retail Payment sibility of bank accounts for individuals, limited com- Systems�, World Bank, 2008. Section III. Retail Payment Instruments and Systems 58 PAYMENT SYSTEMS WORLDWIDE TABLE III.11: CENTRAL BANKS’ OPINION ON INTEROPERABILITY OF ATMS AND POS TERMINALS Interoperability of ATMs Interoperability of POS terminals Full Partial Low Full Partial Low Central banks # % # % # % # % # % # % Worldwide total (132) 75 57% 25 19% 18 14% 60 45% 36 27% 22 17% By income High income (46) 36 78% 6 13% 2 4% 32 70% 8 17% 4 9% Upper-middle income (33) 22 67% 8 24% 2 6% 16 48% 13 39% 3 9% Lower-middle income (33) 15 45% 7 21% 7 21% 12 36% 10 30% 7 21% Low income (20) 2 10% 4 20% 7 35% 0 0% 5 25% 8 40% By region East Asia and Pacific (11) 4 36% 3 27% 1 9% 1 9% 5 45% 2 18% Europe and Central Asia (16) 6 38% 8 50% 2 13% 7 44% 6 38% 3 19% Latin America & Caribbean (20) 12 60% 4 20% 3 15% 8 40% 6 30% 5 25% Middle East & North Africa (13) 8 62% 2 15% 3 23% 7 54% 3 23% 3 23% South Asia (4) 3 75% 0 0% 1 25% 2 50% 2 50% 0 0% Sub-Saharan Africa (27) 8 30% 5 19% 5 19% 5 19% 6 22% 7 26% Euro area countries (16) 13 81% 2 13% 1 6% 13 81% 1 6% 2 13% Other EU members (11) 10 91% 0 0% 1 9% 9 82% 2 18% 0 0% Other developed countries (14) 11 79% 1 7% 1 7% 8 57% 5 36% 0 0% By population size >30 million (36) 25 69% 3 8% 4 11% 18 50% 9 25% 5 14% >5 million, <30 million (50) 30 60% 7 14% 10 20% 23 46% 13 26% 11 22% 5 million or less (46) 20 43% 15 33% 4 9% 19 41% 14 30% 6 13% Note: Results show the opinion of the respondents. Percentages may not add up to 100% as not all countries responded this question. least one non-cash payment service, which contributes lation size does not seem to have a clear effect on the to the efficiency of the payments system. type of services offered through ATMs. The difference between high income and low income Table III.11 is the first of a set of tables throughout the counties is significant for all ATM services with the survey in which central banks were asked to provide exception of cash withdrawals. From a regional per- their opinion on a particular matter that is either diffi- spective, ATMs in ECA and SSA offer less non-cash cult to measure or for which a straight answer covering payment services. Other services such as cash deposits all possibilities is simply not possible. In the specific are extended mainly in LAC, the EU and ODCs. With case of Table III.11 central banks were asked to assess the possible exception of bill payments, country popu- Global Survey 2010 59 TABLE III.12: PAYMENT CARDS IN CIRCULATION1 (per 1000 inhabitants, as of end-2009) Growth Growth Growth 2009 2009 2009 Country Number Country Number Country Number vs. vs. vs. 2006 2006 2006 Albania 179 134% Honduras nav nav Norway 3,583 22% Angola 32 nav Hong Kong (China) 2,070** nav Oman 794 nav Argentina 919 33% Hungary 877*** 7% Pakistan 54 71% Armenia 188 nav India 173 96% Peru 579 30% Australia 1,808 22% Indonesia 247 44% Philippines nav nav Austria 1,088 10% Iran, Islamic Rep. of 934 165% Poland 861 41% Azerbaijan 453 nav Iraq Nav nav Portugal 1,891 14% Bahamas, The nav nav Ireland 1,222 38% Romania 600 41% BCEAO nav nav Israel 719** nav Russian Federation 874 67% Belgium 1,785 13% Italy 1,148 6% Rwanda 3 nav Belize 300* nav Jamaica 699 28% Samoa 616 nav Bolivia 126 104% Japan nav nav San Marino 1,618 5% Bosnia and Herzegovina 466** 57% Jordan 462 168% Saudi Arabia 540* 29% Botswana 420 134% Kazakhstan 479 -11% Serbia 822 16% Brazil 1,929 40% Kenya nav nav Seychelles nav nav Bulgaria 1,013 30% Korea, Rep. of 2,197 15% Sierra Leone nav nav Burundi nav nav Kosovo 299 nav Singapore 1,344** nav Cambodia 31 nav Kuwait 1,027 0% Slovak Republic 941 18% Canada 2,848 13% Kyrgyz Republic 32* 386% Slovenia 1,993 11% Cayman Islands nav nav Latvia 1,078 21% South Africa nav nav Chile 734 18% Lebanon 336 29% Spain 1,621 2% China 1,552 80% Lesotho Nav nav Sri Lanka 322 74% Colombia 482 32% Libya 2 nav Sudan 10* 686% Congo, Dem. Rep. of 1* nav Lithuania 1,286 26% Swaziland Nav nav Costa Rica 1,203 14% Luxembourg 1,993 -5% Sweden 433** nav Croatia 1,925 17% Macao (China) 668** nav Switzerland 1,630 17% Cyprus 1,336 33% Macedonia FYR 592 195% Taiwan (China) 10,810 11% Czech Republic 891 12% Madagascar 13 102% Tanzania 19 126% Denmark 1,245 29% Malawi nav nav Thailand 652 75% Dominican Republic 559 nav Malaysia 1,496 41% Timor-Leste 8 9% Ecuador 59** -22% Malta 1,540 23% Trinidad and Tobago 1,472 7% Egypt, Arab Rep. of 119 67% Mauritania nav nav Turkey 1,458 22% El Salvador 325 -19% Mauritius 805 -2% Uganda 38 nav Eritrea nav Mexico 772 10% Ukraine 633 -9% Estonia 1,377 14% Moldova 207 nav United Arab Emirates 1,837 nav Ethiopia 1* 1739% Mongolia nav nav United Kingdom 2,221 -3% Fiji nav nav Montenegro 602 84% United States 4,516 -15% Finland 1,794 26% Morocco 197** 74% Uruguay 952 nav France 1,681 21% Mozambique 61 28% Vanuatu Nav nav Georgia 929 nav Namibia 122 nav Venezuela, R.B. Nav nav Germany 1,536 17% Nepal 35* 522% West Bank and Gaza 78 492% Ghana nav nav Netherlands 1,827 -6% Yemen, Republic of 19 nav Greece 1,344 15% New Zealand nav nav Zambia Nav nav Guatemala Nav nav Nigeria nav nav Zimbabwe 81 nav 1 Includes debit cards, credit cards and other non-prepaid products, where available. Notes: *Includes only debit cards information. **Includes only credit cards information. ***Includes also charge cards. Section III. Retail Payment Instruments and Systems 60 PAYMENT SYSTEMS WORLDWIDE TABLE III.13: PROCESSING OF DOMESTIC ATM AND POS TRANSACTIONS International payment Domestic payment networks networks dominate the There are no domestic dominate the processing processing payment networks of domestic transactions of domestic transactions ATM POS ATM POS ATM POS Central banks # % # % # % # % # % # % Worldwide total (132) 33 25% 59 45% 88 67% 67 51% 16 12% 18 14% By income High income (46) 7 15% 17 37% 36 78% 30 65% 3 7% 3 7% Upper-middle income (33) 11 33% 15 45% 21 64% 17 52% 5 15% 4 12% Lower-middle income (33) 8 24% 15 45% 20 61% 15 45% 5 15% 7 21% Low income (20) 7 35% 12 60% 11 55% 5 25% 3 15% 4 20% By region East Asia and Pacific (11) 0 0% 4 36% 8 73% 5 45% 2 18% 2 18% Europe and Central Asia (16) 12 75% 12 75% 2 13% 2 13% 4 25% 4 25% Latin America & Caribbean (20) 2 10% 5 25% 16 80% 14 70% 2 10% 1 5% Middle East & North Africa (13) 1 8% 5 38% 10 77% 7 54% 1 8% 2 15% South Asia (4) 0 0% 2 50% 4 100% 2 50% 0 0% 1 25% Sub-Saharan Africa (27) 11 41% 16 59% 15 56% 9 33% 4 15% 5 19% Euro area countries (16) 1 6% 2 13% 14 88% 13 81% 1 6% 1 6% Other EU members (11) 4 36% 6 55% 7 64% 5 45% 1 9% 2 18% Other developed countries (14) 2 14% 7 50% 12 86% 10 71% 1 7% 0 0% By population size >30 million (36) 7 19% 20 56% 29 81% 18 50% 2 6% 6 17% >5 million, <30 million (50) 9 18% 18 36% 36 72% 27 54% 4 8% 5 10% 5 million or less (46) 17 37% 21 46% 23 50% 22 48% 10 22% 7 15% the interoperability of ATMs and POS terminals in central banks indicating full interoperability for ATMs three categories.53 (57%) is higher than that for POS (45%). These figures are similar to those of the previous survey. Overall, slightly more than half of central banks par- ticipating in the survey indicated that both ATMs and Numbers for full interoperability are significantly POS terminals are fully interoperable. The number of higher in high income economies. From a regional perspective, although there are some differences in 53 “High interoperability of ATMs� is described as all payment and cash with- the ratings between ATMs and POS terminals, full in- drawal cards being used seamlessly (though probably at a cost) in all ATMs in the country. Similarly, “full interoperability of POS terminals� means all payment cards can be used seamlessly in any POS terminal. Global Survey 2010 61 teroperability is higher in the euro area and ODCs.54 In the survey, central banks were also asked to express The regions with the highest percentages for partial their opinion on the extent to which payment cards are or low interoperability are SSA, EAP and ECA. In the used as payment instruments (at POS terminals) and case of POS terminals, low interoperability is also evi- not only for cash withdrawals at ATMs. Forty-six cen- dent in LAC and SA. tral banks (35% of the total) indicated that payment cards are used extensively as payment instruments at From the country population size perspective, full POS terminals. The great majority are ODCs and EU interoperability of ATMs is more common in larger countries. On the other hand, central banks in EAP, countries, while partial interoperability is observed MNA, SA and SSA regions reported low usage of pay- more frequently in smaller countries. For POS ter- ment cards at POS terminals. All these results are al- minals, the effect of a country’s population size is less most identical to those of the previous survey. clear as only minor differences are shown across the three classifications within this category. Table III.13 shows information on the processing ar- rangements for payment cards. International brands Table III.12 shows statistical data on payment cards per like Visa, MasterCard and others dominate domestic every 1000 inhabitants. Practically in all high income POS transaction processing in 45% of the responding countries there is one payment card (credit card, debit countries, while domestic networks are dominant in card and other non-prepaid cards) or more per every 51% of the cases. In the case of ATMs, domestic net- inhabitant, with extreme values observed in cases like works are significantly more dominant. Taiwan (China) and the United States with more than 4 payment cards per inhabitant. International brands are dominating the market in lower income countries, especially in the case of POS Interestingly, while figures for upper- and lower-mid- transaction processing. Domestic networks are more dle countries are indeed lower than those for high in- dominant in euro-area countries, ODCs and LAC. come countries, when compared with the data in Table III.9 the relative differences between the two sets of Interestingly, while it could be expected that interna- countries are much smaller. For instance, while the tional brands would be dominant in countries with typical ratio of cards per inhabitant in high income smaller populations because of the large investment countries compared to middle income countries is 2-3 costs associated with setting up a processing network, to 1, this same ratio in the case of POS terminals is 8-10 survey data does not show any evidence on this regard. to 1. Together with other variables such as financial lit- eracy, the latter may help explain why payment cards are Central banks were also asked to provide an opinion on used much more intensively in high income countries, whether the interchange fees prevailing in their juris- despite the fact that these payment products are well es- dictions are “high�, and what actions, if any, have or are tablished also in most middle income economies. being taken to address this issue. A total of 106 central banks responded to the first question with the follow- ing overall results: 48% consider the interchange fees to be high while 32% do not consider the interchange fees to be high. The remaining 20% did not express a 54 It should be noted here that, as mentioned in the Methodological Note, in- dividual countries are aggregated here without considering their relative size in particular opinion on this issue. Several of the central terms of territory or the size of the economy. A weighted average may yield results banks in the latter group mentioned that they coordi- quite different from those mentioned in this paragraph. Section III. Retail Payment Instruments and Systems 62 PAYMENT SYSTEMS WORLDWIDE TABLE III.14: PAYMENT SWITCHES – OWNERSHIP STRUCTURE Consortium of all Consortium of a few Other government Other private major banks (say Central Bank large banks bodies sector entities 80% of all banks) Payment switches # % # % # % # % # % Worldwide total (164) 30 18% 58 35% 20 12% 14 9% 50 30% By county income level High income (59) 8 14% 28 47% 8 14% 4 7% 19 32% Upper-middle income (42) 11 26% 15 36% 3 7% 2 5% 13 31% Lower-middle income (37) 9 24% 12 32% 7 19% 3 8% 9 24% Low income (26) 2 8% 3 12% 2 8% 5 19% 9 35% By region East Asia and Pacific (14) 1 7% 4 29% 3 21% 0 0% 5 36% Europe and Central Asia (11) 0 0% 3 27% 3 27% 1 9% 6 55% Latin America & Caribbean (31) 14 45% 10 32% 0 0% 2 6% 6 19% Middle East & North Africa (13) 3 23% 5 38% 4 31% 2 15% 1 8% South Asia (8) 2 25% 1 13% 0 0% 0 0% 0 0% Sub-Saharan Africa (30) 4 13% 6 20% 4 13% 5 17% 12 40% Euro area countries (21) 0 0% 11 52% 3 14% 0 0% 7 33% Other EU members (14) 1 7% 6 43% 3 21% 1 7% 5 36% Other developed countries (22) 5 23% 12 55% 0 0% 3 14% 8 36% By country population size >30 million (63) 13 21% 24 38% 7 11% 2 3% 16 25% >5 million, <30 million (61) 10 16% 21 34% 9 15% 8 13% 18 30% 5 million or less (40) 7 18% 13 33% 4 10% 4 10% 16 40% nate with the relevant players (e.g. domestic payment thorities; and, (iii) establishing domestic payment card networks) for the purpose of setting interchange fees. networks. With regard to the second question on whether any Payment card switches are an important contribu- actions are being taken, 34 central banks answered tor to enabling interoperability for the payment card simply with a “yes� and 12 others with a “no�. A few transactions in the country. In order to obtain a more provided further details on the actions being taken complete picture of these systems, the 2010 survey or planned, among which the most common ones covered several additional issues and detailed ques- are: (i) moral suasion and discussion with industry; tions. Highlights from the analysis of these responses (ii) detailed study being undertaken by the public au- are discussed below; a more detailed analysis will be Global Survey 2010 63 TABLE III.15: PAYMENT SWITCHES – SETTLEMENT FEATURES Final settlement of net Final settlement takes Final settlement takes Final settlement takes positions takes place place in Central Bank place in commercial place in another country through RTGS money, but not bank money through RTGS Payment switches # % # % # % # % Worldwide total (164) 91 55% 20 12% 51 31% 3 2% By county income level High income (59) 40 68% 3 5% 15 25% 0 0% Upper-middle income (42) 24 57% 0 0% 14 33% 0 0% Lower-middle income (37) 16 43% 9 24% 15 41% 0 0% Low income (26) 11 42% 8 31% 7 27% 3 12% By region East Asia and Pacific (14) 7 50% 3 21% 4 29% 0 0% Europe and Central Asia (11) 4 36% 1 9% 4 36% 0 0% Latin America & Caribbean (31) 17 55% 0 0% 12 39% 0 0% Middle East & North Africa (13) 7 54% 1 8% 5 38% 0 0% South Asia (8) 1 13% 3 38% 5 63% 0 0% Sub-Saharan Africa (30) 17 57% 9 30% 6 20% 3 10% Euro area countries (21) 14 67% 1 5% 4 19% 0 0% Other EU members (14) 10 71% 2 14% 2 14% 0 0% Other developed countries (22) 14 64% 0 0% 9 41% 0 0% By country population size >30 million (63) 43 68% 6 10% 16 25% 3 5% >5 million, <30 million (61) 32 52% 10 16% 19 31% 0 0% 5 million or less (40) 16 40% 4 10% 16 40% 0 0% published in a forthcoming World Bank publication features of such systems, while 16 central banks indi- on payment card switches. cated that there are no domestic payment card switch- es operating in their country. Eighty-seven central banks responded to the questions of this sub-section, reporting a total of 164 payment Table III.14 describes the ownership structure of the card switches.55 Overall, 75% of the central banks in payment card switches. The most common owner- whose jurisdiction domestic payment card switches ship structure reported is a consortium of a large exist provided detailed information on the operational banks (35%), followed by a consortium of other pri- vate sector players (30%). Only 12% of the payment card switches are operated by central banks, which is a 55 Central banks were requested to provide information for the three main pay- ment card switches in their country. significantly lower figure than the corresponding one Section III. Retail Payment Instruments and Systems 64 PAYMENT SYSTEMS WORLDWIDE TABLE III.16: SUMMARY OF CENTRAL BANK PERCEPTION OF COSTS Cost is negligible and low (%) Cost is high (%) High Low High Low Payments/Associated Services Worldwide income income Worldwide income income countries countries countries countries Opening a bank account 67 76 60 3 0 10 Maintaining a bank account 58 61 45 8 4 15 Direct credit 39 48 30 17 7 20 Direct debit 57 65 40 5 0 10 Cheque related services 45 41 45 9 15 5 Credit cards – Annual fees 33 30 35 16 13 15 Credit cards – Individual transactions 50 61 40 8 4 5 Debit cards – Annual fees 62 67 55 7 4 15 Debit cards – Individual transactions 62 70 50 6 2 5 Prepaid cards – Annual fees 43 54 20 5 9 5 Prepaid cards – Individual transactions 40 54 25 4 2 0 ATM withdrawals at own bank 76 76 65 3 0 0 ATM withdrawals at another bank 39 43 20 20 15 25 Other ATM services at own bank 59 67 50 3 2 0 Other ATM services at another bank 35 43 25 11 9 15 Other payment instruments 17 13 35 2 4 0 Note: Percentages of high and low income countries are intended on the total of respondent central banks. for cheque clearinghouses and ACHs. Payment card es performing this transaction type. Moreover, the switches being owned by a large number of banks is expansion of the usage of payment cards to other more common in higher income countries, especially transaction channels like internet and mobile phones in euro-area countries and ODCs, and slightly less in is also reflected in the survey data: 92 switches were re- other EU members, while ownership by a small num- ported to be also used for processing transactions initi- ber of large banks prevails in LAC. Ownership of the ated on the internet, and 54 switches were reported to payment card switch by central banks was reported to be used for processing transactions initiated through be more common in MNA countries (31%), and to a mobile phones. lesser extent in ECA (27%). According to the survey, a country’s population size does not appear to have a Table III.15 shows data on some of the basic clear- relevant effect on ownership structure. ing and settlement features of payment card switches. Although not through a RTGS system, central bank Payment card switches were historically established for money for the final settlement or participant positions processing ATM and POS transactions. Over the years, is used in 12% of the cases. Final settlement through a the scope of payment card switches was expanded to RTGS system shows an increase from 42% in the 2008 include other transaction types like credit transfers. In survey to 55%. These figures are significantly lower the survey, central banks reported a total of 64 switch- than the corresponding ones for other retail systems Global Survey 2010 65 like cheques and ACHs, in which the use of central bank money for the final settlement of participant po- BOX 7: INTERNATIONAL ADVISORY GROUP FOR sitions is close to 95%. GOVERNMENT PAYMENTS On the other hand, the use of commercial bank mon- Government payments can play a critical role in the development ey for this purpose is common in SA (63%). In only of a national payment system especially in developing economies. three countries, all of which belong to the SSA re- Government payments can facilitate economic growth and innova- gion, final settlement takes place in another country. tion in the underlying retail payments infrastructure and enhance public policy goals such as efficiency, transparency, security of pay- ments as well as financial inclusion. III.2.4 Affordability of Non-Cash Payment Instrument and Services for Individuals The International Advisory Group (IAG) for Government Payments, under the auspices of the World Bank, has been convened with a central mandate of supporting member governments in their efforts In the 2008 survey central banks were asked to pro- to improve the efficiency of government payment systems. vide their opinion on the easiness or difficulty for in- dividuals to have access to non-cash payment services Key goals for the IAG are to help facilitate the development of Gen- offered by commercial banks, non-banking financial eral Guidelines for Government Payments, as well as work towards institutions and the postal system. For the 2010 survey, assessment tools for government payments reform for all catego- the focus of this question changed, from accessibility ries, such as: (i) Government Transfers or government to govern- of non-cash payment services to affordability of such ment (G2G) payments, which involve transfers from one govern- services. Still, qualitative data based on central banks’ ment agency to another for budgetary or operational purposes opinions was collected. through central treasury systems; (ii) Government Expenditures in the form of cash transfers, salaries and social benefits payments Central banks were asked to provide a rating of the made by a government to a person (G2P) payments, and, expen- cost of payments and associated services on a scale ditures made by government agencies for procurement and other of 1 to 4 (negligible, low, medium and high). A total business related expenses (G2B) payments; and (iii) Government Collections of revenues, fees, duties and other dues collected by a of 114 central banks responded to this sub-section of government from persons (P2G) or businesses (B2G). the questionnaire. A brief summary of the responses is presented in Table III.16. Development of the General Guidelines for Government Payments was done through analysis and synthesis of existing material, ex- A majority of the central banks (67%) assessed the cost pertise and quantitative data to extrapolate a set of best practices of opening a bank account as negligible or low, though for government payments and by multi-stakeholder consultations. fewer central banks (58%) indicated the cost of main- The members of the IAG Secretariat at the World Bank were primary taining a bank account as negligible or low. Only 39% authors of this report (with input from experts from partner organi- of central banks consider the costs of direct credit be- zations), which was developed via periodic review and constant di- ing negligible/low, though the majority (57%) consider alogue with the membership of the IAG. The public comment period the cost of a direct debit being negligible/low. Given will start in January 2012 (details here: http://wwwr.worldbank.org/ that there are ACHs and payment cards switches in paymentsystems/iag). operation in many countries, this could represent an Source: International Advisory Group for Government Payments, The opportunity for creating cost incentives to promote a World Bank Section III. Retail Payment Instruments and Systems 66 PAYMENT SYSTEMS WORLDWIDE TABLE III.17: PAYMENT INSTRUMENTS FOR GOVERNMENT PAYMENTS Mainly electronic payment Mainly paper-based payment instruments such as payment Mainly cash instruments-cheques, cards, electronic funds payment orders transfers, etc. Government-to-person payments Public sector salaries 11% 24% 76% Pensions and transfer payments 14% 26% 67% Cash transfers and social benefits 22% 31% 52% Person-to-government payments Taxes 40% 48% 44% Utility payments 55% 33% 42% Payment for services, etc. 54% 35% 34% Government-to-business payments Procurement of goods and services 2% 50% 61% Tax refunds 2% 49% 50% Business-to-government payments Taxes 11% 58% 57% Utilities 16% 53% 50% Benefits transfers 9% 52% 46% Note: Central banks were asked to indicate which is the payment mechanism mainly used for the specific types of government payments. In certain cases more than one payment mechanisms were chosen, hence the totals may add up to more than 100%. Note that this table reflects information provided by 129 central banks worldwide. large scale shift to use of direct credits and direct deb- The central banks’ perceptions recorded in the survey its. Seventy-six central banks assessed the cost of cash do not show any apparent trend based on the size of withdrawals at own bank as negligible/low. The cost of the country, income level or region. However, a rela- ATM transactions conducted at other banks is an indi- tively higher proportion of central banks of low in- cator of the level of inter-operability of the ATM net- come countries have indicated that the costs of the var- works in the country: 20% consider the cost of ATM ious payment-related activities are high. On the other withdrawals at other banks high, implying potentially hand, a higher percentage of low income countries has low usage of other bank ATMs. The figures for this at- reported the cost of cheques being negligible or low tribute for high income and low income countries in- (45% against 41% of high income countries); the same dicate higher likelihood of customers using another could be said regarding credit cards annual fees and bank’s ATMs in high income countries in comparison other payment instruments. Another interesting ob- to low income countries. When viewed in conjunc- servation is that only 17% of central banks assessed tion with significantly higher per capita ATMs in high the cost of other payment instruments like mobile income countries in comparison to low income coun- payments as negligible/low. The percentage of cen- tries, this indicates an even lower level of utilization of tral banks in low income countries assessing the cost the ATM infrastructure in the low income countries. of “other� payment instruments/mechanisms (such as mobile phone based e-money products) as negligible/ TABLE III.18: PAYMENT INSTRUMENTS FOR GOVERNMENT TO PERSON PAYMENTS Public sector salaries Pensions and transfer payments Cash transfers and social benefits Mainly Mainly Mainly Mainly Mainly Mainly paper- paper- electronic Global Survey 2010 Mainly paper-based electronic Mainly electronic Mainly based based payment cash payment payment cash payment cash payment payment instruments instruments instruments instruments instruments instruments Central banks % % % % % % % % % Worldwide total (129) 11% 24% 76% 14% 26% 67% 22% 31% 52% By income High income (45) 2% 11% 91% 9% 18% 80% 9% 20% 78% Upper-middle income (31) 3% 23% 84% 16% 19% 74% 23% 26% 58% Lower-middle income (33) 15% 33% 70% 9% 30% 64% 33% 30% 27% Low income (20) 35% 40% 40% 30% 45% 35% 30% 65% 25% By region East Asia and Pacific (11) 18% 27% 64% 9% 36% 64% 36% 27% 45% Europe and Central Asia (16) 13% 19% 69% 31% 13% 56% 25% 19% 44% Latin America & Caribbean (19) 0% 37% 79% 5% 37% 68% 16% 42% 47% Middle East & North Africa (12) 25% 33% 58% 8% 33% 50% 17% 42% 33% South Asia (4) 0% 75% 50% 0% 75% 50% 75% 25% 0% Sub-Saharan Africa (27) 22% 37% 59% 19% 37% 56% 26% 59% 30% Euro area countries (16) 6% 6% 100% 13% 19% 88% 13% 19% 88% Other EU members (11) 0% 0% 100% 27% 0% 73% 27% 0% 73% Other developed countries (13) 0% 0% 100% 0% 0% 100% 0% 8% 92% By population size >30 million (36) 22% 17% 81% 14% 19% 81% 25% 19% 61% >5 million, <30 million (47) 11% 23% 72% 17% 28% 62% 26% 34% 49% 67 5 million or less (46) 2% 30% 76% 11% 28% 63% 15% 37% 48% Section III. Retail Payment Instruments and Systems 68 TABLE III.19: PAYMENT INSTRUMENTS FOR PERSON TO GOVERNMENT PAYMENTS Taxes Utility payments Payment for services, etc. Mainly Mainly Mainly Mainly Mainly Mainly paper- paper- paper- electronic Mainly electronic Mainly electronic Mainly cash based based based payment cash payment cash payment payment payment payment instruments instruments instruments instruments instruments instruments Central banks % % % % % % % % % Worldwide total (129) 40% 48% 44% 55% 33% 42% 54% 35% 34% By income High income (45) 18% 30% 75% 23% 25% 68% 27% 25% 64% Upper-middle income (31) 41% 56% 28% 63% 31% 22% 59% 44% 13% Lower-middle income (33) 64% 55% 30% 70% 42% 39% 67% 39% 27% Low income (20) 45% 65% 25% 90% 40% 20% 85% 35% 15% By region East Asia and Pacific (11) 64% 73% 18% 82% 45% 36% 91% 45% 18% Europe and Central Asia (16) 50% 38% 25% 56% 31% 31% 50% 38% 25% Latin America & Caribbean (19) 47% 53% 47% 58% 42% 37% 53% 42% 32% Middle East & North Africa (12) 33% 58% 25% 42% 33% 42% 50% 33% 25% South Asia (4) 100% 25% 25% 100% 25% 25% 75% 25% 25% Sub-Saharan Africa (27) 44% 63% 22% 89% 33% 15% 85% 33% 11% Euro area countries (16) 13% 31% 88% 25% 31% 81% 25% 31% 69% Other EU members (11) 27% 18% 73% 27% 9% 55% 27% 9% 45% Other developed countries (13) 15% 46% 77% 15% 38% 69% 23% 46% 69% By population size >30 million (36) 42% 47% 58% 58% 31% 47% 64% 31% 39% >5 million, <30 million (47) 40% 43% 49% 57% 36% 47% 53% 30% 38% 5 million or less (46) 37% 54% 28% 50% 33% 33% 48% 43% 26% PAYMENT SYSTEMS WORLDWIDE Global Survey 2010 69 low is 35%, compared to 13% for high income coun- nesses including taxes and payments for government tries. This may indicate that “other� payment instru- services such as utilities, etc., also known as P2G and ments are perceived as more relevant in low income B2G payments; (iii) payments made by a government countries. entity to businesses for operational or procurement purposes or G2B payments; and, (iv) intra-govern- III.2.5 Government Payments mental payments involving payments from one gov- ernment agency to another for budgetary or opera- For the 2010 survey, a new sub-section on payments tional purposes or G2G payments. made from/to the government and its agencies was included. For many years, the PSDG has asserted that In the survey, central banks were asked to identify the government payments play a critical role in the de- payment mechanisms used for government payments. velopment of a national payments system given their The responses to this set of questions are summarized scale and volume, and the positive role they play in in Table III.17. facilitating innovation in the underlying retail pay- ments infrastructure. The efficiency, transparency, Amongst the various types of government payments, security and cost effectiveness of payments made or G2P universally had the highest rate of usage of elec- collected by government entities largely depends upon tronic payment methods. Most importantly, payment the type of payment instruments used for distribution of salaries to public sector employees included elec- and collection purposes. Payment processes that use tronic payment methods in over 75% of the respond- cash or paper-based payment instruments are more ing countries. Further, pensions and social benefit inefficient in terms of both processing time and cost transfers were mainly executed by electronic payment effectiveness. In contrast, countries that have success- methods in 67% and 52% of the countries, respectively. fully adopted electronic payment instruments such as payment cards (e.g. for the disbursement or subsidies, Conversely, P2G universally had the lowest rate of use other social benefits, etc.) or electronic credit transfers, of electronic payment methods. On average, 50% of among others, have been able to improve the efficiency the responding countries reported collecting revenues at the disbursing or collecting government entities. from taxes, utilities, etc. via cash and 40% using other Additionally, in many cases this has had a profound paper-based methods. impact on the retail payments industry as a whole. In terms of governments making payments to busi- In recognition of the strategic importance of govern- nesses for procurement of services and tax refunds, ment payments, the World Bank’s PSDG has convened the response was balanced between electronic and pa- an International Advisory Group to develop guidelines per-based based payment methods (mainly cheques). for making government payments more efficient (de- Collections of taxes, utilities payment, etc. by govern- tails in Box 7). ments from businesses also saw balanced responses between electronic and paper-based based payment Broadly defined, government payments include four methods with nearly 50% incorporating each type of key categories of payments: (i) cash transfers, salaries payment method. and social benefits payments made by a government entity to a person or G2P payments; (ii) payments col- More details on G2P and P2G payments are provided lected by a government entity from persons or busi- in Tables III.18 and III.19. Section III. Retail Payment Instruments and Systems SECTION IV SETTLEMENT OF FOREIGN EXCHANGE TRANSACTIONS IV.1 BACKGROUND ment of foreign exchange trades. This strategy called for: i) action by individual banks to control the FX F oreign exchange (FX) transactions add settlement exposures; ii) action by industry groups to complexity to the clearing and settlement provide risk-reducing multicurrency services; and, iii) process seen at the domestic level since they action by central banks to induce rapid private sector have a multicurrency dimension and, typi- progress. cally, involve more than one jurisdiction. Settlement of FX transactions gives rise to several types of risk. As one of the major results of these efforts, CLS Bank First, FX settlement risk has a credit risk dimension. International (CLS Bank) started its continuous- For each FX trade, there are two payment delivery legs, linked settlement-CLS service in 2002, eliminating one in the domestic currency and the other in foreign principal risk for FX transactions in the currencies currency. If a bank cannot make the payment of the that are settled in it. Currently, the CLS Bank settles FX currency it sold conditional on its final receipt of the transactions in 17 currencies: Australian dollar, British currency it bought, it faces the possibility of losing the pound, Canadian dollar, Danish krone, euro, Japanese full principal value of the transaction (so called prin- yen, Hong Kong dollar, Israeli shekel, Korean won, cipal risk). FX settlement risk also has an important Mexican peso, New Zealand dollar, Norwegian krone, liquidity risk dimension. Even temporary delays in set- Swedish krona, Singapore dollar, South African rand, tlement can expose a receiving bank to liquidity pres- Swiss franc, and the U.S. dollar. CLS Bank is subject to sures if unsettled funds are needed to meet obligations the cooperative oversight of the central banks involved to other parties. In addition, in the case of FX deals and is directly overseen by the U.S. Federal Reserve. legal risk can be complicated by the fact that settlement normally takes place in more than one jurisdiction. In May 2008 the CPSS issued a report on “Progress in Most banks do not participate directly in payment sys- reducing foreign exchange settlement risk�. This report tems outside their country of incorporation and there- analyses the progress made over the past ten years and fore need another institution to act as intermediary to concludes that the central bank strategy has achieved settle the foreign currency leg. significant success. However, a notable share of FX transactions is settled in ways that still generate signifi- In 1996, the G-10 central banks endorsed a strategy cant potential risk across the global financial system to reduce the systemic risk arising from the settle- and so further action is needed. 71 72 PAYMENT SYSTEMS WORLDWIDE TABLE IV.1: STATISTICS ON OTC FX TURNOVER FROM THE BIS TRIENNIAL CENTRAL BANK SURVEY OF FOREIGN EXCHANGE AND DERIVATIVES MARKET ACTIVITY IN 2010 Global Survey 2010 73 TABLE IV.1 (continued) Source: Bank for International Settlements, “Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in 2007 – Final Results�, Basel, Switzerland, December 2007. Section IV. Settlement of Foreign Exchange Transactions 74 PAYMENT SYSTEMS WORLDWIDE TABLE IV.2: FOREIGN EXCHANGE MARKETS: GENERAL FEATURES There are One foreign currency Central Bank offers restrictions on FX accounts for 90% current account services dealings, and the FX or more of total FX in at least one major market is not very transactions foreign currency active FX markets # % # % # % Worldwide total (108) 47 44% 52 48% 16 15% By income High income (38) 13 34% 11 29% 1 3% Upper-middle income (28) 15 54% 16 57% 3 11% Lower-middle income (26) 13 50% 14 54% 7 27% Low income (16) 6 38% 11 69% 5 31% By region East Asia and Pacific (8) 4 50% 1 13% 3 38% Europe and Central Asia (14) 7 50% 6 43% 3 21% Latin America & Caribbean (16) 11 69% 12 75% 3 19% Middle East & North Africa (9) 6 67% 6 67% 1 11% South Asia (4) 2 50% 2 50% 1 25% Sub-Saharan Africa (21) 8 38% 12 57% 5 24% Euro area (12) 1 8% 3 25% 0 0% Other EU members (10) 1 10% 7 70% 0 0% Other developed countries (14) 7 50% 3 21% 0 0% By population size >30 million (31) 18 58% 14 45% 4 13% >5 million, <30 million (42) 16 38% 21 50% 7 17% 5 million or less (35) 13 37% 17 49% 5 14% Note: For the purpose of this table, member countries of the BCEAO are counted as one. The latest information on foreign exchange turnover vices provided for the settlement of FX transactions, worldwide can be found in the BIS Triennial Central settlement arrangements used to reduce FX settlement Bank Survey of Foreign Exchange and Derivatives risk, and average duration of FX exposures. In general Market Activity, 2010 (see Table IV.1). terms the information that was received is incomplete. Not all central banks responded to this section of the survey; others provided answers to some and not all of IV.2 SURVEY OUTCOMES the questions. As a consequence, cross-country com- parisons, as well as comparisons with the previous sur- The World Bank survey collected information regard- vey, are difficult to make. ing the organization of FX markets, central bank ser- Global Survey 2010 75 While available information does not allow drawing in the countries of the European Union continue to be clear conclusions regarding the progress in reduc- more diversified. ing FX settlement risk, some positive developments are evident. Two more currencies (Israeli shekel and One half of the responding central banks offer current Mexican peso) have been accepted for settlement on account and or settlement services in at least one ma- PVP basis in the CLS Bank. In addition, several new jor foreign currency. This does not necessarily mean offshore systems for settlement of foreign currencies that the main interbank payment systems process on a PVP basis started operations after the previous transactions in currencies other than the national/of- survey. ficial currency.56 The following tables only include information on the In some countries, the central bank is directly involved countries that have answered Part IV: Foreign Exchange in the settlement of the foreign leg of FX transac- Settlement Systems of the Questionnaire for Collecting tions. This is the case in most of the countries where Information to Depict the Situation of Payment and FX transactions are traded in a “centralized market�57 Securities Settlement Systems Worldwide. Furthermore, and settled through foreign currency accounts kept at information in Tables IV.3A and IV.3B is limited to the the central bank. Indeed, 12 of the countries where the central banks indicating the existence of organized FX central bank offers account and settlement services in market in their country. foreign currencies also reported that the centralized FX market settles on PVP bases solely through settle- Not surprisingly, one foreign currency continues to ment accounts at the central bank (see Table IV.3B, dominate FX transactions in about half of the report- third column). ing countries. Table IV.2 shows that in 44% of the FX markets, one foreign currency accounts for 90% or The percentage of central banks offering settlement more of total FX activity, a result that is almost iden- services in foreign currencies is higher in the LAC, tical to that of the 2008 survey. This concentration is MNA and non-euro EU member countries. In the lat- significant in the LAC region, where most countries ter case, central banks can provide settlement services are closely linked to the U.S. dollar, as well as in MNA to domestic banks for settlement in euro by joining region. When compared to the 2008 survey, the num- TARGET2. The survey data also shows that the pro- ber of countries in the LAC region that reported con- vision of accounts and settlement services by central centration of their FX markets in a single currency banks is more common in low and middle income decreased from 78% to 69%, while in MNA this per- countries. centage increased from 42% to 67%. The percentage of central banks indicating that the FX market operates with some type of restriction or is not A significant increase in the concentration of FX trades very active has decreased only slightly from the 2008 was noted also in the EAP region where half of the survey (15% from 16%). As was the case in 2008, FX countries answered positively to this question (only markets tend to operate more freely in higher income 10% in the previous survey). In the case of the ECA region, despite the reported percentage being 50%, PSDG field experience shows that CIS countries with- 56 Table II.2 shows that only 10 RTGS systems allow the processing of transac- tions in foreign currencies. in this region usually have a very large concentration 57 For the purpose of this survey, a centralized market is defined as a structured of FX trades in the U.S. dollar. In contrast, FX markets arrangement for trading at a central location, e.g. an Exchange. Section IV. Settlement of Foreign Exchange Transactions 76 PAYMENT SYSTEMS WORLDWIDE TABLE IV.3A: CENTRALIZED FOREIGN CURRENCY MARKETS Centralized foreign currency markets % on the total respondents to Number (#) Part IV Worldwide total 41 38% By income High income 10 26% Upper-middle income 12 43% Lower-middle income 11 42% Low income 8 50% By region East Asia and Pacific 4 50% Europe and Central Asia 6 43% Latin America & Caribbean 7 44% Middle East & North Africa 1 11% South Asia 2 50% Sub-Saharan Africa 12 57% Euro area 3 25% Other EU members 3 30% Other developed countries 3 21% By population sSize >30 million 16 52% >5 million, <30 million 16 38% 5 million or less 9 26% countries with only 1 country in this category indicat- come countries indicated the existence of such an ar- ing the existence of such restrictions. In contrast, about rangement. From a regional perspective, these types of one-third of low income countries reported their FX markets are more common in the SSA, EAP, SA, LAC, market operating with some restrictions or not being and ECA (mostly CIS countries) regions. very active. Table IV.3B provides details about settlement arrange- The existence of a “centralized market� for FX trad- ments in organized FX markets. In the majority of the ing was indicated by 41 respondents (see Table IV.3A). reporting countries settlement is made on a PVP basis. Centralized FX markets are more common in middle The most common method for settlement of FX trans- and low income countries. Indeed, only 10 high in- Global Survey 2010 77 TABLE IV.3B: SETTLEMENT FEATURES IN ORGANIZED FX MARKETS Settlement Settlement One foreign Settlement occurs on a PVP Settlement of occurs on a currency of foreign basis through FX deals occurs PVP basis There is no PVP accounts for currency deals combination on a PVP solely solely through procedure 90% or more at the exchange Central Bank through foreign settlement of total are settled by -foreign correspondent accounts at the transactions the exchange correspondent banks Central Bank banks FX markets # % # % # % # % # % # % Worldwide total (41) 22 54% 6 15% 12 29% 20 49% 4 10% 11 27% By income High income (10) 3 30% 2 20% 2 20% 2 20% 1 10% 4 40% Upper-middle income (12) 8 67% 1 8% 4 33% 7 58% 0 0% 1 8% Lower-middle income (11) 8 73% 2 18% 3 27% 7 64% 2 18% 4 36% Low income (8) 3 38% 1 13% 3 38% 4 50% 1 13% 2 25% By region East Asia and Pacific (4) 2 50% 1 25% 0 0% 4 100% 0 0% 0 0% Europe and Central Asia (6) 4 67% 1 17% 2 33% 3 50% 0 0% 1 17% Latin America & Caribbean (7) 6 86% 2 29% 3 43% 4 57% 0 0% 1 14% Middle East & North Africa (1) 1 100% 0 0% 0 0% 0 0% 0 0% 0 0% South Asia (2) 1 50% 0 0% 0 0% 1 50% 1 50% 1 50% Sub-Saharan Africa (12) 6 50% 0 0% 5 42% 6 50% 2 17% 4 33% Euro area (3) 0 0% 0 0% 0 0% 0 0% 0 0% 3 100% Other EU members (3) 0 0% 0 0% 1 33% 2 67% 0 0% 1 33% Other developed countries (3) 2 67% 2 67% 1 33% 0 0% 1 33% 0 0% By population size >30 million (16) 11 69% 3 19% 1 6% 12 75% 2 13% 3 19% >5 million, <30 million (16) 7 44% 3 19% 5 31% 7 44% 2 13% 6 38% 5 million or less (9) 4 44% 0 0% 6 67% 1 11% 0 0% 2 22% actions, reported by half of the 41 countries with an counts/services of the central bank only.58 This ap- organized FX market, uses a combination of accounts proach is more common in small and medium size in the central bank for the local currency, and accounts countries. Four countries indicated that FX deals are in foreign correspondent banks for the foreign curren- settled on PVP basis through foreign correspondent cy leg of the transaction. This result is similar to 2008 banks, while 6 countries reported that FX trades at the survey findings. exchange are also settled through the exchange. As mentioned earlier in this chapter, in 12 countries 58 In this case, the central bank offers current accounts in one or more foreign currencies and facilitates the PVP settlement against the domestic currency. As it out of 41, PVP is achieved by using settlement ac- is shown in Table IV.2, 52 central banks offer such services. Section IV. Settlement of Foreign Exchange Transactions 78 PAYMENT SYSTEMS WORLDWIDE TABLE IV.4: SETTLEMENT FEATURES IN OVER-THE-COUNTER (OTC) MARKETS Time lag between Time lag between Time lag between There is an confirmation of confirmation of confirmation of No significant organized settlement of settlement of settlement of information is mechanism or foreign currency foreign currency foreign currency available on the procedure for FX leg and domestic leg and domestic leg and domestic risks in the foreign trades to be settled currency leg does currency leg is less currency leg currency market on a PVP basis not exceed 2h than 24h exceeds 24h FX markets # # # # # Worldwide total (108) 44 19 39 9 7 By income High income (37) 25 7 22 6 3 Upper-middle income (29) 10 5 9 1 2 Lower-middle income (26) 5 5 4 0 0 Low income (16) 4 1 4 2 2 By region East Asia and Pacific (8) 3 1 1 1 0 Europe and Central Asia (14) 1 2 5 0 0 Latin America & Caribbean (16) 7 5 2 0 1 Middle East & North Africa (9) 3 1 1 0 0 South Asia (4) 1 1 2 1 1 Sub-Saharan Africa (21) 5 1 6 1 1 Euro area (12) 9 4 10 2 1 Other EU members (10) 4 1 4 1 2 Other developed countries (14) 11 2 8 3 1 By population size >30 million (32) 19 7 12 3 1 >5 million, <30 million (41) 17 8 15 4 4 5 million or less (35) 8 3 12 2 2 Note: Due to many countries not providing an answer to this question, columns with percentages were omitted in this table to avoid confusion or improper comparisons within and across the various country categories. Eleven out of the 41 countries with an organized FX With regard to the settlement risk in OTC FX markets, market (4 of which are in the SSA region and 3 in the 44 out of 108 countries reported that a PVP settlement Euro area) reported that FX transactions are settled mechanism is in place at least for some currency pairs. through traditional correspondent banking arrange- Most euro-area countries, 2 non-euro EU members, ments and there is no specific procedure in place for 8 ODCs and one country from the SSA region spe- trades to be settled on a PVP basis. In this regard, ac- cifically indicated the use of the CLS Bank as a major cording to the new survey data, no progress was made mechanism for reducing FX settlement risk. in reducing FX settlement risk. Global Survey 2010 79 In the EAP region, 3 countries reported the use of “offshore�59 systems for same-day settlement in foreign currencies: such systems settle foreign currencies on PVP basis in the time zone of the domestic market. The rest of the countries indicating the use of PVP set- tlement for OTC FX market transactions are located in the LAC, MNA, SSA and ECA regions. PVP settlement for OTC-traded foreign currencies is more common in high income countries. Seven countries reported a lack of sufficient informa- tion about the mechanisms used by banks to reduce FX settlement risk of OTC transactions. The World Bank survey also asked for data on FX turnover for both exchange-traded and OTC con- tracts over the period of five years (2004-2009). With few exceptions, the information that was received was very limited. This appears to be an indication of in- sufficient awareness in several central banks regard- ing settlement risks in FX markets. This is particularly true for many central banks in developing countries and regions, as seen through PSDG field work in such countries. 59 These are RTGS systems that are established in a country different from the country of the currency settled. PVP settlement is achieved through a direct link with the domestic RTGS system. Such systems have been established in Asia, North America, Latin America and Africa. In the specific case of Hong Kong, RTGS systems in other countries can access Hong Kong’s systems for settlement in USD, euro or Renminbi. Section IV. Settlement of Foreign Exchange Transactions SECTION V INTERNATIONAL REMITTANCES AND OTHER CROSS-BORDER PAYMENTS V.1 BACKGROUND The World Bank and the CPSS co-chaired a Task Force to establish General Principles (GPs) of universal ap- R etail cross-border payments, notably plicability that identify the features and functions that trade-related payments and person-to- should be satisfied by remittance systems, providers, person international remittances, are and financial intermediaries.60 The GPs cover areas increasingly relevant for economies and such as transparency and consumer protection, pay- their societies as a result of current global realities – ment system infrastructure, legal and regulatory en- particularly growing economic integration and in- vironment, market structure and competition, and terdependence among countries at all levels, and the governance and risk management. The GPs provide increasing flow of immigrants throughout the world. the first internationally recognized payment system From a policy making perspective, retail cross-border framework for remittance transfers, and they are ex- payments share many of the features of domestic retail pected to facilitate international policy coordination in payments. the area of remittance transfers. Remittances can be expensive relative to the often low incomes of migrant workers and to the rather small V.2 SURVEY OUTCOMES amounts sent (typically no more than a few hundred dollars or the equivalent at a time). Also, it may not In the past decade the attention paid to remittances has be easy for migrants to access remittance services if increased exponentially, and research on remittances they do not speak the local language or do not have has been undertaken from a number of angles. the necessary documentation. Finally, the relatively The Global Payment Survey focuses on those aspects undeveloped financial infrastructure in some coun- of international remittances deemed most relevant for tries may make it difficult for recipients to collect their payment systems. The GPs define international remit- remittances. In some cases, the services are unreliable, tances as “cross-border person-to-person payments of particularly when it concerns the time taken for the relatively low value�.61 On this basis, the survey ques- funds to be transferred. In addition, some markets are uncompetitive or have regulatory barriers that hamper 60 Committee on Payment and Settlement Systems and The World Bank, “Gen- competition. eral Principles for International Remittance Services�, Basel, Switzerland, January 2007. 61 See CPSS and The World Bank, 2007. 81 82 PAYMENT SYSTEMS WORLDWIDE tionnaire aimed at obtaining information on what Information to Depict the Situation of Payment and types of remittance service providers operate in vari- Securities Settlement Worldwide 2010. Countries are ous countries, how these providers are regulated, and grouped according to the standard country classifica- what the main payment instruments used to channel tions such as income levels, regions, and population international remittances are. sizes throughout this chapter. Due to methodological complexity, the survey does not report statistics on the amounts of remittances that are V.2.1. Remittance Service Providers sent and/or received by each country,62 or on the cost of sending remittances from one country to another. The first aspect surveyed is the relative importance The costs of sending remittances are available at the of the various types of remittance service providers World Bank’s Remittance Prices Worldwide database.63 (RSPs). Nine institutional RSP types were included in This year’s survey expanded the scope of questions. the questionnaire: commercial banks, international First, as central banks views on remittances may differ money transfer operators (MTOs), local MTOs, ex- according to the direction of remittance flows, a dis- change bureaus, credit unions, microfinance institu- tinction between inbound and outbound remittances tions, post offices, mobile phone operators, and retail was introduced in several of the survey’s questions for stores (acting as agents of MTOs). The survey request- this section. Also, in line with the GPs, questions on ed that central banks rank the importance of different transparency of remittance services, consumer protec- types of RSPs in their country from “1� to “10�, with tion and the competition environment were added. “1� being the most relevant and “10� being the least relevant. Results are summarized in Table V.1A for This chapter first discusses the relative importance inbound remittances and Table V.2A for outbound of the various types of remittance service providers remittances. Tables V.2A and V.2B analyze in further (RSPs) for both inbound and outbound remittances, detail the answers for the top four RSPs for inbound and analyzes in further detail the answers for the top and outbound remittances. four RSPs. This same approach is used to analyze the use of different payment instruments for sending and For inbound remittances, Table V.2A shows that com- receiving remittances. Transparency, consumer pro- mercial banks and to a lesser extent international tection, and competition in the provision of remit- MTOs are considered by far the most relevant RSP tance services are the subjects of Tables V.6, V.7, and type by central banks at the global level. Fifty-three V.8, and related analysis. The two final tables in this percent of respondents consider commercial banks to Chapter discuss the integration of payment systems for be the most relevant RSP. International MTOs follow cross-border payments and the use of SWIFT network. in a distant second with 24%. Local MTOs and post of- fices are considered to have a limited role (around 6%). The tables in this section and related analysis report information on all countries that have responded In all regions, commercial banks are ranked as the to Part V: Cross-border Payments and International most relevant RSP for inbound remittances. However, Remittances of the Questionnaire for Collecting the degrees of perceptions towards commercial banks vary across the regions. The highest percentages are in 62 For data on remittance flows, please refer to the World Bank Migration and the EAP and the SA regions. To a large extent, these Remittances Team at http://go.worldbank.org/SSW3DDNLQ0 results reflect the specific situation of remittance mar- 63 See Remittance Prices Worldwide at http://remittanceprices.worldbank.org. Global Survey 2010 83 TABLE V.1A: RELEVANCE OF THE VARIOUS RSPs FOR INBOUND REMITTANCES (Number of Central Banks that rated each option with the corresponding ranking) Retail Mobile Commercial International Local Exchange Credit Microfinance Post stores as Ranking phone Others banks MTOs MTOs bureaus Unions institutions Office agents of operators MTOs 1 (highest) 67 30 7 4 2 1 6 0 0 2 2 25 34 12 6 0 2 7 2 3 1 3 5 11 10 6 3 0 19 3 2 3 4 0 2 8 4 1 3 9 2 4 2 5 1 3 2 3 2 1 3 3 1 2 6 1 2 2 4 1 2 1 1 4 0 7 0 0 0 2 3 3 1 0 2 0 8 1 1 4 1 1 4 3 1 0 0 9 1 1 0 1 2 1 3 1 0 2 10 (lowest) 2 3 3 3 3 4 4 5 5 3 No rating or 22 38 87 91 107 104 69 107 104 109 no answer TABLE V.1B: RELEVANCE OF THE VARIOUS RSPs FOR OUTBOUND REMITTANCES (Number of Central Banks that rated each option with the corresponding ranking) Retail Mobile Commercial International Local Exchange Credit Microfinance Post stores as Ranking phone Others banks MTOs MTOs bureaus Unions institutions Office agents of operators MTOs 1 (highest) 69 30 6 4 2 0 5 1 1 1 2 25 31 8 6 0 2 6 1 2 1 3 3 12 9 4 2 1 19 2 3 2 4 0 1 9 2 0 3 6 0 4 0 5 1 3 2 3 0 0 3 1 0 3 6 2 2 1 2 2 2 2 2 2 2 7 0 0 0 1 2 1 0 0 2 0 8 0 1 2 0 0 1 3 1 0 0 9 0 1 0 2 2 0 2 2 1 0 10 (lowest) 3 1 3 3 3 4 3 4 4 2 No rating or no answer 22 43 85 98 112 111 76 111 106 114 Section V. International Remittances and Other Cross-Border Payments 84 PAYMENT SYSTEMS WORLDWIDE kets in those regions. In Bangladesh,64 for example, The role of post offices in the market for inbound only banks have access to foreign exchange services, remittances is also limited: post offices were rated as and money transfer companies act as agents of com- the most important RSP (i.e. ranked as “1�), by only 6 mercial banks in distributing remittances. In India, central banks, 3 of which are in the SSA region. commercial banks lead the remittance business. Some However, in the MNA region the Post Office is deemed Indian commercial banks have established subsidiaries the most relevant RSP in the same magnitude as inter- abroad in order to attract more remittances business; national or local MTOs. some of these subsidiaries are non-bank RSPs such as money service businesses in the United States and It is interesting to note that no central bank ranked Canada. mobile phone providers as “1�, only two central banks ranked them as “2� and three central banks as “3� for From a country income perspective, about half of the inbound remittances. Despite the growing attention central banks in high income and upper-middle in- on the use of mobile phones for remittances, their rele- come countries view commercial banks as the most vance, as viewed from the perspective of central banks, relevant RSPs. On the other hand, about 70% of central is still negligible compared to commercial banks, in- banks of lower-middle income view commercial banks ternational MTOs, and other RSP types. as the most relevant RSP. Worldwide totals shown in Table V.2B are almost Other RSP types such as international MTOs, local identical to those of Table V.1B. Percentages do differ MTOs, foreign exchange bureaus and post offices are for some of the country categories, although not sig- also viewed as important by central banks of upper nificantly. For example, in the LAC region and non- middle income and low income countries for incom- euro EU members, a larger number of central banks ing remittances. Still, in these countries, commercial rated commercial banks as the most relevant RSP for banks appear to dominate the remittance markets. inbound remittances than they did for outbound re- PSDG assessments and studies show that international mittances (50% vs. 39% and 55% vs. 45% respectively). MTOs often enter into joint ventures with commercial The opposite is true for the MNA, SA and SSA regions. banks and post offices. It may also be the case in some Interestingly, in the case of euro-area countries and countries that recipients only go to commercial banks ODCs, typically regarded as net remittance sending where they receive remittances through their accounts, countries, the percentages for Table V.1B and Table or cash remittances through international MTOs, if V.2B are practically the same. they do not have bank accounts. In the case of outbound remittances, two central banks The fact that RSPs other than commercial banks play ranked mobile phone operators and retail stores as “1�. a larger role in remittance receiving countries can be On the other hand, not a single central bank rated mi- explained to some extent by less developed banking crofinance institution “1� for outbound remittances, industries in such countries, particularly with regard while only one did so for inbound remittances. to the deployment of infrastructure and access points. PSDG experience confirms this overall trend. Comparing these outcomes to those of the last survey, it appears that the relevance of commercial banks as RSPs has significantly increased in lower-middle in- come countries and decreased slightly in higher in- 64 Bangladesh did not participate in the Global Payment Systems Survey 2010. Global Survey 2010 85 TABLE V.2A: RSPs REGARDED AS THE MOST RELEVANT FOR INBOUND REMITTANCES International Local money Commercial banks money transfer Post office transfer operator operators Central banks’ opinions # % # % # % # % Worldwide total (125) 67 53% 30 24% 7 6% 6 5% By country income level High income (46) 24 52% 10 22% 2 4% 1 2% Upper-middle income (29) 12 41% 9 31% 4 14% 2 7% Lower-middle income (32) 22 69% 3 9% 0 0% 2 6% Low income (18) 9 50% 8 44% 1 6% 1 6% By region East Asia and Pacific (11) 8 73% 1 9% 0 0% 0 0% Europe and Central Asia (16) 8 50% 5 31% 1 6% 0 0% Latin America & Caribbean (18) 9 50% 4 22% 2 11% 0 0% Middle East & North Africa (11) 5 45% 2 18% 2 18% 2 18% South Asia (4) 3 75% 0 0% 1 25% 0 0% Sub-Saharan Africa (24) 13 54% 10 42% 0 0% 3 13% Euro area countries (16) 6 38% 4 25% 1 6% 0 0% Other EU members (11) 6 55% 1 9% 0 0% 0 0% Other developed countries (14) 9 64% 3 21% 0 0% 1 7% By country population size >30 million (33) 18 55% 7 21% 1 3% 1 3% >5 million, <30 million (46) 26 57% 9 20% 2 4% 1 2% 5 million or less (46) 23 50% 14 30% 4 9% 4 9% Notes: 1. This table reflects the number of central banks that rated each RSP type “1� i.e. “the most relevant�. For further details refer to the questionnaire in Annex 1. 2. Percentages do not add up to 100% as not all countries responded this question, while others selected more than one option as equally important. come countries. In turn, the relevance of international wire transfer services and have expanded their pres- MTOs decreased significantly for lower-middle in- ence in the market. At the same time, international come countries, from 41% in the 2008 survey to only MTOs continue to make efforts to gain market share 9% in the current one for inbound remittances and with lower costs. 16% for outbound remittances. Table V.3 discusses licensing and regulatory require- These findings illustrate the fast changing landscape of ments for RSPs. The survey explicitly required respon- remittance markets. Overall, commercial banks began dents to indicate each feature listed in this question to offer remittance products different from traditional was applicable to “all� RSPs. Section V. International Remittances and Other Cross-Border Payments 86 PAYMENT SYSTEMS WORLDWIDE TABLE V.2B: RSPs REGARDED AS THE MOST RELEVANT FOR OUTBOUND REMITTANCES International Local money Commercial banks money transfer Post office transfer operators operators Central banks’ opinions # % # % # % # % Worldwide total (125) 69 55% 30 24% 6 5% 5 4% By country income level High income (46) 23 50% 11 24% 3 7% 1 2% Upper-middle income (29) 12 41% 8 28% 3 10% 2 7% Lower-middle income (32) 23 72% 5 16% 0 0% 1 3% Low income (18) 11 61% 6 33% 0 0% 1 6% By region East Asia and Pacific (11) 8 73% 2 18% 0 0% 0 0% Europe and Central Asia (16) 8 50% 6 38% 1 6% 0 0% Latin America & Caribbean (18) 7 39% 3 17% 1 6% 0 0% Middle East & North Africa (11) 7 64% 2 18% 2 18% 1 9% South Asia (4) 4 100% 0 0% 0 0% 0 0% Sub-Saharan Africa (24) 15 63% 8 33% 0 0% 3 13% Euro area countries (16) 6 38% 4 25% 1 6% 0 0% Other EU members (11) 5 45% 2 18% 0 0% 0 0% Other developed countries (14) 9 64% 3 21% 1 7% 1 7% By country population size >30 million (33) 18 55% 7 21% 1 3% 0 0% >5 million, <30 million (46) 27 59% 9 20% 0 0% 1 2% 5 million or less (46) 24 52% 14 30% 5 11% 4 9% Notes: 1. This table reflects the number of central banks that rated each RSP type “1� i.e. “the most relevant�. For further details refer to the questionnaire in Annex 1. 2. Percentages do not add up to 100% as not all countries responded this question, while others selected more than one option as equally important. Survey results show that in 56% of all countries RSPs It should be noted, however, that 57 countries indi- are required to be registered with a competent author- cated both options in table V.3.65 This means that out ity, while in 66% of the cases RSPs have to be licensed of the total of 132 countries that answered this section by a competent authority. Both items increased from of the questionnaire, in 28 there are no registration or the previous survey. Registration is less common in licensing requirements for “all� RSPs. The equivalent EAP and ECA regions, and non-euro EU members, figure in the 2008 survey was 47 countries. while licensing is less common in the LAC region and in ODCs. 65 Including individual answers for BCEAO members. Global Survey 2010 87 TABLE V.3: LICENSING AND REGULATION OF REMITTANCE SERVICE PROVIDERS RSPs are not All RSPs need required to comply All RSPs have All RSPs have only to comply with any particular to be registered to be licensed with Anti-Money law or regulation with a competent by a competent Laundering (AML) other than authority authority regulations those of general applicability Countries # % # % # % # % Worldwide total (132) 74 56% 87 66% 71 54% 11 8% By income High income (46) 30 65% 31 67% 21 46% 3 7% Upper-middle income (29) 14 48% 17 59% 16 55% 3 10% Lower-middle income (34) 18 53% 20 59% 19 56% 5 15% Low income (23) 12 52% 19 83% 15 65% 0 0% By region East Asia and Pacific (11) 3 27% 8 73% 5 45% 0 0% Europe and Central Asia (16) 7 44% 8 50% 10 63% 0 0% Latin America & Caribbean (18) 11 61% 8 44% 12 67% 6 33% Middle East & North Africa (11) 7 64% 8 73% 6 55% 0 0% South Asia (4) 3 75% 3 75% 2 50% 0 0% Sub-Saharan Africa (31) 16 52% 23 74% 19 61% 2 6% Euro area countries (16) 12 75% 13 81% 6 38% 1 6% Other EU members (11) 5 45% 8 73% 3 27% 0 0% Other developed countries (14) 10 71% 8 57% 8 57% 2 14% By population size >30 million (32) 21 66% 23 72% 16 50% 2 6% >5 million, <30 million (53) 28 53% 35 66% 31 58% 7 13% 5 million or less (47) 25 53% 29 62% 24 51% 2 4% The last two columns to the right in Table V.3 expand should be noted that 11 countries do not appear to have upon the type of requirements that apply to all RSPs. any specific legal and regulatory framework applicable The purpose of this to determine whether RSPs are to RSPs. The LAC region shows the highest percentage only subject to Anti-Money Laundering (AML) regu- (33%), followed by ODCs (14%). The equivalent figure lations, or if they only need to comply with other laws in the 2008 survey was 26 countries. of general applicability. Slightly more than half (54%) of central banks responded that RSPs are only subject In summary, Table V.3 shows that in general terms reg- to AML regulation, and in 8% of the cases RSPs only istration and/or licensing requirements for RSPs are need to comply with general laws. In this last regard, it becoming more common, and also that more coun- Section V. International Remittances and Other Cross-Border Payments 88 PAYMENT SYSTEMS WORLDWIDE TABLE V.4A: RELEVANCE OF THE VARIOUS PAYMENT INSTRUMENTS FOR SENDING REMITTANCES (Number of Central Banks that rated each option with the corresponding ranking) International Cheques or Current payment cards International Ranking Cash similar payment account Mobile payments Other linked to a prepaid cards instruments transfers current account 1 (highest relevance) 55 8 33 1 0 1 1 2 14 17 32 5 1 2 2 3 12 13 16 15 2 1 1 4 1 5 6 11 9 3 3 5 4 7 2 6 7 7 7 6 (lowest relevance) 2 8 2 11 15 12 12 No rating/answer 37 67 34 76 91 99 99 tries have adopted specific regulations or laws for RSPs As for prepaid cards and mobile payments, while there and/or for remittance activities. are recent and rapid developments of such products, no central bank indicated that prepaid cards are the most relevant payment instrument for sending/re- V.2.2. Payment Instruments in International ceiving remittances. Only one country indicated that Remittances mobile payments are the most relevant instrument for sending/receiving remittances (along with current ac- Tables V.4A and V.4B respectively show the relative count transfers). In only three responses mobile pay- importance of the various payment instruments, as ments were ranked as either second or third place. rated by central banks, for sending remittances and for receiving remittances. The survey requested central Tables V.5A and V.5B analyze in further detail the banks once again to rank each payment instrument, answers for the top three payment instruments for this time from “1� to “6�, with “1� being the most rel- sending and receiving remittances, i.e. cash, current evant to “6� being the least relevant. account transfers, and cheques (or similar payment instruments). These tables include the frequency with Six different payment instruments were included: cash, which these three payment instruments were ranked cheques or similar payment instruments, current ac- as either “1� or “2�. count transfers, international payment cards linked to a current account, international prepaid cards, and For both sending and receiving remittances, cash is mobile payments. Respondents were also given an op- considered as the most relevant instrument by 44% portunity to indicate “other� in case none of the above and 46% of central banks respectively. Current ac- fit their particular situation. count transfers were ranked a distant second by 26% and 32% of the respondents respectively. Results summarized in both Tables V.4A and V.4B clearly demonstrate that cash and current account The relevance of cash is clearly lower in high income transfers are regarded as the most relevant payment in- countries, especially in ODCs. This is also the case in struments for both sending and receiving remittances. the SA region where only 25% of central banks rated Global Survey 2010 89 TABLE V.4B: RELEVANCE OF THE VARIOUS PAYMENT INSTRUMENTS FOR RECEIVING REMITTANCES (Number of Central Banks that rated each option with the corresponding ranking) International Cheques or Current payment cards International Mobile Ranking Cash similar payment account Other linked to a prepaid cards payments instruments transfers current account 1 (highest relevance) 57 5 40 1 0 1 4 2 16 16 32 6 0 1 6 3 13 21 14 13 2 2 5 4 2 5 4 10 6 2 6 5 1 7 0 5 8 6 3 6 (lowest relevance) 4 5 4 9 13 15 2 No rating/answer 32 66 31 81 96 98 99 cash as the most relevant payment instruments for ei- Cheques were rated the top payment instrument for ther sending or receiving remittances. remittances mainly in 3 countries belonging to the MNA region, 2 countries in the SSA region, and 1 in On the other hand, more than 60% of central banks the SA region. in ECA region indicated that cash is the most relevant payment instrument for both sending and receiving Tables V.5A and V.5B also show that in most cases in remittances, and so did a similar percentage of central which cash was rated “1�, current account transfers banks in the SSA region. This can be interpreted in were rated “2�, and vice versa. many ways. The large use of cash generally signifies an inadequate level of payment system development. In the case of remittances, the large use of cash for remit- V.2.3. Transparency, Consumer Protection, and tances is explained to a large extent by a lack of access Competition in International Remittances to banking services in some countries and, as a conse- quence, by the dominant role that international MTOs Table V.6 below illustrates central banks’ responses play in such markets. with regard to transparency of remittance services. A question was added to the 2010 survey questionnaire Current account transfers are the most relevant pay- in order to assess the current situation with regard to ment instrument for remittances especially in ODCs, transparency in remittance services vis-à-vis General with 43% of such countries having provided a “1� Principle “1� on “Transparency and Consumer ranking for this instrument viewed from a remit- Protection�.66 Central banks were asked to specify tance-sending perspective, and 50% doing the same which legal requirements on transparency (e.g. disclo- from a remittance-receiving perspective. At the other sure of information such as fees, foreign exchange rate, extreme, less than 20% of LAC countries and non- taxes, speed, complaint mechanisms, and transactions euro EU members gave such a ranking to current ac- details) apply to the RSPs in the country. count transfers. 66 See also Table V.7. Section V. International Remittances and Other Cross-Border Payments 90 PAYMENT SYSTEMS WORLDWIDE TABLE V.5A: RELEVANCE OF CASH, CURRENT ACCOUNT TRANSFERS AND CHEQUES FOR SENDING REMITTANCES Cheques or similar payment Cash Current account transfers instruments Ranking of 1 Ranking of 2 Ranking of 1 Ranking of 2 Ranking of 1 Ranking of 2 Central banks’ opinions # % # % # % # % # % # % Worldwide total (125) 55 44% 14 11% 33 26% 32 26% 8 6% 17 14% By country income level High income (46) 15 33% 6 13% 12 26% 11 24% 3 7% 3 7% Upper-middle income (29) 17 59% 2 7% 5 17% 11 38% 3 10% 5 17% Lower-middle income (32) 15 47% 3 9% 10 31% 7 22% 1 3% 6 19% Low income (18) 8 44% 3 17% 6 33% 3 17% 1 6% 3 17% By region East Asia and Pacific (11) 5 45% 2 18% 3 27% 3 27% 0 0% 4 36% Europe and Central Asia (16) 10 63% 2 13% 4 25% 9 56% 1 6% 0 0% Latin America & Caribbean (18) 10 56% 0 0% 2 11% 6 33% 0 0% 3 17% Middle East & North Africa (11) 4 36% 1 9% 3 27% 4 36% 3 27% 1 9% South Asia (4) 1 25% 0 0% 1 25% 0 0% 1 25% 0 0% Sub-Saharan Africa (24) 13 54% 3 13% 8 33% 3 13% 2 8% 5 21% Euro area countries (16) 5 31% 1 6% 4 25% 5 31% 1 6% 1 6% Other EU members (11) 4 36% 1 9% 2 18% 2 18% 0 0% 2 18% Other developed countries (14) 3 21% 4 29% 6 43% 0 0% 0 0% 1 7% By country population size >30 million (33) 14 42% 5 15% 8 24% 8 24% 1 3% 2 6% >5 million, <30 million (46) 17 37% 3 7% 16 35% 10 22% 1 2% 7 15% 5 million or less (46) 24 52% 6 13% 9 20% 14 30% 6 13% 8 17% Note: Percentages do not add up to 100% as not all countries responded this question, while other countries gave the same ranking to two or even more options. At the global level, in 56% of the respondent countries region is explained to a large extent by the disclosure RSPs are legally required to disclose all transaction de- and consumer protection requirements under the tails before the transaction itself is performed. The per- EU Payment Services Directive 2007/64/EC.67 On the centage of countries requiring RSPs to disclose such other hand, LAC and SA regions show the lowest information after the transaction is completed through percentages. ODCs and countries from the EAP region a customer receipt containing all transactions details is follow in a distant second place as the most transpar- higher, at 68%. ent markets for remittance services. Overall, euro-area countries show the highest percent- 67 Available at: http://ec.europa.eu/internal_market/payments/framework/ ages in Table V.6. The high level of transparency in this psd_en.htm. See also Box 1. Global Survey 2010 91 TABLE V.5B: RELEVANCE OF CASH, CURRENT ACCOUNT TRANSFERS AND CHEQUES FOR RECEIVING REMITTANCES Cheques or similar payment Cash Current account transfers instruments Ranking of 1 Ranking of 2 Ranking of 1 Ranking of 2 Ranking of 1 Ranking of 2 Central banks’ opinions # % # % # % # % # % # % Worldwide total (125) 57 46% 16 13% 40 32% 32 26% 5 4% 16 13% By country income level High income (46) 12 26% 5 11% 17 37% 8 17% 1 2% 6 13% Upper-middle income (29) 17 59% 3 10% 7 24% 11 38% 3 10% 5 17% Lower-middle income (32) 17 53% 6 19% 10 31% 7 22% 1 3% 3 9% Low income (18) 11 61% 2 11% 6 33% 6 33% 0 0% 2 11% By region East Asia and Pacific (11) 6 55% 2 18% 3 27% 3 27% 0 0% 3 27% Europe and Central Asia (16) 10 63% 3 19% 5 31% 8 50% 1 6% 0 0% Latin America & Caribbean (18) 10 56% 1 6% 3 17% 5 28% 0 0% 3 17% Middle East & North Africa (11) 4 36% 2 18% 4 36% 2 18% 1 9% 3 27% South Asia (4) 1 25% 1 25% 1 25% 0 0% 1 25% 0 0% Sub-Saharan Africa (24) 16 67% 2 8% 9 38% 7 29% 1 4% 3 13% Euro area countries (16) 3 19% 1 6% 6 38% 4 25% 1 6% 1 6% Other EU members (11) 4 36% 1 9% 2 18% 3 27% 0 0% 1 9% Other developed countries (14) 3 21% 3 21% 7 50% 0 0% 0 0% 2 14% By country population size >30 million (33) 14 42% 5 15% 11 33% 10 30% 0 0% 1 3% >5 million, <30 million (46) 18 39% 7 15% 15 33% 11 24% 2 4% 3 7% 5 million or less (46) 25 54% 4 9% 14 30% 11 24% 3 7% 12 26% Note: Percentages do not add up to 100% as not all countries responded this question, while other countries gave the same ranking to two or even more options. From a country income perspective, it is worth noting across most regions in order to increase transparency that low income countries show higher percentages in remittance services provision. than high income countries in the last two columns to the right, i.e. that RSPs must inform customers on the As stated in GP1, along with transparency, consumer details of the transaction before they perform it, and protection in remittance services helps in fostering a that RSPs must provide customers with receipt con- competitive and safe market for remittances. Table V.7 taining the details of the transaction. illustrates responses to the survey question related to the legislation supporting consumer protection in re- One clear implication of the results in Table V.6 is that mittance services. regulatory reforms are still needed in many countries Section V. International Remittances and Other Cross-Border Payments 92 TABLE V.6: TRANSPARENCY OF REMITTANCE SERVICES RSPs are subject to RSPs must RSPs are RSPs must different legal inform RSPs are RSPs are RSPs are legally provide requirements RPs are legally customers legally legally legally required customers as to fees required to on the required to required to required to to disclose with receipt disclosed, disclose speed details of the disclose fees disclose FX disclose taxes available containing the depending of transfer transaction applied rate applied applied complaint details of the on the before they mechanisms transaction destination perform it country Countries # % # % # % # % # % # % # % # % Worldwide total (132) 74 56% 20 15% 69 52% 36 27% 43 33% 56 42% 74 56% 90 68% By income High income (46) 33 72% 5 11% 31 65% 19 41% 26 54% 27 57% 32 67% 33 70% Upper-middle 11 38% 5 17% 12 41% 6 21% 7 24% 11 38% 14 48% 18 62% income(29) Lower-middle 13 38% 7 21% 15 44% 4 12% 5 15% 8 24% 11 32% 19 56% income (34) Low income (23) 17 65% 3 13% 11 48% 7 30% 5 22% 10 43% 17 74% 20 87% By region East Asia and Pacific (11) 7 64% 1 9% 7 64% 1 9% 2 18% 3 27% 6 55% 7 64% Europe and Central Asia (16) 8 50% 4 25% 6 31% 5 31% 6 31% 5 25% 8 44% 9 50% Latin America & Caribbean (18) 4 22% 2 11% 8 44% 3 17% 2 11% 5 28% 7 39% 11 61% Middle East & North Africa (11) 5 45% 3 27% 7 64% 3 27% 2 18% 4 36% 5 45% 7 64% South Asia (4) 1 25% 0 0% 1 25% 0 0% 0 0% 1 25% 1 25% 3 75% Sub-Saharan Africa (31) 19 55% 5 16% 12 39% 6 19% 5 16% 14 45% 19 61% 23 74% Euro area countries (16) 15 94% 3 19% 14 88% 12 75% 14 88% 13 81% 14 88% 14 88% Other EU members (11) 6 55% 2 18% 6 55% 2 18% 7 64% 5 45% 5 45% 6 55% Other developed countries (14) 9 64% 0 0% 8 57% 4 29% 5 36% 6 43% 9 64% 10 71% By population size >30 million (32) 19 59% 5 16% 23 72% 9 28% 12 38% 15 47% 17 53% 21 66% >5 million, <30 million (53) 31 55% 7 13% 24 45% 15 28% 17 32% 23 43% 33 62% 41 77% 5 million or less (47) 24 52% 8 17% 22 46% 12 26% 14 28% 18 37% 24 50% 28 59% PAYMENT SYSTEMS WORLDWIDE Global Survey 2010 93 TABLE V.7: LEGISLATION SUPPORTING CONSUMER PROTECTION IN REMITTANCE SERVICES A specific Best practices There is a Legislation legislation Best practices code for the public authority on consumer on consumer code is applicable protection of overseeing and protection is protection for also to remittance financial services implementing the in place financial services services users is in place legislation is in place Countries # % # % # % # % # % Worldwide total (132) 75 57% 41 31% 27 20% 25 19% 64 48% By income High income (46) 29 63% 22 48% 12 26% 11 24% 28 61% Upper-middle income (29) 22 76% 8 28% 6 21% 5 17% 18 62% Lower-middle income (34) 17 50% 7 21% 5 15% 3 9% 12 35% Low income (23) 7 30% 4 17% 4 17% 6 26% 6 26% By region East Asia and Pacific (11) 5 45% 2 18% 2 18% 1 9% 5 45% Europe and Central Asia (16) 12 75% 4 25% 1 6% 2 13% 4 25% Latin America & Caribbean (18) 12 67% 5 28% 4 22% 4 22% 11 61% Middle East & North Africa (11) 4 36% 4 36% 4 36% 3 27% 4 36% South Asia (4) 3 75% 1 25% 1 25% 0 0% 3 75% Sub-Saharan Africa (31) 9 29% 4 13% 5 16% 5 16% 8 26% Euro area countries (16) 14 88% 10 63% 5 31% 4 25% 12 75% Other EU members (11) 10 91% 6 55% 1 9% 1 9% 10 91% Other developed countries (14) 6 43% 5 36% 4 29% 5 36% 7 50% By population size >30 million (32) 23 72% 16 50% 7 22% 8 25% 20 63% >5 million, <30 million (53) 29 55% 14 26% 11 21% 11 21% 27 51% 5 million or less (47) 23 49% 11 23% 9 19% 6 13% 17 36% At the global level, although 57% of the countries General legislation on consumer protection is clearly have legislation on consumer protection, in less less common in low income countries. Figures are than a third of the responding countries is con- even lower in such countries for consumer protection sumer protection legislation for financial services legislation that deals specifically with financial servic- in place. With regard to best practices codes, only es. On the other hand, the latter type of legislation is 20% or less of the countries in Table V.7 rely on such more common in EU countries. tools for either remittance services or for financial services. In approximately 50% of the countries there is a public authority with oversight responsibilities for the imple- Section V. International Remittances and Other Cross-Border Payments 94 PAYMENT SYSTEMS WORLDWIDE TABLE V.8: COMPETITION ENVIRONMENT Specific legislation Exclusivity is in place to agreements/ RSPs have to be RSPs have to meet address anti- conditions are incorporated as stipulated capital competitive present in the banks requirements behaviors market and conditions Countries # % # % # % # % Worldwide total (132) 31 23% 39 30% 21 16% 52 39% By income High income (46) 6 13% 11 24% 4 9% 23 50% Upper-middle income (29) 3 10% 6 21% 2 7% 12 41% Lower-middle income (34) 11 32% 10 29% 6 18% 10 29% Low income (23) 11 48% 12 52% 9 39% 7 30% By region East Asia and Pacific (11) 3 27% 2 18% 2 18% 4 36% Europe and Central Asia (16) 2 13% 5 31% 3 19% 6 38% Latin America & Caribbean (18) 3 17% 4 22% 2 11% 5 28% Middle East & North Africa (11) 4 36% 2 18% 1 9% 8 73% South Asia (4) 1 25% 2 50% 0 0% 2 50% Sub-Saharan Africa (31) 13 42% 15 48% 10 32% 7 23% Euro area countries (16) 3 19% 5 31% 0 0% 11 69% Other EU members (11) 2 18% 2 18% 0 0% 6 55% Other developed countries (14) 0 0% 2 14% 3 21% 3 21% By population size >30 million (32) 7 22% 10 31% 3 9% 13 41% >5 million, <30 million (53) 18 34% 19 36% 15 28% 20 38% 5 million or less (47) 6 13% 10 21% 3 6% 19 40% mentation of consumer protection legislation. In all work for financial services users. Moreover, accord- but one non-euro EU members such a public authority ing to PSDG experience, the mere existence of such a exists. Figures are also relatively high in euro-area and framework is unlikely to foster adequate transparency SA countries. in the marketplace unless a properly empowered and capable authority oversees that its provisions are duly The results of Tables V.6 and V.7 are correlated to a implemented. significant extent. In many cases inadequate trans- parency in the market for remittance services (e.g. Table V.8 makes reference to GP4 on market struc- RSPs being legally required to disclose fees and other ture and competition in remittance services, which, as charges, and/or complaint mechanisms) is the result of stated in the GPs report, is likely to have an impact on the lack of an appropriate consumer protection frame- the cost of sending remittances. The survey question Global Survey 2010 95 TABLE V.9: INTEGRATION OF PAYMENT SYSTEMS FOR CROSS-BORDER PAYMENTS Links for cross-border Plans are in the pipeline Plans are in the pipeline to settlements have been to establish links within 2 establish links in more established years than 2 years Countries # % # % # % Worldwide total (132) 59 45% 21 16% 24 18% By income High income (46) 31 67% 3 7% 2 4% Upper-middle income (29) 11 38% 6 21% 6 21% Lower-middle income (34) 9 26% 5 15% 7 21% Low income (23) 8 35% 7 30% 9 39% By region East Asia and Pacific (11) 4 36% 1 9% 2 18% Europe and Central Asia (16) 3 19% 0 0% 7 44% Latin America & Caribbean (18) 3 17% 8 44% 0 0% Middle East & North Africa (11) 3 27% 2 18% 0 0% South Asia (4) 2 50% 0 0% 0 0% Sub-Saharan Africa (31) 11 35% 8 26% 14 45% Euro area countries (16) 16 100% 1 6% 0 0% Other EU members (11) 11 100% 1 9% 0 0% Other developed countries (14) 6 43% 0 0% 1 7% By population size >30 million (32) 16 50% 6 19% 2 6% >5 million, <30 million (53) 28 53% 9 17% 12 23% 5 million or less (47) 15 32% 6 13% 10 21% covered fair market practices, whether a level playing tance service.68 According to PSDG field experience, field exists, and the flexibility with which RSPs or their in several countries the RSP with the largest network agents can service the marketplace. of branches is subject to an exclusivity agreement of this kind. In such cases, competition in the remittance Exclusivity agreements/conditions are imposed by market can be distorted. some international MTOs on their agents. An exclusiv- ity condition is where RSP allows its agents (or other At the global level, exclusivity agreements/conditions RSPs) to offer its remittance service subject to the con- exist in slightly less than a quarter of the countries. dition that such agents do not offer any other remit- However, they are much more prevalent in low income 68 See CPSS and The World Bank, 2007. Section V. International Remittances and Other Cross-Border Payments 96 PAYMENT SYSTEMS WORLDWIDE TABLE V.10: USE OF THE INTERNATIONAL SWIFT NETWORK Some banks/financial Some banks or other institutions can use Less than 90% but 90% or more of financial institutions SWIFT through a more than 50% of commercial banks are can use SWIFT through SWIFT Service Bureau commercial banks are connected to SWIFT the Central Bank’s own operated by the connected to SWIFT connection Central Bank or other institution Countries # % # % # % # % Worldwide total (132) 108 82% 15 11% 10 8% 30 23% By income High income (46) 36 78% 5 11% 1 2% 13 28% Upper-middle income (29) 23 79% 2 7% 2 7% 8 28% Lower-middle income (34) 27 79% 8 24% 4 12% 4 12% Low income (23) 22 96% 0 0% 3 13% 5 22% By region East Asia and Pacific (11) 7 64% 2 18% 1 9% 2 18% Europe and Central Asia (16) 12 75% 2 13% 1 6% 5 31% Latin America & Caribbean (18) 13 72% 3 17% 3 17% 3 17% Middle East & North Africa (11) 10 91% 2 18% 1 9% 1 9% South Asia (4) 4 100% 0 0% 0 0% 1 25% Sub-Saharan Africa (31) 30 97% 1 3% 3 10% 6 19% Euro area countries (16) 12 75% 2 13% 1 6% 4 25% Other EU members (11) 10 91% 1 9% 0 0% 4 36% Other developed countries (14) 10 71% 2 14% 0 0% 4 29% By population size >30 million (32) 19 59% 4 13% 8 25% 6 19% >5 million, <30 million (53) 48 91% 5 9% 3 6% 12 23% 5 million or less (47) 41 87% 1 2% 4 9% 12 26% countries (48%), particularly in the SSA region. A re- ed that exclusivity agreements/conditions exist in their cent study shows that remittance markets in Africa jurisdictions. lack competitive environments and that remittance costs are high, partially caused by exclusivity agree- At the same time, 52% of low income countries have ments.69 On the other hand, none of the ODCs report- specific legislation to address anti-competitive behav- iors and conditions. About half of the countries in the SA and SSA regions have such legislation. 69 Mohapatra and Ratha (ed). “Remittance Markets in Africa�, The World Bank, 2011. Global Survey 2010 97 Requirements for RSPs to be incorporated as banks cross-border funds transfers. Survey results show that usually translate into an entry barrier in the remittance in over 80% of the countries, 90% or more of commer- market. In this regard, the survey shows that such re- cial banks are SWIFT users. The equivalent figure in quirements are present in only 16% of the countries, the 2008 survey was 78%. Similar to the previous sur- though this figure rises to 39% for the specific case vey, results are higher in low income countries, espe- of low income countries. Indeed, a growing number cially in the SA and SSA regions, and also in non-euro of countries are opening remittance markets to non- area EU members. bank RSPs. Examples of this approach include the EU Payment Services Directive and Japan’s Payment In the late 1990s and the first few years of the current Services Act. century, banks and other users connecting to SWIFT via the central bank’s own connection to this network Disproportionately high capital requirements are also was a common practice. The 2010 survey shows that a potential barrier to market entry. Several countries this practice persists in only 8% of the countries. require non-bank RSPs to comply with requirements similar to those that are applicable to commercial SWIFT Service Bureaus were designed as an alter- banks or other deposit-taking institutions. native for smaller banks and other types of financial institutions to access the SWIFT network. Survey re- sults show that this alternative is used in 30 countries V.2.4. Cross-Border Payments or 23% of the total, which is a decrease compared to the 32% figure in the previous survey. The decrease is A good level of cross-border integration of payment particularly noteworthy in low income countries, from systems should translate into cross-border payments 57% to only 22% in the current survey. being settled more efficiently and safely, which could result in relatively lower costs and faster transactions. This, of course, includes international remittances as well. Examples of cross-border integration of payment systems include the Single Euro Payment Area (SEPA) and the Directo a México service established between the U.S. Federal Reserve’s FedACH service and Banco de México. Table V.9 shows that a total of 59 countries have es- tablished links for cross-border settlement, while an- other 21 expect to have such links established within two years.70 In the case of the EU, all member countries have established such links. Table V.10 refers to the use of the international SWIFT network, which is largely used in connection with 70 Seven countries indicated that they have established cross-border links and there are plans to establish additional links in the next two years. Section V. International Remittances and Other Cross-Border Payments SECTION VI SECURITIES SETTLEMENT SYSTEMS VI.I BACKGROUND delivery of collateral for payments and other purposes. For example, government securities are used exten- S ecurities clearing and settlement systems sively to carry out monetary policy through open mar- are of high importance for a country’s finan- ket operations. Clearing and settlement inefficiencies cial sector and financial stability, because of or other problems could disrupt the ability of the cen- their critical role in the capital market.71 tral bank to implement monetary policy effectively. The fact that securities clearing and settlement systems Securities systems and large-value payment systems typically handle large values creates the possibility that are mutually dependent. To achieve DVP, settlement a failure in such systems could cause broader financial of the securities leg in the securities settlement system and economic instability. Market liquidity is critically is conditional on settlement of the cash leg, normally dependent on confidence in the safety and reliability in a large-value payment system. In parallel, credit of the clearing and settlement arrangements. Hence, a extensions in large-value payment systems are often financial or operational problem in such systems – or dependent on the provision of collateral through a affecting one of its major participants – could result in securities system. Therefore, the interaction between significant liquidity pressures or credit losses for other these infrastructures needs to be cost-efficient, reliable participants including commercial and custody banks, and secure. brokers, investment dealers and managers, and the central bank. VI.2 SURVEY OUTCOMES In addition, sound and efficient procedures for the clearing and settlement of securities are an essen- This section analyzes some general features of securi- tial element for the development of capital markets. ties markets and securities clearing and settlement sys- Securities settlement systems are critical for the timely tems in countries and regions worldwide. Based on the different tables shown below, the risk management and operational frameworks of central securities deposito- 71 For the purposes of the survey, securities clearing and settlement systems ries (CSDs), securities settlement systems (SSSs) and refer to those systems that facilitate the central clearing and settlement of securi- ties, including derivatives. Three different types of securities settlement systems central counterparties (CCPs) are discussed. This sec- are central securities depositories (CSDs), securities settlement systems (SSSs) and tion concludes with regulatory and oversight issues of central counterparties (CCPs). securities clearing and settlement systems. 99 100 TABLE VI.1: GENERAL FEATURES OF SECURITIES CLEARING AND SETTLEMENT SYSTEMS WORLDWIDE The great There are One or majority of There are There is The There is a two or more At least one more stock negotiable two or more one or more securities single CSD CSDs, each There is SSS does not exchanges securities are CSDs, each clearing market is at for all types handling one or more directly settle are currently immobilized or handling institution a nascent of securities only certain CCPs in Central operating in dematerialized all types of for stage in the country types of Bank money the country in one or more securities securities securities CSDs Central banks # % # % # % # % # % # % # % # % # % Worldwide total (119) 35 29% 102 86% 84 71% 49 41% 48 40% 7 6% 71 60% 41 34% 40 34% By income High income (44) 5 11% 42 95% 41 93% 28 64% 12 27% 2 5% 30 68% 27 61% 14 32% Upper-middle income (29) 5 17% 27 93% 20 69% 10 34% 15 52% 3 10% 19 66% 9 31% 9 31% Lower-middle income (29) 13 45% 21 72% 15 52% 9 31% 13 45% 1 3% 16 55% 4 14% 11 38% Low income (17) 12 71% 12 71% 8 47% 2 12% 8 47% 1 6% 6 35% 1 6% 6 35% By region East Asia and Pacific (8) 2 25% 6 75% 4 50% 2 25% 5 63% 0 0% 3 38% 3 38% 5 63% Europe and Central Asia (15) 7 47% 14 93% 12 80% 5 33% 9 60% 2 13% 11 73% 4 27% 6 40% Latin America & 5 29% 13 76% 10 59% 5 29% 7 41% 2 12% 11 65% 5 29% 2 12% Caribbean (17) Middle East & North Africa (12) 4 33% 11 92% 8 67% 6 50% 5 42% 1 8% 8 67% 1 8% 2 17% South Asia (4) 1 25% 4 100% 4 100% 0 0% 4 100% 1 25% 2 50% 1 25% 3 75% Sub-Saharan Africa (23) 14 61% 16 70% 8 36% 5 22% 9 39% 0 0% 11 48% 1 4% 8 35% Euro area (16) 1 6% 16 100% 15 94% 11 69% 3 19% 0 0% 8 50% 10 63% 5 31% Other EU members (11) 0 0% 11 100% 11 100% 8 73% 2 18% 1 9% 7 64% 5 45% 3 27% Other developed countries (13) 1 8% 11 85% 12 92% 7 54% 4 31% 0 0% 10 77% 11 85% 6 46% By population size >30 million (33) 3 9% 32 97% 29 88% 11 33% 21 64% 1 3% 26 79% 20 61% 17 52% >5 million, <30 million (47) 17 36% 39 83% 31 66% 21 45% 15 32% 3 6% 25 53% 17 36% 15 33% 5 million or less (39) 15 38% 31 79% 24 62% 17 44% 12 31% 3 8% 20 51% 4 10% 8 21% PAYMENT SYSTEMS WORLDWIDE Global Survey 2010 101 In the analysis in this section, each individual cen- tral bank that has responded to Part VI: Securities BOX 8: INTEGRATING EUROPEAN Settlement Systems of the Questionnaire for Collecting SECURITIES SETTLEMENT: Information to Depict the Situation of Payment and TARGET2-SECURITIES Securities Settlement Systems Worldwide 2010, re- gardless of how many countries or financial systems TARGET2-Securities (T2S) is a large infrastructure proj- ect launched by the Eurosystem. It will bring substan- it serves, is counted as one for comparison purposes. tial benefits to the European post-trading industry by The results presented in Tables VI.2 to VI.8 and rela- providing a single pan-European platform for securities tive sub-sections are based on the number of systems settlement in central bank money. It will settle securi- reported, and not on the total number of central ties transactions in euro and is open for settlements in banks/countries that have participated in the survey. other currencies as well. T2S will therefore be a major step forward in creating a single market in securities, removing many of the barriers to efficient cross-border VI.2.1 General Features of Securities Markets clearing and settlement, as well as acting as a catalyst for further harmonization in post-trading services. With Out of the 119 countries that responded to this section, T2S, cross-border settlement will be identical to do- 102 have one or more stock exchanges (see Table V.1). mestic settlement in terms of cost, risk and technical In general, the existence of stock exchanges is more processing. likely in high income countries and countries with a By providing a single IT platform, T2S will accommodate larger population. The securities market is still at a na- market participants’ dedicated central bank cash ac- scent stage in 35 of the 119 countries. These countries counts and securities accounts in the same settlement are mainly located in the SSA (14 countries) and ECA facility. It is thus able to aggregate European settle- (7 countries) regions, and also tend to be low income ment volumes in one platform. This will allow enormous or lower-middle income countries. economies of scale and significant liquidity savings to be achieved. Furthermore, the single T2S process will Securities immobilization or dematerialization at facilitate the streamlining of back office procedures and CSDs have been largely accomplished in 71% of the foster further harmonization of post-trade activities. The respondent countries, which is an increase compared use of central bank money will eliminate risk on the set- to the 66% reported in the 2008 survey. As shown in tlement agent and thus contribute to financial stability. Table VI.1, this has been accomplished in all SA coun- tries, in all non-euro EU members, and in all but one T2S will be owned and operated by the Eurosystem on a country of the euro area. The SSA countries show the full cost-recovery basis and designed for the benefit of its users. The T2S migration phase will be composed of lowest level of securities dematerialization with only three migration waves and one contingency wave. The 36% of respondents. Since 2008, the LAC and EAP first migration wave is scheduled for September 2014, regions have made significant progress in the level of when T2S will begin operations. dematerialization. Source: ECB As for the types of CSDs that exist in the various coun- tries, in 49 cases (41%) there is a single CSD handling all types of securities that are traded in the country, while in 48 other cases (40%) there are two or more Section VI. Securies Settlement Systems 102 TABLE VI.2: CSDs – GENERAL FEATURES The CSD The CSD The CSD is used is used for The CSD The CSD handles both The CSD is The CSD is The CSD is to facilitate The CSD is securities handles handles government operated by operated by operated ownership used to settle traded at government corporate securities the Central the Stock by another transfers from also OTC the Stock securities securities and corporate Bank Exchange private entity secondary market transactions Exchange securities transactions only CSDs # % # % # % # % # % # % # % # % # % Worldwide total (149) 51 34% 37 25% 72 49% 57 39% 43 29% 59 40% 132 89% 34 23% 98 66% By income High income (56) 11 20% 12 21% 36 64% 13 23% 17 30% 25 45% 52 93% 9 16% 45 80% Upper-middle income (39) 14 36% 14 36% 18 46% 14 36% 11 28% 21 54% 37 95% 11 28% 27 69% Lower-middle income (37) 16 43% 7 19% 14 38% 18 49% 9 24% 12 32% 29 78% 10 27% 19 51% Low income (17) 10 59% 4 24% 4 24% 12 71% 6 35% 1 6% 14 82% 4 24% 7 41% By region East Asia and Pacific (10) 3 30% 3 30% 6 60% 5 50% 4 40% 2 20% 9 90% 3 30% 8 80% Europe and Central Asia (24) 10 42% 10 42% 6 25% 9 38% 5 21% 12 50% 22 92% 6 25% 16 67% Latin America & Caribbean (22) 9 41% 6 27% 10 45% 10 45% 7 32% 10 45% 20 91% 7 32% 10 45% Middle East & North Africa (13) 3 23% 2 15% 7 54% 4 31% 7 54% 3 23% 10 77% 5 38% 9 69% South Asia (6) 3 50% 1 17% 3 50% 4 67% 3 50% 1 17% 6 100% 2 33% 2 33% Sub-Saharan Africa (21) 12 57% 4 19% 6 29% 13 62% 6 29% 3 14% 16 76% 6 29% 8 38% Euro area countries (20) 4 20% 4 20% 15 75% 3 15% 6 30% 11 55% 18 90% 2 10% 17 85% Other EU members (15) 3 20% 3 20% 10 67% 3 20% 2 13% 10 67% 15 100% 2 13% 11 73% Other developed countries (18) 4 22% 4 22% 9 50% 6 33% 3 17% 7 39% 16 89% 1 6% 17 94% By population size >30 million (50) 18 36% 14 28% 21 42% 19 38% 14 28% 21 42% 47 94% 11 22% 36 72% >5 million, <30 million (57) 21 37% 13 23% 30 53% 22 39% 15 26% 22 39% 49 86% 12 21% 33 58% 5 million or less (42) 12 29% 10 24% 21 50% 16 38% 14 33% 16 38% 36 86% 11 26% 29 69% PAYMENT SYSTEMS WORLDWIDE TABLE VI.3: CSDs – RISK MANAGEMENT FEATURES A guarantee fund/other A rolling A rolling mechanism settlement settlement ensures A securities cycle of T+3 The CSD has cycle of T+3 settlement if lending or shorter is a real-time Model 1 DVP Model 2 DVP Model 3 DVP No DVP is or shorter is participant mechanism used for the interface with is used is used is used used Global Survey 2010 used for all with the has been majority of the RTGS securities largest debit implemented the securities trades obligation is trades unable to settle CSDs # % # % # % # % # % # % # % # % # % Worldwide total (149) 98 66% 26 17% 90 60% 97 65% 32 21% 36 24% 12 8% 43 29% 44 30% By income High income (56) 39 70% 13 23% 44 79% 44 79% 13 23% 15 27% 3 5% 19 34% 22 39% Upper-middle income (39) 29 74% 2 5% 23 59% 25 64% 10 26% 11 28% 4 10% 13 33% 13 33% Lower-middle income (37) 22 59% 7 19% 17 46% 21 57% 5 14% 9 24% 4 11% 9 24% 7 19% Low income (17) 8 47% 4 24% 6 35% 7 41% 4 24% 1 6% 1 6% 2 12% 2 12% By region East Asia and Pacific (10) 8 80% 1 10% 5 50% 7 70% 1 10% 1 10% 0 0% 2 20% 5 50% Europe and Central Asia (24) 15 63% 4 17% 9 38% 16 67% 4 17% 6 25% 2 8% 5 21% 4 17% Latin America & Caribbean (22) 14 64% 4 18% 13 59% 15 68% 4 18% 7 32% 3 14% 5 23% 5 23% Middle East & North Africa (13) 11 85% 0 0% 8 62% 6 46% 2 15% 3 23% 3 23% 4 31% 1 8% South Asia (6) 4 67% 1 17% 3 50% 3 50% 0 0% 2 33% 1 17% 1 17% 1 17% Sub-Saharan Africa (21) 12 57% 2 10% 9 43% 8 38% 5 24% 3 14% 2 10% 6 29% 4 19% Euro area countries (20) 14 70% 6 30% 17 85% 18 90% 5 25% 5 25% 0 0% 7 35% 10 50% Other EU members (15) 9 60% 4 27% 13 87% 11 73% 8 53% 4 27% 0 0% 8 53% 7 47% Other developed countries (18) 11 61% 4 22% 13 72% 13 72% 3 17% 5 28% 1 6% 5 28% 7 39% By population size >30 million (50) 31 62% 8 16% 34 68% 37 74% 10 20% 14 28% 3 6% 17 34% 16 32% 103 >5 million, <30 million (57) 38 67% 11 19% 35 61% 33 58% 15 26% 12 21% 4 7% 13 23% 19 33% 5 million or less (42) 29 69% 7 17% 21 50% 27 64% 7 17% 10 24% 5 12% 13 31% 9 21% Section VI. Securies Settlement Systems 104 PAYMENT SYSTEMS WORLDWIDE TABLE VI.4: CSDs – PARTICIPATION AND CUSTODY ARRANGEMENTS Beneficial owners cannot Commercial Beneficial owners be identified, but Broker-dealers are Other financial banks are direct are identified at direct participants direct participants institutions can be participants in the the individual level are required to in the CSD direct participants CSD in the CSD segregate their holdings from their customers’ CSDs # % # % # % # % # % Worldwide total (149) 128 86% 98 66% 100 67% 76 51% 60 40% By income High income (56) 50 89% 40 71% 46 82% 24 43% 29 52% Upper-middle income (39) 34 87% 30 77% 30 77% 25 64% 12 31% Lower-middle income (37) 28 76% 22 59% 14 38% 18 49% 14 38% Low income (17) 16 94% 6 35% 10 59% 9 53% 5 29% By region East Asia and Pacific (10) 7 70% 6 60% 6 60% 2 20% 4 40% Europe and Central Asia (24) 19 79% 15 63% 15 63% 12 50% 8 33% Latin America & Caribbean (22) 17 77% 18 82% 16 73% 16 73% 5 23% Middle East & North Africa (13) 9 69% 8 62% 2 15% 7 54% 5 38% South Asia (6) 5 83% 6 100% 5 83% 4 67% 1 17% Sub-Saharan Africa (21) 20 95% 6 29% 9 43% 16 76% 5 24% Euro area countries (20) 19 95% 15 75% 17 85% 7 35% 13 65% Other EU members (15) 15 100% 12 80% 15 100% 7 47% 8 53% Other developed countries (18) 17 94% 12 67% 15 83% 5 28% 11 61% By population size >30 million (50) 45 90% 34 68% 33 66% 19 38% 25 50% >5 million, <30 million (57) 51 89% 40 70% 42 74% 32 56% 21 37% 5 million or less (42) 32 76% 24 57% 25 60% 25 60% 14 33% “specialized� CSDs in the country. The “specialized� own preferred model. For example, for the last 20 CSDs handle specific types of securities, with the most years, central banks in the EU have shifted their CSD common division of the market being corporate secu- activity for government securities to the private sec- rities on the one hand, and securities issued by the gov- tor, creating one CSD per country that handles all ernment and central bank on the other. Yet, in 7 other types of securities, whereas, in the United States, the cases there are two or more CSDs handling all types of Depository Trust & Clearing Corporation (DTCC) securities. operates the CSD for corporate securities on the one hand while the Federal Reserve Bank operates the CSD A single CSD is more common in high income coun- for government bonds and mortgage-backed securities tries, although different regions seem to have their on the other hand. EAP, ECA and SA countries clearly Global Survey 2010 105 TABLE VI.5: CSDs – RESILIENCE AND BUSINESS CONTINUITY Tapes/other The CSD Procedures Back-up Routine storage media A fully operator has for crisis Business servers have procedures are kept in equipped documented management continuity been deployed are in place sites other alternate formal and arrangements at the main for periodic than the main processing business information are regularly processing data back-ups processing site exists continuity dissemination tested site site plan are in place CSDs # % # % # % # % # % # % # % Worldwide total (149) 129 87% 122 82% 102 68% 107 72% 126 85% 116 78% 109 73% By income High income (56) 54 96% 52 93% 43 77% 51 91% 52 93% 51 91% 50 89% Upper middle income (39) 35 90% 33 85% 30 77% 26 67% 34 87% 30 77% 29 74% Lower middle income (37) 29 78% 27 73% 24 65% 22 59% 27 73% 25 68% 22 59% Low income (17) 11 65% 10 59% 5 29% 8 47% 13 76% 10 59% 8 47% By region East Asia and Pacific (10) 9 90% 8 80% 6 60% 7 70% 7 70% 7 70% 7 70% Europe and Central Asia (24) 18 75% 16 67% 11 46% 10 42% 17 71% 14 58% 12 50% Latin America & Caribbean (22) 19 86% 19 86% 19 86% 18 82% 19 86% 17 77% 17 77% Middle East & North Africa (13) 12 92% 12 92% 11 85% 9 69% 11 85% 11 85% 9 69% South Asia (6) 5 83% 5 83% 5 83% 5 83% 6 100% 6 100% 5 83% Sub-Saharan Africa (21) 15 71% 14 67% 10 48% 12 57% 16 76% 12 60% 11 52% Euro area countries (20) 20 100% 19 95% 17 85% 20 100% 20 100% 20 100% 19 95% Other EU members (15) 15 100% 14 93% 10 67% 11 73% 15 100% 15 100% 14 93% Other developed countries (18) 16 89% 15 83% 13 72% 15 83% 15 83% 14 78% 15 83% By population size >30 million (50) 44 88% 41 82% 34 68% 40 80% 45 90% 43 86% 42 84% >5 million, <30 million (57) 48 84% 46 81% 39 68% 42 74% 51 89% 46 81% 43 75% 5 million or less (42) 37 88% 35 83% 29 69% 25 60% 30 71% 27 64% 24 57% tend towards two or more CSDs each handling specific countries, whereas only 14% of lower-middle income types of securities. and 6% of low income countries have one. Likewise, CCPs are far more common in large countries (61% vs. The majority of countries surveyed (60%) have one or only 10% in small countries). more specialized clearing institutions for the clearing of securities transactions. Only a minority of countries A total of 40 countries out of 119 indicated that at (34%) has a CCP operating either for securities or de- least one SSS does not directly settle in central bank rivatives products. Large differences are visible across money, but uses one or more settlement banks to settle country types. Most high income countries have a the payment obligations. The results differ highly per CCP, for example 85% of ODC and 63% of euro-area region, without clear relation to country income lev- Section VI. Securies Settlement Systems 106 PAYMENT SYSTEMS WORLDWIDE els. The majority of SA (75%) and EAP (63%) coun- Also noteworthy is the fact that the majority of CSDs tries report that at least one system in their countries (66%) settle not only stock exchange transactions, but does not settle in central bank money, while the lowest also OTC transactions. CSDs in high income coun- percentages are found in the LAC (12%) and MNA tries tend to settle both stock exchange and OTC (17%) regions. transactions. VI.2.2.2 Risk Management of CSDs and SSSs VI.2.2 Central Securities Depositories and Securities Settlement Systems In the 2008 survey the analysis of the results was di- vided into central bank-operated CSDs and SSS on the VI.2.2.1 General Features of CSDs and SSSs one hand, and those operated by exchanges/private sector on the other. In the current iteration, results are Table VI.2 shows that the most common types of CSDs presented for CSDs and SSSs altogether. Hence, most are CSDs that handle both government and corpo- figures presented in sub-sections VI.2.3 and VI.2.4 rate securities (49%) followed by specialized CSDs will not be directly comparable with those of the previ- that only handle government securities (34%). PSDG ous survey. experience shows that a CSD that handles both gov- ernment and corporate securities is usually a private Table VI.3 analyzes some of the main risk management entity, whereas a CSD that handles only government features related to the settlement of securities transac- securities is usually operated by a central bank. Clearly, tions in SSSs and CSDs. A rolling settlement cycle of the involvement of the central bank as the CSD opera- T+3 or shorter is used for all trades in 98 out of the tor is more common in low income countries than in 149 CSDs, which is 66% of all CSDs. Another 26 CSDs high income countries, where private entities usually use T+3 only for some of the securities trades. Ninety operate CSDs. These results illustrate an important fea- CSDs out of the 179 have a real-time interface with ture observed worldwide through PSDG’s field work: RTGS system. the central bank is usually heavily involved during the early stages of setting up a securities market; once the The use of DVP as a measure to reduce principal risk is market reaches a certain level of development, the pri- widespread. In the EAP and EU countries all transac- vate sector usually takes over. tions are settled on the basis of a DVP arrangement. Only 8% of CSDs do not use a DVP model at all. The CSDs are regularly used to transfer ownership follow- MNA, SA and LAC regions show the highest percent- ing a transaction in the secondary market (132 out of ages of CSDs not using DVP with 23%, 17% and 14%, 149 systems or 89%).72 From a regional perspective, respectively. the figure exceeds 90% in all regions with the excep- tion of MNA (77%) and SSA regions (76%),73 and Most CSDs (65%) have implemented a DVP Model 1 ODCs (89%). arrangement to settle securities and cash obligations of its participants.74 This is an increase compared to 2007, 74 According to the classification of the CPSS-BIS (Vid “Delivery versus Pay- 72 Otherwise, ownership changes occur in a separate or independent registrar. ment in Securities Settlement Systems�, 1992, CPSS, BIS), in DVP Model 1 securi- 73 The total number of CSDs for the SSA region does not include the CSD ties and funds are settled on a trade-by-trade (gross) basis, with final transfer of component of the Rwandan ATS, which went live in July 2011. securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment); in DVP Model 2, securities are settled on a gross basis with final delivery occurring throughout the processing cycle, but funds are settled on a net basis, with final payment occur- ring at the end of the processing cycle; in DVP Model 3, securities and funds are settled on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle. TABLE VI.6: CCPs – GENERAL FEATURES The CCP legally CCP rules becomes the clarify the The CCP Commercial Other The CCP buyer to every Broker-dealers There are contractual provides banks financial operates in seller and the are direct minimum capital relationships multilateral are direct institutions more than one seller to every participants in requirements for Global Survey 2010 between netting participants in can be direct jurisdiction buyer (via the CCP participants the CCP and facilities the CCP participants “novation� or participants “open offer�) CCPs # % # % # % # % # % # % # % # % Worldwide total (56) 16 29% 51 91% 50 89% 52 93% 46 82% 48 86% 33 59% 48 86% By income High income (36) 13 36% 34 94% 35 97% 34 94% 30 83% 33 92% 20 56% 34 94% Upper-middle income (10) 1 10% 9 90% 10 100% 9 90% 10 100% 8 80% 6 60% 8 80% Lower-middle income (7) 0 0% 5 71% 5 71% 7 100% 4 57% 5 71% 6 86% 6 86% Low income (3) 2 67% 3 100% 0 0% 2 67% 2 67% 2 67% 1 33% 0 0% By region East Asia and Pacific (4) 0 0% 4 100% 4 100% 4 100% 1 25% 3 75% 3 75% 3 75% Europe and Central Asia (6) 2 33% 5 83% 4 67% 5 83% 6 100% 4 67% 5 83% 3 50% Latin America & Caribbean (6) 1 17% 5 83% 5 83% 6 100% 6 100% 5 83% 4 67% 5 83% Middle East & North Africa (1) 0 0% 0 0% 0 0% 1 100% 1 100% 0 0% 1 100% 1 100% South Asia (2) 0 0% 2 100% 1 50% 1 50% 1 50% 2 100% 1 50% 1 50% Euro area countries (13) 10 77% 12 92% 13 100% 12 92% 13 100% 12 92% 9 69% 13 100% Other EU members (5) 2 40% 5 100% 5 100% 5 100% 5 100% 4 80% 2 40% 4 80% Other developed countries (19) 1 5% 18 95% 18 95% 18 95% 13 68% 18 95% 8 42% 18 95% By population size >30 million (29) 6 21% 27 93% 28 97% 28 97% 23 79% 25 86% 20 69% 26 90% >5 million, <30 million (23) 10 43% 20 87% 18 78% 20 87% 19 83% 19 83% 11 48% 18 78% 5 million or less (4) 0 0% 4 100% 4 100% 4 100% 4 100% 4 100% 2 50% 4 100% 107 Section VI. Securies Settlement Systems 108 PAYMENT SYSTEMS WORLDWIDE when 61% of central bank-operated CSDs and 54% of mon in higher income countries (EU, ODCs), LAC CSDs operated by private entities or stock exchanges and SA regions. used this model. A clear relation exists between the in- come of a country and the preference for DVP Model With regard to the identification of beneficial own- 1, with higher income countries adopting this model ers in the CSD, in 76 cases (51%) all beneficial owners more often. This may be related to the development of can be individually identified directly in the system. In sophisticated optimization algorithms by CSDs in high 40% of the cases, beneficial owners cannot be identi- income countries, which reduce the liquidity need dur- fied individually in the CSD but only in the records ing the settlement process and consequently decrease of the direct participants of the CSD. This means that the draw backs of DVP Model 1. DVP Models 2 and 3 there is no clear preference for one model over the oth- are equally popular among themselves, with 21% and er. Indeed, countries value the benefits of both models 24% of CSDs using these models respectively. Regional differently, with the LAC (73%) and the SSA (76%) re- preferences do exist however, with DVP Model 2 being gions preferring to have the CSD being able to identify dominant in the SSA region, the non-euro EU coun- the beneficial owner, while in the EU (58%) and ODCs tries and ODCs. DVP Model 3 dominates in the ECA, (61%) the beneficial owner is preferably identified at LAC, MNA and SA regions, and is less popular in low the level of the direct participant only. income countries. It should be noted that CSDs may use different models at the same time. Often they com- VI.2.2.3 Resilience and Business Continuity bine DVP Model 1 for government securities and OTC Arrangements of CSDs and SSSs transactions, and DVP Models 2 or 3 for the settlement of corporate securities. Different models may also be Table VI.5 depicts resilience and business continuity used during different moments of the settlement day. features in CSDs and SSSs. According to 2010 sur- vey data, significant improvements have been made Furthermore, 29% of the CSDs surveyed use a guar- since the last survey exercise. Seventy-two percent of antee fund or other risk management mechanism to all systems have a fully equipped alternate processing ensure settlement takes place, for instance in the event site.75 Likewise, 85% of CSD operators state they have a that the participant with the largest debit obligation is formal business continuity plan; 78% state that proce- unable to settle its position. Also, 30% of CSDs have dures for crisis management and information dissemi- implemented a securities lending mechanism to in- nation have been elaborated, while 73% advise regular crease the settlement efficiency in the markets they testing of their business continuity arrangements. serve. Notwithstanding these improvements, when com- CSDs and SSSs also attempt to control the risks in their pared with RTGS systems CSDs and SSSs have weaker systems by defining access criteria for participants. business continuity practices. Recent PSDG experi- Table VI.4 contains information on participation and ence shows, however, that CSDs are increasingly in- custody arrangements in CSDs and SSSs. Eighty-six vesting in operational reliability, which should lead to percent of the CSDs surveyed indicated that com- further convergence of RTGS and CSD systems with mercial banks are direct participants, whereas the cor- regard to this specific feature. responding figure for broker-dealers and others (e.g. central banks, stock exchanges, Ministry of Finance) is 66%. Direct participation of non-banks is more com- 75 In 2008 the corresponding figures were 59% for central bank-operated sys- tems and 68% for exchange/private sector-operated ones. TABLE VI.7: CCPs – MANAGEMENT OF CREDIT EXPOSURES Arrangements The CCP There is a The CCP holds The CCP’s The CCP The CCP The CCP facilitate marks to guarantee securities in default uses a Payment applies maintains the prompt market fund, The CCP a manner that procedures CSD that obligations margin other transfer, participants’ consisting of conducts minimizes define an provides DVP are directly requirements financial close out or outstanding contributions regular risk of loss event of settlement settled in Global Survey 2010 to limit resources hedging of contracts at of the stress tests and ensures default and for the Central Bank its credit including defaulting least once a participants prompt access the method transactions money exposures own funds participant’s day of the CCP to securities for identifying cleared positions that default CCPs # % # % # % # % # % # % # % # % # % # % Worldwide total (56) 41 73% 45 80% 48 86% 44 79% 40 71% 48 86% 52 93% 49 88% 46 82% 35 63% By income High income (36) 31 86% 33 92% 33 92% 32 89% 29 81% 33 92% 35 97% 34 94% 30 83% 21 58% Upper-middle income (10) 7 70% 8 80% 9 90% 8 80% 8 80% 8 80% 10 100% 9 90% 8 80% 8 80% Lower-middle income (7) 3 43% 4 57% 6 86% 4 57% 3 43% 5 71% 6 86% 6 86% 6 86% 5 71% Low income (3) 0 0% 0 0% 0 0% 0 0% 0 0% 2 67% 1 33% 0 0% 2 67% 1 33% By region East Asia and Pacific (4) 1 25% 2 50% 3 75% 3 75% 2 50% 3 75% 4 100% 4 100% 3 75% 2 50% Europe and Central Asia (6) 2 33% 2 33% 4 67% 1 17% 1 17% 5 83% 5 83% 4 67% 5 83% 4 67% Latin America & Caribbean (6) 4 67% 5 83% 5 83% 5 83% 5 83% 5 83% 5 83% 4 67% 5 83% 5 83% Middle East & North Africa (1) 1 100% 1 100% 1 100% 0 0% 0 0% 0 0% 1 100% 1 100% 1 100% 1 100% South Asia (2) 1 50% 1 50% 1 50% 1 50% 1 50% 1 50% 1 50% 1 50% 1 50% 1 50% Euro area countries (13) 13 100% 13 100% 12 92% 12 92% 12 92% 13 100% 13 100% 13 100% 12 92% 7 54% Other EU members (5) 4 80% 5 100% 4 80% 5 100% 5 100% 5 100% 5 100% 5 100% 5 100% 4 80% Other developed countries (19) 15 79% 16 84% 18 95% 17 89% 14 74% 16 84% 18 95% 17 89% 14 74% 11 58% By population size >30 million (29) 24 83% 26 90% 26 90% 25 86% 21 72% 25 86% 29 100% 28 97% 22 76% 17 59% >5 million, <30 million (23) 15 65% 16 70% 18 78% 16 70% 16 70% 20 87% 19 83% 17 74% 21 91% 16 70% 5 million or less (4) 2 50% 3 75% 4 100% 3 75% 3 75% 3 75% 4 100% 4 100% 3 75% 2 50% 109 Section VI. Securies Settlement Systems 110 TABLE VI.8: CCPs – RESILIENCE AND BUSINESS CONTINUITY Business continuity Tapes and other arrangements Routine procedures Back-up servers The CCP has storage media are A fully equipped include procedures Business continuity are in place have been deployed documented kept in sites other alternate processing for crisis arrangements are for periodic at the main formal business than the main site exists management regularly tested data back-ups processing site continuity plan processing site and information dissemination CCPs # % # % # % # % # % # % # % Worldwide total (56) 46 82% 43 77% 36 64% 41 73% 44 79% 40 71% 42 75% By income High income (36) 29 81% 27 75% 23 64% 28 78% 28 78% 27 75% 28 78% Upper-middle income (10) 9 90% 9 90% 9 90% 6 60% 9 90% 7 70% 8 80% Lower-middle income (7) 6 86% 6 86% 4 57% 7 100% 6 86% 6 86% 5 71% Low income (3) 2 67% 1 33% 0 0% 0 0% 1 33% 0 0% 1 33% By region East Asia and Pacific (4) 4 100% 4 100% 3 75% 4 100% 4 100% 4 100% 3 75% Europe and Central Asia (6) 5 83% 4 67% 2 33% 2 33% 4 67% 2 33% 4 67% Latin America & Caribbean (6) 5 83% 5 83% 5 83% 6 100% 6 100% 3 50% 4 67% Middle East & North Africa (1) 1 100% 1 100% 0 0% 1 100% 0 0% 1 100% 1 100% South Asia (2) 1 50% 1 50% 1 50% 1 50% 1 50% 1 50% 1 50% Euro area countries (13) 13 100% 12 92% 10 77% 13 100% 13 100% 13 100% 13 100% Other EU members (5) 5 100% 5 100% 5 100% 3 60% 5 100% 5 100% 5 100% Other developed countries (19) 12 63% 11 58% 10 53% 11 58% 11 58% 11 58% 11 58% By population size >30 million (29) 23 79% 22 76% 18 62% 23 79% 22 76% 21 72% 21 72% >5 million, <30 million (23) 21 91% 19 83% 17 74% 16 70% 20 87% 18 78% 19 83% 5 million or less (4) 2 50% 2 50% 1 25% 2 50% 2 50% 1 25% 2 50% PAYMENT SYSTEMS WORLDWIDE Global Survey 2010 111 VI.2.3 Central Counterparties teria for potential participants. Table VI.6 shows the different types of financial institutions which are more VI.2.3.1 General Features of CCPs commonly accepted as direct participants of CCPs. Unlike CSDs, a very large percentage of CCPs accept With the possible exception of exchange-traded de- broker-dealers as direct participants (86% compared rivatives, CCPs are a relatively recent phenomenon, to 66% of CSDs) than they do for commercial banks especially in developing countries. Questions on CCPs (82% compared to 86% of CSDs).76 were not included in the 2008 survey. For the current iteration, a total of 56 responses were received. Not In the great majority of the cases (86%), the CCP im- surprisingly, CCPs are active mainly in larger countries poses minimum capital requirements to its partici- (29), and especially in high income countries (36). By pants as a key risk management mechanism. This is region, CCPs are more prevalent in the EU, ECA and especially true in the euro area, ODCs, LAC countries LAC regions and in ODCs. and also in non-euro EU members. As with stock exchanges and CSDs, CCPs were typi- Table VI.7 discusses other risk management measures cally envisaged to serve a domestic market. Table that CCPs use to mitigate counterparty credit risk. VI.6 shows, however, that about one-third of CCPs A guarantee fund is the most common risk measure currently operate in more than one jurisdiction. This among CCPs to cover possible credit losses (48 of 56 is especially relevant in the EU, deriving from the cre- systems or 86%). Margin deposits to cover potential ation of a single financial market across the Union credit losses are required by 73% of CCPs, while 79% which has encouraged competition between CCPs have additional funds, including own funds, as a third across borders. line of defense. Most CCPs (80%) mark to market their exposures to participants at least once a day, and 71% The great majority of CCPs (91%) have rules clarifying conduct regular stress tests. The vast majority of CCPs the contractual relationships between the CCP and its (93%) have defined procedures to quickly act in the participants. In 50 out of 56 cases or 89%, CCPs legally event of a default of one of its participants. For this become the buyer to every seller and the seller to every purpose, 88% of CCPs have arrangements to transfer, buyer (via novation or open offer). In addition, the ma- close-out or hedge promptly participants’ positions to jority of CCPs (93%) offer multilateral netting facilities which the CCP is exposed. to their participants, thereby reducing the net amount of obligations between the different participants, which To mitigate settlement risks, 82% of CCPs use a CSD contributes to the efficiency of the market. that settles transactions according to a DVP mecha- nism, while 63% of CCPs settle their payment obliga- VI.2.3.2 Risk Management of CCPs tions (i.e. the cash leg) in central bank money. Due to the concentration of risks in CCPs, it is very Overall, a relatively high percentage of CCPs report important for it to have a sound risk management they have taken a number of measures to manage framework. their risks according to recognized practices. The weakest risk management frameworks for CCPs were As a first layer, CCPs usually attempt to control the risks in their systems by defining minimum access cri- 76 Excluding ODCs the percentages for commercial banks would be 89% and 81% for brokers-dealers. Section VI. Securies Settlement Systems 112 TABLE VI.9A: SECURITIES CLEARING AND SETTLEMENT SYSTEMS – REGULATORY AND OVERSIGHT There is a The securities The Securities The Securities The securities The securities The securities specific public regulator shares The securities Market Law Market Law regulator is regulator is regulator is sector agency supervisory regulator does not applies to all applies only empowered empowered empowered in charge of and oversight have oversight securities to securities to license and to license and to license and regulating responsibilities powers over the negotiated in the issued by the supervise all supervise all supervise securities with the Central derivatives CCP country private sector Stock Exchanges CSDs securities CCPs markets Bank Central banks # % # % # % # % # % # % # % # % Worldwide totals (119) 80 68% 72 61% 31 26% 78 66% 67 57% 42 36% 55 47% 1 1% By income High income (44) 32 73% 31 70% 8 18% 34 77% 29 66% 22 50% 25 57% 0 0% Upper-middle income (29) 21 72% 19 66% 12 41% 20 69% 20 69% 10 34% 14 48% 1 3% Lower-middle income (29) 17 59% 12 41% 9 31% 14 48% 11 38% 8 28% 8 28% 0 0% Low income (17) 10 59% 10 59% 2 12% 10 59% 7 41% 2 12% 8 47% 0 0% By region East Asia and Pacific (8) 4 50% 2 25% 4 50% 5 63% 3 38% 4 50% 5 63% 0 0% Europe and Central Asia (15) 11 73% 11 73% 6 40% 10 67% 9 60% 2 13% 6 40% 0 0% Latin America & Caribbean (17) 13 76% 11 65% 7 41% 11 65% 11 65% 8 47% 8 47% 1 6% Middle East & North Africa (12) 3 25% 2 17% 3 25% 3 25% 2 17% 2 17% 2 17% 0 0% South Asia (4) 4 100% 3 75% 2 50% 4 100% 3 75% 2 50% 2 50% 0 0% Sub-Saharan Africa (23) 14 61% 12 52% 2 9% 12 52% 11 48% 4 17% 8 35% 0 0% Euro area countries (16) 11 69% 13 81% 3 19% 14 88% 11 69% 7 44% 11 69% 0 0% Other EU members (11) 9 82% 8 73% 4 36% 10 91% 9 82% 6 55% 5 45% 0 0% Other developed countries (13) 11 85% 10 77% 0 0% 9 69% 8 62% 7 54% 8 62% 0 0% By population size >30 million (33) 28 85% 25 76% 9 27% 26 79% 24 73% 19 58% 22 67% 1 3% >5 million, <30 million (47) 32 68% 30 64% 12 26% 30 64% 23 49% 13 28% 22 47% 0 0% 5 million or less (39) 20 51% 17 44% 10 26% 22 56% 20 51% 10 26% 11 28% 0 0% PAYMENT SYSTEMS WORLDWIDE Global Survey 2010 113 TABLE VI.9B: SECURITIES CLEARING AND SETTLEMENT SYSTEMS – REGULATORY AND OVERSIGHT The Stock Exchange has Private CSDs have been The CCP has been granted been granted the status granted the status of SRO the status of SRO of SRO Central banks # % # % # % Worldwide totals (119) 27 23% 14 12% 10 8% By income High income (44) 10 23% 6 14% 3 7% Upper-middle income (29) 9 31% 4 14% 4 14% Lower-middle income (29) 5 17% 3 10% 3 10% Low income (17) 3 18% 1 6% 0 0% By region East Asia and Pacific (8) 4 50% 3 38% 3 38% Europe and Central Asia (15) 3 20% 1 7% 0 0% Latin America & Caribbean (17) 6 35% 4 24% 5 29% Middle East & North Africa (12) 2 17% 1 8% 0 0% South Asia (4) 0 0% 0 0% 0 0% Sub-Saharan Africa (23) 4 17% 1 4% 0 0% Euro area (16) 3 19% 3 19% 1 6% Other EU members (11) 2 18% 1 9% 0 0% Other developed countries (13) 3 23% 0 0% 1 8% By population size >30 million (33) 13 39% 6 18% 7 21% >5 million, <30 million (47) 5 11% 3 6% 1 2% 5 million or less (39) 9 23% 5 13% 2 5% reported in low income countries, and in the ECA VI.2.3.3 Resilience and Business Continuity and SA regions, while the sounder ones are in the EU, Arrangements of CCPs ODCs and LAC. Table V.8 illustrates the resilience and business conti- It should be noted, however, that the risk management nuity features of CCPs. A large majority of CCPs have arrangements and techniques surveyed are highly com- implemented measures to reduce operational risk. For plex. This section of the global survey was designed to example, 82% of CCPs have routine procedures for pe- gather basic information on the extent to which CCPs riodic data back-up; 73% have a fully-equipped alter- have embraced such arrangements and techniques. nate processing site, and 75% regularly test their busi- It did not aim to assess whether the specific arrange- ness continuity arrangements. ments adopted by CCPs are actually adequate. Section VI. Securies Settlement Systems 114 PAYMENT SYSTEMS WORLDWIDE When compared with RTGS and CSD systems, re- in larger countries, it is more common for the SML to silience and business continuity practices for central have a broader scope in terms of the various types of bank securities registries and depositories look some- securities existing in the marketplace. what weaker, especially since CCPs are mainly oper- ated in high income and large countries that have Further, the survey outcomes show the basic regula- long experience with resilience and business con- tory and oversight powers of the securities regulator tinuity arrangements. CCPs in the ODCs, the ECA over stock exchanges and CSDs. Out of the 80 coun- and SA regions may continue improvements by es- tries where securities markets are regulated by a spe- tablishing a fully equipped alternate site, document- cific public sector agency, that agency has the power to ing a formal business continuity plan and developing license and supervise all existing stock exchanges in 78 procedures for crisis management and information cases. Moreover, the securities regulator is empowered dissemination. At present, CCPs throughout the EU, to license and supervise CSDs in 67 countries or 57%. LAC and EAP regions deal with business continu- ity issues more thoroughly than other regions do. Table VI.9A also shows that in 55 countries (47% of the total) the securities regulator shares responsibil- ity with the central bank for the oversight of securities VI.2.4 Regulatory and Oversight Issues clearing and settlement systems.77 Euro area countries show the highest relative percentage (69%), followed Tables VI.9A and VI.9B show the regulatory and over- by the EAP region (63%) and ODCs (62%). The lowest sight issues of securities clearing and settlement sys- percentages are observed in the MNA region (17%).78 tems worldwide. At a worldwide level, self-regulatory powers for stock Securities markets in 80 countries (68%) are regulated exchanges, CSDs and CCPs are still not very common by a specific public sector agency. In countries where (see Table VI.9B). Compared to CSDs and CCPs, the this is not the case, it is usually because either a regula- self-regulatory organization (SRO) status is more com- tory function does not exist at all, or because the exist- mon for stock exchanges (23%), followed by CSDs with ing functions, typically of a registration rather than a 12%. It should be noted that the 2008 survey showed regulatory nature, lie in a department of the Ministry significantly higher numbers for both stock exchanges of Finance or the central bank. Having a specific pub- (30%) and CSDs (21%). lic sector agency is more common in higher income countries and regions. The EAP and LAC regions most frequently provide stock exchanges, CSDs and CCPs with self-regulatory Table VI.9A also shows information on the types of se- powers, whereas the SA region does not use this regu- curities that are covered by the principles embedded latory model at all. in Securities Markets Laws (SML). In 72 countries or 61%, the SML applies to all securities that are traded in the country. In 31 countries, the SML applies only to securities issued by the private sector while, typically, 77 Oversight activities of central banks increasingly relate to securities clearing securities issued by the government and/or the central and settlement systems, as relevant components of the overall national payment bank are regulated by special laws or government de- system. Central banks have an intrinsic interest in the safe and efficient func- tioning of securities settlement systems, because of their relevance to financial crees. In higher income countries and regions, and also stability. 78 In the current survey only 2 out of 12 MNA countries answered positively to this question. In the 2008 survey, 4 countries did so. SECTION VII PAYMENT SYSTEM OVERSIGHT AND COOPERATION VII.1 BACKGROUND category. Increasing attention is being given to securi- ties clearing and settlement systems as well as to sys- P ayment systems oversight has emerged tems for clearing and settlement of foreign exchange as a key central bank function aiming to transactions. The oversight of these systems might preserve the safety and efficiency of indi- well be a cooperative effort of two or more regulatory vidual clearing and settlement systems and agencies. the safety of the market as a whole. Payment systems oversight involves monitoring of the reliability and ef- In some countries, retail (low-value) systems also fall ficiency of payment systems operating in the country under the control of the oversight agency because of on an on-going basis, assessing systems’ features and their importance to the overall efficiency of the pay- fostering changes when necessary. ments system, their potential impact on the public confidence in money, and for their relevance to the Several factors contribute to the effectiveness of pay- ultimate objective of fostering economic growth and ments system oversight: i) the adequacy of legal pow- financial inclusion. ers of the central bank in the payment systems arena; ii) the internal organization of the central bank in rela- tion to payment systems activities; and iii) the range VII.2 SURVEY OUTCOMES of instruments that the central bank has as its disposal to oversee systems. In addition, effective cooperation This chapter first explores some general aspects of must be in place between the payment systems over- payment system oversight with regard to the formal- seer and market players and among domestic regu- ity with which this function is performed and makes lators, and between domestic and foreign oversight comparison with the earlier survey. Further on, it agencies. looks at more detailed aspects such as the objectives, scope and instruments of payment system oversight. Regarding the scope of central bank oversight, there is It then turns to elements related to cooperation of the a consensus view at the international level that systems overseer with other authorities and stakeholders. The posing systemic risks should fall under the direct con- 2010 survey has been expanded to review also central trol of the overseer. Large-value funds transfer systems bank involvement in the pricing of payment services. that serve wholesale financial markets belong to this 115 116 PAYMENT SYSTEMS WORLDWIDE TABLE VII.1: PAYMENT SYSTEM OVERSIGHT GENERAL ISSUES The Central Bank’s payment There is a specific unit or The payment system system oversight function department at the Central Bank oversight function is has been established and is responsible for payment system segregated from payment performed regularly and in an oversight system operational tasks ongoing basis Central banks # % # % # % Worldwide total (124) 99 80% 106 85% 85 69% By income High income (45) 40 89% 42 93% 38 84% Upper-middle income (32) 27 84% 27 84% 22 69% Lower-middle income (30) 22 73% 24 80% 16 53% Low income (17) 10 59% 13 76% 9 53% By region East Asia and Pacific (10) 7 70% 9 90% 6 60% Europe and Central Asia (15) 11 73% 12 80% 11 73% Latin America & Caribbean (18) 15 83% 16 89% 12 67% Middle East & North Africa (12) 7 58% 6 50% 5 42% South Asia (4) 4 100% 3 75% 2 50% Sub-Saharan Africa (24) 16 67% 19 79% 13 54% Euro area (16) 16 100% 16 100% 16 100% Other EU members (11) 11 100% 11 100% 10 91% Other developed countries (14) 12 86% 14 100% 10 71% By population size >30 million (35) 31 89% 32 91% 26 74% >5 million, <30 million (47) 38 81% 42 89% 33 70% 5 million or less (42) 30 71% 32 76% 26 62% In the analysis in this section, each individual cen- tem oversight function, and this function is performed tral bank that responded to the questionnaire’s Part on an on-going basis (see Table VII.1). This represents VII: Payment System Oversight and Cooperation of the an increase compared to the previous survey, where Questionnaire for Collecting Information to Depict the only 72% of central banks answered positively to the Situation of Payment and Securities Settlement Systems same question. Regions lagging behind in the previous Worldwide 2010 is counted as one, regardless of how survey show significant improvements, especially in the many countries or financial systems it serves. LAC and SA regions, and the non-euro EU members. VII.2.1 General Issues The percentage of respondent institutions indicating that there is a specific unit at the central bank in charge Survey results for 2010 show that 99 central banks (80% of payment system oversight duties has also increased of the total) have already established the payment sys- from 78% to 85%. Global Survey 2010 117 TABLE VII.2: OBJECTIVES OF PAYMENT SYSTEM OVERSIGHT Objectives also include The Central Bank has set down Objectives only include the competition issues, avoiding its objectives in a regulation or safety and efficiency of relevant collusive practices, consumer policy document payment systems protection, and others Central banks # % # % # % Worldwide total (124) 88 71% 71 57% 52 42% By income High income (45) 38 84% 29 64% 10 22% Upper-middle income (32) 22 69% 18 56% 17 53% Lower-middle income (30) 19 63% 18 60% 17 57% Low income (17) 9 53% 6 35% 8 47% By region East Asia and Pacific (10) 6 60% 5 50% 7 70% Europe and Central Asia (15) 10 67% 10 67% 6 40% Latin America & Caribbean (18) 12 67% 9 50% 9 50% Middle East & North Africa (12) 7 58% 6 50% 4 33% South Asia (4) 2 50% 2 50% 3 75% Sub-Saharan Africa (24) 14 58% 10 42% 13 54% Euro area (16) 16 100% 12 75% 4 25% Other EU members (11) 9 82% 7 64% 3 27% Other developed countries (14) 12 86% 10 71% 3 21% By population size >30 million (35) 28 80% 20 57% 18 51% >5 million, <30 million (47) 35 74% 26 55% 19 40% 5 million or less (42) 25 60% 25 60% 15 36% Higher income countries show the highest percentag- and only half of the central banks reported the estab- es, while lower income countries show little progress. lishment of a dedicated unit responsible for the over- From a regional perspective, all EU countries and all sight function. ODCs answered positively to the specific question on whether the central bank has a specific payment sys- Regarding the separation of the oversight function tem oversight unit. LAC percentages on this particular from operational responsibilities, results do not differ issue increased from 57% in the 2008 survey to 89% in significantly from the 2008 survey: 69% in the recent the current one. survey compared to 66%. This organizational separa- tion of oversight from operations continues to be more In contrast, less progress has been made in the MNA evident in higher income countries, and in particular region. Payment oversight has been formalized in only in the euro area where all countries stated that the 58% of the respondents central banks in this region, separation of tasks exists, followed by non-euro EU Section VII. Payment System Oversight and Cooperation 118 PAYMENT SYSTEMS WORLDWIDE TABLE VII.3: SCOPE OF THE PAYMENT SYSTEM OVERSIGHT FUNCTION Performed over Performed over all Performed over Performed over Performed over all SIPS, including relevant payment all relevant Central Bank- all systemically SSS and systems systems operated payment systems operated systems important funds for settlement of by commercial regardless of who only transfer systems FX transactions banks operates them Central banks # % # % # % # % # % Worldwide total (124) 13 10% 72 58% 59 48% 15 12% 79 64% By income High income (45) 2 5% 35 85% 35 85% 2 5% 31 76% Upper-middle income (32) 4 14% 16 55% 13 45% 3 10% 20 69% Lower-middle income (30) 6 24% 15 60% 7 28% 5 20% 20 80% Low income (17) 1 7% 6 43% 4 29% 5 36% 8 57% By region East Asia and Pacific (10) 2 20% 4 40% 2 20% 3 30% 4 40% Europe and Central Asia (15) 1 7% 6 40% 2 13% 2 13% 11 73% Latin America & Caribbean (18) 2 11% 12 67% 10 56% 3 17% 12 67% Middle East & North Africa (12) 3 25% 3 25% 1 8% 1 8% 5 42% South Asia (4) 1 25% 2 50% 1 25% 2 50% 3 75% Sub-Saharan Africa (24) 2 8% 12 50% 8 33% 3 13% 13 54% Euro area (16)* 0 0% 16 100% 16 100% 0 0% 16 100% Other EU members (11) 0 0% 8 73% 8 73% 1 9% 7 64% Other developed countries (14) 2 14% 9 64% 11 79% 0 0% 8 57% By population size >30 million (35) 3 9% 20 57% 18 51% 2 6% 27 77% >5 million, <30 million (47) 1 2% 28 60% 24 51% 9 19% 34 72% 5 million or less (42) 9 21% 24 57% 17 40% 4 10% 18 43% Note: *For consistency reasons, the euro-area countries answers have been harmonized here. Individual countries’ answers are availale in the Appendix. members and ODCs. Meanwhile, SA, SSA and MNA in Table VII.1, while figures for small countries have regions lag behind the rest of the countries, and show remained unchanged. little progress for this particular item when compared to 2008. VII.2.2 Objectives of Payment System Oversight In terms of country population, large and mid-size Table VII.2 shows survey results with regard to the ob- countries have reported significant improvements in jectives of the payment system oversight function. The the first and the second of the characteristics shown central bank oversight objectives have been formal- ized in slightly more than two thirds of the reporting Global Survey 2010 119 TABLE VII.4: INSTRUMENTS OF PAYMENT SYSTEM OVERSIGHT (Number of Central Banks that rated each option with the corresponding ranking) Production and Dialogue and publication of Issue of Application On-site Ranking Monitoring moral suasion statistics/payment regulations of sanctions inspections system reports 1 (highest relevance) 90 71 53 64 26 34 2 17 32 37 24 18 29 3 (lowest relevance) 6 11 18 15 45 30 cases. In total, 88 central banks (71%) indicated that evidenced in chapter III of this survey. These results the objectives they pursue by carrying out the payment could also be reflecting public sector strategies for pro- system oversight function have been specified either motion of financial inclusion of large rural population in a central bank regulation or in a policy document. with low financial literacy. The percentage is almost identical to that of the 2008 survey (70%). From a regional perspective, objectives other than safety and efficiency of payment systems subject to Higher income countries continue to show higher per- oversight are less common in the EU countries, ODCs centages with regard to this issue. Significant progress and in the MNA region. The highest number of central has been made in the non-euro EU members as well banks with broad objectives was reported for SA and as in the LAC and EAP regions. In contrast, in about EAP countries. half of the countries in MNA, SA and SSA regions pay- ment system oversight is still performed on an infor- mal basis.79 VII.2.3 Scope of Payment System Oversight To some extent, the 2010 survey shows a shift in the The scope of central bank oversight depends on na- objectives of payment system oversight, from solely in- tional specificities and could include large-value and cluding safety and efficiency to broader goals, such as retail payment systems, payment instruments, clear- promoting higher levels of competition in the market ing and settlement systems for financial instruments, for payment services, consumer protection, and others. and central counterparties. In recent years, the scope The 2008 survey showed that the percentage of central of central banks’ oversight activities has evolved in re- banks focusing solely on safety and efficiency was 63% sponse to various development factors, such as global- of the total, while only 31% had broader objectives; for ization, innovation and regulation. the 2010 survey the latter increased to 42%. The survey looks at two aspects of the scope of the The largest percentage of central banks with broad payment oversight function. First, the survey explores oversight objectives is in lower income countries. This whether and how the scope depends on the type of appears to be a response by central banks to the exist- system operator: the central bank itself, commercial ing shortcomings and other challenges encountered in banks, or other operators. The 2010 survey shows retail payment systems in most developing nations as that more central banks are moving towards a wider scope, overseeing all relevant payment systems in a 79 Percentages for SA and SSA dropped significantly from the 2008 survey. country regardless of the operator of the system (64% compared to 57% in 2008). In the same vein, only 10% Section VII. Payment System Oversight and Cooperation 120 PAYMENT SYSTEMS WORLDWIDE TABLE VII.5: OVERSIGHT INSTRUMENTS RATED MOST RELEVANT Production and publication Dialogue and Issue of Application of On-site Monitoring of statistics/ moral suasion regulations sanctions inspections payment system reports Central Banks # % # % # % # % # % # % Worldwide total (124) 90 73% 71 57% 53 43% 64 52% 26 21% 34 27% By income High income (45) 37 82% 30 67% 22 49% 13 29% 2 4% 8 18% Upper-middle income (32) 22 69% 18 56% 12 38% 24 75% 9 28% 7 22% Lower-middle income (30) 22 73% 12 40% 12 40% 18 60% 8 27% 13 43% Low income (17) 9 53% 11 65% 7 41% 9 53% 7 41% 6 35% By region East Asia and Pacific (10) 6 60% 3 30% 3 30% 7 70% 4 40% 4 40% Europe and Central Asia (15) 11 73% 8 53% 7 47% 11 73% 2 13% 4 27% Latin America & Caribbean (18) 11 61% 9 50% 7 39% 13 72% 4 22% 1 6% Middle East & North Africa (12) 9 75% 5 42% 5 42% 4 33% 5 42% 6 50% South Asia (4) 3 75% 4 100% 2 50% 2 50% 1 25% 2 50% Sub-Saharan Africa (24) 15 63% 13 54% 11 46% 15 63% 8 33% 10 42% Euro area (16) 14 88% 10 63% 9 56% 5 31% 1 6% 3 19% Other EU members (11) 9 82% 8 73% 5 45% 1 9% 0 0% 1 9% Other developed countries (14) 12 86% 11 79% 4 29% 6 43% 1 7% 3 21% By population size >30 million (35) 27 77% 22 63% 15 43% 19 54% 8 23% 11 31% >5 million, <30 million (47) 33 70% 31 66% 18 38% 24 51% 12 26% 11 23% 5 million or less (42) 30 71% 18 43% 20 48% 21 50% 6 14% 12 29% of central banks limit their oversight scope to central income countries and low income countries that now bank-operated systems, a clear decrease compared to extend their oversight to all relevant payment systems. the 17% figure of 2008. From a regional perspective, the largest percent- age of central banks with a broad scope of payment Higher income countries tend to oversee all payment oversight is in the euro-area countries, ECA, SA and systems, while a larger percentage of lower-middle and LAC regions. especially low income countries have a more limited scope, focusing more on payment systems operated by Table VII.3 shows that 77% of larger countries (with the central bank and commercial banks. Still, there is a more than 30 million inhabitants) have adopted a significant increase in the percentage of lower middle broader scope for the oversight function, while this same percentage for small countries is the lowest (only Global Survey 2010 121 43%, practically the same as the 41% shown in the oversee systemically important funds transfer systems 2008 survey). This limitation in the scope of oversight only, and only 28% indicated a broader approach to in- observed in small countries can be partially explained clude SSSs and FX settlement systems. On the positive with the limited availability of resources. side, it should be mentioned that the number of lower- middle income countries that oversee systemically im- Central banks were also asked to distinguish between portant funds transfer systems increased substantially various types of systems that are subject to oversight. from 43% to 60%. Low income countries continue to As in the 2008 survey, a “broad� scope of payment sys- lag behind the rest of the countries regarding oversight tem oversight is defined to include systems other than of SIPS. funds transfer systems, such as SSSs and in some cases also systems for settlement of FX transactions. From By region, the lowest percentages of involvement in the this perspective, a “broad� approach would typically oversight of SSSs and settlement systems for FX trans- mean overseeing all types of systemically important actions are reported by central banks in the EAP, ECA, payment systems (SIPS) – but not necessarily all re- MNA and SA regions. The LAC region shows signifi- tail payment systems.80 Such approach is motivated by cant progress from 22% in 2008 to 56% in 2010. the increased interdependences between payment and other settlement systems, and the growing importance of such systems for monetary policy operations and fi- VII.2.4 Instruments of Payment System nancial stability. Oversight At a worldwide level, 48% of central banks reported As in the 2008 survey, central banks were asked to rank that they have adopted this approach, which represents from 1 to 3 the instruments commonly used as part an increase compared to 39% in the previous iteration of payment system oversight, with “1� being the most of survey. Moreover, some central banks indicated they relevant and “3� being the least relevant. Six common have entered into cooperation agreements with other oversight instruments were included in the question financial authorities in overseeing payment systems in 2010 survey, ordered from “soft� instruments to regarded as not being systemically important (see fur- tougher/more formal ones: monitoring, dialogue and ther in this section). moral suasion, publication of statistics and other pay- ment systems reports, issue of regulations, application High income (85%) and upper-middle income (45%) of sanctions, and on-site inspections. Results are sum- countries tend to include SSSs and/or FX settlement marized in Table VII.4. systems in their oversight responsibilities, in addition to large-value funds transfer systems. This is an increase In general, central banks continue to prefer “soft� over- compared to the 44% of the 2008 survey for both types sight instruments. The percentage of the central banks of countries. In contrast, the majority (60%) of central reporting a preference for “soft� instruments, such as banks in lower-middle income countries reported they monitoring, dialogue and moral suasion, and publica- tion of statistics/reports have all increased to 73%, 57% and 43%, respectively (see also Table VII.5). The com- In the perspective of the World Bank’s PSDG, a comprehensive payment parable figures in the 2008 survey were 65%, 42% and 80 system oversight function would cover all the elements of the national payments system, which include all relevant funds transfer systems (both large-value and 38% respectively. small-value retail systems), SSSs, FX settlement mechanisms, and cross-border payments, including remittances. Section VII. Payment System Oversight and Cooperation 122 PAYMENT SYSTEMS WORLDWIDE More central banks gave a “1� rating to monitoring prefer to use so-called “soft� instruments, in particu- and to dialogue and moral suasion compared to the lar monitoring and dialogue and moral suasion in dis- previous survey (90 and 71 respectively compared to charging their payment system oversight duties. 83 and 55 in 2008). The number of respondent that gave a “1� to the usage of publications and statistics Issuance of regulations was rated “1� by 60% of lower- as an instrument for oversight also increased from 48 middle income countries and 75% of upper-middle to 53. Given the importance of publications for the income countries, which is a significant increase from accountability of the central banks and as a powerful 2008. Actually, for middle-income countries the issu- instrument to prompt compliance, this number is still ance of regulations is considered as important as mon- deemed low. However, it is worth noting that this over- itoring. As indicated in chapter I of this Report, 94% of sight instrument was rated either “1� or “2� by 73% of reporting central banks have formal powers to regulate central banks. and oversee payment systems.81 A significantly larger share of central banks – about Issuing regulations is considered a primary instrument half compared to about one-third in 2008 – now rate for oversight in EAP, ECA, LAC countries, with more the issuance of regulations as a key oversight instru- than 70% of central banks answering positively to this ment. Issue of regulation was rated “3� only by 15 specific issue. In contrast, this percentage is signifi- central banks. This result is consistent with the in- cantly lower than the preference for “soft� instruments creased number of central banks now having formal throughout the EU and in the MNA region. Survey re- powers to perform payment system oversight func- sults show a significant increase in the relative number tions. Nevertheless, many central banks that are now of countries in the LAC, ECA and SSA regions indicat- well equipped with statutory and regulatory powers for ing that the issuance of regulation is a primary tool for oversight still prefer to rely mostly or solely on “soft� payment system oversight, thus confirming the prog- instruments. ress made in formalizing payments oversight responsi- bilities of central banks in those countries. Only about one-fourth of central banks reported using more “formal� oversight instruments, such as the ap- EAP, SSA and MNA are the regions with the highest plication of sanctions or on-site inspections (21% and percentage of central banks that rated most relevant 27% respectively). Application of sanctions was rated the application of sanctions. “3� by about one-third of central banks, while one- fourth did so for on-site inspections. 81 Notable recent examples of enhancing the legal and regulatory framework for payment systems oversight can be found in major economies. In the US, with Answers rating the most relevant instruments of over- respect to private sector systems, under the Dodd-Frank Wall Street Reform and sight are further disaggregated in Table VII.5. Several Consumer Protection Act (the DF Act, signed into law in July 2010), the Federal central banks indicated more than one instrument as Reserve is granted authority to prescribe risk management standards for financial market utilities and payment, clearing, or settlement activities that have been equally important, while others rated only some in- designated as systemically important by the Financial Stability Oversight Council. struments and not others, hence making it difficult An exception is the case of designated clearing entities that are registered with either the Commodity Futures Trading Commission (CFTC) or the Securities to make cross-country or cross-region comparisons. and Exchange Commission (SEC). Likewise, the objectives, scope, methodology However, for each of the various country categories, and organization of the Eurosystem’s oversight function, as well as details of the one of the key trends identified in the 2008 survey is Eurosystem’s interaction with other authorities, are set out in the Eurosystem’s Oversight Policy Framework, which was published by the ECB in February 2009. confirmed: central banks in every country category In the UK, the Banking Act 2009, Part 5, sets out a statutory framework for the Bank of England’s oversight function, including powers to support it. Global Survey 2010 123 TABLE VII.6: COOPERATION WITH OTHER RELEVANT AUTHORITIES Cooperation also Cooperation with Cooperation with Cooperation involves involves regular No significant other relevant other relevant mostly regular information cooperation with authorities occurs in authorities is meetings and exchanges, prior other relevant an informal/ad-hoc ensured through a exchange of opinions notice of regulatory authorities basis formal mechanism and views action, joint inspections Central banks # % # % # % # % # % Worldwide total (124) 14 11% 56 45% 61 49% 61 49% 46 37% By income High income (45) 2 4% 22 49% 31 69% 26 58% 18 40% Upper-middle income (32) 4 13% 17 53% 14 44% 14 44% 10 31% Lower-middle income (30) 7 23% 12 40% 9 30% 12 40% 10 33% Low income (17) 1 6% 5 29% 7 41% 9 53% 8 47% By region East Asia and Pacific (10) 1 10% 3 30% 5 50% 5 50% 4 40% Europe and Central Asia (15) 2 13% 10 67% 6 40% 6 40% 4 27% Latin America & Caribbean (18) 6 33% 8 44% 5 28% 6 33% 5 28% Middle East & North Africa (12) 3 25% 4 33% 4 33% 6 50% 2 17% South Asia (4) 0 0% 2 50% 1 25% 1 25% 2 50% Sub-Saharan Africa (24) 2 8% 9 38% 8 33% 12 50% 12 50% Euro area (16) 0 0% 6 38% 15 94% 11 69% 7 44% Other EU members (11) 0 0% 6 55% 9 82% 5 45% 5 45% Other developed countries (14) 0 0% 8 57% 8 57% 9 64% 5 36% By population size >30 million (35) 2 6% 14 40% 20 57% 20 57% 18 51% >5 million, <30 million (47) 5 11% 17 36% 25 53% 25 53% 20 43% 5 million or less (42) 7 17% 25 60% 16 38% 16 38% 8 19% Another trend worth noting is the increase in the the improved institutional capacity of payment system number of countries that rated on-site inspections as units within central banks. a highly relevant instrument for payment system over- sight. The highest percentage of countries that prefer Differences in population size do not appear to be rel- this instrument can be found in EAP, MNA, SA and evant with regard to a central bank’s preference for a SSA regions. PSDG experience shows that this over- particular instrument of payment system oversight. sight tool is often triggered by the formalization of One exception is that of small countries, which seem oversight responsibilities of central banks, and reflects to have less preference for the application of sanctions. Section VII. Payment System Oversight and Cooperation 124 PAYMENT SYSTEMS WORLDWIDE TABLE VII.7 COOPERATION WITH OTHER STAKEHOLDERS Central Bank Though not consults Central Bank Central Bank formalized, Central A formal National stakeholders consults consults almost Bank holds regular Payments Council is on particular stakeholders exclusively with strategic meetings in place operational issues; sporadically, mostly the bankers’ with stakeholders at may lead to creating bilaterally association a senior level ad-hoc task forces Central banks # % # % # % # % # % Worldwide total (124) 49 40% 68 55% 94 76% 38 31% 31 25% By income High income (45) 18 40% 28 62% 35 78% 14 31% 8 18% Upper-middle income (32) 13 41% 15 47% 25 78% 8 25% 11 34% Lower-middle income (30) 11 37% 15 50% 22 73% 9 30% 8 27% Low income (17) 7 41% 10 59% 12 71% 7 41% 4 24% By region East Asia and Pacific (10) 2 20% 5 50% 8 80% 4 40% 2 20% Europe and Central Asia (15) 5 33% 6 40% 11 73% 8 53% 4 27% Latin America & Caribbean (18) 7 39% 8 44% 12 67% 3 17% 4 22% Middle East & North Africa (12) 2 17% 10 83% 8 67% 4 33% 2 17% South Asia (4) 2 50% 1 25% 3 75% 0 0% 1 25% Sub-Saharan Africa (24) 15 63% 14 58% 21 88% 8 33% 9 38% Euro area (16) 8 50% 7 44% 12 75% 4 25% 4 25% Other EU members (11) 6 55% 6 55% 9 82% 2 18% 2 18% Other developed countries (14) 2 14% 11 79% 10 71% 5 36% 3 21% By population size >30 million (35) 12 34% 21 60% 29 83% 9 26% 6 17% >5 million, <30 million (47) 20 43% 25 53% 37 79% 14 30% 11 23% 5 million or less (42) 17 40% 22 52% 28 67% 15 36% 14 33% It is now widely recognized that effective payment system oversight requires cooperative arrangements VII.2.5 Cooperation with Other Relevant between central banks and other public authorities. Authorities and Other Stakeholders Cooperation mechanisms, such as advisory commit- tees or memorandum of understanding (MOUs) sup- Tables VII.6 and VII.7 discuss the payment system port moral suasion, pre-empt the issuance of direct overseers’ cooperation with other authorities and with regulations and facilitate the exchange of information other stakeholders, respectively. and perceptions, leading to mutually acceptable com- promise solutions. Global Survey 2010 125 TABLE VII.8 INVOLVEMENT OF CENTRAL BANK IN THE PRICING OF PAYMENT SERVICES Limited to collection Limited to voicing No involvement Actively regulate Other of information opinions Central banks # % # % # % # % # % Retail payments 44 35% 32 26% 19 15% 19 15% 11 9% Large value payments 24 19% 18 15% 11 9% 58 47% 11 9% Remittances 55 44% 29 23% 7 6% 7 6% 5 4% Notes: 1. All TARGET2 fees are set by the ECB Governing Council, while individual central banks have no independent price setting power. For consistency reasons, for all euro-area countries, large value payments have been considered “actively regulated� at a central level. Individual countries’ answers are available in the Appendix. 2. A few countries indicated “No involvement� and one or more other options.For consisntecy reasons, in some of these cases, the most active role indicated was considered. Individual countries’ answers are available in the Appendix. At the worldwide level, figures in Table VII.6 are al- ing a relevant increase. From a regional perspective, most identical to those of the 2008 survey. Only 11% EU and ODC countries prefer formal means of coop- of the central banks surveyed do not cooperate in a sig- eration. In contrast, in the LAC and SA regions, less nificant way with other authorities (9% in the previous than 30% of the central banks indicated the existence survey). The LAC regions still concentrates about half of formal arrangements. This same variable equals to of all central banks indicating this situation. In con- one-third in the case of MNA and SSA countries. trast, none of the central banks from the EU countries, ODCs and SA countries reported lack of cooperation The last two columns to the right in Table VII.6 give with other authorities. some additional details about the specific forms of co- operation between central banks and other authorities Small and middle-size countries show some dete- regarding payment and settlement systems oversight. rioration in terms of cooperation, while the figure One-half of the central banks indicated that coopera- for high income countries is higher compared to the tion involves less structured actions such as exchanges 2008 survey. of opinions and views as part of regular meetings. A slightly lower percentage reported cooperative efforts The number of central banks reporting formal coop- also involving regular information exchanges, prior erative arrangements with other authorities and/or ar- notice of regulatory action, or joint inspections, among rangements backed by law remains comparatively low, others.82 The latter is somewhat more common among although with a slight increase compared to 2008 (49% low income countries. vs. 45%). The table also shows that the number of cen- tral banks that report cooperation occurring almost Comparisons by country population size show that exclusively on an informal or ad hoc basis is slightly small countries prefer less structured actions: the less than the number of central banks indicating coop- number of small countries indicating such preference eration based on formal arrangements, such as MOUs is twice the number of small countries reporting regu- (56 vs. 61). lar information exchange or joint inspections. Formal cooperation is more common in high income 82 Several countries gave a positive answer to the both options depicted in the countries, with upper-middle income countries show- last two columns in Table VII.7. Section VII. Payment System Oversight and Cooperation 126 PAYMENT SYSTEMS WORLDWIDE Finally, globalization and technological advancement association, thus confirming results from the previous that have led to the creation of global financial infra- survey.84 structures operating in more than one country have called, in some cases, for international cooperative At regional level, significant increase in technical co- oversight. In the case of the EU and ODC countries, operation were indicated by countries from the SSA cross-border cooperation plays an important role. region. The number of central banks from this particu- Notable examples of international cooperative over- lar region now reporting having regular consultations sight are oversight arrangements for CLS, SWIFT and with stakeholders on operational issues, including the Euroclear Group. The oversight for these systems is creation of ad hoc task forces, has doubled compared based on the principles of international cooperative to the 2008 survey. oversight.83 Within the EU, cooperative payment sys- tem oversight is performed for TARGET2. VII.2.6 Involvement of Central Banks in the Table VII.7 provides details about various forms of Pricing of Payment Services cooperation between overseers and market players. The table shows that 49 formal National Payments In the 2010 survey, central banks were also asked to Councils (NPC) have been created in order to promote rate their involvement in the pricing of large-value pay- a structured cooperation among relevant stakeholders. ment services, retail payment services, and remittance The SSA region and EU countries show the highest services. Five options were included: “No involve- percentage of NPCs in place. ment�, “Limited to collection of information�, “Limited to voicing opinions�, “Actively regulate�, and “Others�. The 2010 survey confirms the existing differences Central banks that chose the “Actively regulate� option among developed countries: half of euro-area national were also asked to list the types of fees that apply. Table central banks indicate there is a NPC in place, while VII.8 summarizes responses to this question. this percentage is only 14% for ODCs. Unsurprisingly, central banks play a limited role with Table VII.7 also shows that central banks continue to regard to the pricing of payment services, especially in prefer regular meetings at a senior level with other retail payments (including remittances). About 60% stakeholders instead of relying only on bilateral con- of the central banks report either no involvement or sultations. The number of central banks that engage only collection of statistical information. Only 15% of in intensive cooperation with stakeholders outside of the reporting central banks indicated being actively in- a formal NPC through regular meetings to discuss volved in pricing of retail payment services. According strategic and/or technical issues is significantly higher to PSDG experience, this has to do mostly with the than the number of central banks that report only on central bank itself being the operator of a retail pay- sporadic bilateral consultations. Indeed, only 31% of ments system. In 19 cases out of 32, central banks that central banks report they rely on bilateral consulta- collect pricing information on retail payments can also tions with individual stakeholders, and 25% almost influence such prices through discussions with the pri- exclusively on bilateral consultations with the bankers’ vate sector. 83 See the CPSS report “Central Bank Oversight of Payment and Settlement Systems�, 2005. 84 Several of the countries included in these totals indicated both options. Global Survey 2010 127 In contrast, 47% of central banks indicate that they ac- tively regulate prices of large-value payment systems. The major factor behind this result is that almost all central banks operate the large-value payment system in their respective countries and, as such, play a major role in pricing the corresponding payment services.85 It is worth mentioning that central banks reporting ac- tive involvement in the pricing mostly refer to the fees charged by the operator of the large-value payment system to the participants in the system. Typically, the central bank does not influence or has limited influ- ence over the fees that commercial banks charge their clients for processing payments that flow through the large-value payment systems. Low income countries report the lowest level of in- volvement in the pricing of large-value payment ser- vices, which may reflect the lack of a RTGS system or other centralized system for large-value payments in many of those countries. According to survey results, central banks exert very little influence over the pricing of remittances (referred to as low-value person-to-person cross-border pay- ments in this survey). Only 6% selected the “Actively regulate� option to this question. Another 6% indicate that the involvement is limited to voicing opinions. This is the case across all regions. Although most of low and middle income countries are large net recipi- ents of remittances, only 35% of the central banks in low income countries and 20% of the central banks in lower-middle income countries reported exerting some form of influence. 85 In the specific case of TARGET2, individual central banks do not have inde- pendent price setting power. However, they are involved in the pricing through their participation in the ECB Governing Council, which sets TARGET2 fees. The ECB Governing Council consists of the six members of the Executive Board, plus the governors of the national central banks of the Euro area countries. Section VII. Payment System Oversight and Cooperation SECTION VIII REFORMING THE NATIONAL PAYMENTS SYSTEM VIII.1 BACKGROUND Payment System Development�.86 Many of the experi- ences of the World Bank in reforming payment sys- R eforming any of the components of the tems worldwide were included and codified in the final national payments system is an important Task Force document. undertaking that will require an effort from all stakeholders over a number of years. Thus, it will constitute a medium-term endeavor VIII.2 SURVEY OUTCOMES normally led by public authorities, but with an impor- tant involvement of the private sector. The tables in this section and related analysis report in- formation on all countries that have responded to Part Planned reforms should take into account the level VIII: Planned and On-going Reforms to the National of development in the financial sector and the ac- Payments System of the Questionnaire for Collecting tual needs of the various stakeholders. The first task Information to Depict the Situation of Payment and should always be to prepare and agree upon a Strategic Securities Settlement Systems Worldwide 2010, and on Document (Vision) for the overall payment system those systems for which information was provided. architecture in the country, including securities settle- ment systems. The document will represent an agreed All but 19 countries reported that they are reforming set of initiatives that will be cooperatively implement- one or more components of their national payments ed by all stakeholders and it is therefore important that system. As shown in Table VIII.1, payment systems re- it be subscribed to by all relevant stakeholders. forms are present in all regions regardless of income levels or population size. Results are very similar to For over 15 years, the World Bank’s PSDG has been in- those of the 2008 survey. volved in the reform of payment systems in more than 100 countries, and has gained substantial experience Table VIII.2 identifies some of the main areas of the and understanding of the elements that determine the national payments system where reforms are being success of a reform initiative. PSDG staff members undertaken. Survey results show that two-thirds of have also participated in the Task Force Group that the respondents countries are currently reforming re- developed the CPSS “General Guidance for National 86 CPSS, “General Guidance for National Payment System Development�, January 2006. 129 130 PAYMENT SYSTEMS WORLDWIDE TABLE VIII.1: COUNTRIES REFORMING AT LEAST ONE COMPONENT OF THEIR NATIONAL PAYMENTS SYSTEM Total By Country Income Levels By Region By Country Population Size EAP: 10 of 11 High: 41 of 46 ECA: 15 of 16 LAC: 19 of 20 Larger: 33 of 35 Upper-middle: 28 of 33 MNA: 12 of 13 120 countries SA: 4 of 4 Medium:44 of 57 Lower-middle: 32 of 35 SSA: 25 of 34 Euro area: 14 of 16 Smaller:43 of 47 Low: 19 of 25 Other EU members: 8 of 11 ODCs: 13 of 14 tail payment systems and/or the legal and regulatory Only 28 countries responded that they are reforming framework. While legal reforms are being undertaken mechanisms related to FX settlement, with slightly mainly, though not exclusively, in lower income coun- more than half of these being in the SSA and EAP re- tries, reforms to retail payment systems are present gions. The low percentages in the euro area and ODCs with practically the same frequency across all coun- could be attributed to the existence of systems such try income categories. This last outcome is especially as CLS which has significantly reduced risk in the FX relevant given that only a few years ago most central settlement market. banks were involved solely in reforming systemically important payment systems. Finally, in the area of payment systems oversight, half of the countries indicated they are undergoing reforms Nonetheless, a relatively large number of countries are in this area. Most of these countries are outside the EU still involved in the reform of large-value payment sys- and ODCs groups. tems. While the SSA and SA regions showed the lowest percentages for this specific item in the 2008 survey, in Tables VIII.3, VIII.4 and VIII.5 provide further infor- the current iteration 84% of SSA countries and 75% of mation on several aspects of the reforms being under- SA countries are now involved in reforms in this area. taken. Table VIII.3 identifies the stage at which those This seems to reinforce the facts discussed in chapter reforms were when central banks sent their responses II, that modern large-value systems, including RTGS to the current survey.87 The first column to the left de- systems and other sophisticated systems such as hy- scribes the number of countries reforming each indi- brid solutions, continue to be implemented at both do- vidual aspect of the national payments system. These mestic and regional level. In contrast, percentages for numbers may not coincide with those of Table VIII.1 euro-area countries dropped from 80% to 36%, mainly above because some central banks did not answer as a result of the completion of the TARGET2 project. the more detailed questions on the status of the reform Interestingly, none of the non-euro area EU members process. reported being involved in reforms in the large-value area (though 2 of them or 25% did report having re- 87 Reforms to the legal and regulatory framework and oversight are not included form projects for their securities settlement systems). in Table VIII.3 as these areas do not fit in the various stages defined for other components. Global Survey 2010 131 TABLE VIII.2: AREAS OF THE NATIONAL PAYMENT SYSTEMS BEING REFORMED Large- Legal and Retail Securities FX Payment value funds regulatory payment settlement settlement system Other transfer framework systems systems mechanisms oversight systems Countries reforming their # % # % # % # % # % # % # % national payments system Worldwide total (120) 80 67% 65 54% 79 66% 65 54% 28 23% 61 51% 29 24% By income High income (41) 16 39% 13 32% 27 66% 21 51% 2 5% 10 24% 4 10% Upper-middle income (28) 19 68% 13 46% 16 57% 10 36% 8 29% 19 68% 6 21% Lower-middle income (32) 28 88% 23 72% 24 75% 19 59% 10 31% 24 75% 12 38% Low income (19) 17 89% 16 84% 12 63% 15 79% 8 42% 8 42% 7 37% By region East Asia and Pacific (10) 10 100% 8 80% 7 70% 7 70% 7 70% 8 80% 4 40% Europe and Central Asia (15) 13 87% 7 47% 8 53% 7 47% 2 13% 13 87% 5 33% Latin America & Caribbean (19) 14 74% 11 58% 10 53% 8 42% 5 26% 11 58% 4 21% Middle East & North Africa (12) 9 75% 5 42% 10 83% 7 58% 2 17% 7 58% 1 8% South Asia (4) 2 50% 3 75% 3 75% 1 25% 0 0% 3 75% 1 25% Sub-Saharan Africa (25) 22 88% 21 84% 19 76% 17 68% 10 40% 14 56% 12 48% Euro area countries (14) 4 29% 5 36% 10 71% 10 71% 0 0% 1 7% 1 7% Other EU members (8) 3 38% 0 0% 3 38% 2 25% 0 0% 1 13% 0 0% Other developed countries (13) 3 23% 5 38% 9 69% 6 46% 2 15% 3 23% 1 8% By population size >30 million (33) 22 67% 18 55% 25 76% 16 48% 10 30% 20 61% 9 27% >5 million, <30 million (44) 25 57% 25 57% 27 61% 25 57% 11 25% 15 34% 9 20% 5 million or less (43) 33 77% 22 51% 27 63% 24 56% 7 16% 16 60% 11 26% Some of the most noteworthy elements that can be in this area are in either the conceptual stage or drawn from Table VIII.3 are as follows: the stage in which functional definitions have been completed. As in 2008, most retail pay- • Reforms to large-value payment systems are at ment systems undergoing reform, either ACHs, an advanced stage, with more than 40% of the cheque systems or payment cards systems, show new systems already in the implementation similar progress. phase. Tables VIII.4 and VIII.5 show information solely for • About 40% of reforms to the various types of re- the 120 countries that reported having embarked on tail payment systems are also in the implementa- reforms. tion stage. An identical percentage of the reforms Section VIII. Reforming the National Payments System 132 PAYMENT SYSTEMS WORLDWIDE TABLE VIII.3: STAGE OF THE REFORMS BEING UNDERTAKEN Procurement Requirements/ Development Conceptual (systems being functionalities have (for systems being Implementation stage purchased from been defined developed inhouse) vendors) Countries reforming their # # # # # national payments system LARGE VALUE – RTGS SYSTEM 54 countries worldwide 9 9 7 6 23 reforming this area RETAIL SYSTEMS – ACH 48 countries worldwide 12 9 2 4 21 reforming this area RETAIL SYSTEMS – CHEQUE CLEARINGHOUSE 36 countries worldwide 8 5 4 6 13 reforming this area RETAIL SYSTEMS – PAYMENT CARD SYSTEMS 42 countries worldwide 12 7 4 2 17 reforming this area SECURITIES SETTLEMENT SYSTEMS 54 countries worldwide 14 13 5 7 15 reforming this area FOREIGN EXCHANGE SETTLEMENT MECHANISMS 23 countries worldwide 5 2 4 4 8 reforming this area Note: Some central banks indicated more than one stage for the same area being reformed. The results in this table show only the latest stage reported. Table VIII.4 shows the causes underlying reform ef- While all factors seem relevant, improving the efficien- forts. Six typical causes or factors were given in the cy of the national payments system was highlighted as survey questionnaire, ranging from the need to reduce a relevant factor by 83% of all countries. This number risks and/or improve efficiency to demands from the is consistent with the results in chapters II and VI of various sectors for improved payment services to ac- this study. In particular, once the majority of central commodating technological innovations. In this re- banks have implemented modern systems (e.g. RTGS gard, PSDG experience shows that, in most cases, the systems and/or modern securities depositories) which factors underlying a reform effort are multiple rather enable them to reduce systemic risks in the pay- than unique. Survey results are consistent with PSDG ments system and, more generally, in financial mar- findings, as most countries selected two or more of the kets, more reformers appear to be targeting efficiency options that were given. improvements. Global Survey 2010 133 TABLE VIII.4: FACTORS THAT TRIGGERED THE REFORMS BEING UNDERTAKEN Demands Demands Demands Need to from the from end- from improve The need market users for government Response to the overall to reduce for better better institutions technological Other efficiency of systemic risk payment / payment and for better innovations the payment settlement settlement payment system services services services Countries reforming their # % # % # % # % # % # % # % national payments system Worldwide total (120) 76 63% 100 83% 61 51% 56 47% 46 38% 83 69% 19 16% By income High income (41) 23 56% 28 68% 16 39% 14 34% 8 20% 19 46% 11 27% Upper-middle income (28) 18 64% 23 82% 12 43% 14 50% 8 29% 23 82% 4 14% Lower-middle income (32) 21 66% 30 94% 18 56% 16 50% 15 47% 24 75% 0 0% Low income (19) 14 74% 19 100% 15 79% 12 63% 15 79% 17 89% 4 21% By region East Asia and Pacific (10) 8 80% 10 100% 7 70% 6 60% 7 70% 9 90% 0 0% Europe and Central Asia (15) 8 53% 12 80% 9 60% 7 47% 4 27% 12 80% 4 27% Latin America & Caribbean (19) 14 74% 16 84% 5 26% 6 32% 5 26% 13 68% 2 11% Middle East & North Africa (12) 9 75% 12 100% 6 50% 6 50% 6 50% 8 67% 0 0% South Asia (4) 2 50% 4 100% 4 100% 4 100% 1 25% 4 100% 0 0% Sub-Saharan Africa (25) 19 76% 24 96% 18 72% 17 68% 17 68% 22 88% 3 12% Euro area countries (14) 5 36% 9 64% 7 50% 4 29% 4 29% 4 29% 7 50% Other EU members (8) 2 25% 3 38% 2 25% 3 38% 0 0% 4 50% 1 13% Other developed countries (13) 9 69% 10 77% 3 23% 3 23% 2 15% 7 54% 2 15% By population size >30 million (33) 21 64% 27 82% 22 67% 22 67% 17 85% 28 85% 6 18% >5 million, <30 million (44) 27 61% 37 84% 20 45% 18 41% 15 64% 28 64% 5 11% 5 million or less (43) 28 65% 36 84% 19 44% 16 37% 14 63% 27 63% 8 19% The percentage of countries where reforms aim at im- countries, especially in SA, EAP and SSA region, ap- proving efficiency levels is higher in lower-middle and pear to be especially motivated to incorporate new low income countries. From a regional perspective, the technologies into their national payments system. This percentage is similar across regions, with the exception same factor is considered less compelling in high in- of EU countries (especially non-euro EU members). come countries. The second most relevant factor that triggered reforms, Nonetheless, the need to reduce systemic risk is still according to the respondents, is technological innova- an important driving force behind reform efforts, as tion with 69%. In the previous survey the equivalent indicated by more than 60% of countries undergoing figure was 55%. Interestingly, low income and larger reforms. Currently, reducing systemic risk is less of a Section VIII. Reforming the National Payments System 134 PAYMENT SYSTEMS WORLDWIDE TABLE VIII.5: APPROACH FOLLOWED IN THE LATEST REFORM EFFORT Starting from Broad/ System- “Big bang� Strategic the operational Gradualist holistic specific approach (goal-based) particularities in the country Countries reforming their # % # % # % # % # % # % national payments system Worldwide total (120) 37 31% 43 36% 8 7% 61 51% 78 65% 27 23% By income High income (41) 11 27% 23 56% 6 15% 24 59% 26 63% 7 17% Upper-middle income (28) 12 43% 9 32% 0 0% 14 50% 20 71% 7 25% Lower-middle income (32) 11 34% 5 16% 2 6% 15 47% 20 63% 7 22% Low income (19) 3 16% 6 32% 0 0% 8 42% 12 63% 6 32% By region East Asia and Pacific (10) 4 40% 0 0% 0 0% 3 30% 9 90% 0 0% Europe and Central Asia (15) 8 53% 5 33% 2 13% 8 53% 10 67% 5 33% Latin America & Caribbean (19) 7 37% 5 26% 0 0% 10 53% 13 68% 5 26% Middle East & North Africa (12) 2 17% 5 42% 1 8% 6 50% 6 50% 2 17% South Asia (4) 3 75% 0 0% 0 0% 3 75% 2 50% 2 50% Sub-Saharan Africa (25) 3 12% 9 36% 0 0% 10 40% 15 60% 7 28% Euro area countries (14) 5 36% 8 57% 3 21% 10 71% 13 93% 0 0% Other EU members (8) 0 0% 4 50% 2 25% 1 13% 2 25% 2 25% Other developed countries (13) 5 38% 7 54% 0 0% 10 77% 8 62% 4 31% By population size >30 million (33) 15 45% 9 27% 2 6% 17 52% 27 82% 5 15% >5 million, <30 million (44) 11 26% 17 40% 2 5% 23 53% 24 56% 12 28% 5 million or less (43) 11 26% 17 40% 4 9% 21 49% 27 63% 10 23% Note: Not all of the countries undertaking reforms answered this question. Hence, percentages may not add up to 100%. concern for higher income countries, but it is relevant responsiveness to demands from all these groups is, as in low income countries, and from a regional perspec- a whole, greater in low income countries. tive in the EAP, SSA, MNA and LAC regions. Further, Table VIII.5 discusses the approach payment Table VIII.4 also shows that many reformers are re- systems reformers have been following in their latest sponding to demands from market participants for reform efforts. Three elements underlying a reform ef- improved payment and settlement services, and a fort were specified in the survey: scope, pace of change, smaller proportion to similar demands from end- and broadness of objectives. Central banks were asked users or from government institutions. According to to indicate one of the two extreme approaches for each survey information, and consistent with 2008 results, of these elements (i.e. holistic vs. system-specific for Global Survey 2010 135 the scope, “big bang� vs. gradualist for the pace of change, and strategic vs. operational-based for broad- ness of objectives). Though not possible to infer from survey data, it is likely that some respondents may have felt more comfortable in indicating some mid- point rather than one of the two extremes.88 Survey data show the following overall results: • Contrary to what was observed in 2008, slight- ly more countries prefer a system-specific ap- proach to the broad or holistic approach when it comes to setting out the scope of the reform. This is especially the case in high income coun- tries, and may be interpreted as these countries being involved in the “fine tuning� of one or more specific systems. • More countries (78 vs. 27) indicate they are fol- lowing a strategic approach, rather than trying to solve specific operational problems. • Preference for one of the two approaches is par- ticularly stronger when it comes to the pace of change: 51% of the countries indicate they prefer change occurring not so rapidly, thereby adopt- ing a gradualist approach, in contrast to the 7% adopting the so-called “big-bang� approach. 88 Not all of the 119 countries reforming their payment system answered this question. One potential cause may have been the absence of a mid-point option in the questionnaire for each of these elements. Section VIII. Reforming the National Payments System CONCLUDING REMARKS T he Global Survey results show that in recent As many countries worldwide have embarked on, or years many countries, regardless of income are embarking on, projects to reform and modernize level, have made important progress in ar- their payment systems, domestic policymakers are eas such as legal framework, large-value faced with the formidable task of how best to design, payment systems, and central bank-operated securities or influence the design by the private sector, of pay- depositories/SSSs. All these are areas of a national pay- ment system infrastructures in fast-changing techno- ments system where the central bank is able to exert logical and institutional environments. These tasks an important degree of intervention either as a cen- become increasingly complex as competition and in- tral agent ensuring proper coordination and coopera- novation constantly push to the limit the search for tion, as a regulator and overseer, or when due to risk better combinations of efficiency, reliability, safety, and management, efficiency and neutrality considerations, system stability in the provision of payment services among others, the central bank tends to be the best al- to larger numbers of individual users and institutions. ternative to act as a system operator. The reform of payments and securities settlement systems is an important undertaking. The output will There is still significant room for improvement, in par- affect the majority of the people in a country and, in ticular with regard to retail payment systems and in- particular, the major stakeholders such as the central struments. In this sector, market forces alone have not bank, the Treasury, other regulators, banks and finan- been able to achieve the objectives of efficiency and re- cial institutions, corporations and final customers. It liability of the payments system. Indeed, survey results also involves relatively large investment costs. show that the level of development in retail payment systems is strongly correlated to a country’s overall A collaborative and cooperative approach is the only level of development in the financial sector. In order to way in which risks can be managed and desired pay- accelerate progress in this area, the payments system ment system objectives met. A well-structured col- overseer (i.e. the central b ank) must be entrusted with, laborative approach, through the creation of National and have sufficient powers and resources to make up Payments Councils or similar bodies, will create syner- for a specific type of failure in the market for payment gy, stimulate learning and provide a basis for optimiz- services, i.e. the coordination failures. ing benefits through cooperation and consensus build- ing. Close and effective cooperation among relevant 137 138 PAYMENT SYSTEMS WORLDWIDE authorities is also a key factor in promoting safety and efficiency in payment systems. Appropriately reforming each national payments sys- tem will also create the conditions for increased har- monization, which will serve as a basis for an eventual integration among different payment systems, both domestically and internationally. In this last regard, it is important to stress that any in- tegration of payment systems should be based on the existence of common features in all relevant areas (le- gal, technical standards, risk control mechanisms, li- quidity provision, access policies, governance, organi- zational arrangements, operational aspects, reliability and business continuity, etc.). Based on international experience, and that of the World Bank’s PSDG, in re- gional and sub-regional payment system integration projects, working first on building sound national pay- ment systems on the basis of international standards and best practices is the best way to make an eventual integration across countries feasible and for it to pro- ceed smoothly. Global Survey 2010 139 ANNEX I: THE QUESTIONNAIRE I. LEGAL AND REGULATORY FRAMEWORK I.1 What pieces of legislation have direct/explicit references to payment and securities settlement systems in the country? These include, for example, laws defining the powers and obligations of the Central Bank, main public policies in the area of payment and securities settlement systems, rights and obligations of other payment services providers, etc. (mark with an X all that apply) a. Central Bank Law _____ b. Banking Law _____ c. Payment Systems Law _____ d. Securities Markets Law _____ e. Civil Code and/or Commerce Code _____ f. Central Bank Regulations having the power of Law _____ g. Consumer Protection Law _____ h. Competition Law _____ i. Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) Law _____ j. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ I.2 Do legal provisions cover the following specific issues? (mark with an X all that apply) a. Clarity of timing of final settlement especially when there is an insolvency _____ b. Legal recognition of (bilateral and multilateral) netting arrangements _____ c. Recognition of electronic processing of payments (for example, can electronic signatures/ documents be used as evidence in the court of law?) _____ d. Non-existence of any zero hour or similar rules _____ e. Enforceability of security interests provided under collateral arrangements and of any relevant repo agreements _____ f. Protection from third-party claims of securities and other collateral pledged in a payment system _____ g. Consumer protection for retail payment services _____ h. Fair and competitive practices in provision of payment services _____ Annex I 140 PAYMENT SYSTEMS WORLDWIDE I.3 Do the provisions in the previous questions (mark with an X all that apply) a. Apply only to payment systems operated by the Central Bank _____ b. Apply to all systemically important payment systems _____ c. Apply to all payment systems in the country _____ I.4 Do legal provisions cover the following specific issues related to securities settlement? (mark with an X all that apply) a. Dematerialization of securities _____ b. Immobilization of securities _____ c. Securities ownership transfers through book entries _____ d. Finality of settlement (securities and funds transfers) _____ e. Protection of custody arrangements from third-party claims in the event of bankruptcy of the custodian – e.g. securities deposit accounts in the Central Securities _____ f. Depositories (CSDs) _____ e. Securities lending arrangements _____ g. Novation1 _____ h. Protection of the operation of the securities settlement system in the event of the insolvency of a system participant _____ 1.5 Has a court in the jurisdiction ever failed to uphold the legal basis of the activities or arrangements under 1.2 and 1.4 above? (please indicate YES or NO) _____ If so, for what reasons? __________________________________________________________________________________ __________________________________________________________________________________ I.6 Central Bank empowerment to oversee payment and securities settlement systems in the country (mark with an X all that apply) a. The Central Bank has no formal powers to perform payment system oversight _____ b. Oversight powers are to be found in the Central Bank Law _____ c. Oversight powers are to be found in the Payment Systems Law _____ d. Oversight powers are to be found in other laws _____ e. Empowerment is general, in the context of “ensuring the adequate and safe functioning of payment systems in the country� _____ 1 A process through which the original obligation between a buyer and a seller is discharged through the substitution of a Central Counterparty (CCP) as seller to buyer and buyer to seller creating two new contracts. Global Survey 2010 141 f. Empowerment is explicit, granting it powers to operate, regulate, and oversee payment systems _____ I.7 Please indicate any other authority that is legally empowered to supervise or oversee payment and securities settlement systems (mark with an X all that apply) a. Securities regulator _____ b. Ministry of Finance _____ c. Anti-trust authority _____ d. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ I.8 If you wish to provide additional comments to your answer(s) for questions I.6 and I.7, in particular with regard to securities settlement oversight, please do so in the space below __________________________________________________________________________________ __________________________________________________________________________________ I.9 Which of the following payment service providers are subject to AML/CFT regulations? a. Commercial banks _____ b. Money remitters _____ c. Exchange bureaus _____ d. Credit unions _____ e. Microfinance Institutions (MFIs) _____ f. Post Office _____ g. Mobile phone operators _____ h. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ Annex I 142 PAYMENT SYSTEMS WORLDWIDE I.10 Are non-bank payment and securities settlement services providers a) required to be registered; b) required to obtain a specific license from the Central Bank or any other relevant authority; c) not required to either be registered or licensed (please indicate YES or NO and specify the responsible authority in the last column) Institution Registration License None Authority Non-bank financial institutions (NBFIs) Clearinghouses Central counterparties (CCPs) Central securities depositories (CSDs) Money transfer operators (MTOs) (e.g. Western Union, Money Gram) Payment card processing companies Mobile phone operators1 Telecommunication companies2 Other (e.g. internet-based) (please specify) 1 When they provide payment services. 2 When they provide payment services. II. LARGE-VALUE FUNDS TRANSFERS SYSTEMS II.1 What is the main system used in the country for large-value funds transfers? (mark with an X all that apply). If more than one system could be considered as systemically important2, please also indicate an approxi- mate share of large-value payments that are channeled through each system in terms of value a. Real-Time Gross Settlement (RTGS) system _____ b. Cheque Clearinghouse _____ c. Other (please describe the main features) _____ __________________________________________________________________________________ __________________________________________________________________________________ 2 Following the CPSS Core Principles Report, it is likely that a system is of systemic importance if at least once of the following is true: i) it is the only payment system in a country, or the principal system in terms of the aggregate value of payments; ii) it handles mainly payments of high individual value; iii) it is used for the settlement of financial market transactions or for the settlement of other relevant payment systems. Global Survey 2010 143 THE FOLLOWING QUESTIONS REFER TO RTGS SYSTEMS. If a cheque clearinghouse is used to process large-value payments please proceed to section III. If you answer positively to II.1.C, please proceed to II.19. Also, if an RTGS is being planned or is currently under implementation, please complete section VIII. II.2 Please indicate who is the operator of the RTGS system (i.e. Central Bank or other), who acts as settle- ment agent, and the year in which the RTGS system began operations on a full scale. If there is more than one RTGS system, please provide the information for each of them Operator Settlement Agent Year RTGS 1 _____ _____ _____ RTGS 2 _____ _____ _____ RTGS 3 _____ _____ _____ II.3 Please provide the following statistical data for 2009 and, if applicable, for 2008, 2007, 2006, 2005 and 2004.3 If there is more than one RTGS system, please make a separate table for each of them 2009 2008 2007 2006 2005 2004 Total number of transactions/settled payments In local currency In foreign currency (if applicable. Please indicate the foreign currency or currencies) Total value settled In local currency In foreign currency (if applicable. Please indicate the foreign currency) II.4 Please indicate the primary means through which direct RTGS participants send their payment orders for processing (mark with an X all that apply) a. SWIFT international network _____ b. SWIFT closed users’ group _____ c. Proprietary telecommunications network _____ d. Other electronic means (e.g. e-mail, etc.) (Please specify) _____ _________________________________________________________________________________ e. Other paper means (please specify) _____ _________________________________________________________________________________ 3 Please specify if fiscal or calendar year. If fiscal, please indicate the period. Annex I 144 PAYMENT SYSTEMS WORLDWIDE II.5 Pricing and charges (mark with an X all that apply) a. The RTGS operator makes no charges for the processing/settlement of payment orders _____ b. Charges are applied with no particular relation to cost recovery _____ c. The pricing policy aims at partial recovery of the operational cost of the system _____ d. The pricing policy aims at full recovery of the operational cost of the system _____ e. The pricing policy aims at full recovery of the operational cost of the system plus partial recovery of the investment costs _____ f. The pricing policy aims at recovering all costs (operational + investment) in full _____ g. The pricing policy aims at recovering all costs in full plus profits/opportunity cost _____ II.6 In case of a positive answer to any of the items e), f), or g) in question II.5, please indicate how many years were considered for: a. The recovery of investment costs _____ b. To start generating a profit _____ II.7 What are the main sources of liquidity during the day? (mark with an X all that apply) a. Opening balances and funds received from other participants during the day _____ b. Participants can use a part of their reserve requirements during the day _____ c. Participants can use all their reserve requirements balance during the day _____ d. Lines of credit between banks _____ e. The RTGS operator allows collateralized current account overdrafts _____ f. The RTGS operator allows uncollateralized current account overdrafts _____ g. The RTGS operator grants collateralized credit, either in the form of a loan or a repo _____ h. The RTGS operator grants uncollateralized credit, either in the form of a loan or a repo _____ i. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ II.8 How does the RTGS operator manage the credit risk that may arise as a result of applying some of the mechanisms discussed in the previous question? (mark with an X all that apply) a. Suitable collateral4 is required in all cases _____ b. Collateral is required in all cases, but collateral does not always have suitable quality _____ c. Current account overdrafts/credit is limited, but no collateralization is required _____ d. There are no limits or collateralization requirements for account overdrafts/credit _____ 4 In this context, suitable collateral should be interpreted as being liquid should a default occur. It also implies that the value of such collateral is marked to market on a daily basis and haircuts applied where appropriate. Global Survey 2010 145 II.9 How does the RTGS operator deal with intraday liquidity that is not repaid by the end of the system’s operating day? (mark with an X all that apply) a. The RTGS operator seizes the collateral immediately thereafter _____ b. The RTGS operator transforms the intraday credit into overnight at market rates _____ c. The RTGS operator transforms the intraday credit into overnight at penalty rates _____ d. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ II.10 If a participant does not have enough balance (and/or credit) in its current account with the RTGS operator to process new payments, what mechanism becomes applicable? (mark with an X all that apply) a. The payment order is rejected immediately _____ b. The payment order goes into a queue for later processing (see question II.11) _____ c. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ II.11 Queuing arrangements and prioritization (mark with an X all that apply). If the RTGS system does not have a queuing mechanism, please proceed to question II.12 a. A centralized queuing mechanism is used _____ b. A First In, First Out (FIFO) resolution algorithm is used _____ c. Bilateral offsetting is used as resolution algorithm _____ d. Multilateral offsetting is used as resolution algorithm _____ e. Both bilateral and multilateral offsetting is used _____ f. The offsetting mechanism is triggered automatically every certain period of time _____ g. The offsetting mechanism is triggered automatically by non-time-related parameters _____ h. The offsetting mechanism can be triggered manually by the RTGS operator _____ i. Participants can set priorities to their payment orders _____ j. Participants can change the priorities to their payment orders once these orders are in a queue waiting to be settled _____ Annex I 146 PAYMENT SYSTEMS WORLDWIDE II.12 Is the pricing policy used to incentivize the smooth flow of payment orders through the system, e.g. are participants charged different prices based on the time of the day when their payments are processed? (please indicate YES or NO) _____ II.13 Participants have access to information on their settlement balances and available credit/overdrafts during the day (please indicate YES or NO) _____ II.14 Resilience and business continuity (mark with an X all that apply) a. Routine procedures are in place for periodical data back-ups _____ b. Tapes and other storage media are kept in sites other than the main processing site _____ c. Back-up servers have been deployed at the main processing site _____ d. A fully equipped alternate processing site exists _____ e. The RTGS operator has documented a formal business continuity plan _____ f. Business continuity arrangements include procedures for crisis management and information dissemination _____ g. Business continuity arrangements are regularly tested _____ II.15 What is the targeted performance level for full system recovery (Indicate in MINUTES, otherwise indicate Not Applicable or N/A) _____ II.16 RTGS access rules and policies (mark with an X all that apply) a. There is an explicit access/exclusion policy for the RTGS system _____ b. Access to the RTGS is granted on the basis of institutional standing (i.e. whether the applicant is a bank, or some other specific type of financial institution) _____ c. Access to the RTGS is granted on the basis of the fulfillment of a set of objective criteria to ensure a safe and sound operation of the system (e.g. capital requirements, technological capacity, internal risk controls, appropriate management, etc) _____ d. Formal rules or arrangements are in place to allow the RTGS operator to exclude a system participant in a timely fashion _____ II.17 RTGS participants (mark with an X all that apply) a. All commercial banks have direct access to the RTGS system _____ b. All commercial banks have direct access to Central Bank credit _____ c. Banks (other than commercial banks) have direct access to the RTGS system _____ d. Banks (other than commercial banks) have direct access to Central Bank credit _____ e. Non-bank institutions have direct access to the RTGS system _____ Global Survey 2010 147 f. Non-bank institutions have direct access to Central Bank credit _____ Please use space below to specify the Non-Bank Financial Institutions (NBFIs) __________________________________________________________________________________ __________________________________________________________________________________ II.18 Is there a specific RTGS Users’ Group in place for the RTGS operator to better address participants’ needs? (please indicate YES or NO) _____ PLEASE ANSWER THE FOLLOWING QUESTIONS FOR NON-RTGS LARGE-VALUE PAYMENT SYSTEMS OPERATING IN YOUR COUNTRY (The following questions are applicable only if you answered positively to Question II.1.c) II.19 Features of the settlement systems for large-value payments (mark with an X all that apply) a. Settlement of payments is executed on a gross basis but not in real time _____ b. Settlement of payments is processed on a net basis at the end of the day _____ c. Payments are settled in multiple clearing sessions during the day _____ d. Payments are settled through accounts kept with the Central Bank _____ e. Final settlement of net positions takes place through an RTGS system _____ f. Final settlement takes place in Central Bank money, but not through an RTGS system _____ g. Final settlement takes place in commercial bank money _____ II.20 Please indicate the primary means through which participants send their payment orders for processing (mark with an X all that apply) a. SWIFT International Network _____ b. SWIFT closed users’ group _____ c. Proprietary telecommunications network _____ d. Other electronic means (e.g. e-mail, etc.) (Please specify) _____ __________________________________________________________________________________ e. Other paper means (please specify) _____ __________________________________________________________________________________ II.21 If a participant does not have enough balance (and/or credit) in its settlement account to process new payments, what mechanism becomes applicable? (mark with an X all that apply) a. The payment order is rejected immediately _____ b. The payment order is delayed until funds are available _____ c. The settlement institution/system operator extends immediate credit _____ Annex I 148 PAYMENT SYSTEMS WORLDWIDE d. Credit is collateralized _____ e. Credit is extended up to certain limits _____ f. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ II.22 Please indicate which of the following dependencies are applicable to each of the systems indicated above (mark with and X all that apply and use space to explain as needed) a. The system’s availability is dependent on another system which is linked to it _____ b. The system is dependent on liquidity provision from another system _____ c. System is highly dependent on network availability _____ d. The system’s availability is dependent on electricity _____ e. The system is dependent on liquidity provision by the Central Bank _____ __________________________________________________________________________________ __________________________________________________________________________________ III. RETAIL PAYMENT SYSTEMS III.1 Please provide the following statistical data 2009 2008 2007 2006 2005 2004 Total number of Automated Teller Machines (ATMs) in the country Total number of Point of Sale (POS) terminals in the country Total number of debit cards Total number of credit cards Total number of ATM networks Total number of POS networks Global Survey 2010 149 For the following table, please include information on both intrabank and interbank transactions. If only interbank transaction information is available, please indicate so at the bottom of the table. 2009 2008 2007 2006 2005 2004 Total number of transactions Cheques Direct credits/credit transfers Direct debits Payments by debit card Payments by credit card Total value settled (please indicate currency) Cheques Direct credits/credit transfers Direct debits Payments by debit card Payments by credit card III.2 Cheque clearinghouse main features (mark with an X all that apply) a. Cheque clearinghouse is operated by the Central Bank _____ b. Cheques are standardized _____ c. Processing of cheques is automated, but physical exchange is required _____ d. Processing of cheques is automated, and cheque truncation is used _____ e. Multilateral net balances are calculated _____ f. Net balances are calculated and settled once a day _____ g. Net balances are calculated and settled more than once each day _____ h. Final settlement of net positions takes place through a Real-Time Gross Settlement (RTGS) system _____ i. Final settlement takes place in Central Bank money, but not through an RTGS system _____ j. Customer accounts are credited no later than T+2 _____ III.3 If a special procedure for large-value cheques has been implemented, please answer the following. Otherwise, proceed to question III.4 (mark with an X all that apply) a. As part of this procedure, large-value cheques can be settled with same-day value _____ b. As part of this procedure, large-value cheques are processed on a gross-basis _____ c. As part of this procedure, net balances are calculated and settled more than once a day _____ d. There is a settlement guarantee fund for large-value cheques processed under this procedure (on a net basis) _____ Annex I 150 PAYMENT SYSTEMS WORLDWIDE III.4 Cheque clearinghouse risk controls (mark with an X all that apply) a. No specific risk management mechanism is in place _____ b. In the event a participant is unable to settle its debit position, an unwinding procedure would be initiated _____ c. Participants have access to information on their preliminary position in the clearinghouse during the day _____ d. There are limits in place to protect netting systems from significant exposures _____ e. There is a specific guarantee fund in place for the system _____ f. Risk management mechanisms in place ensure completion of daily settlements in case of the inability to settle by participant with the largest single settlement obligation _____ g. The Central Bank or the operator provides ultimately liquidity to the system _____ Note: If there is more than one ACH in the country, please provide separate answers for each of them for questions III.5 and III.6 III.5 Automated Clearing House (ACH) for direct credits and/or direct debits main features (mark with an X all that apply) a. An ACH for direct credits and/or direct debits is not available in the country (i.e. direct credits and direct debits are only available at the intrabank level) _____ b. The ACH is operated by the Central Bank _____ c. The ACH allows the processing of both direct credits and direct debits _____ d. Non-bank institutions (e.g. National Treasury) can be direct participants in the ACH (please specify) ________________________________________________________________________________ e. Net balances are calculated and settled at least once a day _____ f. Final settlement of net positions takes place through an RTGS system _____ g. Final settlement takes place in Central Bank money, but not through an RTGS _____ III.6 ACH risk controls (mark with an X all that apply) a. No specific risk management mechanism is in place. In the event a participant is unable to settle its debit position, an unwinding procedure would be initiated _____ b. Participants have access to information on their preliminary positions in the clearinghouse during the day _____ c. There are limits in place to protect netting systems from excessive exposures _____ d. There is a specific guarantee fund in place for the system _____ Global Survey 2010 151 e. Risk management mechanisms are in place to ensure completion of the daily settlement in case of inability to settle by the participant with the largest single settlement obligation _____ f. The Central Bank or the operator provides liquidity to the system ultimately _____ III.7 Payment card systems main features (mark with an X all that apply) a. Local brands dominate the marketplace for payment cards _____ b. International brands (Visa, Mastercard, etc.) dominate the marketplace _____ c. There is at least one payment card switch operating in the country _____ III.8 Payment card systems: ATMs and POS (please rank from 1 to 3, being 1 the highest grade and 3 the lowest) a. Interoperability5 of ATM systems in the country _____ b. Interoperability of POS terminals in the country 6 _____ c. Payment cards are actually used extensively as payment instruments (and not only for cash withdrawals at ATMs) _____ III.9 If you wish to provide comments or clarifications in relation to any of the items on questions III.7 and III.8 please do so in the space below __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ III.10 Please indicate which of the following services are provided through ATMs in the country (mark with an X all that apply) a. Cash withdrawals _____ b. Bill payments _____ c. Cash deposits _____ d. Purchases (e.g. tickets, airtime) _____ e. Credit transfers _____ Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ 5 In the context of this survey, “full interoperability of ATMs� means that all payment and cash withdrawal cards issued by banks in the country can be used seamlessly (though probably at a cost) at all ATMs in the country. 6 In the context of this survey, “full interoperability of POS terminals� means that all payment cards issued by banks in the country can be used seamlessly in any POS terminal in the country. Annex I 152 PAYMENT SYSTEMS WORLDWIDE III.11 How are domestic ATM transactions processed in your country? (mark with an X all that apply) a. International payment networks dominate the processing of domestic ATM transactions _____ b. Domestic payment networks dominate the processing of domestic ATM transactions _____ c. There are no domestic ATM payment networks _____ d. Most large banks operate their own ATM payment networks and do not participate in the domestic ATM payment switch(es) _____ e. A few large banks operate their own ATM payment networks and do not participate in the domestic ATM payment switch(es) _____ f. Most of the banks participate in the domestic ATM payment switch(es) _____ III.12 How are domestic POS transactions processed in your country? (mark with an X all that apply) a. International payment networks dominate the processing of domestic POS transactions _____ b. Domestic payment networks dominate the processing of domestic POS transactions _____ c. There are no domestic POS payment networks _____ d. Most large banks operate their own POS payment networks and do not participate in the domestic POS payment switch(es) _____ e. A few large banks operate their own POS payment networks and do not participate in the domestic POS payment switch(es) _____ f. Most of the banks participate in the domestic POS payment switch(es) _____ III.13 Would you consider the interchange fees prevailing in the card industry high? __________________________________________________________________________________ __________________________________________________________________________________ III.14 If so, have any actions been taken or are in the process of being taken to address this issue? __________________________________________________________________________________ __________________________________________________________________________________ III.15 For the three main (in terms of volumes) payment switches in the country complete the table to the right (please follow the instructions in the Attribute column) Global Survey 2010 153 Attribute Switch 1 Switch 2 Switch 3 Transactions supported (indicate YES if supported, NO if not Clearing of POS transactions supported) Clearing of ATM transactions Clearing of transactions initiated through internet Clearing of transactions initiated through other remote channels like mobile phones Clearing of funds transfer transactions Other (please specify) Ownership structure (mark with an X the one that best Consortium of a few large banks describes the ownership structure) Consortium of all major banks (say 80% of all banks) Central Bank Other Government bodies (please specify) Other private sector entities (please specify) Settlement features Final settlement of net positions takes place through an (mark with an X the one that best RTGS system describes the settlement features) Final settlement takes place in Central Bank money, but not through an RTGS Final settlement takes place in commercial bank money Final settlement takes place in another country Pricing model (mark with an X the one that best Free of charge reflects the pricing model) Partial cost recovery Full cost recovery Full cost recovery in addition to building a surplus Other (please specify) Other services (answer YES if provided, NO if not pro- Operate ATM terminals vided; for all the listed other services) Operate POS terminals Manage merchant relationships ATM cash management Act as counterparty1 for transactions cleared through the network Provide settlement guarantee Provide transaction statistics and related analytical reports Conduct market research Other (please specify) 1 Contractually the switch operator is the central counterparty for all the transactions cleared by it, and takes on the financial liability in case of settlement failures. Annex I 154 PAYMENT SYSTEMS WORLDWIDE III.16 What is the role of the Central Bank in the payment switch(es)? (mark with an X all that apply) a. No role _____ b. Observer _____ c. Stakeholder _____ d. Member of corporate board _____ e. Advisory board member _____ f. Provider of settlement services _____ g. Operator of the payment switch(es) _____ h. Overseer _____ i. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ III.17 Does the Central Bank or Government mandate utilization of a designated national payment switch for the clearing of all domestic transactions? (mark with an X all that apply) a. Yes, by regulation _____ b. Yes, by moral suasion _____ c. No _____ III.18 Which of the following institutions offers non-cash payment instruments? (mark with an X all that apply) a. Commercial banks (private and/or state-owned) _____ b. Non-Bank Financial Institutions (NBFIs, i.e. cooperatives, savings & loans, consumer credit) _____ c. Post Office _____ d. Non financial institutions _____ e. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ III.19 Please provide your opinion on the average cost of non-cash payment instruments and services for individuals (please indicate 1 for zero or negligible; 2 for low; 3 for medium; 4 for high) a. Opening a bank current account _____ b. Maintaining a bank current account (annual fees) _____ c. Direct credit (e.g. wire transfer) _____ d. Direct debit _____ Global Survey 2010 155 e. Cheque _____ f. Credit cards Annual fee _____ Individual transaction _____ g. Debit cards Annual fee _____ Individual transaction _____ h. Pre-paid cards Annual fee _____ Individual transaction _____ i. ATM cash withdrawals fees Own bank ATM _____ Other bank ATM _____ j. Other ATM services fees Own bank ATM _____ Other bank ATM _____ k. Other instruments (e.g. mobile payment. Please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ III.20 If you wish to provide comments or clarifications in relation to any of the items on question III.19, please do so in the space below __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ III.21 Which of the following measures are in place to prevent fraud in retail non cash-based means of payment? (mark with an X all that apply) a. Industry-led standards _____ b. Common efforts by the banking industry and merchants’ associations _____ c. Legal requirements applicable to payment service providers/users _____ d. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ Annex I 156 PAYMENT SYSTEMS WORLDWIDE III.22 Government payments main features. Indicate the use of paper and electronic payment instruments for various government payments (mark with an X to all that apply) Mainly electronic Mainly paper based payment instruments- Mainly cash payment instruments- payment cards, EFT, cheques, payment orders and other e-payment schemes Government-to-person payments Public sector salaries Pensions and transfer payments Cash transfers and social benefits Person-to-government payments Taxes Utility payments Payment for services, etc. Governmen-to-business payments Procurement of goods and services Tax refunds Business-to-government payments Taxes Utilities Benefits transfers III.23 If government payments are handled mainly through cash or paper based payment instruments, are there plans to migrate these to electronic payments in the near term? Please elaborate on the main eatures of this migration7 __________________________________________________________________________________ __________________________________________________________________________________ III.24 Please specify if the process of collection (taxes, etc.) and distribution (transfer payments, etc.) of government payments is handled through a centralized treasury account. If yes, please also specify the government agency or department responsible for this function __________________________________________________________________________________ __________________________________________________________________________________ 7 The World Bank is setting up a Task Force to extract best practice on Government Payments throughout the world. To help with this new initiative, we would appreciate your input in this regard. Global Survey 2010 157 IV. FOREIGN EXCHANGE SETTLEMENT SYSTEMS IV.1 General (mark with an X all that apply) a. One foreign currency accounts for 90% or more of total Foreign Exchange (FX) transactions _____ b. The Central Bank offers current account services to banks and/or other institutions in at least one major foreign currency _____ c. There are restrictions on FX dealings, and the FX market is not very active _____ IV.2 Please provide the following statistical data for the main foreign currency that is traded in the inter- bank/wholesale market in your country 2009 2008 2007 2006 2005 2004 Total traded amounts (please indicate currency) Over the counter (OTC) market Exchange-traded IV.3 If a centralized foreign currency market exists in the country, please answer the questions below. Otherwise, please proceed to question IV.4 (mark with an X all that apply) a. One foreign currency accounts for 90 % or more of total transactions _____ b. Settlement of foreign currency deals at the exchange are settled by the exchange _____ c. Settlement of FX deals occurs on a Payment Versus Payment (PVP) basis solely through settlement accounts at the Central Bank _____ d. Settlement of FX deals occurs on a PVP basis through a combination Central Bank (domestic leg) and foreign correspondent banks _____ e. Settlement of FX deals occurs on a PVP solely through foreign correspondent banks _____ f. There is no PVP procedure in place _____ IV.4 OTC markets (mark with an X all that apply) a. There is an organized mechanism or procedure for FX traded to be settled on a PVP basis (e.g. a common foreign correspondent bank) _____ b. The time lag between the confirmation of settlement of the foreign currency leg and the domestic currency leg does not exceed 2 hours _____ Annex I 158 PAYMENT SYSTEMS WORLDWIDE c. The time lag between the confirmation of settlement of the foreign currency leg and the domestic currency leg exceeds 2 hours but is less than 24 hours _____ d. The time lag between the confirmation of settlement of the foreign currency leg and the domestic currency leg exceeds 24 hours _____ e. No significant information is available on the risks in the foreign currency market _____ V. CROSS-BORDER PAYMENTS AND INTERNATIONAL REMITTANCES Cross-Border Payments V.1 Integration of payment systems for cross-border payments (mark with an X all that apply) a. Have any systems established links for cross border settlement Yes _____ No _____ (If yes please specify) _________________________________________________________________________________ b. If plans are in the pipeline, please indicate when this will be implemented Within 2 years _____ More than 2 years _____ (If yes please specify) __________________________________________________________________________________ V.2 Use of the international SWIFT network (mark with an X all that apply) a. 90% or more of commercial banks in your country are connected to SWIFT _____ b. Less than 90% but more than 50% of commercial banks are connected to SWIFT _____ c. Some banks or other financial institutions can use SWIFT through the Central Bank’s own connection to SWIFT _____ d. Some banks or other financial institutions can use SWIFT through a SWIFT Service e. Bureau operated by the Central Bank or another institution _____ Global Survey 2010 159 Remittances Note: For the purpose of this Survey, International Remittances are cross-border person-to person payments of relatively low value, due to their importance as a lifeline for migrant families in the developing world we have separated them from the other cross-border payments. V.3 Please provide the following statistical data (in USD). If either outflows or inflows of remittances are not very relevant, please indicate so with “neg� 2009 2008 2007 2006 2005 2004 Total remittance outflows (sent) Total remittance inflows (received) V.4A Which of the following Remittance Service Providers8 (RSPs) are allowed to offer inbound remittance services? (mark with X-D if services are provided directly or with X-A if through agents) a. Commercial banks _____ b. International Money Transfer Operators (MTOs) (e.g. Western Union, Money Gram) _____ c. Local MTOs _____ d. Exchange bureaus _____ e. Credit Unions _____ f. Microfinance Institutions (MFIs) _____ g. Post Office _____ h. Mobile phone operators _____ i. Retail stores (Supermarket, Pharmacies, Gas stations) as agents of MTOs _____ j. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ 8 According to the World Bank-CPSS General Principles for International Remittance Services, RSPs are defined as “any person or institution providing such a service [Re- mittance Transfers] as a business�. There are many different ways in which remittance transfers can be made, including, among others, cash payments using individuals who provide this service to their local immigrant communities, services from specialized global money transfer operators, bank-to bank transfers and card payments. However, the RSP term does not cover those whose services are based on purely physical transfers of cash (eg. where a person travelling back to the home country carries the cash on behalf of the sender, or where cash is sent by post or courier from one country to another)�. Annex I 160 PAYMENT SYSTEMS WORLDWIDE V.4B Which of the following RSPs are allowed to offer outbound remittance services? (mark with X-D if services are provided directly or with X-A if through agents) a. Commercial banks _____ b. International MTOs (e.g. Western Union, Money Gram) _____ c. Local MTOs _____ d. Exchange bureaus _____ e. Credit unions _____ f. MFIs _____ g. Post Office _____ h. Mobile phone operators _____ i. Retail stores (supermarket, pharmacies, gas stations) as agents of MTOs _____ j. Others (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ V.5A Please rank from 1 to 10, with 1 being the “most relevant� and 10 the “least relevant�, the various RSPs in your country according to market share for inbound remittances a. Commercial banks _____ b. International MTOs (e.g. Western Union, Money Gram) _____ c. Local MTOs _____ d. Exchange bureaus _____ e. Credit unions _____ f. MFIs _____ g. Post Office _____ h. Mobile phone operators _____ i. Retail stores (supermarket, pharmacies, gas stations) as agents of MTOs _____ j. Others (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ V.5B Please rank from 1 to 10, with 1 being the “most relevant� and 10 the “least relevant�, the various RSPs in your country according to market share for outbound remittances a. Commercial banks _____ b. International MTOs (e.g. Western Union, Money Gram) _____ c. Local MTOs _____ Global Survey 2010 161 d. Exchange bureaus _____ e. Credit Unions _____ f. MFIs _____ g. Post Office _____ h. Mobile phone operators _____ i. Retail stores (supermarket, pharmacies, gas stations) as agents of MTOs _____ j. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ V.6A Please rank from 1 to 6, with being 1 the “most relevant� and 6 the “least relevant�, the various payment mechanisms and instruments used for sending remittances in your country a. Cash _____ b. Cheque or similar payment instrument _____ c. Current account transfers _____ d. International payment cards linked to a current account in the sending country e. enabling the recipient to withdraw cash locally from ATMs _____ f. International prepaid cards (not linked to a current account) that enable the recipient to withdraw cash locally from ATMs _____ g. Mobile phone based payment mechanisms (e.g. m-wallet or mobile phone as access channel to a bank account) _____ h. Other (e.g. cheques, bank drafts, money orders. Please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ V.6B Please rank from 1 to 6, with being 1 the “most relevant� and 6 the “least relevant�, the various payment mechanisms and instruments used for receiving remittances in your country a. Cash _____ b. Cheque or similar payment instrument _____ c. Current account transfers _____ d. International payment cards linked to a current account in the sending country enabling the recipient to withdraw cash locally from ATMs _____ e. International prepaid cards (not linked to a current account) that enable the recipient to withdraw cash locally from ATMs _____ Annex I 162 PAYMENT SYSTEMS WORLDWIDE f. Mobile phone based payment mechanisms (e.g. m-wallet or mobile phone as access channel to a bank account) _____ g. Other (e.g. cheques, bank drafts, money orders) (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ V.7 Transparency of remittance services (mark with an X all that apply) a. RSPs are legally required to disclose fees applied (please specify if applicable to sending side and receiving side or sending side only) _____ __________________________________________________________________________________ __________________________________________________________________________________ b. RSPs are subject to different legal requirements as to fees disclosed, depending on the destination country _____ c. RSPs are legally required to disclose Foreign Exchange rate applied _____ d. RSPs are legally required to disclose taxes applied _____ e. RSPs are legally required to disclose speed of the transfer _____ f. RSPs are legally required to disclose available complaint mechanisms _____ g. RSPs must inform customers on the details of the transaction before they perform it _____ h. RSPs must provide customers with receipt containing the details of the transaction _____ Please use space below for any explanatory notes (as needed) with regard to V.7.b __________________________________________________________________________________ __________________________________________________________________________________ V.8 Consumer protection (mark with an X all that apply) a. Legislation on consumer protection is in place _____ b. A specific legislation on consumer protection for financial services is in place _____ c. Best practices code for the protection of financial services users is in place _____ d. Best practices code is applicable also to remittance services _____ e. There is a public authority (consumer protection agency, financial ombudsman, etc) overseeing and implementing the relative legislation _____ Global Survey 2010 163 V.9 Which type of access to clearing and settlement systems do the following RSPs have in your country? (mark with an X all that apply and specify who owns/manages the system in the last column)9 Special access Ownership/ Institution Direct access Indirect access No access (please specify) management Commercial banks International money transfer operators Local money transfer operators Exchange bureaus Microfinance institutions (MFIs) Post office Credit unions Mobile operators Retail stores Other (please specify) V.10 Regulation of RSPs (mark with an X all that apply) a. All RSPs have to be registered with a competent authority _____ b. All RSPs have to be licensed by a competent authority _____ c. All RSPs need only to comply with Anti-Money Laundering (AML) regulations _____ d. RSPs are not required to comply with any particular law or regulation other than those of general applicability to other types of businesses _____ V.11 Competition environment (mark with an X all that apply) a. Exclusivity agreements/conditions10 are present in the market _____ b. Specific legislation is in place to address anti-competitive behaviors and conditions (e.g. exclusivity agreements) _____ c. RSPs have to be incorporated as banks. _____ 9 Access to payment system infrastructure can be granted on a direct or indirect basis. Direct access means that the RSP is itself a direct participant in the system, submits its payment instructions directly to the system, and is responsible for settling them. Indirect access means that the RSP is not itself a direct participant in the system but instead uses another institution that is a direct participant to act on its behalf – i.e. the RSP is a customer of the direct participant. In addition, for non-systemically important payment systems that are relevant to remittances, the systems and their overseers could have adopted a special access policy that includes certain non-bank RSPs and other institutions that generally have a significant reach into the community (e.g. credit unions, rural microfinance institutions, credit cooperatives, national postal systems). 10 Exclusivity conditions are where an RSP allows its agents or other RSPs to offer its remittance service only on condition that they do not offer any other remittance service. Annex I 164 PAYMENT SYSTEMS WORLDWIDE d. RSPs have to meet stipulated capital requirements _____ e. Agents are allowed to disburse funds in foreign currency _____ V.12 Which are the relevant authorities in the regulation and oversight of the market? (mark with an X all that apply) a. Central Bank _____ b. Ministry of Finance _____ c. Ministry of Industry and Commerce _____ d. Banking supervision authority _____ e. Anti-Trust authority _____ f. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ VI. SECURITIES SETTLEMENT SYSTEMS VI.1 General (mark with an X all that apply) a. The securities market (government securities, equities, corporate bonds and derivatives ) is at a nascent stage, characterized by only a few or none primary issuances, and few or none secondary market trades _____ b. One or more stock exchanges are currently operating in the country _____ c. The great majority (say 90% or more of negotiable securities in the country are immobilized or dematerialized in one or more Central Securities Depositories (CSDs) _____ d. There is a single CSD for all types of securities in the country _____ e. There are two or more CSDs, each handling only certain types of securities (e.g. one CSD for securities issued by the private sector, another CSD for government securities, etc) _____ f. There are two or more CSDs, each handling all types of securities _____ g. There is one or more clearing institution for securities operating in the country _____ h. There is one or more Central Counterparties (CCPs) operating in the country _____ i. At least one securities settlement system does not directly settle in Central Bank money, but uses one or more settlement banks to settle the payment obligations _____ Global Survey 2010 165 Please answer questions VI.2 to VI.5 separately for each CSD operating in your country. VI.2 CSD – General (mark with an X all that apply) a. The CSD handles: • Government Securities _____ • Corporate Securities _____ • Both _____ b. The CSD is operated by: • The Central Bank _____ • The Stock Exchange _____ • Other Private Entity _____ c. The CSD is used regularly to facilitate ownership transfers stemming from secondary market transactions _____ d. The CSD is used for securities traded at the stock exchange only _____ e. The CSD is used to settle also Over The Counter (OTC) transactions _____ VI.3 CSD – Settlement (mark with an X all that apply) a. A rolling settlement cycle of T+3 or shorter is used for all securities trades _____ b. A rolling settlement cycle of T+3 or shorter is used for the majority of the securities trades _____ c. The CSD has a real-time interface with the Real-Time Gross Settlement (RTGS) system (if applicable) _____ d. Model 1 Delivery Versus Payment (DVP)11 is used _____ e. Model 2 DVP12 is used _____ f. Model 3 DVP is used 13 _____ g. No DVP is used _____ h. For either Model 2 or Model 3, a guarantee fund or other risk management mechanism (other than the CCP) is in place to ensure settlement will take in the event the participant with the largest debit obligation is unable to settle its position _____ i. A securities lending mechanism has been implemented _____ 11 Transfer instructions for both securities and funds are settled on a trade by trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment). 12 Transfer instructions are settled on a gross basis with final transfer of securities from seller to buyer (delivery) occurring throughout the processing cycle while funds transfer instructions settle on a net basis, with final transfer of funds from buyer to seller (payment) occurring at the end of the processing cycle. 13 Transfer instructions for both securities and funds are settled on a net basis with final transfers of both securities and funds occurring at the end of the processing cycle. Annex I 166 PAYMENT SYSTEMS WORLDWIDE VI.4 CSD – Participation and custody arrangements (mark with an X all that apply) a. Commercial banks are direct participants in the CSD _____ b. Broker-dealers are direct participants in the CSD _____ c. Other financial institutions can be direct participants _____ d. Beneficial owners14 are identified at the individual level in the CSD (i.e. there are sub-accounts for each individual holding securities operated by the CSD) _____ e. Beneficial owners cannot be identified at the individual level in the CSD, but direct participants are required to segregate their own holdings from those of their customers _____ VI.5 CSD - Resilience and business continuity (mark with an X all that apply) a. Routine procedures are in place for periodic data back-ups _____ b. Tapes and other storage media are kept in sites other than the main processing site _____ c. Back-up servers have been deployed at the main processing site _____ d. A fully equipped alternate processing site exists _____ e. The CSD operator has documented a formal business continuity plan _____ f. Business continuity arrangements include procedures for crisis management and information dissemination _____ g. Business continuity arrangements are regularly tested _____ VI.6 Clearing institution for securities transactions. For each of the following instruments please indicate a) the entity responsible for the clearing process and b) whether settlement is done by the commercial bank, Central Bank or other financial institution. Instrument Clearing Settlement Securities traded at the stock exchange(s) Securities traded in electronic trading platforms Derivatives traded at the stock exchange(s) Government securities Foreign exchange (FX) transactions OTC securities transactions OTC derivatives, including credit default swaps (CDS) 14 Beneficial owners refer to the real owners of the securities and include individuals and institutional investors. Global Survey 2010 167 Please answer question VI.7 to VI.9 separately for each CCP operating in your country. VI.7 CCP – General (mark with an X all that apply) a. The CCP operates in more than one jurisdiction _____ b. The CCP rules clarify the applicable law governing the contractual relationships between the CCP and participants _____ c. The CCP legally becomes the buyer to every seller and the seller to every buyer (via ‘novation’15 or ‘open offer’16) _____ d. The CCP provides multilateral netting facilities, i.e. the CCP calculates the net settlement positions among its participants _____ e. Commercial banks are direct participants in the CCP _____ f. Broker-dealers are direct participants in the CCP _____ g. Other financial institutions can be direct participants _____ h. There are minimum capital requirements for participants _____ VI.8 CCP – Management of credit exposures (mark with an X all that apply) a. The CCP applies margin requirements to limit its credit exposures _____ b. The CCP marks to market participants’outstanding contracts at least once a day _____ c. There is a guarantee fund, consisting of contributions of the participants of the CCP _____ d. In addition to the margin requirements and (eventually) a guarantee fund, the CCP maintains other financial resources including own funds17 to be able to withstand a default by the participant with the largest exposure _____ e. The CCP conducts regular stress tests to check the adequacy of resources in the event of a default in extreme market conditions _____ f. The CCP holds securities in a manner that minimizes risk of loss and ensures prompt access to securities. _____ g. The CCP’s default procedures define an event of default and the method for identifying that default _____ h. In the event of default, arrangements are in place to facilitate the prompt transfer, close out or hedging of the defaulting participant’s positions _____ 15 Novation replaces the original contract between the buyer and seller shortly after the trade with two new contracts between the CCP and the buyer and the CCP and the seller (see also footnote 3). 16 Open offer implies that buyer and seller have never entered into a bilateral contractual relationship. In this situation, the CCP is considered to have stepped in between them at the time the transaction was executed. 17 E.g. capital. Annex I 168 PAYMENT SYSTEMS WORLDWIDE i. The CCP uses a CSD that provides DVP settlement for the transactions cleared _____ j. Payment obligations are directly settled in Central Bank money _____ VI.9 CCP – Resilience and business continuity (mark with an X all that apply) a. Routine procedures are in place for periodic data back-ups _____ b. Tapes and other storage media are kept in sites other than the main processing site _____ c. Back-up servers have been deployed at the main processing site _____ d. A fully equipped alternate processing site exists _____ e. The CCP has documented a formal business continuity plan _____ f. Business continuity arrangements include procedures for crisis management and information dissemination _____ g. Business continuity arrangements are regularly tested _____ VI.10 Regulatory and oversight (mark with an X all that apply) a. There is a specific public sector agency in charge of regulating securities markets _____ b. The securities market law applies to all securities negotiated in the country _____ c. The securities market law applies only to securities issued by the private sector; securities issued by the government and/or the Central Bank are regulated by special laws/decrees _____ d. The securities regulator is empowered to license and supervise all stock exchanges _____ e. The securities regulator is empowered to license and supervise all CSDs _____ f. The securities regulator is empowered to license and supervise securities CCPs _____ g. The securities regulator shares supervisory and oversight responsibilities with the Central Bank for securities settlement systems _____ h. The securities regulator does not have oversight powers over the derivatives CCP _____ i. The stock exchange has been granted the status of Self-Regulatory Organization (SRO) _____ j. Private CSDs have been granted the status of SRO _____ k. The CCP has been granted the status of SRO _____ VII. PAYMENT SYSTEM OVERSIGHT AND COOPERATION VII.1 General (mark with an X all that apply) a. The Central Bank’s payment system oversight function has been established and this is performed regularly and in an on-going basis _____ Global Survey 2010 169 b. There is a specific unit or department within the Central Bank responsible for payment system oversight _____ c. The payment system oversight function is segregated from payment system operational tasks either through organizational means or via independent reporting lines _____ VII.2 Objectives of payment system oversight (mark with an X all that apply) a. The Central Bank has set down its objectives in carrying out the payment system oversight function in a regulation or policy document _____ b. Objectives only include the safety and efficiency of relevant payment systems _____ c. Objectives also include the pursuit of a higher level of competitiveness among system participants, avoid collusive practices, consumer protection, and other specific issues _____ VII.3 Scope of payment system oversight (mark with an X all that apply) a. Payment system oversight is exercised over Central Bank-operated systems only _____ b. Payment system oversight is performed over all systemically important funds transfer systems _____ c. Payment system oversight is performed over all systemically important payment systems, including securities settlement systems and settlement of Foreign Exchange (FX) transactions _____ d. Payment system oversight is performed over all relevant payment systems in the country as long as such systems are operated by commercial banks _____ e. Payment system oversight is performed over all relevant payment systems in the country regardless of whom the operator of such systems is _____ VII.4 Instruments of payment system oversight (please rank the relevance of instruments from 1 to 3, 1 being “highly relevant� and 3 “less relevant�) a. Monitoring _____ b. Dialogue and moral suasion _____ c. Production and publication of statistics and other payment system reports _____ d. Issue of regulations _____ e. Application of sanctions _____ f. On-site inspections _____ VII.5 Cooperation with other relevant authorities (mark with an X all that apply) a. There is no significant cooperation with other relevant authorities (e.g. bank supervisors, securities regulators) in the context of payment system oversight activities _____ Annex I 170 PAYMENT SYSTEMS WORLDWIDE b. Cooperation with other relevant authorities occurs mostly in an informal/ad-hoc basis _____ c. Cooperation with other relevant authorities is ensured through a formal mechanism, such as a Memorandum of Understanding (MOU) or is required by law _____ d. Cooperation involves mostly regular meetings and exchange of opinions and views _____ e. Besides regular meetings and exchange of opinions and views, cooperation also involves regular information exchanges, prior notice of regulatory action, joint inspection _____ VII.6 Cooperation with other stakeholders (mark with an X all that apply) a. A formal National Payments Council is in place _____ b. Although not formalized, the Central Bank holds regular meetings with stakeholders at a senior level to discuss strategic issues for the payment system _____ c. The Central Bank consults stakeholders on particular operational issues. Sometimes this includes the creation of an ad-hoc task force or working group. _____ d. The Central Bank consults stakeholders sporadically and/or mostly on a bilateral basis _____ e. The Central Bank consults almost exclusively with the bankers’ association _____ f. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ VII.7 Which of the statements best reflects the involvement of Central Bank in the pricing of payment services (mark with an X all that apply)? Statement Retail Payments Large Value Payments Remittances No involvement Limited to collection of information Limited to voicing opinions Actively regulate (please specify types of fees) Other (please specify) Global Survey 2010 171 VIII. PLANNED AND ON-GOING REFORMS TO THE NATIONAL PAYMENTS SYSTEM The purpose of this section is to address those cases in which new payment and securities settlement systems are being designed or implemented. If your Central Bank is planning to, or is already involved in, reforming any of the components of the national payments system in a major way (i.e. other than “regular� or “normal� adjustments and improvements to the existing systems), please answer the following questions. VIII.1 What elements of the national payments system are being reformed? (mark with an X all that apply) a. Legal and regulatory framework _____ b. Large-value funds transfer systems _____ c. Retail payment systems _____ d. Securities settlement systems _____ e. Foreign exchange settlement systems _____ f. Payment system oversight _____ g. Other (e.g. cross-border payments and remittances. Please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ VIII.2 In your experience, what factors triggered the planned or on-going reform to the above-mentioned elements of the national payments system? (mark with an X all that apply) a. The need to reduce systemic risk _____ b. The need to increase the overall efficiency of the payment system _____ c. Response to demands from market participants for better payment/settlement services _____ d. Response to demands from end-users (e.g. individuals, small and medium enterprises) for better payment and settlement services _____ e. Response to demands from government institutions for better payment services _____ f. Response to technological innovations (e.g. upgrading of outdated equipment/systems, availability of more efficient delivery mechanisms) _____ g. Other (please specify) _____ __________________________________________________________________________________ __________________________________________________________________________________ VIII.3 What is the approach followed in the current reform effort? (mark with an X all that apply) a. Broad/holistic approach _____ or system-specific _____ b. “Big bang� approach _____ or gradualist _____ c. Strategic (goal-based) _____ or starting from the operational particularities in the country _____ Annex I 172 PAYMENT SYSTEMS WORLDWIDE VIII.4 What is the current status of the reform process? (please indicate with an X as appropriate) Actual Procurement Requirements/ Development Conceptual (for new systems functionalities have (for new systems Implementation Stage being purchased been defined being developed from vendors) in-house) Legal and regulatory framework Large-value funds transfer systems RTGS Other (specify) Retail payment systems ACH Cheque clearing Payment card systems Other (specify) Securities settlement systems Foreign exchange settlement systems Global Survey 2010 173 ANNEX II: CLASSIFICATION OF COUNTRIES ACCORDING TO LEVEL OF PER CAPITA INCOME 1. HIGH INCOME Australia France Luxembourg Slovak Republic Austria Germany Macao (China) Slovenia Bahamas, The Greece Malta Spain Belgium Hong Kong (China) Netherlands Sweden Canada Hungary New Zealand Switzerland Cayman Islands Ireland Norway Taiwan (China) Croatia Israel Oman Trinidad and Tobago Cyprus Italy Poland United Arab Emirates Czech Republic Japan Portugal United Kingdom Denmark Korea, Rep. of San Marino United States Estonia Kuwait Saudi Arabia Finland Latvia Singapore 2. UPPER-MIDDLE INCOME Albania Colombia Lithuania Romania Argentina Costa Rica Macedonia FYR Russian Federation Azerbaijan Dominican Republic Malaysia Serbia Bosnia and Herzegovina Fiji Mauritius Seychelles Botswana Iran, Islamic Rep. of Mexico South Africa Brazil Jamaica Montenegro Turkey Bulgaria Kazakhstan Namibia Uruguay Chile Lebanon Peru Venezuela, R. B. Libya 3. LOWER-MIDDLE INCOME Angola Guatemala Mongolia Sudan Armenia Honduras Morocco Swaziland Belize India Nigeria Thailand Bolivia Indonesia Pakistan Timor-Leste China Iraq Philippines Ukraine Cote d’Ivoire (BCEAO) Jordan Samoa Vanuatu Ecuador Kosovo Senegal (BCEAO) West Bank and Gaza Egypt, Arab Rep. of Lesotho Sri Lanka Yemen, Republic of El Salvador Moldova Georgia Annex III 174 PAYMENT SYSTEMS WORLDWIDE 4. LOW INCOME Benin (BCEAO) Ghana Mali (BCEAO) Sierra Leone Burkina Faso (BCEAO) Guinea Bissau (BCEAO) Mauritania Tanzania Burundi Kenya Mozambique Togo (BCEAO) Cambodia Kyrgyz Republic Nepal Uganda Congo, Dem. Rep. of Madagascar Niger (BCEAO) Zambia Eritrea Malawi Rwanda Zimbabwe Ethiopia Global Survey 2010 175 ANNEX III: CLASSIFICATION OF COUNTRIES ACCORDING TO GEOGRAPHICAL REGION 1. EAST ASIA AND PACIFIC (EAP) Cambodia Indonesia Philippines Timor-Leste China Malaysia Samoa Vanuatu Fiji Mongolia Thailand 2. EUROPE AND CENTRAL ASIA (ECA) Albania Croatia Kyrgyz Republic Russian Federation Armenia Georgia Macedonia FYR Serbia Azerbaijan Kazakhstan Moldova Turkey Bosnia and Herzegovina Kosovo Montenegro Ukraine 3. LATIN AMERICA AND CARIBBEAN (LAC) Argentina Cayman Islands Ecuador Mexico Bahamas, The Chile El Salvador Peru Belize Colombia Guatemala Trinidad and Tobago Bolivia Costa Rica Honduras Uruguay Brazil Dominican Republic Jamaica Venezuela, R. B. 4. MIDDLE EAST AND NORTH AFRICA (MNA) Egypt, Arab Rep. of Kuwait Morocco United Arab Emirates Iran, Islamic Rep. of Lebanon Oman West Bank and Gaza Iraq Libya Saudi Arabia Yemen, Republic of Jordan 5. SOUTH ASIA (SA) India Nepal Pakistan Sri Lanka Annex IV 176 PAYMENT SYSTEMS WORLDWIDE 6. SUB-SAHARAN AFRICA (AFR) Angola Ghana Mozambique South Africa Benin (BCEAO) Guinea Bissau (BCEAO) Namibia Sudan Botswana Kenya Niger (BCEAO) Swaziland Burkina Faso (BCEAO) Lesotho Nigeria Tanzania Burundi Madagascar Rwanda Togo (BCEAO) Congo, Dem. Rep. of Malawi Senegal (BCEAO) Uganda Cote d’Ivoire (BCEAO) Mali (BCEAO) Seychelles Zambia Eritrea Mauritania Sierra Leone Zimbabwe Ethiopia Mauritius 7. EURO AREA1 Austria France Italy Portugal Belgium Germany Luxembourg Slovak Republic Cyprus Greece Malta Slovenia Finland Ireland Netherlands Spain 1 As of December 2010 8. OTHER EU MEMBERS Bulgaria Estonia Lithuania Sweden Czech Republic Hungary Poland United Kingdom Denmark Latvia Romania 9. OTHER DEVELOPED COUNTRIES (ODC) Australia Japan Norway Switzerland Canada Korea, Rep. of San Marino Taiwan (China) Hong Kong (China) Macao (China) Singapore United States Israel New Zealand Global Survey 2010 177 ANNEX IV: CLASSIFICATION OF COUNTRIES ACCORDING TO POPULATION SIZE 1. MORE THAN 30 MILLION INHABITANTS Argentina Germany Mexico Sudan Brazil India Morocco Tanzania Canada Indonesia Nigeria Thailand China Iran, Islamic Rep. of Pakistan Turkey Colombia Iraq Philippines Uganda Congo, Dem. Rep. of Italy Poland Ukraine Egypt, Arab Rep. of Japan Russian Federation United Kingdom Ethiopia Kenya South Africa United States France Korea, Rep. of Spain 2. BETWEEN 5 MILLION AND 30 MILLION INHABITANTS Angola Dominican Republic Kyrgyz Republic Saudi Arabia Australia Ecuador Libya Senegal (BCEAO) Austria El Salvador Madagascar Serbia Azerbaijan Eritrea Malawi Sierra Leone Belgium Finland Malaysia Slovak Republic Benin (BCEAO) Ghana Mali (BCEAO) Sri Lanka Bolivia Greece Mozambique Sweden Bulgaria Guatemala Nepal Switzerland Burkina Faso (BCEAO) Honduras Netherlands Taiwan (China) Burundi Hong Kong (China) Niger (BCEAO) Togo (BCEAO) Cambodia Hungary Peru Venezuela, R. B. Chile Israel Portugal Yemen, Republic of Cote d’Ivoire (BCEAO) Jordan Romania Zambia Czech Republic Kazakhstan Rwanda Zimbabwe Denmark 3. LESS THAN 5 MILLION INHABITANTS Albania Georgia Macedonia FYR San Marino Armenia Guinea Bissau (BCEAO) Malta Seychelles Bahamas, The Ireland Mauritania Singapore Belize Jamaica Mauritius Slovenia Bosnia and Herzegovina Kosovo Moldova Swaziland Botswana Kuwait Mongolia Timor-Leste Cayman Islands Latvia Montenegro Trinidad and Tobago Costa Rica Lebanon Namibia United Arab Emirates Croatia Lesotho New Zealand Uruguay Cyprus Lithuania Norway Vanuatu Estonia Luxembourg Oman West Bank and Gaza Fiji Macao (China) Samoa Annex V 178 PAYMENT SYSTEMS WORLDWIDE ANNEX V: CHRONOLOGICAL LIST OF COUNTRY RESPONSES TO THE GLOBAL PAYMENT SYSTEMS SURVEY JULY 2010 Cambodia Dominican Republic AUGUST 2010 Armenia Estonia Macedonia FYR Seychelles Australia Ethiopia Malta Singapore Austria Finland Mexico Slovenia Azerbaijan Georgia Moldova South Africa Brazil Germany Mozambique Spain Bulgaria Guatemala Netherlands United Arab Emirates Colombia Jordan Poland West Bank and Gaza Croatia Korea, Rep. of Portugal Zambia Cyprus Latvia Samoa Zimbabwe Czech Republic Lithuania San Marino SEPTEMBER 2010 Argentina Iran, Islamic Rep. of Montenegro Sweden Bolivia Iraq Namibia Switzerland Burundi Israel New Zealand Taiwan (China) Canada Japan Pakistan Thailand Chile Kazakhstan Peru Trinidad and Tobago Congo, Dem. Rep. of Kosovo Romania Turkey Ecuador Kyrgyz Republic Russian Federation Uganda El Salvador Lesotho Rwanda United Kingdom Ghana Madagascar Saudi Arabia Uruguay Greece Malawi Serbia United States Hong Kong (China) Mauritius Sierra Leone Yemen, Republic of Hungary OCTOBER 2010 Belgium Honduras Lebanon Philippines Belize India Libya Slovak Republic Botswana Ireland Luxembourg Swaziland Costa Rica Italy Nepal Timor-Leste Denmark Jamaica Norway Vanuatu France Kuwait Oman Global Survey 2010 179 NOVEMBER 2010 Albania Fiji Macao (China) Tanzania Angola Indonesia Sri Lanka Ukraine Bosnia and Herzegovina Kenya Sudan Venezuela, R.B. Cayman Islands DECEMBER 2010 Bahamas, The Mauritania BCEAO Mongolia China Morocco Egypt, Arab Rep. of Nigeria Malaysia MARCH 2011 Eritrea Annex I Annex III