Global Payments Systems Discuss Challenges and Opportunities

Posted August 24, 2012

Global Payments Systems Discuss Challenges and Opportunities
Palaparty, Vijay

SAN DIEGO—Speakers earlier this year at the annual PAYMENTS 2013 conference discussed challenges and opportunities in global payments systems. Different countries continue to grapple with certain issues, like faster payments, for example.

“How fast is fast?” asked Doug Kreviazuk, vice president of policy and public affairs at the Canadian Payments Association. “Like other jurisdictions in the world, we are focused on this issue,” he said. “The challenge for us is that we already offer same-day exchange, although it’s next-day settlement. We provide provisional credit intraday.”

Comparatively, on-us settlement occurs in real time in Mexico while interbank settlement ranges from five seconds to one minute. Ricardo Medina, director of payments systems at the Central Bank of Mexico said that only 30 percent of the adult population in Mexico has a bank account, but most adults own mobile phones. The faster settlement furthers the strategy of the country to use mobile phones to enable commerce.

“Instead of getting people to branches and ATMs, we think the mobile phone could help a lot,” Medina said. “We are trying to empower them, as also seen in countries like Africa.”

In 2011, Mexican financial authorities issued regulation in order to foster financial inclusion through mobile payments and tiered accounts. Today, four banks in Mexico offer mobile payment systems. Interbank mobile payments are processed through Sistema de Pagos Electrónicos Interbancarios (SPEI), a near real-time hybrid settlement system for payments, in order to achieve same-day funding. SPEI is also focused on achieving interoperability between different mobile payment services.

On the other hand, in Canada, Kreviazuk said data and interoperability still pose challenges. “We have a problem with standardization,” he said. “We all speak the same language but don’t speak to each other. The amount of data is insufficient data to meet business needs.”

Canada is working on migrating to standard ISO20022, which aims to increase efficiency and interoperability. The country is developing a roadmap to define new payment messages and to engage the industry and stakeholders to gauge how best they will use the standards.

Gynedi Srinivas, senior financial sector specialist at the World Bank said that real-time gross settlement (RTGS) on a global scale is important, reporting that 116 out of 173 countries it surveyed have such an offering.

“Large value payments processed in a year worldwide are equivalent to over 40 times the global GDP,” Srinivas said. “RTGS has not only fostered growth in total amounts settled—21 percent between 2006 and 2009—but also allows for safe and efficient processing of payments accounting for 80 percent of the value of total payments processed worldwide,” he said.

Further discussing the trend found in the World Bank study, which relates to payments securities settlement systems worldwide supporting financial system stability, Srinivas said that in developing capital markets, timely delivery of collateral for payments is crucial.

“Securities settlement systems are increasingly interlinked to funds transfer systems and operate under a DVP [delivery versus payment] arrangement,” he said. DVP ensures delivery when a payment is initiated. The system links funds transfer and securities transfer systems.

Srinivas reported that 60 percent of Central Securities Depositories (CSDs) worldwide have a real-time interface with RTGS systems. Using DVP as a measure to reduce principal risk is widespread, with only 8 percent of CSDs worldwide not using a DVP model at all.

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