Exploring Frontiers in Payment System Development

1
Exploring Frontiers in Payment System
Development

• Dr Ranee Jayamaha
• Deputy Governor
• Central Bank of Sri Lanka

2
Background

• High value domestic payment systems modernized
  given their importance in financial system
  stability and linked to customer services
• Cross border large value payments modernized due
  to importance in global payment flows.
• Retail payment mechanisms modernized, but
• progress is slow
• no open link to customer services
• risk mitigation is not wide spread

3
Public Policy Responsibilities

• Both, enhancement of access to finance and
  development of retail payments are public policy
  objectives
• Public policy demands governments and relevant
  authorities to provide conducive macro economic
  environment, legislative support and promote
  higher financial inclusion
• Previous efforts to enhance access to finance
  through financial institutions have had limited
  success
• Retail payment system development should be an
  important part of a multipronged approach

4
Key Issues and Challenges

• Diverse Institutional arrangements and complex
  processes
• Usage of electronic payments is not uniform
• Reluctance of operators and service providers to
  invest in retail payment development
• Limited interoperability and product related
  instruments to facilitate supply chain and retail
  businesses
• Absence of national and international standards

5
Critical Elements and Success Factors

• Easy accessibility and interoperability by users
• Public/private partnership
• Customer protection and rights
• Balance between efficiency and confidence
• Guidance at national level through Payment
  Councils/Advisory Committees

6
Easy Accessibility and Interoperability

• Use of advanced technology to facilitate retail
  transactions
• ACHs automated and Cheque Imaging and
  Truncation introduced
• Electronic cheque payments and credit cards are
  popular
• Giro systems electronically linked to utility
  and retail payments
• Telephone and agency banking facilities
  introduced

7
Public/private Partnerships (PIPs)

• Governments to provide macro economic environment
  and basic infrastructure to promote private
  sector involvement
• Financial institutions and service providers
  should develop necessary infrastructure to
  facilitate customer services
• Development of supply chain linked financial
  products, instruments and delivery channels
  should be coordinated
• PIPs should share common platforms and services
  and reduce transaction costs to enhance access
  to finance

8
Customer Protection Rights

• Clear departure from pervious legislation to
  include customer protection and rights
• Exploitation by service providers, infrastructure
  operators and financial institutions should be
  discouraged by law or other means
• Inbuilt legal and regulatory safeguards are
  necessary to protect customers
• Impediments to fast development should be removed

9
Technological Advances and Confidence

• Cash Most trusted payment mode and has
  established public confidence compared to credit
  cards
• Pushing efficiency too far could raise confidence
  issues
• Advanced technology should be used to link retail
  payment instruments to customer services, i.e.
  facilitating remittance flows and supply chain
  transactions

10
National and International Standards

• Domestic Payment Councils/Advisory Committees
  should set standards for retail payment
  development
• Where possible, international standards should be
  developed taking financial inclusion and public
  policy into consideration
• Standard setters should enhance awareness of
  payment system stakeholders and users

11
Medium Term Strategy

• Proactive approach and stakeholder commitment are
  essential
• Institutions, service providers and vendors
  should be encouraged to move out of obsolete and
  archaic systems
• The approach should depend on country conditions,
  availability of financial and human resources

12
Who should lead?

• There are many stakeholders
• governments, central banks, banks and financial
  institutions, system operators, service
  providers, regulators
• Where possible, govt. should lead, given its
  public policy responsibility and provide enabling
  environment
• Central Bank should guide financial markets and
  institutions in the interest of meeting both
  access to finance and retail payment development
• Central Bank need not compromise on its core
  objectives
• All stakeholders, including international
  organizations, standard setters, system
  providers, governments, banks and users etc. have
  a role to play

13

• Thank you