96463 FINANCIAL INFRASTRUCTURE SERIES Payment systems policy and research GENERAL GUIDELINES FOR THE DEVELOPMENT OF GOVERNMENT PAYMENT PROG R A MS July 2012 FINANCIAL INFRASTRUCTURE SERIES Payment systems policy and research GENERAL GUIDELINES FOR THE DEVELOPMENT OF GOVERNMENT PAYMENT PROG R A MS July 2012 ©2012 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. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office 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 importance of government payments as a key component of the national payments system has been much dis- cussed in recent years. Yet, few reports have been devoted specifically to developing a holistic model for efficient gov- ernment payments with special attention to the “payment system aspects” of government payments. Understanding these payment system aspects is crucial to understanding government payments and to ensuring that these payments are safe and efficient. This report provides an analysis of the payment system aspects of government payments, and it sets forth general guidelines designed to help countries develop and improve their government payment programs. The report has been prepared by the World Bank in consultation with the International Advisory Group for Govern- ment Payments (IAG). The IAG includes public-sector institutions from various countries with relevant experience in implementing government payment programs. The IAG also includes representation from certain non-government organizations and payment service providers that are actively involved in developing and implementing various types of government payment solutions in different country environments. Through dialogue and the sharing of various country experiences in implementing such programs, the contributions of IAG members in the drafting process of the general guidelines have been significant, including several specific contributions for the annexes presenting indi- vidual country cases. I would like to thank the Financial Infrastructure Service Line (World Bank’s Financial Inclusion Global Practice) led by Massimo Cirasino, and Hemant Baijal, Jose Antonio Garcia, Rahul Kitchlu, as well as each of the individual mem- bers of the IAG for their effort in putting together the general guidelines. Those ideas will support governments, along with the payments community in general, in designing and implementing their government payment programs. In a second phase, the World Bank and the IAG will work on developing additional material and other contributions to further assist countries with the practical implementation of the general guidelines. Those forthcoming insights are sure to be of great interest to those who monitor this important element of the international economy. Janamitra Devan Vice President & Head of Network Financial and Private Sector Development Acknowledgments This document has been developed by the Financial Infrastructure Service Line of the World Bank’s Financial Inclusion Global Practice, in consultation with the International Advisory Group for Government Payments (IAG). The primary authors of the document are Massimo Cirasino (World Bank and Chair of IAG), Hemant Baijal, Jose Antonio Garcia and Rahul Kitchlu (World Bank and IAG Secretariat). The document includes ideas and contributions from various members of the IAG, and has been developed over the course of a year with the inaugural IAG technical meeting held in Washington, DC in December 2010. Since then, the IAG met several times to conduct detailed technical review of the document: Rio de Janeiro (March 2011), Rome (June 2011), and Cancun (September 2011). The IAG Chair and the Secretariat would like to thank the following institutions for their specific contributions to the document: Committee on Payment and Settlement Systems of the Bank for International Settlements, Consulta- tive Group to Assist the Poor, International Monetary Fund, public sector authorities from Azerbaijan, Brazil, Italy, Mexico, the Philippines, South Africa, the Russian Federation, Saudi Arabia, Turkey, and the United States, as well as certain private sector payments organizations, including Citigroup, MasterCard and Visa for case studies and their comments to several draft versions of the report. TABLE OF CONTENTS List of Abbreviations V 1. INTRODUCTION AND EXECUTIVE SUMMARY 1 2. GOVERNMENT PAYMENT PROGRAMS: BRIEF OVERVIEW AND KEY CONSIDERATIONS 7 2.1 The Importance of Government Payments, 7 2.2 Main Features of Government Payments, 8 2.2.1 Key Types of Government Payments, 8 2.2.2 Processing of Government Payments, 9 2.2.3 Payment Instruments and Systems Used in Government Payment Programs, 11 2.3 Key Issues Concerning Government Payment Programs, 14 2.3.1 Governance, Safety and Efficiency, 14 2.3.2 Legal and Regulatory Environment, 17 2.3.3 Payment System Infrastructure, 19 2.3.4 Cooperation and Partnerships to Leverage the Impact of Government Payment Programs, 22 3. THE GENERAL GUIDELINES 25 3.1 Public Policy Goals, 25 3.2 The General Guidelines, 25 3.2.1 Governance, Safety and Efficiency, 25 3.2.2 Legal and Regulatory Environment, 32 3.2.3 Payment System Infrastructure, 34 3.2.4 Cooperation and Partnerships to Leverage the Impact of Government Payment Programs, 36 3.3 Implementing the General Guidelines, 37 Annex A: Case Study – A Comprehensive Approach to Reforming Government Payments: The Case of Italy, 39 Annex B: The Treasury Single Account: Country Examples, 40 Annex C: Select Country Cases of Adoption of Electronic Payments as Part of Government Payment Programs, 43 Annex D: Case Studies on Managing Risks in Government Payment Programs, 54 Annex E: Case Study – Improving Financial Inclusion through Government Payment Programs: The Case of South Africa, 56 III IV GENERAL GUIDELINES Annex F: An Analytical Framework for the Treasury Function, 57 Annex G: Government Payments Questionnaire, 59 Annex H: The 2011 GEAR Study, 63 Annex I: Select Bibliography, 65 Annex J: Glossary, 67 Annex K: Members of the International Advisory Group, 71 Boxes, Figures, Tables and Charts Box 1: The General Guidelines, 3 Box 2: The 2010 World Bank Global Payment Systems Survey, 13 Box 3: The Treasury Single Account, 15 Box 4: Payment Infrastructure Services, 20 Box 5: Public Policy Goals for Government Payment Programs, 26 Box 6: The IMF Code of Good Practices on Fiscal Transparency, 27 Box 7: A Basic Legal Framework for the National Payments System, 31 Box 8: Indicators used in the 2011 GEAR Study, 64 Figure 1: Types of Government Payments, 8 Figure 2: The Central Treasury Model and the TSA, 10 Table 1: Advantages and Disadvantages of the Various Forms of Payment, 16 Chart 1: The “Value Chain” approach for Government Payments, 58 LIST OF ABBREVIATIONS ACH Automated clearing house GDP Gross domestic product ATM Automated teller machine IAG International Advisory Group for B2G Business to government payment Government Payments CCT Conditional cash transfer IFMIS Integrated financial management CoA Chart of Accounts information system CPSS Committee on Payment and IMF International Monetary Fund Settlement Systems P2G Person to government payment EBT Electronic benefit transfer POS Point of sale EU European Union PSDG Payment Systems Development Group G2G Government to government (World Bank) payment (intra-governmental) RTGS Real time gross settlement STP Straight-through processing G2P Government to person payment TSA Treasury single account G2B Government to business payment V SECTION I INTRODUCTION AND Executive Summary 1. Governments, regardless of their country’s stage of 4. The General Guidelines have been developed by economic development, make payments to, and collect the World Bank’s Payment Systems Development payments from individuals and businesses. Financial Group (PSDG) in consultation with the International resources are also transferred between the various gov- Advisory Group for Government Payments (IAG). ernment agencies. These flows cover a wide range of The IAG included representation from a variety of economic sectors and activities, and in most cases the country government authorities with relevant overall amount of such flows is significant, for example experience in implementing government payment in terms of the gross domestic product (GDP). programs. It also included representation from certain non-government organizations and several payment 2. Improvements in government payment programs service providers that are actively involved in devel- that lead to higher levels of efficiency, safety and trans- oping and implementing various types of government parency can have a significant impact in the economy payment solutions in different country environments. as a whole. Moreover, due to their scale and nature, government payments programs can also become 5. In a second phase, the World Bank and the IAG will an effective tool in the pursuit of other public policy work on developing additional material and other con- objectives, such as the modernization of the national tributions to further assist countries with the practical payments system or to promote financial inclusion for implementation of the General Guidelines. certain population segments. 3. Despite the relative importance of government pay- ment programs, there is no systematic set of references to guide governments and other relevant stakeholders in assessing the challenges associated with the effec- tive development and day-to-day operation of these programs. This report aims at filling this gap by pre- senting a set of comprehensive Guidelines that can assist governments and other stakeholders in devel- oping and operating safe and efficient government payment programs. 1 2 GENERAL GUIDELINES sues associated with operating government payment 1.1 Key Considerations programs; ii) the legal and regulatory environment concerning Government supporting these programs; iii) the availability of a Payment Programs, payment system infrastructure to process the associ- Public Policy Goals and ated payment transactions; and, iv) leveraging on gov- the General Guidelines ernment payment programs for other developmental objectives. 6. For the purposes of this report, government pay- ment programs include both government collections/ 10. Operators of government payment programs all receipts and government payments or disbursements. around the world are concerned that payments made by/to the government are done safely, and that govern- 7. The World Bank with support from IAG members ment money is managed transparently and efficiently. have defined the following public policy goals with General Guidelines 1-4 address those safety, efficiency regard to government payment programs: Payments and transparency issues that, to a reasonable degree, and collections made as part of existing or new gov- are under the direct control of program operators, ernment payment programs should support the sound, which are generally the national treasuries. These set efficient and transparent management of public finan- of Guidelines emphasize the following four key as- cial resources. Government payment programs should pects: i) ensuring the programs have appropriate gov- therefore be safe, reliable, and cost-effective. In addition, ernance arrangements and risk management practices; efforts to modernize government payment programs ii) devoting sufficient time and effort to reviewing and should be leveraged to accelerate the development of the streamlining treasury processes, followed by the auto- national payments system more broadly, and to promote mation of the revised processes; iii) usage of electronic financial inclusion. payments to improve cost-effectiveness, as well as to enhance the potential developmental impact of gov- 8. A total of 10 General Guidelines have been devel- ernment payment programs; and iv) having in place oped taking as a basis for the analysis the experience mechanisms to promote the continuous development and evidence related to a variety of government pay- of the programs and to ensure a timely implementa- ment program reforms from different parts of the tion of improvement measures that may have been world.1 Each of the General Guidelines underscores identified. one or more critical aspects associated with the suc- cessful modernization and effective day-to-day opera- 11. General Guidelines 5-8 relate to other aspects that tion of government payment programs (see Box 1 for a can also have an impact on the overall safety and effi- list of the Guidelines and accompanying descriptions). ciency of government payment programs in any given country. The importance of an appropriate legal and 9. To facilitate the analysis of the various issues and regulatory environment underpinning government considerations underlying government payment pro- payment programs is considered in Guidelines 5 and grams, the General Guidelines and the corresponding 6. Guideline 5 addresses those legal and regulatory analysis have been grouped around the following four aspects that are specific to government payment pro- broad topics: i) governance, safety and efficiency is- grams, emphasizing the need that the associated laws, 1 Including experience from IAG members and the World Bank’s own field regulations and norms provide clarity and certainty to work experience. all parties involved. Guideline 6 refers to those legal GENERAL GUIDELINES 3 Box 1: The General Guidelines The General Guidelines aim at the following public policy involved, and that promote effectiveness and transparency in the goals for government payment programs: Payments and execution of programs should be enacted/approved. collections made as part of existing or new government payment programs should support the sound, efficient and Guideline 6. Laws and regulations on payment instruments transparent management of public financial resources. and systems, competition and consumer protection can also Government payment programs should therefore be safe, have an important bearing on government payment pro- reliable, and cost-effective. In addition, efforts to modern- grams: the legal basis should support sound and fair practices ize government payment programs should be leveraged to in the market place, and be flexible enough to accommodate in- accelerate the development of the national payments system novations. more broadly, and to promote financial inclusion. C. Payment Systems Infrastructure A. Governance, Safety and Efficiency Guideline 7. An appropriate payments infrastructure should Guideline 1. Ensure proper program governance and risk be in place: the potential to obtain substantial benefits from mi- management: governance arrangements should ensure ac- grating government expenditures and collections to electronic countability, transparency, and effectiveness in managing the payments relies on there being the required payments infra- risks associated with government payment programs. structures to process such payments safely, efficiently and at a reasonable cost. Guideline 2. Review and streamline treasury processes, then work on their automation: the treasury should devote extensive Guideline 8. Maximize the potential of the available infra- efforts to identifying all relevant needs with regard to improved structures through interoperability and widespread usage: safety, efficiency and transparency. payment service providers being able to channel their payment operations through any of the key mainstream infrastructures Guideline 3. Take full advantage of electronic payment meth- promotes efficiency, network expansion, and a level playing field ods: the extensive use of electronic payments in government for all players. payment programs can reduce costs and improve transparency and traceability. D. Cooperation and Partnerships to Leverage Government Payment Programs Guideline 4. Create appropriate organizational arrangements to foster the continuous development of government pay- General Guideline 9. Adopt a strategic approach to the de- ment programs: the national treasury/ministry of finance should velopment of government payment programs: the reforming consider engaging in collaborative schemes with the central of government payment programs has the potential to trigger bank and other stakeholders to identify additional improvement the development of a robust payments infrastructure, which in opportunities for these programs and, eventually, facilitate their turn will support the safe and efficient processing of govern- implementation. ment payments. B. Legal and Regulatory General Guideline 10. Leverage on government payment programs to promote financial inclusion: the large volume of Guideline 5. An appropriate legal framework with specific payments issued by governments, as well as the nature of some applicability to government payment programs can further specific programs like social spending programs, represents underpin their safe and efficient operation: laws and/or regu- an opportunity to promote or facilitate financial inclusion on a lations that provide clarity and certainty to the various parties large scale. Introduction and Executive Summary 4 GENERAL GUIDELINES and regulatory aspects supporting the soundness of not discussed herewith and are taken as given.2 At the payment instruments and systems, competition in the same time, the report refers more broadly to govern- marketplace and consumer protection issues. ment payment programs, recognizing the fact that the execution of the actual payment transaction is only 12. Guidelines 7 and 8 highlight the importance of a one of the processes involved in the overall operation modern, comprehensive and robust national payments of government collections and disbursements. system for government payment programs. Guideline 7 sets out that an appropriate payments infrastructure 15. Even though not all of the General Guidelines may should be in place so that the full potential of electron- be equally relevant to all countries in all specific situ- ic payments for enhanced safety and efficiency may be ations, they need to be considered together as a uni- realized. Guideline 8 on the other hand stresses the im- fied set. Although a development initiative may focus portance that such an infrastructure be not only avail- on a certain specific aspect, it will need to reflect some able, but that it be used extensively so that as many awareness of the other aspects and dimensions of gov- payment service providers, taxpayers and recipients of ernment payment programs that may require comple- government payments can benefit from it. mentary reform at some future point. 13. Guidelines 9 and 10 refer to the potential positive 16. While the General Guidelines are intended to have externalities of government payment programs, stress- universal applicability, they are not prescriptive; rather, ing that authorities can and should take advantage of they aim to provide broad-based guidance on the is- the same to address broader developmental goals. In sues that the World Bank considers to be of high rel- this regard, Guideline 9 draws on the experience of evance for developing safe, efficient and transparent many countries where the modernization of govern- government payment programs. ment payment programs became an opportunity to undertake a major reform of the national payments 17. The World Bank therefore believes that the General system. Finally, Guideline 10 recognizes that govern- Guidelines can be used by governments, policy mak- ment payment programs, given their overall scale and ers and other stakeholders as a reference point when the fact that some programs specifically target popula- examining the status quo of government payment pro- tion segments that typically lack access to most, if not grams in their jurisdictions and the need for reforms, all, modern financial services, can be leveraged to pro- both for improving the safety and efficiency of such mote financial inclusion. programs per se, and in order to take advantage of the potential of government payments to facilitate the ac- complishment of other public policies or developmen- 1.2 Scope of the General tal objectives. Guidelines 14. This report focuses on the processes associated with the operation of government collections and gov- ernment disbursements; therefore, issues such as tax policies, tax administration, budget allocations or the 2 Furthermore, international government payments (e.g. international dona- criteria for determining the population that is eligible tions, foreign debt servicing, other cross-border funds transfers, etc.) are not for certain government benefits, among others, are discussed in this report. GENERAL GUIDELINES 5 1.3 Structure of the Report 18. Section 2 provides an overview of government pay- ment programs. First, the key types of government payments are described, followed by a discussion on how these programs work in practice under different scenarios. Then, the key considerations underlying the execution of government payment programs are dis- cussed. Section 3 outlines the General Guidelines and provides a detailed discussion on the key areas for ac- tion based on the collective experience of the World Bank and IAG members. Finally, the report includes a set of annexes with detailed country-specific cases and experiences and other relevant analytical and meth- odological materials, and a glossary of terms used throughout in this report.3 3 Annexes, in particular those presenting specific country cases are not ex- haustive. Rather, these annexes present several contributions made for analysis purposes in the overall context of the preparation of the report. Introduction and Executive Summary SECTION II GOVERNMENT PAYMENT PROGRAMS: BRIEF OVERVIEW AND KEY CONSIDERATIONS 2.1 The Importance of Government Payments4 19. Government payments are important in both de- use of the most efficient payment methods and systems veloped as well as in developing economies. The rela- is likely to reduce transaction costs not only for the tive importance of government payments is naturally government, the recipients of government payments correlated to the size and influence of the government and taxpayers, but for all users of electronic payment in the overall economy, which is usually measured in services. terms of government expenditures as a share of the GDP, and/or tax collections as a share of the GDP. In 22. Improvements in the way government payments the majority of cases such ratios range between 15 per- are made also have the potential to induce relevant cent to about 45 percent of the GDP. changes in other areas of the economy. For example, the receipt of electronic pension and/or social benefit payments may be the first introduction to modern pay- 20. The scale of government payments in most coun- ment instruments for an important share of a country’s tries means that improvements in the way govern- population (namely, the unbanked or under-banked). ment payments are processed (e.g. posted, disbursed/ The successful adoption of such electronic payment in- collected, registered) can have a significant positive struments may lead to the use of electronic payments impact in the overall economy, as well as significant in many other commercial transactions. Moreover, a savings for the government itself as a result of reduced carefully planned reform of government payment pro- transaction costs. grams (or the lack thereof) can have far reaching con- sequences on the modernization of the national pay- 21. When a country’s electronic payment systems are ments system. widely used for the disbursement/collection of govern- ment payments, those government payments typically represent a significant portion of total payment trans- actions/volumes processed in such systems. A growing 4 For the purposes of this report, government payment programs refer to both government collections and government disbursements. 7 8 GENERAL GUIDELINES Figure 1: Types of Government Payments Source: Own elaboration. 2.2 Main Features of 24. Government-to-government (G2G) payments Government Payments5 include intra-governmental transfers from one gov- ernment agency to another for budgetary or extra- 2.2.1 Key Types of Government Payments budgetary purposes. To a large extent, the day-to- day operations of the government and overall public 23. Government payments can be classified un- finance management are based on G2G payments. der three main types: i) intra-government trans- Compared to other types of government payments, fers or government-to-government payments; ii) an average G2G payment is normally large in terms of government expenditures, which consist of pay- value, while the number of transactions made is rela- ments from the government to persons or to busi- tively small. nesses; and, iii) government collections, which are payments made by persons or businesses to the gov- 25. Government-to-person (G2P) payments are typi- ernment. This classification is illustrated in Figure 1. cally associated with social benefits (e.g. incentives or subsidies), social security benefits, government employee salaries, pensions, and tax refunds, among 5 As specified in the introductory section, this report focuses on the processes associated with government collections and government disbursements. More- others. G2P payments are normally characterized over, the associated payment transaction is identified as only one of the processes by a very large number of transactions of relatively involved in the overall operation of government collections and disbursements, small value. for which reason the broader concept of “government payment program” is de- veloped throughout this report. GENERAL GUIDELINES 9 26. Government-to-business (G2B) payments include ment agencies and other spending units will then start payments related to the procurement of goods and ser- committing and spending the resources assigned to vices, tax refunds, and disbursement of loans or busi- them. ness assistance. G2B payments are characterized by a large number of transactions. The average value of G2B 30. Government treasury offices/national treasuries payments varies widely, ranging from large-value pay- (hereinafter “treasuries”) are normally responsible for ments associated with large procurement contracts to managing the processes associated with the execution small-value payments to local businesses for ordinary of the payments to/from the government. The way in operational expenses, for example urgent repair costs. which the government payments are organized and ex- ecuted has been evolving over time and varies substan- 27. Person-to-government (P2G) and business-to- tially across countries.7 government (B2G) payments include payments made by consumers and businesses to government and/or 31. With regard to tax collections and other govern- public sector organizations in the form of tax pay- ment receipts, in some countries the associated P2G ments and payments for obtaining services from these and B2G payments can only be made directly with the agencies (licenses, permits, etc.). Similar to G2P pay- tax authority. In others, treasuries have adopted pro- ments, P2G payments tend to be of a small-value na- grams by which the commercial bank network and/ ture, and are usually characterized by a very large of or other agents can also be used for this purpose. The number of transactions. Likewise, B2G are a mirror of money collected is normally centralized with the gov- G2B payments with regard to average size and trans- ernment’s financial agent, typically the central bank,8 actional volumes (i.e. varying size and large number which holds accounts for the treasury and in some cas- of payments). es also for the relevant government agency or agencies responsible for tax collections. 2.2.2 Processing of Government Payments 32. On the disbursements side, in some cases the trea- 28. In essence, a government’s financial planning is not sury transfers the budget resources allocated to gov- different from that of other economic units. Expenses ernment agencies to accounts at commercial banks.9 are planned on the basis of available resources, which Government agencies then make a direct request to stem from the payment of taxes, duties and other re- their commercial bank to make the corresponding ceipts, as well as inflows from debt undertakings. This cash/money available to the beneficiary. In other cas- planning function is typically vested in a country’s es, although the spending agencies may transact pay- ministry of finance. ments directly through commercial banks, the trea- sury maintains central control of cash, sweeping idle 29. The ministry of finance assigns a share of the bud- balances from spending agencies’ accounts at commer- get to the various government agencies on the basis of an approved economic program, typically on a yearly 7 Most national treasuries constantly upgrade their payment programs to deal with emerging needs (e.g. a new program), long-standing needs such as improved basis.6 Based on confirmed budget availability, govern- controls and higher efficiency, and in some cases also to embrace broader eco- nomic objectives. 6 Budget is usually assigned on the basis of a so-called “fiscal year”, which does 8 In several cases, a state-owned commercial bank or even a private commercial not necessarily coincide with the calendar year. It should also be noted that initial bank fulfils this duty. budget allocations are normally subject to upward or downward adjustments 9 In some countries, government agencies hold accounts directly with the cen- throughout the fiscal year. tral bank, where they receive the budget resources allocated to them. Government Payment Programs 10 GENERAL GUIDELINES Figure 2: The Central Treasury Model and the TSA1 Source: Own elaboration. 1 This model assumes that the TSA is held at the central bank. cial banks and consolidating the government’s cash related to the national government, while in others it position at the end of each day. Yet in other cases, the may also comprise one or more levels of sub-national treasury controls all financial transactions directly and governments (e.g. state, provincial and/or county or makes all payments on behalf of the spending agencies. city governments).10 33. In this last regard, the prevailing trend worldwide is precisely to increase the centralization of the pro- 10 The degree of autonomy given by a country’s Constitution and other laws cesses related to government payments, consistent to sub-national governments normally limits the controls that the treasury may with the so-called centralized treasury system mod- exercise over the spending of resources by such government levels. Given the variety of political arrangements on this matter, the issue of whether sub-national el. In some cases the scope of a centralized treasury governments should be integrated or not into the central treasury system is not system is limited to the inflows and outflows directly discussed in this report. GENERAL GUIDELINES 11 34. A centralized treasury system rests on two key 2.2.3 Payment Instruments and Systems Used pillars: in Government Payment Programs • A bank account where all incoming govern G2P and G2B payments ment funds can be concentrated and from which all payments can be disbursed. 36. Traditionally, G2P payments were disbursed This so-called treasury single account through the use of cash, cheques or other paper-based payments. Over the last 10-15 years many govern- (TSA) is normally held at the central bank. ments have developed programs involving the use of electronic payments. In this case, for example a G2P • An information system or systems to provide payment may consist of an electronic transfer to a de- the treasury with a unified view of the posit account held at a commercial bank or another government’s cash position at any given financial institution. The beneficiary can then access moment, as well to provide it with the the funds in that account through an automated teller necessary information to process all machine (ATM) card, a debit card or other means. In payment requests. Systems of this kind are other cases, the G2P payment consists of a value trans- often known as integrated financial fer to a prepaid/stored-value card that works as a vir- management information systems (IFMIS). tual account (i.e. a traditional bank account or a credit account to hold the underlying funds or credit is gen- 35. Through their IFMIS and the TSA, some treasuries erally not necessary).12 Those cards can then be used at have been able to fully automate the processes related point-of-sale (POS) terminals.13 to government payments. For example, payment re- quests made by government spending units are veri- 37. With regard to G2B payments, a large majority of fied, recorded, accounted for and released automati- governments use cheques or electronic funds transfers cally. A payment order is then automatically posted to settle large-value payments. Card products are in- into a payments system to transfer the corresponding creasingly being used for low-value business expenses funds to the beneficiary. A typical centralized treasury (including supplies expenditures, maintenance and repair costs, and other operational expenses). Card system in which the TSA is held at the central bank is products can be prepaid/stored-value cards (e.g. most depicted in Figure 2.11 gasoline cards) or cards that can be used within a certain spending limit and balances are paid at specified cut-off dates (e.g. corporate travel cards, procurement cards). 12 A stored-value card is a prepaid card in which the record of funds can be increased as well as decreased. This feature is now common for most types of prepaid cards. 13 In some cases, these cards may only be used at some designated merchants or 11 The accounting structure plays a crucial and basic role in designing an IFMIS locations. For example, for some types of subsidies and so-called conditional cash - and its linkages with payment systems for effective reconciliation and accounts transfers the beneficiary may only use the corresponding funds for specific items management. A multidimensional and flexible chart of accounts (CoA) accom- such as food, sanitary or health services. In other cases, while the government modates new demands from various stakeholders, whereas a rigid and linear CoA program per se does not restrict the uses of the transferred funds, the number and makes it difficult to reform public financial management systems. type of merchants that accept such cards as a means of payment might be limited. Government Payment Programs 12 GENERAL GUIDELINES 38. In some cases, government procurement processes system and overall technological innovations enabling have been migrated to on-line platforms which, among commercial banks to provide the required services to other features, allow the associated G2B payments to the government at a reasonable cost and with appro- be made electronically, normally through electronic priate service levels (e.g. quick transfer of collections funds transfers to the account of the beneficiary, card- to the TSA).15 based purchases or both. Perhaps the most significant novelty of this type of solutions strives in that they usu- 42. The use of commercial banks as collecting agents ally integrate additional payment, data and reporting has prompted the use of modern payment instru- solutions that reduce the steps required for payment ments for both P2G and B2G payments. Taxpayers of processing and reconciliation, and ease control and all kinds now regularly use card payments, electronic audit processes. credit transfers or electronic debits, among others, to discharge their tax obligations or to pay for a variety 39. The actual G2P or G2B funds disbursement is nor- of government services. Moreover, in some countries mally made through an interbank payments system commercial banks have developed additional chan- which allows money to be moved electronically from nels, such as internet banking or mobile phone bank- the account(s) of the treasury to the account of the ing, for their customers to initiate these payments – as beneficiary.14 If prepaid/stored-value payment prod- well as other types of payments for many other pur- ucts are used, it is actually the account of the issuer of poses - conveniently. those specific products that is credited by the treasury so that the issuer is able to fund the purchases and/ 43. In an increasing number of countries, P2G and or withdrawals made by the beneficiaries with its pay- B2G can now also be made on-line at the collecting ment products. agency’s payments gateway. From a payment systems perspective, the payments made through schemes like 40. In some cases, interbank payment systems are not these actually end up as a regular electronic transfer or used for the disbursement of G2P or G2B payments. card-type payments. Nevertheless, these schemes add The most common example is when the treasury issues value by integrating in a single platform the underly- cheques or payment orders that can only be cashed di- ing information that is necessary for the payment to rectly with the central bank or another banking insti- be properly made, with the capability to perform the tution where the government regularly holds its funds. actual payment transaction, thereby providing taxpay- ers a convenient (i.e. single-stop) solution to discharge P2G and B2G payments their obligations. 41. At the end of the 20th century, it was a common 44. Once a commercial bank acting as a collecting scenario in many countries for taxes, duties and other agent receives the actual funds, either by debiting ac- payments to the government to be paid only in cash at counts of its own customers or after the payments the premises of the agency responsible for tax collec- drawn on other banks are cleared and settled through tions. In most cases, the commercial banking network an interbank payments system, it will have to remit was not used on a large scale for this purpose until the 1990s. To a large extent this was possible by payment 15 In some countries, non-bank agents are also used as government collecting agents, especially in isolated communities. Typical non-bank collecting agents are 14 See section 2.3.3 for a detailed discussion on payment infrastructures and therefore those with extensive physical networks such as the Post Office and some interbank payment systems. convenience stores. For the most part these agents only accept payments in cash. GENERAL GUIDELINES 13 Box 2: The 2010 World Bank Global Payment Systems Survey In 2010, the World Bank’s PSDG launched a new version of its global payment systems survey. Nearly 130 countries responded the specific section on government payments. Aggregate results on the payment method(s) used for the various types of government payments are shown below. The complete outcomes of the Global Survey are available at: www.worldbank.org/paymentsystems. Type of Payment Cash Paper-based Electronic Government to Person (G2P) Public sector salaries 11% 24% 76% Pensions and transfer payments 14% 26% 67% Cash transfers and social benefits 22% 31% 52% G2P averages 16% 27% 65% Person to Government (P2G) Taxes 40% 48% 44% Utility payments 55% 33% 42% Payment for services, etc. 54% 35% 34% P2G averages 50% 39% 40% Government to Business (G2B) Procurement of goods and services 2% 50% 61% Tax refunds 2% 49% 50% G2B averages 2% 49% 56% Business to Government (B2G) Taxes 11% 58% 57% Utilities 16% 53% 50% Benefits transfers 9% 52% 46% B2G averages 12% 55% 51% Global averages 20% 42% 53% Note: Results do not add-up to 100% as more than one payment instrument could be indicated for each type of government payment. Government Payment Programs 14 GENERAL GUIDELINES such funds to the government’s financial agent. The lat- iv) Cooperation and partnerships to leverage ter transaction is also performed through an interbank the impact of these programs. payments system. 2.3.1 Governance, Safety and Efficiency 45. Box 2 shows the main outcomes with regard to the broad type of payment method used, of a recent World 48. A key concern for treasuries all around the Bank survey that covered government payments as world is that payments made by/to the govern- one of the elements of the overall national payments ment be done safely, meaning that there is a high system. degree of certainty that the right individual/firm is being paid – or that the individual/firm making a 46. The World Bank survey showed that, at the global payment to the government is properly recog- level, among the various types of government pay- nized to credit his payment correctly-, that the ments G2P payments had the highest rate of use of amount intended to be paid is the one that is electronic payment methods. In particular, payment of actually paid and received, and that the corresponding salaries to public sector employees included electronic funds are received and properly recorded on a timely payment methods in over 75 percent of the responding manner. countries. The corresponding figure for pensions and social benefit was 67 percent and 52 percent, respec- 49. Treasuries also wish to ensure that all government tively. Conversely, P2G had the lowest rate of use of money is efficiently managed so as to ensure the smooth electronic payment methods. With regard to G2B and flow of government operations. Moreover, govern- B2G payments, while cash is seldom used, cheques and ments are concerned that such objectives be achieved other paper-based payments are still used in about half at the lowest possible cost in order to maximize the net of all responding countries. Many of the responding impact of government spending programs. countries reported on-going efforts to adopt electronic payment methods. 50. The inability to guarantee proper safety and integ- rity for the various payment programs is likely to result 2.3 Key Issues Concerning in a lack of trust in governments from taxpayers and Government Payment recipients/beneficiaries. Apart from public criticism Programs and eventually costly litigation, in the extreme such distrust may result in lower revenue levels, and/or gov- 47. The key considerations concerning government ernments being unable to demonstrate convincingly payment programs can be broadly grouped around the the impact of their spending programs. following topics: 51. In addition, the inefficient handling of govern- i) Safety, efficiency and transparency ment payment programs typically results in idle cash considerations associated to the operation balances, delays in the disbursement of payments and of government payment programs; other transfers to beneficiaries, disruptions in govern- ii) The legal and regulatory environment ment operations, short-term indebtedness to cover un- supporting these programs; expected funding needs, or unjustified personnel and iii) Payment system infrastructure issues; and, other overhead expenses. GENERAL GUIDELINES 15 Box 3: The Treasury Single Account A treasury single account (TSA) is either a single bank account or a set of linked accounts through which the government transacts all its receipts and payments. This unified structure also allows the government to have a consolidated view of its available cash resources. The TSA is based on the principle of unity of cash and the unity of the treasury. The principle of unity follows from the fungible nature of all cash, irrespective of its end use. While it is necessary to distinguish individual cash transactions for control and reporting purposes, this purpose is achieved through the accounting system and not by holding/depositing such cash transactions in specific bank ac- counts. This enables the treasury to delink management of cash from control at a transaction level. The primary objective of a TSA is to ensure effective aggregate control over government cash balances. However, there are other im- portant benefits. The TSA can significantly reduce transaction costs by improving the ability of the government to control the delay in the remittance of government revenues by collecting agents. Transaction costs are also reduced by disbursing payments from a single account. Moreover, the TSA facilitates reconciliation between banking and accounting data and is a useful tool for the implementation of the monetary policy and for macro-economic forecasting. The real impact of the TSA will depend to a large extent on its coverage. Therefore, it is highly desirable that the TSA covers all central government entities and their transactions, including autonomous government entities, accounts managed by social security funds and other trust funds, extra-budgetary funds, and loans from the multilateral institutions and donor aid resources, among others. In some cases, the TSA has also been extended to include sub-national levels of government. The feasibility of implementing a TSA also depends on the availability of appropriate payment systems to enable a timely consolidation of cash balances, as well as the efficient, flexible and safe disbursement of the resources held at the TSA. Source: Own elaboration based on several IAG member contributions. 52. To some extent these problems derive from trea- TSA is therefore widely considered a pillar in improv- suries not having proper systems in place to enforce ing the safety and efficiency of government payment internal control measures and/or systems to handle the programs. Such a system has proved highly beneficial information associated with financial inflows, outflows for managing public monies, including greater fi- and their interrelations in an integrated and efficient nancial control, improved cash management,16 lower manner so as to facilitate robust decision-making. transaction costs, and increased transparency and ac- Moreover, the dispersal of government funds in mul- countability. At a higher level, a well-functioning cen- tiple bank accounts is costly and complicates controls tralized treasury system also facilitates fiscal and mon- and effective reporting. 16 Through effective, centralized cash management, governments are better 53. A centralized treasury system based on robust fi- able to determine their real short-term financing needs, thereby reducing un- nancial management systems (e.g. an IFMIS) and a necessary borrowing. Government Payment Programs Table 1: Advantages and Disadvantages of the Various Forms of Payment 16 Instrument Payee Payer Advantages Disadvantages Advantages Disadvantages Cash -Instant liquidity -Handling costs and risk of loss -Wide acceptance -Handling costs and risk of loss -Safekeeping costs -Difficult to track usage -Difficult to maintain audit trails Cheques -Funds not guaranteed* -Convenient in certain special circumstances -Might have limited acceptance -Clearing time required (often 1 day (e.g. relative to cash for larger transactions) -Susceptible to fraud or more) -Costly to handle -Highly susceptible to fraud Payment cards -Funds guaranteed if based on on-line authori- -Costs charged by card transaction -Wide acceptance and convenient to use -Certain usage patterns can lead to zation, which enables the sale or transaction to acquirers might be high -Easier reconciliation and reporting high fees be completed immediately -Fraud and security risks can exist if -Easy to track usage -Could lead to over-spending if use is -Easier reconciliation and reporting adequate controls are not in place -Suitable for both face-to-face and online not well controlled (for credit cards) -Dispute resolution process is well-defined payments, as well as for one-time and recurring -Potential fraud and security con- payments cerns** -Value added features might be included by issuers as part of product packaging Electronic -Can control initiation -Clearing time required (often 1 day -Suitable for recurrent fixed-and variable -Often require pre-registration of the debit transfers -Suitable for recurrent payments or more) amount payments*** payee, making it unwieldy for un- -Suitable for on-line payments under some ar- -Low processing costs planned and online purchases rangements (authenticated and pre-approved debit transfers) -Low processing costs -Easy to reconcile (if bank provides details) Electronic credit -Suitable for recurring payments -Clearing time required (often 1 day -Can control initiation transfers -Low processing costs or more) -Suitable for varying amount recurring or one- -Easy to reconcile if banking partner provides -Cannot control initiation off payments payer details -Audit trails and reconciliation is easy -Low processing costs -Several channels available to initiate the pay- ment, like Internet, ATM, mobile phone Prepaid and other -Funds guaranteed (prepaid), enabling comple- -Fraud and security risks can exist if -Convenient to use -Limited acceptance Innovative payment tion of sale/transaction right away adequate controls are not in place -Easy to track usage -Fraud and security concerns products -Reconciliation is easy -Risk of losing pre-funded amount if -Processing costs can be low operator goes bankrupt -Risks related to weaknesses in new technologies Source: Adapted from World Bank, “Developing a Comprehensive National Retail Payments Strategy”, 2012. Notes: * Except for some special arrangements where the availability of funds is verified - and usually those funds are then blocked – in advance of accepting the cheque as a valid payment. GENERAL GUIDELINES ** These potential risks are normally managed actively by the payment networks and card issuers. *** In the case of variable amount payments, as long as the payer is able to reverse the payment if at a later stage he/she decides that the amount of the underlying bill is incorrect. GENERAL GUIDELINES 17 etary policy coordination. Box 3 describes the main ers involved in the government payments value chain. features of a modern TSA.17 For governments, their use is likely to result in lower transaction costs and lower overall overhead expens- 54. A well-functioning centralized treasury system also es, reduced internal fraud and leakage, and improved serves the government’s objective of improved trans- transparency and accountability, among others. Ben- parency for the overall fiscal management system. For efits can also be relevant for recipients of government example, an integrated system of this kind would natu- payments as well as for taxpayers. rally rely on a consistent set of accounting rules, and therefore is more likely to yield effective and reliable 58. The development and implementation of some reports on the overall financial situation of the govern- electronic forms of payment for government pay- ment, both on the revenue as well as the spending side. ments can be costly in contexts where the underly- ing payment instruments and/or infrastructure are 55. The safety and efficiency of government payment poorly developed. Apart from high start-up costs, this programs depends importantly on that the payment is likely to hinder the efficient processing of electronic instruments and means used allow for the prompt, payments or achieving wide acceptance of the associ- safe, convenient and cost-effective transfer of financial ated payment instruments. Sections 2.3.3 and 2.3.4 of value from/to the government. Table 1 depicts the gen- this report respectively describe in further detail the eral features or characteristics of the most commonly importance of developing an appropriate payment sys- used forms of payment from both the side of the payer tem infrastructure and how the modernization of gov- and that of the payee. These features may vary from ernment payment programs can be used to accelerate country to country, especially with regard to costs. the development of such infrastructure. Moreover, some instruments may not be widely avail- able or widely accepted, for example due to the lack of 59. It should also be noted that the development of the necessary infrastructure to process the underlying one-off solutions or highly specific/particular payment payment instruments, like POS terminals. products characterized by limited functionality can be costly over time and render little added benefits to the 56. As shown in Table 1, cash and cheques - and other users of such products. This is regardless of whether paper-based payment methods - though convenient in a national payments infrastructure is in place, as very some special circumstances, lack most of the features specific payment products will normally require de- or characteristics that are desirable from a safety and ploying a special payments infrastructure. efficiency perspective. For example, due to the inten- sive manual procedures involved in their handling, 2.3.2 Legal and Regulatory Environment such instruments entail larger overhead expenses at the treasury and significant operational risks. Moreover, 60. With regard to government payment programs, they are highly susceptible to fraud and leakages due to the adequacy of the legal and regulatory framework the difficulties for appropriate payment reconciliation. comprises two main areas: i) the operational and in- stitutional framework directly associated with or sup- 57. The use of electronic forms of payments, on the porting government payment programs; and, ii) laws, other hand, offers inherent advantages to all stakehold- regulations and other norms supporting payment 17 Annex B also contains a set of country cases on the implementation, upgrade instruments and systems, including competition and and operation of a TSA. consumer protection issues. Government Payment Programs 18 GENERAL GUIDELINES 61. There is no consensus on what constitutes an ad- 64. Given its importance for the efficient execution of equate legal and regulatory framework for the various government payment programs, specific legislation or types of government payment programs. For example, regulation may be needed to ensure that the scope of some countries have developed a very specific and the TSA is wide enough so as to ensure its effective- detailed framework to handle government payments ness. For example, it is desirable that the boundaries and collections. In others, there is a general lack of es- of the TSA (i.e. defining the types of government ac- tablished rules and guidelines, for example on how to counts and other cash resources to be consolidated in disburse/collect funds from/to persons and businesses the TSA) be established in a law or other high-level through the use of commercial banks and other non- regulation to avoid conflicts or ambiguities, especially bank financial entities. Yet in other cases, although a when it comes to special cases for inclusion/exclusion complex set of rules and guidelines may in fact exist, such as extra-budgetary funds, pensions funds, loans the overall framework might not be an integrated one, from donors, or the accounts held by autonomous gov- meaning, for example, that some of the existing rules ernment agencies. Likewise, a specific legal framework may actually be in conflict with others. might be needed to ensure the proper implementation of other critical accounting and budgeting applications 62. In most financial management activities, and more such as an IFMIS. generally whenever money flows are involved, legal risks tend to be greater where there is an absence of 65. As with other economic activities, there is the risk specific laws and/or regulations. This is especially true that the legal framework for government payment in the case of government payment programs, because programs may be too restrictive, hindering innovation of their public sector nature. For example, absence of a and potential efficiency and other gains. For example, sound guiding framework, or its inadequateness there- some laws or regulations may require that only certain of, may result in an unnecessary multiplicity or lack of payment instruments be used for certain programs or standardization of collection/payment methods, inad- for transactions below or above a certain threshold. In equate transparency on the way government payment other cases, the law may require that all collections/ programs are executed, or even legal liability for public payments be made directly with a specific government officers and/or their institutions for executing payment agency, no intermediaries involved, thereby hamper- programs in such a way that is not properly supported ing the possibilities for a smooth and effective integra- in laws and/or regulations. tion of the corresponding programs with the national payments system. 63. On the institutional side, it is of outmost im- portance that there be a proper legal and regulatory 66. With regard to payment systems and payment in- framework that promotes the effective operation of the struments, an inadequate legal and regulatory frame- public financial management system. To a large extent work might constrain their safety and efficiency, or this would include clarifying the respective roles of the if too restrictive might hinder further innovations, national treasury, the ministry of finance, the central including those intended specifically for government bank and/or other government agencies which are in- payment programs. It is therefore of critical impor- volved in the execution of government expenditures tance that the legal framework supporting payment and collections, and making sure that all these entities systems, payment service providers and the associ- are properly empowered to undertake such roles. ated payments and instruments used be well-founded, GENERAL GUIDELINES 19 comprehensive and at the same time flexible enough to to work only with it), and laws, regulations or mar- keep abreast of innovation and evolution. 18 ket practices that hinder non-bank payment ser- vice providers from being able to process their pay- 67. A comprehensive legal framework for payment ment operations with ease at an affordable cost.21 systems and payment instruments should include the following issues: i) recognize electronic payments 69. It should be noted also that in several countries the as valid means of payments, as well as the recogni- modernization of government payment programs has tion of digital signatures and digital records associ- been a key element in expediting the issuance of some ated with such payment instruments; ii) address the of the relevant laws and/or regulations supporting pay- exchange of payment instructions, settlement final- ment systems and payment instruments. For example, ity and irrevocability, validity of netting schemes, bearing responsibility for the proper execution of their and the enforceability of security interests provided payment programs, national treasuries and/or tax col- under collateral arrangements, among others; iii) in- lecting agencies, among others, are likely to opt not for clude the rules, standards and procedures agreed to relying solely on contract law to underpin their opera- by the participants of the various payment systems;19 tions, and instead promote the enactment of laws and iv) identify the role of the central bank (and eventually regulations covering aspects such as the recognition other authorities as well) as overseer of the national of electronic payments as valid means to discharge payments systems, as well as any other roles it may obligations. play such as operator and/or liquidity provider; and, v) include other pieces of legislation covering broader 2.3.3 Payment System Infrastructure aspects such as consumer protection, privacy issues, anti-money laundering provisions or antitrust legisla- 70. As previously discussed, the adoption of elec- tion to deal with anti-competitive practices. tronic means of payment can have important benefits in terms of both efficiency and safety for the govern- 68. An adequate level of competition between the ment, recipients of government payments, taxpayers various types of institutions providing payment ser- and other parties alike. However, the degree to which vices is critical for the overall efficiency of the pay- such benefits are likely to materialize in practice will ments market, and is also an important element to depend on the availability of a sufficient variety of pay- foster continuous innovation. Some of the most rel- ment instruments to deal with specific needs, and the evant barriers to competition in the payments mar- existence of sound payment systems to process the as- ket include laws or regulations that limit the pro- sociated payments safely and efficiently. vision of some or all payment services to financial institutions—or even solely to commercial banks20 71. The core infrastructures in a national payments —, the presence of exclusivity agreements (e.g. an system refer to its transaction, clearing and settlement agent being forced by a payment service provider arrangements. These infrastructures consist of service providers, network facilities, information and comput- 18 Some relevant examples of flexibility of the legal framework to accommodate er technologies, operating procedures and rules. Box 4 innovation are the European Union (EU) Directives on E-Money (2009/110/EC) and on Payment Services (2007/64/EC). summarizes the main payment infrastructure services 19 Often, rules and procedures require the approval of the regulator and/or overseer. 21 In this last regard, section 2.3.3 presents a detailed discussion of payment 20 This is normally associated with payment services being regarded as a retail system infrastructure access issues, including the advantages and disadvantages banking service. of the various access forms, namely direct and indirect access. Government Payment Programs 20 GENERAL GUIDELINES Box 4: Payment Infrastructure Services Transaction infrastructure provides services to create, validate and transmit payment instructions by: • authenticating the identity of the parties involved in the transaction, sometimes using encryption technologies; • validating the payment instrument against system standards; • verifying the payer’s ability to pay; • authorizing the transfer of funds between the payee’s and the payer’s financial institutions; • recording and processing payment information; and • communicating the information between the institutions. Clearing infrastructure provides services to transmit, reconcile and in some cases confirm payment instructions between financial institutions and calculate interbank settlement positions by: • sorting and matching payment instructions between institutions; • collecting, processing and aggregating payment data for each institution; • storing payment data reports and transmitting them to each institution; and • calculating gross or net settlement positions (payables or receivables) for each institution. Settlement infrastructure provides interbank funds transfer services by: • collecting and checking the integrity of settlement claims; • verifying the availability of funds for settlement in the participating institutions’ accounts at the settlement bank; • settling claims through funds transfers on these accounts at the settlement bank; and, • recording settlement and communicating it to the participating institutions. as identified in the “General Guidance for National internet access. Moreover, to a large extent the proper Payment System Development” report of the Commit- operation and effectiveness of these systems and access tee on Payment and Settlement Systems of the Bank for and delivery channels will depend on the existence of International Settlements. a robust telecommunications infrastructure, and on banks and other payment service providers having in 72. A modern interbank payments infrastructure typi- place appropriate systems of their own to process pay- cally includes a real-time gross settlement (RTGS) sys- ment orders internally in an efficient manner. tem, one or more automated clearinghouses (ACH) to process different types of electronic payments such as 73. Government payment programs will normally re- electronic credit transfers and direct debits or payments quire the use of multiple payment products and sys- initiated with credit cards and debit cards, among oth- tems. For example, recurrent G2P, G2B, P2G or B2G ers, and a sufficiently large and geographically dis- payments made on fixed dates are normally effected persed network of access and delivery channels such through bulk payment systems such as an ACH. A as point-of-sale terminals (POS), physical branches or RTGS system, on the other hand, is used to satisfy oth- GENERAL GUIDELINES 21 er requirements, such as executing time-critical, large- 75. In payment systems, interoperability can exist at value payments,22 including most G2G payments. In various levels. In some cases, the payments schemes’ addition, in order to reduce float and manage its cash associated infrastructure deployed to support the pro- holdings effectively, the national treasury will gener- cessing of a given payment instrument (e.g. a payment ally require commercial banks and other collecting card) can only be used by the customers of certain agents to remit their collections to a central account or payment service providers issuing that same payment the TSA on a same-day basis, or even at multiple times instrument. This can be referred to as lack of cross- during the business day. scheme interoperability, a situation that hinders com- petition and efficiency by impeding the lowering of 74. The development of modern payment services re- processing costs and by fostering duplication of infra- quires significant upfront investments by banks and structure. While lack of cross-scheme interoperability other payment service providers. Required investments is usually associated with some payment card systems, include acquisition of software licenses, acquisition/ it can also be observed for other payment products. For leasing of hardware and of special premises for system example, two or more ACHs for electronic credit trans- development as well as for primary and back-up system fers providing the same or very similar services, which operations, and hiring specialized staff, among others. can only be offered to their respective participants. One of the key factors determining an investment of this kind is the intensity with which the intended new 76. There is also the case of interoperability at the in- services are expected to be used. The required scale frastructure level, whereby the same basic payments might not be reached for a variety of reasons, includ- infrastructure can be used to support multiple pay- ing: i) the required payment systems and other infra- ment mechanisms. This is especially relevant for in- structure not being in place; ii) limited interoperability novative payment products since without some ba- of the existing payment systems due to lack of technical sic interoperability with more traditional payment and operational standards or because of business deci- instruments and systems, their acceptance and/or sions that favor proprietary systems; iii) some or most usefulness for consumers might be very limited.24 of the largest participants not making use of the exist- For example, mobile money services provided by a tele- ing infrastructure, which may render its use too costly; com company could be increasingly convenient if the and, iv) various types of anti-competitive practices; v) associated e-money funds could be transferred seam- lack of awareness or trust on the side of consumers.23 lessly to bank accounts of individuals and vice versa.25 22 In some countries (e.g. Czech Republic, Mexico, Turkey, and Ukraine, to name just a few), RTGS systems are increasingly handling bulk payments. 24 The interoperability of most innovative payment solutions with core or main- 23 When situations like these are observed, the market for payment services in stream payment infrastructures is still minimal. According to the World Bank’s a country will tend to remain under-developed, characterized by high transaction Global Payment Systems Survey 2010, 61 percent of the innovative products/ costs, low penetration of the existing services and lack of innovation. International product groups reported was proprietary with no interoperability, and only 30 experience shows that a strong involvement of the central bank in its role as cata- percent had some form of linkage with traditional retail payment instruments lyst for change in the national payments system is normally required to modify and systems. the status quo. Extensive literature exists on central bank involvement in payment 25 Mobile money is basically an e-money product where the record of funds systems, including its role as overseer and catalyst for change. Relevant documents is stored on the mobile phone or a central computer system and which can be can be found at the websites of the Committee on Payment and Settlement Sys- draw-down through specific payment instructions to be issued from the bearers’ tems of the Bank for International Settlements (www.bis.org), the World Bank’s mobile phone. Mobile money services typically rely on a network of small retail- Payment Systems Development Group (www.worldbank.org/paymentsystems), ers – so-called agents or correspondents – for providing the actual service to the and of many other central banks. customer, such as cash in and cash out services. Government Payment Programs 22 GENERAL GUIDELINES 77. Limited or null interoperability is likely to result in 2.3.4 Cooperation and Partnerships to each payment service provider creating its own pay- Leverage the Impact of Government ment processing mechanisms and in many cases hav- Payment Programs ing to enter into specific business tie-ups, which, apart from hampering overall efficiency, generally limit the 80. The scale of government payment programs in benefits of using such instruments.26 most countries provides an opportunity to, through those same programs, promote or facilitate economic 78. Being able to make use of the domestic payments or developmental objectives other than the safe and ef- infrastructure at a reasonable cost and within appro- ficient transfer of funds to/from the government. priate service levels is an important element underly- ing a competitive payments market. Access to this in- 81. Taking a strategic approach to the development of frastructure can be either direct (i.e. the ability to post effective government payment programs is an effective payment orders directly into the system) or indirect means to leverage the potential positive externalities to (i.e. access through a direct participant). Both forms of a maximum. The associated strategic plan should in- access are capable of rendering suitable payment ser- volve all the key stakeholders in the government pay- vices. For example, since direct access to a payments ments value chain. system normally requires the fulfilment of a set of risk- based criteria which entail substantial investments,27 82. As mentioned earlier, the safety, efficiency and for some payment service providers, direct access transparency of government payment programs de- might be overly expensive and/or complex, and hence pend to an important extent on there being an appro- indirect access may be a better option for using that priate payment system infrastructure in the country. payments system. In some cases, one or more relevant components of a modern payments infrastructure might not have been 79. It should be noted, however, that non-bank pay- implemented solely because the number of transac- ment service providers may face obstacles to adequate tions expected to flow through the new system is in- indirect access to the payment infrastructure. A bank sufficient to justify investment as well as on-going having direct access to the system may attempt to block operational costs. The channeling of a large share of its competitors in the payments market by charging government payments may be a key opportunity to them overly high fees/charges, or otherwise setting overcome this limitation, and it may trigger the devel- unduly restrictive conditions on the service. In other opment of a robust payments infrastructure which in cases, know-your-customer and the like regulations— turn will support the safe and efficient processing of or their interpretation thereof—may raise concerns for government payments.28 banks about potential legal or reputational risks as a result of providing payment services to certain types 83. An important public policy goal for many govern- of entities, and may therefore decide it is preferable to ments at present is to increase and improve financial deny those services. inclusion of population segments that remain un- banked or otherwise underserved in terms of their ac- 26 Limited or null interoperability can in itself become a business case impedi- ment for some of these products. 28 Moreover, as previously discussed in section 2.3.2, government payment 27 The system operator which sets down the access criteria is normally inter- programs can also accelerate the preparation and subsequent enacting of key ested in avoiding that any given participant introduces unnecessary risks to the pieces of legislation to support the effective functioning of modern payment system. instruments and systems. GENERAL GUIDELINES 23 cess to modern financial products.29 Payment services 85. Even in cases where adequate access to electronic are the most basic component of financial inclusion. payments has been made possible, individuals and Beyond the benefits of having access to modern pay- even some business organizations may be reluctant ment services per se, building a good record with the to use them and prefer cash instead. This is nor- payment service provider may become the gateway to mally associated with the costs associated with using other products (such as deposits, credit or insurance, the underlying account, concerns about the safety of among others) offered by financial institutions and electronic payments, a lack of trust in banking and/or other formal service providers.30 other financial sector institutions, insufficient aware- ness about the advantages and convenience of using 84. Experience in several countries shows that gov- electronic payments or simply due to the normal dif- ernment payment programs can be an effective tool ficulties in adapting to technological change. The in- to improve financial inclusion. Even if financial in- volvement of a trusted partner (e.g., the government) clusion per se is being incorporated only recently as in initiating the use of electronic payments might be an an explicit objective underlying the modernization effective means to overcome such situations. Indeed, of government payment programs, the migration of through financial literacy programs, incentive pro- many such programs to electronic payments over the grams and other similar efforts, effective consumer- past few years has already enabled a significant num- adoption measures have been adopted in the context ber of people to have some form of access to modern of government payment programs. payment instruments and services.31 Nevertheless, the opportunity for change is enormous as large segments 86. Central banks are also concerned that modern pay- of the population still remain unbanked or critically ment instruments be adopted as widely as possible in underserved, especially - but not exclusively - in devel- order to increase the overall efficiency of the national oping countries.32 payments system. An increasing number of central banks are therefore expanding their oversight func- tions over retail payment instruments and systems in 29 For the purposes of this report financial inclusion is defined as the availability order to cover aspects that may represent a barrier for of basic financial products to meet the payment, savings, credit, insurance and investment needs of underrepresented segments of society, at a reasonable cost their adequate functioning, including but not limited and in a transparent manner. to cost-related issues and/or other restrictions that 30 In many countries, un-banked individuals do have access to some forms of deposits, credit or even insurance; however, these product offerings are normally impair consumers to use such payments instruments very costly, often unreliable, and lack most of the consumer protection meas- effectively for their various payment needs.33 ures that are standard for financial products offered by licensed or registered institutions. 31 Annex C contains several country examples of successful adoption of elec- 87. It should be noted that even though the policies tronic payments as part of government payment program modernization. In described in the two preceding paragraphs might fo- some cases, these also resulted in improved access to some of the basic financial services. Annex E shows a country example (i.e. South Africa) in which improv- cus on certain segments of the population like the un- ing financial inclusion was one of the explicit objectives of modernizing the banked or underserved as beneficiaries of government government’s payment program through the adoption of appropriate electronic payment methods. payment program reform, it is highly likely that the 32 For example, the Consultative Group to Assist the Poor (CGAP) estimates that approximately 170 million people around the world receive regular payments 33 According to the World Bank’s Global Payments Survey 2010, 64 percent from their governments. However, less than 25 percent of this population receives of the central banks surveyed responded that their oversight powers extended such payments via a bank account or through non-cash payment instruments to all payment systems operational in their jurisdiction. The World Bank also issued by banks or other financial institutions. For more information see the carried out a survey of this kind in 2007-2008. At that time this same indicator CGAP-DFID December 2009 Focus Note “Banking the Poor via G2P Payments” was 57 percent. The outcomes of both surveys are available at: www.worldbank. (available at CGAP’s website: http://www.cgap.org). org/paymentsystems. Government Payment Programs 24 GENERAL GUIDELINES real impact of such policies will be much broader. For example, current users of electronic payment instru- ments will certainly benefit from increased competi- tion and innovation, improvements in the infrastruc- ture or the adoption of adequate consumer protection measures. SECTION III THE GENERAL GUIDELINES 3.1 Public Policy Goals 88. The General Guidelines have been developed on 90. Proper governance and adequate transparency can the basis of a set of public policy goals defined by the be promoted by reducing the space for discretionary World Bank with support from IAG members for the decision by the various spending agencies and the trea- development of government payment programs. These sury itself. To a large extent this may be accomplished public policy goals are described in Box 5. by automating the corresponding verification/valida- tion processes in a treasury’s integrated financial man- agement information system (IFMIS) and/or other 3.2 The General Guidelines relevant systems. 3.2.1 Governance, Safety and Efficiency 91. In some cases, full automation of decisions might Guideline 1. Ensure proper program governance and not be possible (e.g. the case of complex procurement risk management: governance arrangements should procedures). In such cases, proper internal controls ensure accountability, transparency, and effectiveness should be in place for separating duties among key in managing the risks associated with government pay- functions of procurement including purchase request, ment programs. purchase authorization, authorization of disburse- ment, certifying, reviewing, reporting and auditing, 89. Good governance and appropriate transparency among others. practices promote accountability. This not only makes government payment programs safer and more effi- 92. Other major risks faced in the execution of govern- cient, but is also likely to increase trust and acceptance ment payment programs include, but are not limited of the program by the general public. The IMF Code of to, the risk of making improper payments, operational Good Practices for Fiscal Transparency, summarized risk, liquidity risk and legal risk. The treasury, together in Box 6, provides some relevant references for devel- with other relevant stakeholders, should identify and oping a proper governance and transparency frame- monitor all relevant detailed risk sources on a continu- work for government treasury operations. ous basis. 25 26 GENERAL GUIDELINES ods for determining eligibility are prone to error and fraud, the treasury should aim at automating the en- titlement process through a so-called rules-based en- Box 5: Public Policy Goals for titlement engine that calculates the values and due Government Payment Programs dates of recipient payments automatically, based on program rules. • Payments and collections made as part of existing or new government payment programs should support 94. Some of the most relevant examples of operational the sound, efficient and transparent management risks include unintentional human errors, the mal- of public financial resources. Government payment functioning of information technology equipment or programs should therefore be safe, reliable, and cost-effective. other pieces of infrastructure, and data security and safety issues. • The modernization of government payment programs should be used as an opportunity to accelerate the de- 95. Streamlining and automation of processes is per- velopment of the national payments system. haps the best method to reduce the scope for human error. Automation should aim at significantly reducing • Taking advantage of their nature and aggregate magni- or even eliminating manual intervention. Thus, in the tude, government payment programs should be lever- case of government payment programs, automation aged wherever possible to promote the fulfillment of should also include interfaces with the relevant pay- other developmental goals. In particular, as an ancil- ment system(s).35 lary objective, government payment programs should promote financial inclusion by providing the financially 96. In most countries, the continuity of government underserved segments of the population with access to modern payment instruments and services. payment programs, and more generally of treasury operations, is critical for the economy. The treasury should therefore have proper business continuity mea- sures in place to ensure the continuity of its operations in case of natural disasters or man-made events.36 It 93. Reducing improper payments issued to the public should be noted that a comprehensive business con- is a key objective for governments and their treasur- tinuity plan goes beyond the availability of redundant ies.34 One of the major components of improper pay- hardware or other pieces of infrastructure, and needs ments is eligibility risk, which can be defined as the to consider human factors (e.g. avoiding situations risk that a recipient of a government payment is actu- whereby a severe interruption of the service material- ally ineligible to such a payment. The treasury should izes due to people not being able to react promptly or effectively) as well as the role of other relevant stake- have streamlined access to relevant databases when holders such as key service providers. evaluating eligibility. Moreover, as manual meth- 34 In general terms, improper payments occur when the funds go the wrong recipient (either because the recipient was ineligible, or the actual recipient was not the intended recipient), the recipient receives the wrong amount (overpay- 35 Additional details on process automation are discussed under Guideline 2. ment or underpayment), documentation is not available to support a payment, 36 If the Treasury is not the operator of the government payments platform, or the recipient uses the funds in an inappropriate manner. Annex D presents then proper business continuity arrangements should be developed by the rel- some practical cases of managing the risk of making improper payments, fraud evant agency operating this platform. and misuse. GENERAL GUIDELINES 27 Box 6: The IMF Code of Good Practices on Fiscal Transparency The measures for fiscal transparency developed by the IMF administrative rules applying to both budgetary and ex- (1998) provide a set of objectives that can help to guide trea- tra-budgetary activities. Any commitment or expenditure sury reforms as part of an integrated program of fiscal reforms. of government funds should have proper legal support. The transparency objective is important in itself, but it also Periodically, the legal framework should be reviewed and provides a guide to improve the overall health of the fiscal modified to ensure effective treasury operations. management system – improvement of fiscal transparency should lead to improved fiscal management decisions and 3. Public Availability of Information: The treasury sound fiscal policies. The following measures can be used as should regularly publish information on the level and benchmarks to set priorities for reforms and to coordinate ef- composition of its debt and financial assets. Specific forts between various agencies involved in the execution of commitments should also be made to the publication of government payment programs: fiscal information (e.g. budget law). For these purpos- es, a calendar of release dates for fiscal reporting data 1. Clarity of Roles and Responsibilities: Clear should be announced. mechanisms for the coordination and management of budgetary and extra-budgetary activities should be 4. Transparent Procedures for Procurement established, and arrangements vis-à-vis other govern- and Public Reporting: To ensure effectiveness of ment entities (e.g., the central bank, commercial banks the treasury systems, procedures for procurement and and other non-bank financial institutions) should be well- employment should also be standardized and be acces- defined. Among other requirements, it is desirable that sible to all interested parties. Budget execution should all extra-budgetary funds be handled by the treasury; or, be internally audited, and audit procedures should be as a minimum, reports by extra-budgetary funds should open to review. During the year, there should be regular, be consolidated within the treasury system, applying timely reporting of budget and extra-budgetary outturns, the same standards for accounting, timeliness and which should be compared with original estimates. In periodicity. the absence of detailed information on lower levels of government, available indicators of their financial posi- 2. Governance of Treasury Systems: Treasury sys- tion should be provided (e.g. bank borrowing, issuance tems should be governed by comprehensive laws and of debt in financial markets). The General Guidelines 28 GENERAL GUIDELINES 97. Growing automation, the use of innovative payment jectives set forth for government payment programs, methods and the use of multiple service providers, which should be closely associated with specific needs. among other elements, are making the management of data security aspects increasingly challenging. Strong 101. Financial management and payment processing rules and procedures should be in place for safeguard- activities within the national treasury should rely on ing sensitive customer information. This should be ap- automation as much as possible. A modern and robust plicable not only to the treasury’s own staff, processes integrated financial management information systems and systems, but also to those of its service providers. (IFMIS) with proper interfaces to payment systems and, if applicable, the TSA, can contribute to enhanced 98. Liquidity risk is the risk that the treasury (or more efficiency and improved risk management of govern- generally the government) will not be able to cover its ment payment programs by automating processes, en- payment obligations when due. Among other key el- forcing internal controls and by providing timely and ements, liquidity risk management involves the fore- reliable information for decision-making.37 casting of liquidity needs and availability of resources – including any debt undertakings -, continuous re- 102. However, a decision to upgrade the available tech- porting of actual figures to contrast them with fore- nological solution, if any, or to buy and implement a casts, and making adjustments as necessary. The reli- new one should be made only once there is clarity on ability of forecasts and reports is heavily dependent what are the optimal processes, controls and informa- on the integrity of the information, for which a robust tion requirements that such an upgraded or new so- IFMIS is critical. Moreover, a TSA can further assist lution intends to support. Often, implementing new with liquidity management by facilitating reporting technology-based solutions (i.e. additional functional- and overall cash management. ities or modules, or brand new systems) is mistakenly viewed as a fix to processes that are inherently inef- 99. Legal risk stems from the inadequate or errone- ficient. For example, the automation of a task that is ous observance of the applicable legal and regulatory redundant or largely unnecessary will yield little value added. In order to avoid such a risk, a deep review of framework. Legal risks are generally greater where the existing workflow as well as the associated manage- there is an absence of laws and regulations, or when ment and organizational structures is highly desirable such laws do exist but are unclear and may be subject as it is likely to uncover improvement opportunities to multiple interpretations. Guidelines 5 and 6 in this that might not have been identified otherwise. report provide detailed guidance on legal and regula- tory issues for government payment programs. 103. Governments and their treasuries, with the sup- port from the central bank as necessary, should also Guideline 2. Review and streamline treasury strive to streamline and consolidate into a unified processes, then work on their automation: the treasury should devote extensive efforts to identifying all relevant 37 An IFMIS can be built either through an in-house technological develop- needs with regard to improved safety, efficiency ment, or acquired from a vendor. While each of these approaches has its own ad- vantages and disadvantages, preference for commercial software packages seems and transparency. to be growing given their increased flexibility to accommodate country-specific requirements and the easiness to include new functionalities, best practices and standards through regular software updates. The IMF and the World Bank have 100. All processes within the national treasury should developed broad functional requirements for an IFMIS that can be used as the be reviewed, and eventually revised in light of the ob- starting point for the development of a country-specific version. GENERAL GUIDELINES 29 structure (i.e. the treasury single account or TSA) the Guideline 3. Take full advantage of electronic payment transactional accounts held by the various government methods: the extensive use of electronic payments in entities. The potential benefits of a TSA can be signifi- government payment programs can reduce costs and cant, not only for government payment programs but improve transparency and traceability. also for other public policy actions such as the imple- mentation of monetary policy, among others. 107. To an important extent, the safety and efficien- cy of government payment programs also depend on 104. The real impact of the TSA will, however, depend that the form of payment being used allows for the on its coverage. Therefore, it is highly desirable that prompt, safe, convenient and cost-effective transfer the TSA covers all central government entities and of financial value from/to the government. In this re- their transactions, including autonomous government gard, electronic payments generally have inherent ad- entities, accounts managed by social security funds vantages over cash and other paper-based payments. and other trust funds, extra-budgetary funds, and Moreover, electronic payments can leverage the devel- loans from the multilateral institutions and donor aid opmental impact of government payment programs by resources, among others. In some cases, the TSA has providing unbanked beneficiaries with access to a also been extended to include sub-national levels payments account. of government. 108. The various payment instruments and means of- 105. The effectiveness of the TSA will also depend on fer different advantages and disadvantages with regard the degree of automation and integration with other to safety, cost and convenience, among others (see information systems (e.g. the IFMIS) and one or more Table 1). The treasury, with the support of the central payment systems (e.g. the RTGS system). In an ideal bank as necessary, should explore the kinds of pay- scenario, once a payment request is initiated by any ment methods available in the marketplace in order given government agency, that request should be able to determine what specific payment product is more to advance throughout the remaining processes with- suitable for each specific payment program. Care must out any further human intervention, including the last be taken to understand the related risks and manage step in which the financial resources are finally cred- them accordingly. ited to the account of the beneficiary (so-called “end- to-end straight-through processing” or STP). 109. The fact that electronic payment mechanisms entail paying some form of retribution to the relevant 106. Likewise, government billing and collection IT payment service provider(s) should not be an impedi- systems should be able to interface with interbank ment for their adoption.39 Even if cash and probably payment systems – and, if applicable, with the relevant other paper-based payments do not carry this type of payment modules of banks and other payment service cost, they are subject to several other costs (e.g. cash providers for transaction details that cannot be ob- handling costs, overhead and administrative expenses, among others) that, taken as a whole, are normally sig- tained directly from interbank payment systems - to nificantly higher than those of electronic payments. offer bill payment and collection services efficiently.38 39 In some occasions this consists of an explicit fee (e.g. per transaction fees or a monthly fee), while in others the service provider is compensated through other 38 Annex C provides several examples of the modernization of billing and col- means, like being allowed to hold the resources for a few days before these are lection systems, including in particular the cases of Azerbaijan and Saudi Arabia. actually credited to the beneficiary and taking advantage of the associated float. The General Guidelines 30 GENERAL GUIDELINES 110. It should be noted that the use of very specific fered. When this is not the case, the relevant stakehold- payment products characterized by limited function- ers, in particular the central bank in its role as payment ality can be costly over time for the national treasury system overseer and catalyst for change, should evalu- while rendering little benefit to the users of those ate what the impediments and hurdles are (e.g. insuf- products, which are typically the recipients of govern- ficient payments infrastructure, lack of competition in ment cash transfers. Therefore, government payment the payments market) and work in close collaboration programs should strive to use mainstream electronic with the relevant parties to overcome such difficulties. payment instruments/methods and infrastructure as much as possible to benefit from economies of scale.40 113. When undertaking reforms, clarification of the Recipients can also benefit from the investments al- roles and responsibilities of each of the key parties at ready made in that infrastructure, which may enable an early stage is essential to ensure that the process it- them to access to a broader range of payment services self will flow smoothly. As the agency with direct re- at a reasonable cost. sponsibility for the operation of government payment programs, the national treasury —or if applicable the Guideline 4. Create appropriate organizational ministry of finance —should be kept at the center of arrangements to foster the continuous development the reform effort, in close partnership with the central of government payment programs: the national trea- bank given the latter’s overall responsibility for the sury/ministry of finance should consider engaging in proper functioning of the national payments system.41 collaborative schemes with the central bank and other stakeholders to identify additional improvement 114. It is important that in the early stages of any re- opportunities for government payments and, eventually, form effort discussions focus on agreeing on a com- facilitate their implementation. mon vision and a strategy to implement that vision in a timely manner. Other relevant stakeholders like com- 111. It should be recognized that the continuous devel- mercial banks and non-bank payment service provid- opment of government payment programs is complex ers should be included in these debates. Discussions and requires continuous dialogue, cooperation and on detailed technical issues (e.g. specific instruments, coordination amongst the key stakeholders. Therefore, technologies and infrastructure designs) should be to ensure that all the core elements are duly consid- deferred until the previous steps have been completed ered, including the potential of government payment and agreed upon. programs to create positive externalities in other areas, cooperation on technical, regulatory, operational and 115. The introduction of new arrangements for gov- oversight matters should be encouraged. ernment payments and collections may require a reor- ganization and/or realignment of activities and func- 112. The treasury should engage in regular dialogue tions within the national treasury, in some units at with the central bank, the banking system and other the central bank and the ministry of finance, and even payment service providers to determine whether the at line ministries and other public sector agencies in needs of the treasury are being duly satisfied with the what concerns their budget execution functions. Insti- instruments, methods and services currently being of- tutional and organizational reforms should therefore 40 For further information see Bold C, D. Porteous and S. Rotman, “Social Cash 41 In several cases, the modernization of government payment programs has Transfers and Financial Inclusion: Evidence from Four Countries”, Consultative been a consequence of a broader effort to reform the national payments system, Group to Assist the Poor, Focus Note 77, Washington, 2012. a task which is normally entrusted to the central bank. GENERAL GUIDELINES 31 Box 7: A Basic Legal Framework for the National Payments System Laws of general application which support a payment system: • Property and contract laws - established through common law (jurisprudence) or applicable legislation (including a civil code) that create legally enforceable rights and obligations to make and receive payment. • Banking and finance laws - establishing the rights and obligations of financial institutions to take deposits, make loans, grant and take collateral security, and hold and deal in securities. • Insolvency laws - establishing the rights and obligations of creditors of an insolvent entity. • Laws on the use of credit and collateral - including credit terms (interest rates, duration, rights on default), debtor rights, and the creation, realization and priority ranking of rights in collateral. • Laws for determining which jurisdiction’s laws apply - including contractual choice of law clauses and conflict of laws rules. • Laws on electronic documents and digital signatures. Laws specific to payment systems: • Laws specific to payment instruments - including currency laws, bill of exchange and cheque laws, electronic payments laws, regulations against unfair payment instruments and services, and rules establishing instrument standards (size, configuration, coding). • Laws relating to the calculation and discharge of payment obligations - including netting, novation, finality of payment and settlement. • Laws on default proceedings and disputes in payments - priority ranking of payment settlement claims, settlement guarantees and loss allocation agreements, priority rights to collateral for settlement credit, evidence laws regarding electronic payments, and dispute resolution mechanisms such as arbitration clauses. • Laws related to central bank roles, responsibility and authority in the national payment system. • Laws relating to the formation and conduct of infrastructure service providers and markets - formation and operation of clearing and settlement arrangements, access and participation in infrastructure systems, pricing of in frastructure services, rules on the issuance and redemption of e-money, and protection of central counterparties from risk. • Laws governing securities infrastructure services - addressing dematerialization and immobilization of securities, book-entry holding and transfer of securities, delivery versus payment, finality of transfer and settlement. The General Guidelines 32 GENERAL GUIDELINES receive proper attention and proceed in parallel with 118. Given its importance for the efficient execution of any new system implementation.42 government payment programs, specific legislation or regulation may be needed to ensure that the scope of 3.2.2 Legal and Regulatory Environment the TSA is wide enough so as to ensure its effectiveness. Guideline 5. An appropriate legal framework with 119. Rules should also be developed to cover the spe- specific applicability to government payment cific operational issues of specific programs. Some of programs can further underpin their safe and efficient the elements that need to be covered include the eli- operation: laws and/or regulations that provide clarity gibility criteria for the potential beneficiaries of a pay- and certainty to the various parties involved, and that ment program (e.g. conditional cash transfers), pro- promote effectiveness and transparency in the execution curement practices for selecting an appropriate vendor of programs should be enacted/approved. to operate the program, the types of electronic pay- ment instruments that will be used, threshold values of 116. On the institutional side, the legal and regulatory purchases that can be made using a particular payment framework should clarify the respective roles and re- instrument, reporting requirements, and audits to en- sponsibilities of the national treasury, the ministry of sure proper compliance with the stated guidelines. finance, the central bank and any other government agencies involved in the operation or execution of Guideline 6. Laws and regulations on payment government expenditures and collections, and make instruments and systems, competition and consumer sure that all these entities are properly empowered to protection can also have an important bearing on undertake such roles. The roles and responsibilities of government payment programs: the legal basis should banks and/or other payment service providers with support sound and fair practices in the market place, what concerns government payment programs should and be flexible enough to accommodate innovations. also be provided for. 120. The legal framework for a national payments sys- 117. Treasury operations and methods, including relat- tem is the body of law which determines the rights and ed core systems such as an IFMIS and its interrelations obligations of parties in the system. It also deals with with payment systems and the TSA, among others, the transfer procedures and resolution of disputes re- should be supported by appropriate laws, regulations garding instruments, services, organizational arrange- and/or rules. This would include defining rules for the ments and governance procedures for transferring and main aspects related to financial management such as settling obligations with finality. A sound and com- procurement, borrowing and investing, asset manage- ment and control, and reporting and audit, taking into prehensive legal framework reduces uncertainty and account the way in which these activities are executed risk for the participants in payment infrastructures through the existing systems or any envisioned new and service markets, and is therefore highly relevant systems or methods (e.g. public expenditure manage- for the safe and efficient operation of government pay- ment process through the TSA and its linkages with ment programs. Box 7 shows the basic elements of a IFMIS modules for controls and appropriations). legal framework for the national payments system as identified in the Committee on Payment and Settle- ment Systems (CPSS) “General Guidance for National 42 Annex A provides a country example illustrating the re-organization of treas- Payment System Development”. ury functions on the basis of a collaborative scheme between the key stakeholders. GENERAL GUIDELINES 33 121. To ensure that electronic payments can be prop- cash-out services to their customers, among other ser- erly used for government payments and collections, vices, special regulations might be needed to ensure their legal recognition as a valid means for discharging that those correspondents and agents operate appro- financial obligations is critical. The legal and regulato- priately and safely.45 ry framework must also ensure functional equivalence between electronic and paper-based payments, mak- 124. Proper consumer adoption of electronic payments ing sure that electronic transactions are legally bind- depends to an important extent on consumers trusting ing. Among other elements, this requires laws sup- these forms of payment.46 Laws and regulations should porting the use of electronic means of authentication, ensure that consumers receive from the service pro- electronic signatures and electronic evidence.43 vider all the necessary information to get acquainted with the key features of the new instrument or method 122. The legal and regulatory framework for the na- they are using, the specific services they should expect tional payments system should be able to efficiently to receive from the service provider, the associated fees accommodate evolution in the payments landscape. and other charges, if any, and what mechanisms are For example, wherever possible it is desirable that new available to solve disputes. practices, innovative payment methods and instru- ments, new types of payment service providers and the 125. Consumer protection measures like the ones extension of the central bank’s oversight power over mentioned in the previous paragraph should be de- such innovations and new service providers be ac- signed to be applicable not only in the context of gov- commodated without having to produce specific laws ernment payment programs but rather to all users of or regulations for each of them. In this regard, some the relevant payment instruments and/or services. countries have produced new legal pieces taking as a However, given the fact that government payment basis a functional approach (i.e. the function or service programs often reach population segments that until actually performed by the subject of the regulation) then have had little or no exposure to modern pay- rather than an institutional approach (i.e. whether the ment instruments and services, additional consumer entity providing the service is a licensed bank, a non- protection measures targeting those specific popula- bank payment service provider, etc.).44 tions sectors might also be desirable. For example, the treasury could require payment service providers 123. The emergence of non-traditional payment ser- operating G2P transfers as part of a social program to vice providers might require further adjustments to implement a simplified and cost-effective mechanism the legal and regulatory framework in order to make for the resolution of disputes. sure that the requirements set forth in the legislation (e.g. capital adequacy ratios) are proportionate to the 126. The legal and regulatory framework should also risks posed by such service providers. On the other strive to prevent anti-competitive practices and behav- hand, since many of these non-traditional payment iors such as exclusivity agreements (e.g. an agent be- service providers rely on non-bank retailers as cor- 45 For example, the relevant regulations should establish minimum criteria for respondents and/or agents for providing cash-in and banks and/or non-bank payment services providers to appoint retailers as cor- respondents or agents, the specific activities these entities are entitled to perform 43 For example, individuals and businesses making electronic payments to the on behalf of them, and the extent of their liability. government remotely would like to make sure that in case of a dispute (e.g. the 46 In this context, consumer adoption refers to both the individual beneficiar- payment was not properly credited to them) the record of the electronic payment ies of government payments, individual taxpayers, staff of government agencies can be used as evidence for this purpose. already using or that will use electronic payments, and the staff of businesses 44 See for example de EU Payment Services Directive (Directive 2007/64/EC). involved in G2B and B2G payments. The General Guidelines 34 GENERAL GUIDELINES ing forced by a payment service provider to work only inclusion. Some specific products of this kind have with it), conscious efforts to impede the interoperabil- already achieved a certain degree of success. Neverthe- ity of payment services, or unfair or unjustified denial less, their potential could be further enhanced by be- of access to corporate payment services. The legislation ing able to rely on an appropriate centralized payments itself should also avoid granting exclusive powers or infrastructure for clearing and settlement to reduce rights to a specific type of institution to provide certain processing costs and potentially even improve accep- payment services. tance (see Guideline 8). 3.2.3 Payment System Infrastructure 129. The treasury, the central bank and other relevant stakeholders should therefore evaluate what pieces of Guideline 7. An appropriate payments infrastructure infrastructure are missing in the country, or which of should be in place: the potential to obtain substantial the existing elements need to be improved or upgraded benefits from migrating government expenditures and to properly support government payment programs. collections to electronic payments relies on there being Any additions or improvements that have the poten- the required payments infrastructures to process such tial to increase the safety and efficiency of government payments safely, efficiently and at a reasonable cost. payments programs should be encouraged. 127. A modern interbank payments infrastructure 130. The efficiency of interbank payment systems is also normally includes a RTGS system, one or more ACHs conditional on the robustness of the telecommunica- to process different types of payment instruments, and tions infrastructure and on banks and other payment a sufficiently large and geographically dispersed net- service providers having in place appropriate systems work of access and delivery channels such as ATMs, of their own to process payment orders internally in an POS terminals, physical branches or internet access. It efficient manner. In fact, automated account manage- should be noted that both retail payment systems as ment systems are a crucial pre-requirement for banks well as large-value payment systems are important for and other payment service providers to offer electronic government payment programs. For example, an ACH payment services effectively (e.g. on-line authorization supporting retail electronic credit transfers is crucial of payment card transactions). for the disbursement of G2P or G2B payments, and also for taxpayers. Large-value payment systems on Guideline 8. Maximize the potential of the available the other hand are widely used for G2G payments or infrastructures through interoperability and wide- transfers or to assist the Treasury in its cash manage- spread usage: payment service providers being able to ment functions. channel their payment operations through any of the key mainstream infrastructures promotes efficiency, network 128. The creation of mobile money services and the expansion, and a level playing field for all players. use of retailers as correspondents and agents to pro- vide payment (and other) services are examples of 131. Limited or null interoperability of payment sys- innovations that can support government payments – tems, for example as a result of lack of common stan- and other types of payments as well, like remittances dards, is likely to result in each payment service pro- – by effectively bypassing some of the gaps in infra- vider needing to create its own proprietary systems, structure (e.g. insufficient number of physical branch- procedures and in many cases enter into specific busi- es, ATMs or POS terminals) and/or limited financial ness tie-ups with payees and payers. Repercussions of GENERAL GUIDELINES 35 this situation typically include higher processing costs mon standards, as well as to address other kind of hur- and reduced convenience for customers than other- dles to interoperability like the ones described in the wise would be possible, and may lead them to refrain previous paragraph.48 from using the relevant payment instrument(s). In the extreme, lack of interoperability might impede achiev- 135. Being able to make use of the domestic payments ing the critical mass or required volumes that are nec- infrastructure at a reasonable cost and within appro- essary for a system to become profitable, and as a result priate service levels is an important element underly- investors may refrain from investing in such a system. ing a competitive and contestable payments market. In most cases this can be achieved either through direct 132. The adoption of common technical, usage, and access or through indirect access to the infrastructure data standards for payment services is a key pre-req- - provided the majority or the most representative di- uisite for interoperability amongst payment systems rect participants do not set unduly restrictive or overly in order to ensure competition and cost reduction.47 costly conditions on the payment services they provide Moreover, emphasis should also be placed in the adop- to indirect participants. tion of open and modern standards (such as ISO 20022 XML). Although outside the scope of this report, these 136. The central bank in its role as payment system are crucial for facilitating international payment flows overseer should ensure that the payment systems it and to facilitate the implementation of newer technol- oversees have objective, risk-based, and publicly dis- ogies and/or vendor upgrades. closed criteria for fair and open access to their services including by direct, and where relevant, indirect par- 133. Interoperability might be limited for other rea- ticipation. Where retail payment systems are not in the sons, however. These include business decisions scope of the central bank oversight responsibility, the whereby system owners purposely opt to compete on relevant public authorities may cooperate to ensure the basis of deploying proprietary infrastructure, dif- fair and open access to such systems.49 ficulties in reaching agreements regarding the mutual remuneration for the use of each other’s infrastructure or efforts directly aiming at blocking specific com- mercial brands or competitors. Yet in other cases, for example some innovative payment products that are not that well-developed as of yet, interoperability can be too onerous at that particular stage of development. 134. The central bank, in its roles as catalyst for change and payment system overseer, is typically best posi- 48 In some cases, the central bank may opt for a moral suasion approach to encourage all relevant market participants to become reachable. In others, it tioned to promote and facilitate the adoption of com- may need to use its regulatory powers to ensure appropriate interoperability by eradicating anti-competitive practices. 47 Perhaps the most notable example of the importance of the adoption of 49 In some countries, authorities themselves have devised alternative methods common standards for interoperability is that of the Single Euro Payments Area to provide access to interbank payment systems to smaller or non-traditional project in Europe. Extensive literature is available on this subject, including mate- payment services providers that typically have very limited automation of their rials produced the European Central Bank, the European Payments Council and operations. One example is the creation of a special communications network many others. For a specific discussion on standards readers may wish to refer to: connecting such entities with a state-owned commercial bank, from which they Ruth Wandhöfer, “EU Payments Integration: the tale of SEPA, PSD and other can then offer payment products and services, and also link up their service out- milestones along the road”, Palgrave MacMillan, 2010. lets to provide a virtual large service delivery network. The General Guidelines 36 GENERAL GUIDELINES 3.2.4 Cooperation and Partnerships to in the RTGS system in the initial hours of the opera- Leverage the Impact of Government tional day. Payment Programs 140. Legal reform is another area where government General Guideline 9. Adopt a strategic approach to payment programs can trigger positive developments the development of government payment programs: for the national payment systems as a whole. For ex- the reforming of government payment programs has the ample, with the launching of a new major government potential to trigger the development of a robust pay- payment program the central bank may consider up- ments infrastructure, which in turn will support the safe dating the regulatory framework to sufficiently address and efficient processing of government payments. emerging payment services and new technologies, or to enhance its payment system oversight framework. 137. The development of safe and efficient government payment programs and the overall development of the General Guideline 10. Leverage on government pay- national payments system are closely interconnected. ment programs to promote financial inclusion: the When reforming efforts are properly coordinated, a large volume of payments issued by governments, as virtuous circle can be created. For example, a decision well as the nature of some specific programs like social to use electronic transfers for certain types of massive spending programs, represents an opportunity to pro- G2P payments can bring in the required critical mass mote or facilitate financial inclusion on a large scale. for the creation or enhancement of the relevant pay- . ments system, which might not have been possible 141. The developmental impact of government pay- otherwise. ment programs can be further enhanced when such programs provide access to payment accounts through 138. The lead reformers, in particular the treasury and the use of electronic payments. G2P payments, in par- the central bank, working collaboratively among them ticular recurring benefit payments to low-income and/ and with other stakeholders, in particular payment or unbanked individuals, are especially suited for this service providers, through an efficient participation purpose. In turn, access to a payment accounts can po- and coordination mechanism, should ensure that the tentially facilitate access to broader financial services interrelations and positive externalities between the such as deposits, loans and/or insurance. reforming of government payment programs and of the overall national payments system are duly consid- 142. Government authorities together with other rele- ered and taken advantage of.50 vant stakeholders can also promote that the infrastruc- ture that will need to be deployed for G2P payments, 139. The treasury and the central bank should also including logistical arrangements and the agent or cor- cooperate at the operational level. For example, coor- respondent network, also be used to deliver broader dinating the daily disbursement of government pay- financial services. For example, an ATM that has been ments to bring liquidity into the banking system early installed to support cash withdrawals in connection in the morning facilitates a smoother flow of payments with conditional cash transfers to poor segments of the population can also be used for providing other finan- 50 The CPSS “General Guidance for National Payment System Development” report provides detailed guidance on the potential approaches for creating an ef- cial services, like making deposits to a savings account, fective institutional framework to support payment system reforms. account-to-account transfers, payment of utilities, ob- GENERAL GUIDELINES 37 taining information about insurance products (or even 3.3 Implementing the General purchasing the product), etc. Guidelines 143. Whereas G2P payments are seen as the primary 146. The World Bank exhorts country authorities to means to promote financial inclusion, government col- undertake a self-assessment or stocktaking exercise lections or P2G payments can also be leveraged for this to determine the degree to which their various gov- purpose as unbanked individuals also have to pay for ernment payment programs, individually and as a government services. Therefore, stakeholders can also whole, operate along the lines stated in the General promote and facilitate the use of payment accounts for Guidelines. this purpose. 147. Complementing the General Guidelines, the vari- 144. Individuals that have been provided with a pay- ous annexes included in this report present a number ments account through a government payments pro- of country case studies and additional materials such gram might still be reluctant to use it for a variety of as surveys and methodologies developed for cross reasons as explained in section 2.3.4. The use of finan- country-comparisons that can also be useful informa- cial literacy campaigns is an especially effective tool tion sources and tools when undertaking the recom- to facilitate the effective adoption of the new payment mended stocktaking exercise. alternatives and products. Moreover, government au- thorities should promote that these payment accounts 148. In this regard, annexes A through E present a vari- be safe and reliable, affordable, convenient, and trans- ety of country case studies on issues such as undertak- parent (see Guideline 6). ing a comprehensive reform of government payments, initial adoption or modernization of a TSA, adoption 145. Financial inclusion is becoming a national public of electronic payments in connection with govern- policy objective in a growing number of countries. In ment payment programs, risk management in these this context, it should be noted that while government programs, and improving financial inclusion by chan- payment programs can indeed contribute towards this neling government social transfers through appropri- policy objective, they are not the only tool available ate payment and financial products. for this purpose. Moreover, for government payment programs financial inclusion is typically an ancillary 149. Annexes F through H present a set of differ- objective as compared to the objectives of overall safe- ent tools. Annex F presents an analytical framework ty, efficiency and transparency. Policymakers should to assist the treasury in identifying all relevant links therefore make use of all the various policy tools and and correlations among different actors, activities and instruments at their disposal for the fulfillment of the outputs. Annex G includes the questionnaire on gov- financial inclusion objective. ernment payments developed by the World Bank as a reference for its second Global Payment Systems Sur- vey, which can be used as checklist to ensure that the key specific issues and considerations are being duly identified. Annex H presents information on the 2011 Government E-Payments Adoption Ranking (GEAR) study, which measures the extent to which countries provide key government payment services through The General Guidelines 38 GENERAL GUIDELINES electronic platforms (such as the Internet and mobile- phone networks) and the underlying factors that affect government e-payments adoption.51 150. Finally, as mentioned in the introductory section to this report, in a second phase the World Bank and the IAG will continue to work to develop additional material, tools and other types of contributions to further assist countries with the practical implemen- tation of the General Guidelines. It is the expectation of the World Bank and the IAG that this additional guidance be available shortly after the public release of this report. For further information refer to “2011 Government E-Payments Adoption 51 Ranking”, a global index and benchmarking study by the Economist Intelligence Unit, sponsored by Visa Inc., March 2012. Available at www.visa.com/gear. GENERAL GUIDELINES 39 Annex A: Case Study – A Comprehensive Approach to Reforming Government Payments: The case of Italy52 SIPA is the acronym for the Italian “Government Pay- Understanding, defining roles and responsibilities for ments Computerized System”, which processes all each of the signatory institutions. It also identifies the payments initiated by the Italian central government, technical architecture as well as the steps that any ac- including ministries, other central departments and tor has to follow to introduce or share new procedures. some decentralized offices. SIPA is the outcome of an The SIPA has been operating through a Strategic Com- agreement between the main institutional actors of the mittee, chaired by the General Accounting Office, and Italian government payments system to reform the ex- a Steering Committee, chaired by Digit PA. isting operational framework in order to address two main needs: i) to improve the performance of payment One of the main challenges was the prevalence of an procedures in terms of cost reduction, timeliness and old and inorganic treasury services regulatory frame- process reengineering; and, ii) to have timely data for work. Before the year 2000, any innovative procedures both controlling state budget execution and for moni- could not be covered under that basic framework and toring general government spending. required the production of additional specific regu- lations. This made the regulatory framework overly The main objectives of the SIPA were thus to: complex. Starting 2000, the overall framework was re- formed and a deregulation process was initiated. • Introduce information and communication technology in public spending and reporting procedures in order to ensure reliable The technical architecture of the system rests on a data and information; gateway between the general government’s electronic network and the interbank network. All payments ini- • Ensure timeliness of payments; tiated by the central government and checked by the General Accounting Office are routed to the Bank of • Replace paper with electronic data; Italy, which generates electronic credit transfers sent through the interbank network. Reporting informa- • Execute payments using, as a rule, tion is sent from the banking system to the Bank of Ita- electronic payments ly and the General Accounting Office, and then routed to the relevant government agency or department. Apart from the architectural and technical aspects, SIPA is mainly an agreement and a method. The gen- In less than 5 years SIPA led to the dematerialization eral agreement was signed in 2000 by the General Ac- of about 40 million payments. As a consequence, in counting Office, Digit PA (the government agency for the last ten years the Bank of Italy has experienced the the innovation in public administration), the Court of reduction of about 50 percent of the staff required for Auditors and the Bank of Italy in its role as State Trea- government treasury services. surer. This agreement is similar to a Memorandum of 52 Contribution made by Banca d’Italia. Annex A 40 GENERAL GUIDELINES Annex B: The Treasury Single Account: Country Examples France53 Historically, the coverage of the AFT has been very The French government does not use accounts with broad compared to treasuries in other OECD coun- commercial banks. Through the French Treasury, the tries. Under recent reforms, however, the coverage of Agence France Trésor (AFT), which is part of the Min- the TSA has been steadily shrinking. istry of Economy, Finance and Industry, it has devel- oped a TSA at the central bank. Italy With nearly 11,000 public institutions including the The TSA includes the balances of all central govern- central government, 20 regional governments and a ment revenue and spending departments (includ- municipal system with a high degree of spending au- ing overseas authorities) as well as those of so-called tonomy, the Italian Treasury plays a significant role in managing public spending. “treasury correspondents” which are regional and local governments and certain quasi-governmental bodies The central bank has developed a treasury system that such as state-owned enterprises. Social security funds manages over 17000 sub-accounts in the name of lo- are not held at the TSA but at the Caisse des Depots et cal governments, social security institutions and other Consignations, a state-owned savings bank. autonomous public institutions with extra budgetary funds. The solution provided by the central bank fo- Cash (and debt) management is the responsibility of cused on developing a consolidated model to address the AFT. Cash management includes all central gov- the “asymmetric” structure of public financial flows ernment cash flows (including investment flows) and in Italy as the collection of revenues is highly central- financing transactions. It also includes the cash flows ized while spending procedures and responsibilities of treasury correspondents.54 The AFT actively man- are decentralized. In fact, transfers from the central ages the TSA: it invests (and if necessary borrows) level to the local levels are the fulcrum of whole the surplus funds in the money markets with a view to system. G2G payments account for 67 percent of the maintaining a low and stable end-of-day balance in the total payments made by the central bank in terms of TSA and ensuring the best return on the investment of value, but only 1.2 percent in terms of the number of surplus cash. transactions. The spending agencies make expenditure commit- The wide use of a sub-accounts system aims at both ments and forward payment requests to one of the monitoring general government cash flows and reduc- nearly 4500 regional treasury offices. The actual pay- ing liquidity and borrowing requirements. It provides ments are made from the regional sub-accounts of the the Italian Ministry of Finance with full control over TSA. Closing balances in such sub-accounts are swept budget allocations and budget execution process. All into the TSA in real time. sub-accounts end up being consolidated in the trea- sury’s general ledger, thereby reducing the volatil- ity of cash flows and allowing the treasury to main- 53 Sources: IMF and Banque de France. tain a lower cash buffer to meet unexpected events. 54 While movements in the accounts of treasury correspondents do not directly concern the central government from a control perspective, they do have a direct impact on the TSA, and therefore they affect the AFT’s cash management task. GENERAL GUIDELINES 41 Other integrated systems have been implemented settlement system, the SPEI. G2B and G2P payments more recently to collect data and information on pub- are now made through TESOFE’s connection to SPEI. lic payments and revenues in an effort to further im- Given the large number of transactions and informa- prove the management of public monies. tion involved, in particular with regard to government employee payrolls, SPEI’s opening time was modified Mexico55 in order to give commercial banks more time to re- In 2007, the national treasury (TESOFE) and the cen- ceive and process information during the night shifts.57 tral bank initiated a project to establish a TSA.56 The SPEI now opens at 7:30 pm the day before the value main goals of this project were to improve the financial date of the payments, and it remains open until 5:30 management of federal funds and setting up a process pm. Moreover, a new type of payments was defined for TESOFE to pay directly from its account at the cen- in SPEI in order to achieve a more straightforward tral bank to the accounts of government employees as identification of government payroll payments. These well as service providers and contractors. payments are sent at the opening of the system and have to be credited on the beneficiary’s account before Prior to the launch of the TSA, the various federal 8:40 am. agencies had one or more accounts with commercial agreements. The TESOFE would wire the budgetary By March 2012, the total number of G2B and G2P pay- funds to such accounts. Federal agencies would nor- ments processed through SPEI surpassed 8 million per mally have individual agreements with the banks for month. the latter to disburse the funds to the final beneficiary. In some cases commercial banks would charge a fee to Turkey58 provide the required services, although in most cases The National Treasury (Treasury), the Ministry of the agreement included at least 2 or 3 days of float for Finance (MoF) and the Central Bank (CBRT) initi- the commercial bank before the actual distribution of ated studies to modernize Turkey’s government pay- the resources. ments system and to improve the TSA in 2006. Key objectives included sweeping idle cash balances on The TESOFE and the central bank teamed up to be the general government institutions’ bank accounts into driving forces behind the project. The project included the Treasury’s account, and transferring funds from a legal mandate for the use of TSA for the collection of the Treasury’s account to those institutions’ payment taxes and for the disbursement of all government pay- accounts to cover their following day’s payments. This ments. Responsibilities were defined and assigned to new TSA operates through CBRT’s correspondent government agencies. bank where all accounting units’ payment accounts are held and electronic information sharing between the In October 2008, the central bank facilitated the con- nectivity between TESOFE and its real-time gross 57 For this specific payroll project component, TESOFE and the central bank set up a working group together with the Mexican Bankers’ Association. The 55 Source: National Treasury of Mexico (TESOFE) and Banco de México. working group met every two weeks during the 8 months that lasted the imple- 56 The central bank acts as the financial agent for the federal government. mentation process. Among other things, this includes the disbursement and collection of payments 58 Source: Central Bank of the Republic of Turkey, The National Treasury and that the TESOFE performs on behalf of the federal government. The Ministry of Finance. Annex B 42 GENERAL GUIDELINES parties is in practice since September 2007. This sys- KEOS is planned to be fully operational in mid-2012. tem facilitates outgoing payments through three key steps: (a) Electronic transmission of payment requests from the various ministries to the Treasury for pay- ments to individuals,59 institutions or businesses using Say2000i, which is a software application previously developed by the MoF for accounting purposes. The Treasury evaluates the requests according to its cash plan; (b) The payment request is electronically verified by the Treasury through the Say2000i; and, (c) Then, each morning the Treasury transfers the cash from its accounts with the CBRT to the accounting units’ pay- ment accounts with the CBRT’s correspondent bank. After a successful implementation for approximately two years of the above-mentioned restructured TSA, the Treasury, the MoF and the CBRT agreed on further developing the system. For this purpose, the MoF and the CBRT jointly started to develop a technological solution, known as KEÖS, for government payments software, which fulfills the TSA function. KEÖS has four operating steps. The first two are the same as those for the restructured TSA. The difference is the utiliza- tion of the Public Expenditure and Accounting Infor- mation module of KEÖS, known as the KBS, instead of Say2000i. As the third step, the Treasury dispatches the payment orders electronically to the CBRT through a subsidiary system of KBS-KEÖS. In KEOS, the CBRT’s correspondent bank is no longer a part of the process and all payment accounts of the accounting units are held with the CBRT. After the cash is released from the Treasury’s account to the accounting units’ payment accounts, each accounting unit sends its payment or- ders to the CBRT via TIC-KEOS, and the CBRT di- rectly transfers the funds from the payment accounts to the beneficiary’s account through the RTGS system. The CBRT also sends an account summary of the pay- ment transaction electronically to the Treasury and ac- counting units as a confirmation. 59 The payment request includes the amount and the account information of the beneficiary. GENERAL GUIDELINES 43 Annex C: Select Country Cases of Adoption of Electronic Payments as part of Government Payment Programs I. Government to Dominican Republic Person payments In the early 2000s, social benefits provided by the government were distributed manually. Aid was not Brazil always reaching eligible recipients and the govern- Brazil’s Bolsa Familia Program delivers cash transfers ment had no efficient way to monitor distribution and to 12.4 million recipients. The program was created measure results. An economic crisis in 2003 caused in 2003 to bring universal coverage to Brazil’s poor the government to look for a better way to deliver as- after the merger of four cash transfer programs. The sistance to its needy individuals and at the same time program provides low-income families with monthly improve public spending by identifying the key targets transfers ranging from US$7 to US$45. By switching of the population that should benefit from government to electronic benefit cards issued by this state-owned subsidies. financial institution, the program helped lower admin- istrative costs from 14.7 percent to 2.6 percent of the In 2004, the newly formed Social Subsidies Adminis- value of the grants disbursed. But a large share of the tration (ADESS), an autonomous agency reporting to savings came from consolidating several cash transfer the President’s Social Policy Cabinet, set out to cre- program payments into one payment account—not ate a new solution that addressed delivering benefits just from switching to electronic benefit cards. quickly and cost efficiently, as well as creating a single flow of benefits that the government could control and The Caixa Economica manages the payments process monitor. for all social programs in Brazil. This entity operates the Cadastro Único, which is the national registry for The ADESS launched a card-based distribution pro- social programs, and assigns social identification num- gram for food subsidies. The beneficiaries of the bers to individuals. The Ministry of Social Develop- Comer Es Primero (Eating is First) program are now ment provides monthly payment authorizations to the able to purchase groceries with prepaid cards at small Caixa Economica, which then credits the funds to the neighborhood merchants who were provided with beneficiaries’ electronic benefit cards each month.60 card acceptance terminals. Cash is not accessible The deposits can be accessed through multiple access through these prepaid cards. As of today, this program points, including 2,000 agents, more than 2,000 bank- involves 850,000 benefit cards used for accessing 9 dif- ing correspondents, 9,000 lottery points, and Caixa ferent subsidies, including food benefits, electricity Economica ATMs. The payments process is monitored and gas, through a network of more than 4,500 affili- by the Ministry of Social Development as well as by ated merchants. municipal and state coordinators. India Several central bank programs have enabled large- scale migration of government salaries, pensions, tax 60 Currently, the Caixa Economica is in the process of transitioning beneficiaries from receiving payments on the electronic benefit card to simplified mainstream refunds, and other G2P payments to electronic means accounts (CAIXA Facil). of payments. On the other hand, most G2P programs Annex C 44 GENERAL GUIDELINES directed towards rural areas operated until recently approval and payment processing functions, which had through cash or other paper-based instruments and caused delayed or incomplete payments to beneficiaries. records. However, G2P payments under the Mahatma Gandhi National Rural Employment Guarantee Act The Health Operations Payment Engine (HOPE) will (MNREGA) generated considerable momentum to- act as a system of record and repository of detailed wards the use of electronic payment mechanisms, as payment transaction data, providing files of summary the act requires that wages should be paid to bank ac- and detailed payment data to the Bihar state govern- counts or post office deposit accounts. ment. The system aims at handling payments for mul- tiple programs. Therefore, it will need to rely on a set Close to 12 million adults had enrolled to this program of system parameters so that the various programs can by January 2011 in the Andhra Pradesh state alone. An be deployed quickly without requiring a systems de- electronic muster and measurement system (eMMS) veloper to modify the application each time a new pro- was implemented to record measurements and daily gram is implemented or whenever changes are made attendance. Mandal computer centers (MCCs) were to existing programs. established, one for every 5,000 workers. Each centre is linked to the eMMS and to an electronic funds man- The HOPE system is designed to ensure segregation agement system (eFMS) to process payments for wages between data entry of events and approval of pay- and materials. The eFMS uses eMMS data to pay for ments. There will be a clear audit trail of payments and wages and other work-related expenses. All such pay- the events that triggered them. The expected benefits ments are made either at the intrabank level or through of the system include compliance with Government of the interbank NEFT/RTGS system operated by the India policy for conditional G2P payments, the ability central bank. The Government of Andhra Pradesh to monitor recipients’ eligibility overtime and corre- transfers a lump sum to the banking partners, with sponding G2P payments, a centralized inventory of all a list of workers who need to be paid. The bank then events that trigger cash payments, the ability to gener- credits the accounts of the workers. Enrolled workers ate payment instructions to multiple payment service withdraw their funds through smartcards, which can providers using different payments instruments (pre- be used with a network of business correspondents paid cards, bank accounts, smart cards, mobile pay- equipped with POS terminals to process transactions. ments, etc.), and payment notification to recipients. A different, relevant example is that of the Government The Government of India has also implemented the of Bihar. This state government is considering imple- Central Plan Schemes Monitoring System (CPSMS), menting a rules-based entitlement engine that would which is a system to manage and monitor all the fi- have the following functions: i) maintaining records nancial flows across the various levels of government about recipients and using program rules to calculate and also the various local entities created to imple- the values and due dates of recipients’ payments. These ment the various government schemes. The CPSMS data are used to produce payment instruction files that system also integrates with various banks and can pro- are sent to banks and payment service providers to cess payments into the accounts of the end recipients. post the corresponding financial resources in recipi- In addition, the Government of India has launched ents’ bank accounts or another payment instrument of a program to provide identification numbers backed choice; and, ii) automating the determination of G2P by biometric authentication capability to all residents. entitlements, and in the process separate the payment This number is called Aadhar (Unique Identity - UID). GENERAL GUIDELINES 45 Aadhar is being integrated into the enrolment process items, so that in the period 2008-2011 the total number to government payment programs, thereby improving of electronic payments made by the treasury increased the integrity of the enrollment process. There is also a significantly: from nearly 1.8 million payments in 2008 plan to make this number the identifier for directing to over 16.4 million payments in 2011. payments to end-beneficiaries, with a mapping being done to Aadhar and a bank account number in to an The benefits of this new centralized disbursement intermediate system. scheme for government payments include, among oth- ers: i) significant savings for the federal government Italy because of the reduction in fees paid to commercial In Italy, the central government launched the Carta banks; ii) improved transparency; iii) improved budget Acquisti social card program in 2008 to provide spe- control; iv) improved financial forecasts; and, v) con- cial benefits to families with little children and senior solidation of the SPEI. citizens. It has become one of the most significant gov- ernment payment programs in Europe both in terms Pakistan61 of scale and outreach; the program saw over 500,000 In 2008, the Government of Pakistan launched a large recipients in its first two months of operation. The Ital- ian government chose prepaid cards to deliver these cash transfer program called the Benazir Income benefits as they were able to control how the funds Support Program (BISP). The BISP began collecting were used (funds are intended to buy food only) and information in 2010 on all eligible households to cre- quick deployment to a large number of people in a ate a standard unified database. The rollout of the BISP short time. has been greatly aided by the fact that Pakistan has a unique national identity card and an associated citizen Mexico identification number. These numbers are issued by At present, the federal treasury, using its TSA, makes and stored on a national database which is managed by direct electronic payments to the accounts of provid- another government agency, NADRA. ers of goods and services of the federal government, as well as payroll payments to the accounts of most fed- Initially, the BISP aimed to reach 3.5 million families eral employees. or 40 percent of the population below the poverty line, although the target number was revised upwards to 7 Early in 2008, a new agreement with the central bank million in 2010. By June 2010, the BISP had registered was signed. The new agreement considers a fixed 2.2 million households and had disbursed the equiva- monthly fee for all the services the central bank pro- lent of almost US$500 million in cash grants. Given vides to the treasury, including unlimited use of the the limited coverage of the formal financial system in central bank-operated SPEI payments system. the country, most BISP grants are delivered in the form of a money order issued by the Pakistan Post which has Later on that year, the central bank developed a spe- a network of approximately 11,000 post offices nation- cific tool within SPEI for the payment of the federal wide. Pakistan Post was able to quickly adapt its exist- government’s payroll and pensions. That tool allows ing money order product to the BISP. For this service, the processing of any type of payments that involve a high volume of beneficiaries. In turn, the treasury 61 Additional information on Pakistan’s programs may be found at: http://www. overhauled its systems to address the aforementioned cgap.org/gm/document-1.9.50409/cgap_ubl_case_study_jan_2011.pdf. Annex C 46 GENERAL GUIDELINES Pakistan Post receives a fee of 1.5 percent of the total opment which intends to break the intergenerational amount of the grant.62 poverty cycle through investments in human capital. The CCT Grants are distributed using the following In addition, in early 2010 the BISP launched a pilot for mechanisms: smart cards in order to allow beneficiaries to withdraw their cash from limited-mandate or special purpose • Cash Card (ATM): The cash grant is received by accounts. The cards for the pilot were customized by the most responsible person in the household, NADRA and the cost, of around US$5 per smart card, usually the mother, through a cash card issued by was paid by the BISP. Each card had a chip embedded the Land Bank of the Philippines (LBP), a state- on the front and a 2D barcode on the back containing owned bank. national identity card data. This bar code can be read by the mobile phone camera of the disbursing agents. • Over-the-Counter via LBP branch: In cases where The BISP smart card also requires a PIN. At the time of payment through a cash card is not feasible, the payment (usually first week of the month), the benefi- beneficiaries are able to withdraw their grants ciary goes with the disbursing agent and hands over his through over-the-counter transactions from the national identity card and BISP cards to the agent. The nearest LBP. agent scans the 2D barcode and the beneficiary enters the PIN number into the agent’s mobile phone or key- • G-Cash Remit: In December 2010, the DSWD pad to authenticate the transaction. and LBP partnered with Globe Telecom to con- duct pilot implementation of using G-Cash The network of disbursing agents is managed by Unit- Remit, the domestic cash pick-up service of Globe ed Bank Limited (UBL). Agents receive a fee of 1-1.5% Telecom, in Balabac and Taytay, Palawan as well for each disbursement transaction. This amount is as Burdeos, Quezon. The G-Cash Remit handles paid out of the 4 percent fee that BISP pays to UBL. transactions through a wide network of outlets. Moreover, LBP intends to use GCash Remit to dis- The Philippines burse cash grants in Albay, Aklan, Aurora, Cebu, The Conditional Cash Transfer (CCT) Program of Iloilo, Lanao del Norte, Masbate, Sarangani, Sor- the Department of Social Welfare and Development sogon and others. (DSWD) is carried out via the Pantawid Pamilyang Pilipino Program (4Ps), which is a poverty reduc- Russian Federation tion and social development strategy of the Philip- The federal program “Electronic Russia” was devel- pine National Government that provides conditional oped with the strategic objective of implementing a cash grants to extremely poor households to improve universal and user-friendly electronic payment instru- their health, nutrition and education, particularly ment for the delivery of multiple social services (or of children aged 0-14. It has dual objectives, one is benefits) throughout the whole territory of the Russian Social Assistance which aims to provide cash assistance Federation. To facilitate the implementation of this to the poor to alleviate their immediate needs (short project, the federal law on “Government and Munici- term poverty alleviation), and second is Social Devel- pal Services” was recently adopted. This law regulates 62 After a series of complaints the collaboration between the post offices and the government provision of such services, including BISP came to an end in early 2012. their provision in the electronic form. The law also GENERAL GUIDELINES 47 regulates the issuance and maintenance of individuals’ the country of the UK leading cash payment network universal electronic cards (UEC). operator, PayPoint, used for convenient payment of household bills and top-ups. The new service will begin The main idea of the program is to provide individu- to be introduced from 2012, and payments by cheque als with a wide range of electronic services within the will be phased out gradually to make sure beneficiaries whole Russian territory through a chip-based smart have time to prepare for this change. Customers of this card. Besides the possibility of using the UEC’s pay- service will be able to use a bank account to receive ment application for government payment execution, their entitlements. it will also allow its users to obtain government and municipal services (e.g. social assistance services, United States transportation and medical services), and some finan- The United States was an early adopter of electronic cial services, including card payments. G2P payments in the form of electronic benefit trans- fers (EBTs). The demonstration pilot for EBTs started Starting 2013 the UEC will be given to every Russian in 1984 in the state of Pennsylvania for the food stamp individual older than 14 years. The UEC will contain program administered by the U.S. Department of Ag- some information associated with the user (e.g. essen- riculture. The 1996 Personal Responsibility and Work tial passport-related information) in visual as well as Opportunities Reconciliation Act (PRWORA) man- electronic form. This information will be used for de- dated that states convert to EBTs for food stamp distri- termining the individual’s rights/entitlements in asso- bution by October 2002. By June 2004, EBTs had been ciation with government, municipal and other servic- implemented nationwide for food stamps. Currently, es. It is also used to identify and authenticate the user. more than 42 million participants receive this benefit There are also a number of social projects based on each month. the usage of cards currently operating in the Russian Federation. One of them is Moscow Social Card. Over Almost all EBT programs use cards with magnetic 10 million cards have been issued (of which 4.5 mil- strips, such as debit cards, to access participants’ EBT lion are already in use at present) to Moscow residents accounts. One of the main reasons for the relatively that are entitled to receive some government benefits. quick adoption of EBT programs was the support they These cards are either magnetic strip/contactless smart received from retailers due to their lower transaction cards and include a number of government applica- costs, and recipient satisfaction and preference for tions such as transit (subway, railroad, bus), health EBTs. For example, while many recipients were embar- insurance, loyalty, and discounts from selected stores. rassed about using foods stamps with retailers, EBTs allowed recipients to use ubiquitous payment card United Kingdom technology and removed the stigma of paying with In the UK, over four million people currently used to food stamps. Early EBT implementations involved receive some form of government benefit paid through hands-on, in-person training for all food stamp recipi- the Post Office on the Post Office Card Account ents, but program administrators determined that this (POCA). The POCA could only be used to withdraw was not necessary, and later implementations reduced cash at Post Office. The UK Department of Work and or eliminated hands-on training. Pensions announced a new service through which a large global commercial bank (Citibank) would pro- Other relevant efforts to promote migration to elec- vide the new-over-the-counter service at outlets across tronic payment instruments include those of the Finan- Annex C 48 GENERAL GUIDELINES cial Management Service (FMS), a bureau of the U.S. Beyond these advantages, the Direct Express® program Department of the Treasury that provides centralized also provides significant cost savings to the U.S. gov- payment services to federal agencies and operates the ernment and taxpayers: it costs US$1.03 to issue a fed- federal government’s collections and deposit systems. eral benefit payment by cheque and only US$0.10 for In 2005, the FMS launched the GoDirect® program, an electronic payment. an ongoing public education campaign that promotes migration from paper cheques to electronic payments The U.S. Department of the Treasury’s All-Electronic in an effort to reduce the time, materials, and cost of initiative (announced in 2010) will dramatically in- mailing cheques, while providing recipients with a crease the number of electronic transactions in order safe, convenient, and highly reliable payment option. to reduce paperwork and save taxpayers money. The The GoDirect® program also includes a call center that Treasury estimates the federal government will save an assists cheque recipients with the switch to electronic estimated US$400 million and 12 million pounds of funds transfers, either on the telephone or through a paper in the first five years as a result of this initiative. secure website. After a few years, nearly 80 percent of The announcement highlighted a three-pronged ini- the almost one billion annual FMS payments to over tiative to reduce the number of transactions conducted 100 million beneficiaries were already electronic. on paper by moving them to electronic systems: However, within the Social Security Administration First, the Treasury issued a regulation that requires in- (SSA) alone there were still some 10 million benefi- dividuals to receive their Federal payments electroni- ciaries receiving paper cheques each month. An esti- cally. Individuals can receive benefits either through mated 4 million of these recipients did not have a bank direct deposit into a bank account or on the Direct account and were not able to receive direct deposit. Express® debit card. The requirement applies to all in- The FMS and the SSA worked together in devising a dividuals applying for benefits after May 1, 2011, and cost-effective, electronic payment solution that would to existing cheque recipients beginning on March 1, provide additional safety, convenience and usage fea- 2013. This mandate is greatly assisted by the GoDirect® tures. The FMS opted for a prepaid card solution and program. in April 2008 launched the Direct Express® program. Within two years, more than 860,000 SSA recipients – Second, businesses previously using paper Federal Tax nearly a quarter of those without bank accounts – had Deposit coupons for Federal tax payments were re- enrolled in the program. quired to make those deposits electronically beginning in 2011. A 2009 survey of Direct Express® cardholders showed high satisfaction rates. The top three reasons included: Finally, the Treasury eliminated the option to purchase i) immediate payment – no waiting for a cheque in the paper savings bonds through payroll deductions for mail or it being delayed, lost or stolen, which means Federal employees on Sept. 30, 2010, and for the pri- recipients can pay bills and make purchases immedi- vate sector on Jan. 1, 2011. Instead, these savers can ately on payment day; ii) safety – no need to go to a purchase book-entry savings bonds through the Trea- cheque cashing provider and carry around lots of cash; suryDirect program. and, iii) convenience – payment is received no matter where they are, with access to millions of retail stores. GENERAL GUIDELINES 49 II. Government to Business ent, each agency’s Expense Administrator determines payments which employees will receive cards to use for low-value purchases, such as office supplies, repairs, and emer- Brazil gency services, and assigns cardholders their respec- In 2001, the federal government implemented a cor- tive spending limits within the parameters established porate card program as part of a broad effort to mod- by law. Transaction volumes handled under the CPGF ernize government purchasing across all federal agen- program have steadily increased from R$3 million in cies. The program, known as Cartão de Pagamento do 2002 to R$73million in 2010, while government agen- Governo Federal or Federal Government Payment cies using the program more than doubled, from 10 Card is supported by Banco do Brasil, the exclusive fi- to 23. nancial agent of the federal government. Prior to the establishment of this program, funds for In June 2011 a new program was launched, called the all low-value procurement expenses not subject to a “Civil Defense Payment Card”. This program aims at bidding process were transferred to current accounts transferring funds from the federal government to which gave access to cash and cheques (known as state and municipal governments in the context of “Type B Accounts”). These accounts were funded from natural disasters and relief operations. This program the Treasury’s central account, administered by each includes very specific features such as no access to agency and assigned to an approved federal employee. cash, usage is only domestic and for the procurement The employee had up to 90 days to spend those funds. of goods and services, and no surcharges can be paid This process had a number of disadvantages. First, when using the card. during the 90 days in which the funds resided in the account the Treasury faced a challenge in maintaining United States control of the funds. Second, managing the paperwork The U.S. Department of the Treasury provides the In- associated with multiple accounts across all federal ternet Payment Platform (IPP), which is a web-based agencies was extremely difficult, time-consuming and electronic invoice exchange network that connects expensive. federal agencies and their commercial suppliers. IPP enables agencies to receive invoices electronically from The introduction of the corporate card program their suppliers, transforming existing paper-based in- (CPGF) allowed the government to keep all funds in voice receipt and approval processes into a streamlined the central account until transactions actually take electronic process that integrates with existing agency place. For all transactions within a given period, funds financial and accounting systems. IPP’s single point of are debited from the account by the bank on a date entry allows suppliers to invoice multiple IPP-enrolled pre-agreed upon by the Ministry of Planning, Budget agencies via either online portal or through automated and Administration and Banco do Brasil. More impor- system-to-system connections, eliminating the need to tantly, the CPGF allowed for increased transparency send paper invoices. Suppliers can also view and re- and accountability in the use of government funds. ceive notification of payments (including debt offsets) Through the federal government’s transparency web- associated to their invoices via IPP. site (www.transparencia.gov.br), the expenses made with payment cards can be tracked by agency and in- The IPP is designed to yield government-wide efficien- dividual cardholder, providing full disclosure of value cies by: (1) reducing or eliminating paper-based pro- of the transaction, date and type of merchant. At pres- cessing by accounts payable; (2) enhancing Treasury’s Annex C 50 GENERAL GUIDELINES value and service to its citizens by increasing access to, effectively integrated key players such as large utilities and the quality of, payment data; and (3) providing a and did not cover the entire territory of the country. single, central web-based application in which govern- ment finance departments can engage with their sup- The State Program for the Development of the Nation- pliers, and in which government suppliers can engage al Payments System for the period 2005-2007 aimed with agencies. basically at: (a) completion of the technological inte- gration of tax, customs and pension payments into the The US Government’s acquisition program is managed payment system infrastructure, (b) implementation of by the General Services Administration (GSA). The measures ensuring broader usage of bank accounts and GSA’s SmartPay 2 program provides commercial cards payment cards for pension, social benefit, allowance for G2B payments to U.S. government agencies/de- and other budget-funded allocations, (c) extending ac- partments, as well as other government levels, through cess to payment and financial services for population master contracts that are negotiated with major com- living in underserved rural areas; and, (d) promoting mercial banks. There are currently over 350 agencies/ availability and the use of electronic payment options organizations participating in the program, totalling for bill payments for individuals and businesses. Two key projects were implemented to support these ob- expenses of about US$30 billion annually through 100 jectives: the Centralized Information System on Mass million transactions on over 3 million cards. Payments (CISMP) and the modernization and inte- gration of Azerpost into the national payments system. Through the master contracts, agencies can obtain a number of different types of G2B products and servic- The purpose of the CISMP was to create a centralized es to support their business needs, including purchase e-subscriber base for utilities and other mass service cards for general supplies and services, travel cards for entities, allowing subscribers to both inquire about expenses related to official government travel, and fleet their debts with any financial entity linked to the sys- cards for fuel and supplies for government vehicles, tem and to make payments using cash or other pay- among others. ment mechanisms (payment cards, bank transfers, In- ternet banking). Information on payments received is delivered to the billers within 30 seconds. Changes in III. Person/Business to the e-subscriber base flow in real time to the CISMP Government payments through interfaces with the internal systems of the par- ticipating entities. Azerbaijan Collection of utility bills and other government re- The e-subscriber base now totals approximately 7 mil- ceipts, and more generally access to payment and fi- lion subscribers in a country where the total population nancial services was very low, inconvenient and costly. is slight above 9 million. Information on debts is pro- Azerpost, the postal network of Azerbaijan, with a net- vided by 45 financial organizations through 1,673 pay- work of over 1,000 post offices around the country was ment points, 850 of which are Azerpost payment points. the only institution providing some basic (cash-based) payment and financial services in smaller urban cen- In 2011 the CISMP processed an average of nearly tres and rural areas. The payments infrastructure de- 63,000 payments a day. Volumes keep growing rapidly. veloped by the Central Bank of Azerbaijan had not yet In the first quarter of 2012, approximately 5.9 million GENERAL GUIDELINES 51 payments were processed, representing a daily average ized treasury account, has been loaded into the central of about 76,000 payments.63 database. The budget classification code, budget level code and budget organization code are determined The Azerpost modernization project was implemented automatically and added to each payment transaction. over a 5-year period. Three types of services were to Thus, accepting payments is simplified, the number be provided in addition to traditional post services: of errors is minimized, and fully automated payment (1) Financial services – electronic payments (benefits, transaction processing in the internal information social allowances, funds transfers), collection of utility system of the State Treasury Agency is ensured. In the payments, deposits, other savings services, remittanc- next stages, the internal information systems of the es, issuance of some non-cash payment instruments Ministry of Internal Affairs, State Customs Commit- (e.g. debit cards); (2) E-government services – issuance tee, State Social Protection Fund and other govern- of various certificates and business and personal docu- ment agencies will be integrated into the GPP. ments by local and central executive powers, collection of different taxes, duties, fines and other payments; (3) Recently an e-government system – EHDIS – was E-business services – e-trade, opening email addresses, launched. So far it incorporates 16 government insti- Internet access, information and electronic databases. tutions that provide 60 services. It is expected that the Azerpost’s head office, its 63 branches and 960 postal total number of electronic services to be rendered by departments have already been granted permission to the various government agencies of the republic will provide financial services. In order to issue interna- total 300. tional payment cards, Azerpost finalized membership certification with an international card organization Brazil and issued its first card into circulation. Prior to 2000, bank correspondents in Brazil could only provide bank-like services in locations considered “un- The government ordinance requiring that the pay- attended” (i.e. in areas without bank branches). In 2000 ment of taxes, customs fees, duties and other payments regulations changed, allowing correspondents to set up be made directly to government entities in real-time anywhere in Brazil. The current regulation also allows mode originated the decision to create a Government all financial institutions and other institutions autho- Payments Portal (GPP) on the basis of enhancing and rized by the Central Bank of Brazil to hire agents to car- improving the technical and functional capabilities of ry out correspondent functions, regardless of whether CISMP. The main idea is to enable accepting payments such agents are members of the national financial sys- to the state budget via a single platform. tem. Among other key services, correspondents collect payments associated with taxes and utility bills. Transformation of the CISMP into the GPP is being implemented at a rapid pace. Payments collected by Since 2002, every municipality in Brazil has had bank- the Ministry of Taxes and Ministry of Finance using 90 ing services and only 34 lack correspondents. The economic classification and payment codes are already number of correspondent service points has grown available to be paid through the GPP. Information on steadily over time. Individuals who do not have an ac- taxpayers from some regions, including Baku and two count at an authorized financial institution are able to other big cities currently working with the central- pay their bills and taxes at any bank branch or corre- 63 Additional statistics are available at www.apus.az. spondent using cash or other payment means. In fact, Annex C 52 GENERAL GUIDELINES at present correspondents is the most heavily used comprehensive Electronic Bill Payments and Settle- channel for the payment of public utilities. ment (EBPP) platform to streamline the bill and collec- tion payment process in the Kingdom of Saudi Arabia. Russian Federation In the Russian Federation, as a result of cooperation SADAD acts as an intermediary between the billers, between the Bank of Russia, Federal Treasury and the commercial banks, and utility companies and govern- Ministry of Finance an innovative legal framework ment entities. Its services are offered across all available was developed to allow the implementation of elec- banking channels including ATM, phone banking, in- tronic technologies into the processing of budget pay- ternet banking and branch banking. In conjunction ments collected from individuals which are not made with the local banks, SADAD has linked more than through bank accounts (i.e. P2G payments not involv- 100 billers processing circa 28 million payments per ing the use of bank accounts). quarter during Q1 of 2011. SADAD billers serve the bill payment needs of various sectors, including tele- A new service was developed by the Bank of Russia, coms, financial services, utilities, press & media and enabling credit institutions to transmit information transportation. In addition, government entities in- about these payments through the Bank of Russia cluding ministries, municipalities, customs, funds, ini- electronic communication channels to the Federal tiatives and projects utilize SADAD as well. Treasury for its further delivery to budget income ad- ministrators. The structure of the transmitted informa- Functionally, SADAD allows billers to present their tion allows for the confirmation of the execution of the bills through the banking channels in four different government payment. The new service has become an ways so customers can pay or make billing inquiries effective alternative to traditional practices, whereby electronically, with real-time capabilities: 1) Postpaid credit institutions would remit only one cover pay- transaction: the biller presents an e-bill for each payee, ment through the Bank of Russia’s payments system, which can be either recurring such as a utility service, with the simultaneous transmission of the information or a one-off pre-defined bill such as an airline ticket; about each single payment through the information channel. It also allows budget income administrators 2) Prepaid transaction: billers upload customers’ ac- to properly and efficiently identify the payments made count numbers to SADAD and allow them to pay any by each individual. amount they desire. This is used for prepaid type ser- vices like recharging mobile phones; 3) Fee inquiry These payments, as well as similar B2G payments, are and payment service: no bills are pre-uploaded and the free of charge by law. inquiries are passed all the way to the biller to fetch the fee amount and any other extra amounts custom- Saudi Arabia ers will be charged. This service is used by the Ministry Prior to 2002 the government collections situation in of the Interior. Customers request information and/or Saudi Arabia was highly inefficient, costing the gov- pay for any of more than 45 different options includ- ernment between 10-15 percent of total revenues an- ing traffic violations, driving license, passport, civil nually due to human error, leakage, and delays asso- registration, or alien control services; and, 4) Refund: ciated with the manual, cash-based system. The Saudi customers are able to request refunds through the Arabian Monetary Agency (SAMA) then created the banks or billers channel if the service already paid for SADAD payment system with the aim to establish a is not utilized. GENERAL GUIDELINES 53 In 2008, the Ministry of Finance issued a Directive United States requiring all government electronic collections pro- Annually, more than 96 percent of funds collected grams to use the SADAD payment system. by the Financial Management Service (FMS) on be- half of federal agencies are collected using electronic Turkey64 methods. One system which has experienced signifi- An electronic payment collection system was devel- cant growth has been the Electronic Check Processing oped for taxpayers to pay customs duties. Taxpayers (ECP) system. While payments are still made using pa- use a dedicated debit card called GÜMKART (Cus- per checks, this FMS program clears check transactions toms Electronic Payment Card) at the POS termi- by converting them to an image or ACH transaction. nals installed in the Customs Accounting Units at the Pay.gov, a secure government-wide collection portal, Ministry of Finance. The system was developed by the also meets the FMS commitment to process collections General Directorate of Public Accounts and the Cus- electronically. Using Internet technologies, Pay.gov toms Department, the two main stakeholders, in asso- provides a suite of services, allowing agencies to obtain ciation with Vakıfbank. Card issuance, POS terminal and process collections in an efficient and timely man- installation and maintenance, and program support ner. The Pay.gov application comprises four services: are all managed in a public-private partnership form. collections (ACH and credit card), forms, billing/noti- fication, and reporting. A typical transaction includes the following steps: i) once the taxpayer completes the process of determin- Additionally, taxpayers utilize the Electronic Fed- ing customs duties at the Customs Office, he comes eral Tax Payment System (EFTPS) to pay tax liabili- to the Treasury for payment. Using the Public Expen- ties owed to the Internal Revenue Service (IRS). The diture and Accounting IT module (KBS) of the TSA, EFTPS is a system for paying federal taxes electronical- the responsible official electronically pulls-up the ly via the Internet, or by phone using the EFTPS Voice amount; ii) Using the POS of Vakifbank the taxpayer Response System. Taxpayers may also make their tax then makes the payment with GÜMKART. The trans- payments through a Batch or Bulk Filer, or through action requires dual authentication – physical card debit or credit card, with or without e-filing the tax and password - and the taxpayer’s identity/taxpayer return. When making a payment via credit card, the number is also checked by the responsible official; iii) taxpayer must also absorb the cost of the associated Upon completion of the transaction, the POS gener- merchant fee. ates a confirmation receipt for the taxpayer and the relevant confirmation information is also added into In 2012, FMS will establish and operate a Centralized the KBS by the responsible official. Through the KBS, Receivables Service (CRS) Pilot. This pilot program the payment confirmation is also available within the will be conducted pursuant to Treasury’s effort to im- Customs IT system; iv) Using the payment confirma- prove and streamline financial management across the tion, the taxpayer can then obtain the goods from the U.S. government. The CRS pilot will enlist up to five Customs Department. federal agencies using an accounts receivable servicer, and the results will help Treasury evaluate the viability After the completion of the pilot study with Vakifbank, of providing a centralized accounts receivable service. use of GUMKART Collection System will be extended to all commercial banks in 2012. 64 Source: The Ministry of Finance. Annex C 54 GENERAL GUIDELINES Annex D: Case Studies on Managing Risks in Government Payment Programs I. The UK Cabinet Counter terly data summary; iii) Prevention – investment and Fraud Taskforce65 resource should go into prevention, not just detection and punishment. When vulnerabilities are detected as The UK National Fraud Authority (NFA) estimates part of risk assessment, they should be designed out; that fraud alone costs the UK public sector around £21 and, iv) Zero tolerance – there is no acceptable level billion a year. That is 55 percent of the nation’s total of fraud. fraud loss. The bulk of it is due to fraud against the tax and benefits systems but the Government is also los- Taken together, these priorities will enable the UK ing significant sums to procurement fraud and grant Government not only to prevent fraud but also to de- fraud. tect, deter, correct and punish offenders. The Taskforce on Fraud, Error and Debt was estab- lished in late 2010 to create a high-level, cross-White- II. Overseeing G2B Programs– hall group to address the enormous level of unac- The US Department of Navy ceptable losses. The attack on fraud forms one of the Purchase Card Program cornerstones of the UK Government’s efficiency and and the Program Audit Tool reform agenda. After the formation of the Coalition (PAT)66 in May 2010, the Minister for the Cabinet Office es- tablished the Efficiency and Reform Group (ERG), in As the US Department of Defense purchase card pro- order to support departments’ efforts to reduce waste gram grew significantly, one of the largest programs and spending in a coordinated approach. The ERG’s within its portfolio -- Department of Navy’s – expand- focus includes procurement, ICT, property and suppli- ed to over 45,000 purchase accounts. With greater card ers, alongside fraud. All have a critical role to play in usage came greater risks and internal control challeng- driving efficiency, with fraud potentially being one of es. To reduce and prevent fraud, waste, abuse, or loss of the biggest contributors to removing wasteful govern- assets, the Department of Navy, in partnership with a ment expenditure. global commercial bank, developed an oversight tool, known as the Program Audit Tool (PAT). In their interim report, published in June 2011, the Taskforce has agreed four priorities for tackling public The PAT is a comprehensive reporting and data-min- sector fraud: i) Collaboration – silos must be removed; ing solution that provides online access to consolidat- all parts of the public sector must work together by: ed command, regional and specific unit purchase card sharing intelligence on fraudsters; developing cross- program information to help program administra- cutting capabilities; initiating joint projects using data tors establish a systematic, documented procedure for analytics; and ensuring we jointly procure data ana- monitoring monthly card usage. This automated tool lytics to drive down costs; iii) Assessment of risk and empowers approvers to uncover possible exceptions measurement of losses – fraud risk must be assessed quickly and easily, minimizing the risk of misuse by before projects and programmes are under way. Losses ensuring that cardholders are adhering to Department should also be recorded and reported via the quar- of Navy’s guidelines and policies. Based on criteria de- fined by program management and audit specialists, 65 Source: UK Cabinet Office, “Eliminating Public Sector Fraud. The Counter Fraud Taskforce Interim Report”. 66 Contribution made by Citigroup. GENERAL GUIDELINES 55 PAT searches card transactions automatically, flagging The PAT helped improve the Department of Navy’s exceptions. Customizable parameters can be tailored ability to monitor, detect, and take action on card based on the specific mission or activities of the unit misuse and fraud. The PAT has directly addressed the and can include pre-defined timeframes and specific Department of Navy’s key internal control problems, thresholds such as merchant category codes and dollar standardized their audit process across all units and amounts. The program administrator can easily adjust improved their overall ability to prevent fraud and criteria at any time, deleting filters, refining existing misuse in their purchase card program. rules or creating new ones. Further, PAT automatically generates a consolidated III. Integrated Solutions to report for each billing cycle, enabling review of all Support Public Sector questionable transactions. Upon completion, it sends Procurement 67 e-mail notifications with the progress and results of individual reviews. It allows program administrators Payment service providers are integrating payment, to review their entire portfolio of accounts and view data and reporting solutions to assist governments in specific transactions as needed, and also performs better controlling and auditing purchases and the asso- automatic assessments of the effectiveness of internal ciated payments throughout the procure-to-pay pro- controls and disciplinary action, ensuring the program cess. The chart below illustrates the potential benefits is functioning successfully. As an added benefit, PAT of an integrated solution of this kind. automatically produces reports for senior manage- ment review. These reports provide a program health 67 Source: adapted from “Practical Guide to Control and Compliance in assessment, summary of accounts and personnel, as Commercial Card Programs”, Visa Inc., 2007. well as purchases. Procure-to-Pay Stage Benefits of using a solution integrating payments, data and reporting Improves transparency of the procurement process as it allows visibility into vendor/supplier adherence to Sourcing contract terms with the government agency Enforces government procurement policies at point of purchase through the use of spending limit and Order Placement spend type controls on a card-by-card basis -each program having separate control mechanism Eliminates manual entry of invoice data as card statements are received and reviewed electronically and Payment and Settlement issuers provide regular, customized electronic reporting to the agencies/budget institutions on spending information by program and at account level Provides detailed “fingerprints” at each step of the transaction, from purchase to approval to reconciliation; Reconciliation and, automatically allocates the transactions to general ledger codes and cost centers to reduce time and any coding errors (straight through processing) Increases visibility into the overall spending patterns with transaction data near real time; and, establishes Control and Audit automated triggers to notify program administrators of any fraud or abuse Integrates detailed data into general ledger electronically; and, creates transaction level data and reports Reporting that allow for more accurate program level reporting Annex D 56 GENERAL GUIDELINES Annex E: Case Study – Improving Financial Inclusion through Government Payment Programs: The Case of South Africa68 In 2005, approximately 36 percent of the recipients is equivalent to about US$148, and the SASSA pays of social transfers made by the South African Social the bank about US$1.50 a month per account. For Security Agency (SASSA) were banked. For its key this amount, Sekulula cardholders can make two free programs, SASSA does not use cash any longer and withdrawals per month at proprietary ATMs. Sekulula instead makes the funds available to beneficiaries via cards can also be used at any other bank ATMs for a fee some specific payment card products and also through or at any POS terminal where Visa cards are accepted. mainstream bank accounts. As a result, by 2009 SASSA South Africa also offers recipients an opt-out option had seen a 62 percent drop in the cost of delivering whereby any recipient may nominate an account at any social transfers.69 bank into which to be paid rather than be paid by the contracted payment provider in each province. Once In 2011, nearly 60 percent of all beneficiaries received the recipient makes this election, SASSA makes an their grants through mainstream bank accounts. The electronic transfer each month to this account at mini- use of mainstream bank accounts in lieu of specific mal cost to the agency.70 The recipient then incurs all payment products with limited functionality has been costs associated with using the account (which may be instrumental to improve the population’s access not free in the case of basic bank accounts up to a set limit only to payment accounts but to other financial ser- of transactions), and the bank in general receives no fee vices as well. SASSA also pays a fee that is 54 percent from the government. If recipients do not exercise this lower (US$4.46 compared to US$2.03) for a recipient election, they are required to enroll with the payment with a mainstream financial account. provider appointed in their province. The Sekulula ac- count is used as default option in certain provinces. The most popular product of this kind is the Sekulula debit card account, which is issued by ABSA Bank. The product is targeted at the needs of social grant recipi- ents in South Africa. However, ABSA also cross-sells other financial services such as loans and life insurance to its client base, including social grant recipients. Among other features, the Sekulula account requires no minimum monthly balance. Likewise, there are no monthly account management fees. The amount normally transferred into these accounts each month 68 This annex draws extensively from Bold C, D. Porteous and S. Rotman, “Social Cash Transfers and Financial Inclusion: Evidence from Four Countries”, CGAP Focus Note 77, Washington, 2012. 70 The cost is just the bulk electronic transfer of 10 cents. But if SASSA receives 69 Source: Pickens, Porteous, and Rotman 2009. reports for reconciliation, benchmark is $2.03. GENERAL GUIDELINES 57 Annex F: An Analytical Framework for the Treasury Function71 When reviewing treasury processes with a view to identifying improvement opportunities, it might be useful consid- ering the whole treasury function as a value chain, or, more precisely, as a value system structured in different pro- cesses and activities. This approach enables the proper identification of all the links and correlations among different actors, activities and outputs. The next step is to design a high-level analytical framework that addresses the major functional components of the whole system. Chart 1 provides a list of activities and a brief description of the functional processes and information flows associated with the Treasury system, moving from general (first level) to more specific (second and third levels). The first level or more general level distinguishes between the general and operational frameworks. The second level identifies broad areas such as the legal framework, technology, payments or collections sectors, accounting, etc. The third level examines the more specific activity which, as a rule, should be performed by a single actor. The description column provides a detailed definition of each activity listed in the third column, outlining the existing correlation between different processes. The proposed model aims at focusing the attention of reformers on the processes – in particular in contexts where the roles of the different actors or the stages of the processes are not clearly defined – in order to understand whether the current treasury system is appropriate or if restructuring is needed. The model also highlights the effects of the legal and institutional frameworks on the design of a treasury system. 71 Contribution made by Banca d’Italia. Annex F Chart 1: The “Value Chain” Approach for Government Payments First Level Second level Third level Description 58 The form of Government, the public sector perimeter, the financial relationships between different levels of government may strongly affect the treasury system and government payments. Treasury system reform projects need to cope with different factors such as: the overall general government financial Form of Government model (centralized/decentralized); the fiscal autonomy of local governments, social security and health institutions, independent agencies and other public Legal Framework entities; the way financial relationships between central government and other public administrations affect the Treasury Single Account architecture. Government payments In some countries government payments may be regulated by specific legislation, with ad hoc procedures and standards. It is very important to ascertain if General regulation specific regulation of government payments actually represents a burden or an opportunity for reform projects. Framework Distributed transaction The technological architecture required to implement the information systems follows from the functional process and the organizational model adopted. Technological processing The distributed transaction processing model requires facilities for transaction processing, generating, storing and processing data at every organizational Architecture Centralized transaction level. The Centralized Transaction Processing requires just one centralized technology platform, where the main application software and associated data- bases reside at a central site. In this case it is possible to choose between a single or a multi tier architecture. processing Payments initiation The payment process is a complex procedure. It is very important to examine the single steps of the overall process, from the legal commitment (which can often come from the budget law) to the payment execution. It is also necessary to identify each actor involved as well as each activity, as the spending re- Payments execution Payments quest, the validation process (checking the appropriateness of the expenditure and the availability of budget spending unit), the registration of the payment Decentralized Officials order in the system and, finally, the execution. It is also important to identify all the spending units and how much the spending decision can be decentral- payments ized in the system. The collection of Government receipts can be made through different channels and with different payment instruments. The banking system usually has a Collection of taxes and other strong role but in some cases the Central Bank acts as “collector of last resort”. Ad hoc procedures and instruments can be put in place in order to help the State Budget revenues channelling of information and data to the Governmental Agency supervising revenues. It is also important to define the extent of use of standardized pay- Receipts ment instruments (commoditization) in order to check how open the government collection system is to other payment institutions. Supervision and management The Governmental Agency (or Department) supervising and managing the collection process may influence the development of procedures. In some coun- of collections tries Revenue Agencies can build up huge data-base and route information to other Departments. It is important to describe the role and functions of the Revenue Agency in the overall framework. Holding Treasury and other Central Administrations Treasury accounts It is necessary to draw the actual perimeter of the TSA with respect to the role of local Governments’ and other public entities’ accounts in the TSA general Single Account Holding local Government’s ledger. A system where local Governments steadily hold cash balances at special accounts at the Central Bank may require different operational arrange- architecture and ments compared to a zero-balance accounts system. It is also important to define how local Governments’ treasurers operate on these accounts. accounts Operational scope Framework Local Government Treasury service Treasury liquidity forecasting is a very significant activity both for monetary policy issues and for cash and debt management. In those countries where General Government cash flows are consolidated in the TSA, this activity also supports general government finance monitoring. Forecasting activity needs a Treasury liquidity forecasting lot of information from the General Accounting Office and other independent spending units as well as from the Revenue Agency. It is important to indentify Liquidity the different roles and responsibilities played by the Central Bank (involved for monetary policy) the Ministry of Finance and other independent Departments Management or Agencies. Debt management A central bank may have an important role both in cash and in debt management, acting as fiscal agent and financial advisor to the Ministry of Finance or to Cash management Debt and Cash management Agencies. General Government financial accounts General General Government non- The treasury system usually provides the main input to periodic fiscal reports that give a consolidated picture of all receipts and expenditures and progress Government financial accounts (cash against budget targets. For those reports to be comprehensive, all items of receipts and expenditures need to be captured. It is important to describe the Accounting and basis) role the treasury operations system plays in the production of both cash and on an accrual basis statistics and to outline the role of an integrated informa- Statistics tion system. General Government non- GENERAL GUIDELINES financial accounts (accrual basis) GENERAL GUIDELINES 59 Annex G: Government Payments Questionnaire The following questionnaire is used as a reference for the “Questionnaire for Collecting Information to Depict the Situation of Payment and Securities Settlement Systems Worldwide” in the context of the World Bank bi-annual Global Payment Systems Survey. A. Government transfers and central treasury system 1. What is the general model for government banking at federal level? 2. What is the general model for government banking at state/local level? 3. Is there a fully functioning central treasury system and a treasury single account? 4. What is the operational relationship between the central bank and the national treasury? 5. Describe the process of budgetary transfers between ministries and departments? 6. Which of these factors you consider as obstacles in efficient public finance management? Major Minor Not a concern concern concern Technical Problems Organization of TSA Implementation of IFMIS Other technical problems Procedural Problems Lack of automation Procedural clarity Documentation or other issues B. Government expenditures 7. How is government procurement handled? Which ministry is responsible? 8. Are their clear guidelines on the procurement procedures? Are they publicly available? 9. Are there any special programs in use: p-card, preferred vendor, etc? 10. What are the major obstacles in efficient government procurement in your view? 11. Are there any social benefit payment programs? Please describe. 12. How are the entitlements and identifications handled? 13. Are there any new or planned payment instruments that are being used for these programs? 14. What are the major obstacles in efficient benefit disbursements in your view? Annex G 60 GENERAL GUIDELINES C. Government collections 15. How do taxes/dues usually get paid to the government? 16. Are there electronic channels available for citizens to pay dues to government? 17. How important is revenue leak and what measures are being taken to stop it? 18. What are the major obstacles in efficient revenue management in your view? D. Details of government payment programs 19. Please select the most appropriate box below and provide actual amount, where applicable. Mainly Mainly Mainly cash cheques electronic Government to person payments Public sector salaries Pensions and transfer payments Cash transfers / social benefits Person to government payments Taxes Utility payments Payment for services, etc. Government to business payments Procurement of goods/services Tax refunds Business to government payments Taxes Utilities Benefits transfers 20. Are there plans to migrate to electronic payments? If payments are handled mainly through cash. E. Legal and regulatory 21. What legal provisions cover payment and settlement systems in the country? 22. What legal provisions cover electronic payments in the country? Please specify the laws. 23. In your opinion are evident loopholes in legislation or regulations for electronic payments? 24. Are non bank payment services providers required to register/get a license? 25. Who regulates new payment instruments in the market (such as mobile payments)? 26. Are electronic payment services providers subject to AML/CFT regulations? 27. Who oversees and protects consumer rights (Ombudsman, agencies, etc.)? GENERAL GUIDELINES 61 F. Payment infrastructure 28. What is the general level of communication infrastructure in the country? 29. What is the general level of development of retail payments in the country? 30. What is the general consumer adoption of retail payment instruments? 31. Please detail the prevalence and use of the following, if present: Payment infrastructure Prevalence and use RTGS systems ACH systems ATMs POS 32. Are various retail payment instruments in the country generally interoperable? 33. What are the electronic payments instruments currently in use by the government? 34. Are there any major new initiatives planned or underway for government payments? 35. What has been your experience in implementing such programs? 36. What is the general level of automation/batch processing of government payments? G. Risk management 37. Is there regular monitoring and auditing of government payment programs? 38. What are the targets to maintain service/uptime for government payment programs? 39. Is there proper documentation on operational procedures such as backup and recovery? 40. Does the government have a strategic contingency or business continuity plan? H. Market structure 41. Can all banks and non-bank financial institutions access core payment infrastructure? 42. Are there any regulations concerning pricing models for payment instruments? 43. Who monitors oversight of aspects related to anti-competitive behaviour? I. Governance and transparency 44. Do you believe that there is clarity of roles and responsibilities within various agencies? 45. Does the government publish information debt, financial assets and other transactions? Annex G 62 GENERAL GUIDELINES J. Cooperation and partnership 46. Are there existing memoranda of understanding between partner government agencies? 47. Are there payment industry alliances? What is the government’s partnership with them? K. Financial inclusion 48. Approximately what percent of the population is banked or has access to financial services? 49. Does the government have a strategic plan for increasing coverage of financial services? 50. What role did payment instruments play in the government’s planning for financial inclusion? GENERAL GUIDELINES 63 Annex H: The 2011 GEAR Study72 The Government E-Payments Adoption Ranking (GEAR) study aims at measuring the extent to which countries provide key government payment services through electronic platforms (such as the Internet and mobile-phone net- works) and the underlying factors that affect government e-payments adoption. In the 2011 GEAR study, the Economist Intelligence Unit conducted online research to test 17 common transactions between citizens, businesses and their governments in 62 countries, including tax payments and refunds, automotive costs, social-welfare benefits, registration of businesses and government procurement, to evaluate access to e-payment services. Data on the countries’ payments infrastructure, and social, economic and policy context was also included. The results of this study (i.e. adoption scores and rankings) can be used by country authorities for benchmarking purposes. Alternatively, authorities may wish to revise the study´s methodology to develop a mechanism to measure internal progress over time. In this last regard, the indicators underlying adoption scores and the ranking methodol- ogy are described in Box 8. 72 Source: “2011 Government E-Payments Adoption Ranking”, a global index and benchmarking study by the Economist Intelligence Unit, sponsored by Visa Inc., March 2012. Available at www.visa.com/gear. Annex H 64 GENERAL GUIDELINES Box 8: Indicators Used in the 2011 GEAR Study The study evaluates countries across 37 indicators grouped into seven categories. Each category score is calculated from the weighted average of underlying indicators while the overall score is a weighted average of the category scores; each category is given an equal weight. The qualitative indicators are measured on a scale of 0 to 4, where 4=most favorable conditions, and are normalized on a scale of 0-100, where 100=most favorable. Quantitative indicators (which are mea- sured by a number) are also normalized on a scale of 0-100. The complete list of indicators is shown below: GENERAL GUIDELINES 65 Annex I: Select Bibliography Allsopp, P., Summers, B., Veale, J., “The Evolution of Real-Time Gross Settlement”, Financial Infrastruc- ture Policy and Research Series, The World Bank, 2009. Bold C, D. Porteous and S. Rotman, “Social Cash Transfers and Financial Inclusion: Evidence from Four Countries”, Consultative Group to Assist the Poor, Focus Note 77, Washington, 2012. Cirasino, M., Garcia, J. A., Guadamillas M., and Montes-Negret, F., “Reforming Payment and Securities Settlement Systems in Latin America and the Caribbean”, The World Bank, 2007. Cirasino, M., and Garcia, J.A., “Measuring Payment System Development”, Financial Infrastructure Pol- icy and Research Series, The World Bank, 2008. Committee on Payment and Settlement Systems, “General Principles for International Remittance Services”, BIS, 2007. Committee on Payment and Settlement Systems, “General Guidance for National Payment System Development”, BIS, 2006. Committee on Payment and Settlement Systems. “Policy Issues for Central Banks in Retail Payments”, BIS, 2003. Committee on Payment and Settlement Systems, “A Glossary of Terms used in Payment and Settlement Systems”, BIS, 2003. Committee on Payment and Settlement Systems, “Core Principles for Systemically Important Payment Systems”, BIS, 2001. European Commission, Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC, OJ L 267 of 10 October 2009. European Commission, Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC, O.J. L 319 of 5 December 2007. Annex I 66 GENERAL GUIDELINES Guadamillas, M. (study coordinator), “Balancing Cooperation and Competition in Retail Payment Systems”, Financial Infrastructure Policy and Research Series, The World Bank, 2008. Hashim, A., and Allen, B., “Treasury Reference Model”, Technical Paper No. 505, The World Bank, 2001. Pattanayak, S., and Fainboim, I., “Treasury Single Account: Concept, Design, and Implementation Issues” Working Paper 10/143, International Monetary Fund, 2010. Pickens, M., D. Porteous, and S. Rotman. “Banking the Poor via G2P Payments”, Consultative Group to Assist the Poor, Focus Note 58, Washington, 2009. Tandberg, E., “Treasury System Design: A Value Chain Approach”, Working Paper 05/153, International Monetary Fund, 2005. The World Bank, “Developing a Comprehensive National Retail Payments Strategy”, prepared by the World Bank’s Payment Systems Development Group, Financial Infrastructure Policy and Research Se- ries, The World Bank, 2012 (forthcoming). The World Bank, “Payment Systems Worldwide – A Snapshot. Outcomes of the Global Payment Systems Survey 2010”, prepared by the World Bank’s Payment Systems Development Group, Financial Infrastruc- ture Policy and Research Series, The World Bank, 2011. The World Bank, “Payment Systems Worldwide – A Snapshot. Outcomes of the Global Payment Systems Survey 2008”, prepared by the World Bank’s Payment Systems Development Group, Financial Infrastruc- ture Policy and Research Series, The World Bank, 2009. “2011 Government E-Payments Adoption Ranking”, a global index and benchmarking study by the Economist Intelligence Unit, sponsored by Visa Inc., March 2012. Available at www.visa.com/gear. GENERAL GUIDELINES 67 Annex J: Glossary73 Agent*: a contractual relationship in which one party, the agent, acts on behalf of another party, the principal. Automated Clearinghouse: an electronic clearing system in which payment orders are exchanged among financial institutions, primarily via magnetic media or telecommunications networks, and han- dled by a data processing centre. Business-to-Government Payments*: payments made by businesses to the government, normally in connection with taxes, duties or the payment for goods or services provided by the government. Centralized Treasury System*: an operational model by which the processes related to government payments and collections are handled in a centralized manner, typically by the national treasury. The centralized system normally comprises the national government, and in some cases also one or more levels of sub-national governments. Chip Card: also known as an IC (integrated circuit) card. A card containing one or more computer chips or integrated circuits for identification, data storage or special purpose processing used to validate personal identification numbers (PINs), authorize purchases, verify account balances and store personal records. In some cases, the memory in the card is updated every time the card is used (e.g. an account balance is updated). Credit Card: a card indicating that the holder has been granted a line of credit. It enables the holder to make purchases and/or withdraw cash up to a prearranged ceiling; the credit granted can be settled in full by the end of a specified period or can be settled in part, with the balance taken as extended credit. Interest is charged on the amount of any extended credit and the holder is sometimes charged an annual fee. Debit Card: card enabling the holder to have his purchases directly charged to funds on his account at a deposit-taking institution (may sometimes be combined with another function e.g. that of a cash card or cheque guarantee card). Direct Participant: a participant in an interbank funds transfer system who is responsible to the settle- ment agent (or to all other direct participants) for the settlement of its own payments, those of its cus- tomers and those of the indirect participants on whose behalf it is settling. Electronic Money: value stored electronically in a device such as a chip card or a hard drive in a personal computer. 73 Definitions for payment system terms were taken directly from the CPSS “A Glossary of Terms used in Payment and Settlement Systems”, BIS, 2003. All other terms, marked with “*”, were defined by the IAG Secretariat. Annex J 68 GENERAL GUIDELINES Final Transfer: an irrevocable and unconditional transfer which effects a discharge of the obligation to make the transfer. The terms “delivery” and “payment” are each defined as a final transfer. Financial Inclusion*: The availability of basic financial products to meet the payment, savings, credit, insurance and investment needs of underrepresented segments of the society, at a reasonable cost. Funds Transfer System: a formal arrangement, based on private contract or statute law, with multiple membership, common rules and standardized arrangements, for the transmission and settlement of money obligations arising between the members. Government Collections*: Incoming payments to the government, normally associated with taxes, du- ties and the provision of certain public services. Government Expenditures*: Outgoing payments from the government. Government Payment Program*: a set of rules and operational mechanisms to enable the transfer of money from/to the government. Typically, a variety of government payment programs are implemented to address different needs. Government-to-Business payments*: Payments made from the government to businesses, normally in association with procurement of goods and services, expenses of public sector officers, tax refunds, etc. Government-to-Person payments*: Payments made from the government to individuals. The most common types of G2P payments are the payment of salaries for public sector employees, the disburse- ment of subsidies and similar cash-transfer programs. Indirect Participant: refers to a funds or securities transfer system in which there is a tiering arrange- ment. Indirect participants are distinguished from direct participants by their inability to perform some of the system activities (e.g. input of transfer orders, settlement) performed by direct participants. Indi- rect participants, therefore, require the services of direct participants to perform those activities on their behalf. Interbank Funds Transfer System: a funds transfer system in which most (or all) direct participants are financial institutions, particularly banks and other credit institutions. Interoperability: a situation in which payment instruments belonging to a given scheme may be used in other countries and in systems installed by other schemes. Interoperability requires technical com- patibility between systems, but can only take effect where commercial agreements have been concluded between the schemes concerned. Intra-government Transfers*: Budgetary transfers to the various government agencies or departments. GENERAL GUIDELINES 69 Issuer: in a stored-value or similar prepaid electronic money system, the entity which receives payment in exchange for value distributed in the system and which is obligated to pay or redeem transactions or balances presented to it. Legal Risk: the risk of loss because of the unexpected application of a law or regulation or because a contract cannot be enforced. Operational Risk: the risk that deficiencies in information systems or internal controls could result in unexpected losses. Payment Instrument: any instrument enabling the holder/user to transfer funds. Payment Order: an order or message requesting the transfer of funds (in the form of a monetary claim on a party) to the order of the payee. The order may relate either to a credit transfer or to a debit transfer. Also called payment instruction. Payment System: a payment system consists of a set of instruments, banking procedures and, typically, interbank funds transfer systems that ensure the circulation of money. Person-to-government Payments*: payments made by individuals to the government, normally in con- nection with taxes, duties or the payment for goods and services provided by the government. Point-of-Sale or POS: this term refers to the use of payment cards at a retail location (point of sale). The payment information is captured either by paper vouchers or by electronic terminals, which in some cases are designed also to transmit the information. Where this is so, the arrangement may be referred to as “electronic funds transfer at the point of sale”. Prepaid card: a card on which value is stored, and for which the holder has paid the issuer in advance. Real-time gross settlement: the continuous (real-time) settlement of funds or securities transfers indi- vidually on an order by order basis (without netting). Stored-value Card: a prepaid card in which the record of funds can be increased as well as decreased. Also called an electronic purse. Straight-Through Processing: the capture of trade details directly from front-end trading systems and complete automated processing of confirmations and settlement instructions without the need for rekey- ing or reformatting data. Annex J 70 GENERAL GUIDELINES Treasury Single Account*: can be either a single bank account or a set of linked accounts through the government transacts al its receipts and payments. Under some scenarios, linked accounts can yield a similar final result to that of a single bank account given the fungible nature of cash. GENERAL GUIDELINES 71 Annex K: Members of the International Advisory Group The table below shows the composition of the IAG, which includes representatives from countries and institu- tions with relevant experience in implementing government payment programs. The IAG is chaired by Massimo Cirasino, Head of the Payment Systems Development Group of the World Bank. The Secretariat for this report in- cluded Hemant Baijal, Jose Antonio Garcia and Rahul Kitchlu, all from the World Bank. The IAG has an open membership structure. Members that participated in one or more of the group’s technical meetings of the phase consisting in the preparation of the General Guidelines are the following: 1. Public Authorities Country Institution Representatives Azerbaijan National Bank of Azerbaijan Kamala Gurbanova Banco Central Do Brasil Mardilson Fernandes Queiroz, Ricardo Pereira de Araujo Brazil Ministry of Social Development Anderson Brandao National Treasury Leonardo Rodrigo Ferreira Italy Banca d’Italia Carlo Maria Arpaia, Bruno Doffizi Banco de Mexico Ricardo Medina Alvarez, Alejandro de los Santos Mexico National Treasury Irene Espinosa Cantellano, Norma Espinosa The Philippines Bangko Sentral ng Pilipinas Bella Santos Mikhail Bolshakov, Vadim Kuznetsov, Mikhail Myznikov, Natalia Bank of Russia Pavlova, Svetlana Romashkina, Pavel Sumbulov Russian Federation Ministry of Finance Olga Gritsay Liudmila Lopina, Ekaterina Semenova, Andrey Sholkin, Matvey National Treasury Tarasov Saudi Arabia Saudi Arabian Monetary Agency Abdulmalik Al Sheikh, Husam Al Mahmoud, South Africa National Treasury Lizette Labuschagne Central Bank of Turkey Ayse Dagistan, Ibrahim Kirdaban Turkey Ministry of Finance Mahmut Varol National Treasury Secil Cicek, Burak Deste Department of the Treasury Lois Quinn United States Federal Reserve Board Lisa Hoskins 2. International Financial Institutions Bank for International Settlements Marc Hollanders, Can Okay International Monetary Fund Xavier Rame, Christine Sampic Inter American Development Bank Natasha Bajuk Representatives from CGAP, IFC and the Social Safety Net and ICT World Bank Group Networks of the World Bank 3. Non Government Organizations and Private Sector Institutions Alliance for Financial Inclusion Alfred Hannig, Raadhika Sihin ESBG-WSBI Norbert Bielefeld MasterCard Pilar Ramos, Mamta Rodrigues and Jannie Chang SWIFT Jim Wills Visa Salvador Perez-Galindo, Paveena Singh Annex K