PAYMENT SYSTEMS WORLDWIDE

Transcription

1 FINANCIAL INFRASTRUCTURE SERIES PAYMENT SYSTEMS POLICY AND RESEARCH PAYMENT SYSTEMS WORLDWIDE A SNAPSHOT Outcomes of the Global Payment Systems Survey 2010

2 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC Telephone: Internet: feedback@worldbank.org All rights reserved. This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: ; fax: ; Internet: 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: ; pubrights@worldbank.org. Book cover and interior design by Michele de la Menardiere.

3 FOREWORD The underlying foundation of a country s financial system including all institutions, information, technologies, rules and standards that enable financial intermediation is its financial infrastructure. A poor financial infrastructure imposes a considerable constraint upon financial institutions in many developing countries, hindering their efforts to offer financial services to underserved segments of the population and the economy. It also creates risks that can threaten the stability of the financial system as a whole. The World Bank Group is a leader in financial infrastructure development in emerging markets, including payment systems and remittances, credit reporting and secured lending. Moreover, the Bank Group is intensifying its commitment to promote and disseminate the policy and research debate on these and other topics in the realm of financial infrastructure. The World Bank also plays the role of international standard-setter in this space. The Financial Infrastructure Policy and Research Series has been created to host original contributions in the form of policy notes, studies and essays led by Bank Group experts, as well as initiatives carried out in cooperation with or by other experts and relevant institutions in the various fields of financial infrastructure. The first document that appeared in this Series is Payment Systems Worldwide: A Snapshot Outcomes of the Global Payment Systems Survey The report was prepared by a team of experts within the Bank s Payment Systems Development Group (PSDG). Over the last 15 years, the Bank, through the PSDG a part of the Financial and Private Sector Development Vice Presidency has been active in more than 100 countries. It carries out its work through a variety of instruments, such as: 1) supporting comprehensive reform programs in individual countries; 2) undertaking initial diagnostics and developing reform strategies; 3) providing specific technical advice on a broad range of topics; and 4) coordinating and managing multi-country and regional initiatives that position the Bank at the center of a network of more than 150 relevant institutions in the field of payment systems. In addition, the Bank has been active in launching cooperative arrangements, organizing training activities, supporting the joint World Bank-International Monetary Fund Financial Sector Assessment Program (FSAP), participating actively in task forces of the Committee on Payment and Settlement Systems (CPSS) and International Organization of Securities Commissions (IOSCO), and conducting research. Payment Systems Worldwide: A Snapshot. Outcomes of the Global Payment Systems Survey 2010 presents the results of the second survey among national central banks that collected information on the status of national payment and securities settlement systems worldwide. Areas covered by the survey include: i) Legal and Regulatory Framework; ii) Large-Value Funds Transfer Systems; iii) Retail Payment Instruments and Systems; iv) Foreign Exchange Settlement System; v) Cross-border Payments and International Remittances; vi) Securities Settlement Systems; vii) Payment System Oversight and Cooperation; and, viii) Planned and On-going Reforms to the National Payments System. The 2010 Survey, like the previous report of 2008, provides a snapshot of the payment and securities settlement systems in both advanced and emerging economies. The outcomes of this survey are expected to identify the main issues that should guide the agenda of authorities and multilaterals in the payment systems field in the years ahead. Janamitra Devan Vice President & Head of Network Financial and Private Sector Development World Bank Group

4 ACKNOWLEDGMENTS This study Payment Systems Worldwide: A Snapshot presenting the outcomes of the second iteration of the World Bank Global Payment Systems Survey is the result of collective efforts of the Payment Systems Development Group (PSDG) of the World Bank. The various products presented in this study, including the detailed questionnaire that was used to survey central banks worldwide, were produced by a team under the leadership of Massimo Cirasino (Head, PSDG) who supervised the process and provided guidance on various steps of this project. Alice Zanza acted as the project team leader. Maria Teresa Chimienti provided key support in the processing and analysis of country qualitative and quantitative data, and was instrumental in ensuring overall consistency. Single chapters of this publication were produced by PSDG colleagues as follows: Maria Chiara Malaguti (Legal and Regulatory Framework), Massimo Cirasino (Large Value Payment Systems), Luchia Christova (Large Value Payment Systems, Foreign Exchange Settlement Systems, Payment Systems Oversight and Cooperation), Harish Natarajan (Retail Payment Instruments and Systems), Carlo Corazza and Isaku Endo (International Remittances and other Cross-border Payments), Froukelien Wendt (Securities Settlement Systems), Alice Zanza (Reforming the National Payments System). Corina Arteche, Hemant Baijal, Sean O Connor, and Ceu Pereira also participated in the process of reviewing countries questionnaires and provided comments and suggestions. The PSDG wishes to thank Jose Antonio Garcia, who acted as peer reviewer of the 2010 iteration and led the publication of the first iteration of this study. The PSDG also thanks European Central Bank (ECB) colleagues, Daniela Russo and Tom Kokkola, for providing specific information on European systems features and arrangements. Finally, the PSDG also wishes to thank each and every central bank that participated in this effort.

5 TABLE OF CONTENTS Executive Summary Abbreviations Introduction Methodological Note v xiii xv xix I LEGAL AND REGULATORY FRAMEWORK 1 I.1 BACKGROUND, 1 I.2 SURVEY OUTCOMES, 1 I.2.1 Payment Systems and Related Matters, 2 I.2.2 Central Bank Licensing and Payment System Oversight Powers, 6 II LARGE-VALUE PAYMENT SYSTEMS 13 II.1 BACKGROUND, 13 II.2 SURVEY OUTCOMES, 13 II.2.1 Real Time Gross Settlement Systems, 15 II.2.2 Special Procedures for Large-Value Cheques, 36 II.2.3 Non-RTGS Large-Value Payment Systems, 36 III RETAIL PAYMENT INSTRUMENTS AND SYSTEMS 39 III.1 BACKGROUND, 39 III.2 SURVEY OUTCOMES, 42 III.2.1 Cheques and Cheque Clearinghouses, 43 III.2.2 Credit Transfers, Direct Debits and Automated Clearinghouses, 49 III.2.3 P ayment Cards and Related Systems, 56 III.2.4 Affordability of Non-Cash Payment Instrument and Services for Individuals, 65 III.2.5 Government Payments, 69 IV SETTLEMENT OF FOREIGN EXCHANGE TRANSACTIONS 71 IV.1 BACKGROUND, 71 IV.2 SURVEY OUTCOMES, 74 iii

6 iv PAYMENT SYSTEMS WORLDWIDE V INTERNATIONAL REMITTANCES AND OTHER CROSS-BORDER PAYMENTS 81 V.1 BACKGROUND, 81 V.2 SURVEY OUTCOMES, 81 V.2.1 Remittance Service Providers, 82 V.2.2 Payment Instruments in International Remittances, 88 V.2.3. Transparency, Consumer Protection, and Competition in International Remittances, 89 V.2.4. Cross-Border Payments, 97 VI SECURITIES SETTLEMENT SYSTEMS 99 VI.1 BACKGROUND, 99 VI.2 SURVEY OUTCOMES, 99 VI.2.1 General Features of Securities Markets, 101 VI.2.2 Central Securities Depositories and Securities Settlement Systems, 106 VI.2.3 Central Counterparties, 111 VI.2.4 Regulatory and Oversight Issues, 114 VII PAYMENT SYSTEM OVERSIGHT AND COOPERATION 115 VII.1 BACKGROUND, 115 VII.2 SURVEY OUTCOMES, 115 VII.2.1 General Issues, 116 VII.2.2 Objectives of Payment System Oversight, 118 VII.2.3 Scope of Payment System Oversight, 119 VII.2.4 Instruments of Payment System Oversight, 121 VII.2.5 Cooperation with Other Relevant Authorities and Other Stakeholders, 124 VII.2.6 Involvement of Central Banks in the Pricing of Payment Services, 126 VIII REFORMING THE NATIONAL PAYMENTS SYSTEM 129 VIII.1 BACKGROUND, 129 VIII.2 SURVEY OUTCOMES, 129 IX CONCLUDING REMARKS 137 ANNEX I: The Questionnaire, 139 ANNEX II: Classification of Countries According to Level of Per Capita Income, 173 ANNEX III: Classification of Countries According to Geographical Region, 175 ANNEX IV: Classification of Countries According to Population Size, 177 ANNEX V: Chronological List of Country Responses to the Global Payment Systems Survey, 178

7 EXECUTIVE SUMMARY Payment systems have moved from the backroom to the boardroom of all financial institutions due to the recognition of the critical role that a well functioning payment system plays in supporting the financial and real economies, and also because of the increasing attention bank boards pay to the automation of banking operations and services and their impact on bank income and profits. From a broader perspective, a less than optimal use of payment instruments and/or inefficient or poorly designed systems to process these instruments may ultimately have an impact on systemic stability, economic development and growth. Payment systems are moving from being a narrow channel for transferring funds to a much wider integrated network for transferring additional forms of value. Moreover, the creation of networks and systems for retail payments can have a substantial role in supporting financial access in developing countries. Indeed, modern retail payment technologies and innovative programs to channel recurrent payments efficiently can, and are already being used to, integrate the previously underserved and non-served population into the formal financial sector. A well-functioning infrastructure to efficiently and safely process modern payment instruments is necessary to successfully enhance a country s population access to, and widespread use of, such modern payment instruments. For all these reasons, for more than 15 years the World Bank has been paying increasing attention to payment system development as a key component of the financial infrastructure of a country, and has provided various forms of assistance to over 100 countries. In April 2007, the World Bank s Payment Systems Development Group (PSDG) launched the first World Bank Global Payment Systems Survey among national central banks to collect information on the status of national payment and securities settlement systems worldwide. The outcomes of the first Global Payment Systems Survey were published in June 2008, and are available on the PSDG website at paymentsystems. Based on the feedback received by central banks, the Global Payment Systems Survey has greatly enhanced the knowledge on payment systems matters worldwide, and helped guide reform efforts over the last three years. In line with the undertaking made by the World Bank to periodically update the information collected through this Survey, the PSDG has conducted the second Global Payment Systems Survey, which was launched in July A total of 132 central banks representing 139 countries 1 worldwide participated in this second iteration. The 2010 questionnaire included the following sections: i) Legal and Regulatory Framework; ii) Large- Value Funds Transfer Systems; iii) Retail Payment Systems; iv) Foreign Exchange Settlement Systems; v) Cross-border Payments and International Remittances; vi) Securities Settlement Systems; vii) Payment System 1 The General Bank of West African States (BCEAO) represents eight countries. v

8 vi PAYMENT SYSTEMS WORLDWIDE Oversight and Cooperation; and, viii) Planned and On-going Reforms to the National Payments System. While keeping the design and structure of the 2008 questionnaire, the 2010 questionnaire was expanded to allow for the collection of more detailed information especially on retail payment instrument and services, 2 securities settlement arrangements, and international remittance services. Global survey outcomes presented in this publication are divided into two main sections: Chapters I through VIII analyze the survey results and identify trends using various variables for cross-country comparisons. In addition to worldwide totals, three broad country characteristics exogenous to payment system development are used as a basis for comparisons: i) level of per capita income; ii) geographical location; iii) population size. Details of the methodology used for the analysis are covered in the Methodological Note. The Appendix contains the full set of countryby-country answers to each of the questions included in the questionnaire. MAIN OUTCOMES OF THE GLOBAL SURVEY Improvements continue to be made worldwide to the legal and regulatory framework underpinning payment and settlement systems. More than 70% of the countries indicate that their legal framework cov- ers key issues such as settlement finality, netting, and electronic payment processing. The Survey confirms that other important areas such as the non-existence of a zero hour rule, the enforceability of security interest in pledged collateral or repurchase agreements ( repo ), and the protection of collateral pledged in a payment or other type of settlement system are less covered in general; on the other hand, such provisions are increasingly more common. Coverage of consumer protection and competition issues is limited to high income countries. As in 2008, high income and upper-middle income countries tend to have stronger legal systems for payment systems. From a regional perspective, the European Union is confirmed as the area with the strongest and most comprehensive legal framework, especially for securities settlement systems, followed by ODCs. Significant improvements have been made in the LAC region. Large-value payment systems are typically the most significant component of the national payments system due to their potential to generate and transmit disturbances of a systemic nature to the financial sector. In this area, a total of 116 countries report having a real-time gross settlement (RTGS) system in place, allowing for a significant reduction of systemic risk in such countries when compared to previous arrangements for processing large-value payments, such as cheque systems. 3 The 2010 survey outcomes in this area show little variation from the 2008 iteration. Most of the RTGS systems in place are secure and have been designed around international standards and best practices. For example, central bank liquidity facilities 2 In recognition of the relevant innovation taking place in the retail payments arena and the interest on this matter expressed by local authorities as well as international bodies such as the G-8 and the G-20, a dedicated questionnaire to capture developments in this space has been added as an Annex to the Survey (Annex 1: Questionnaire for Collecting Information on Innovations in Retail Payment Instruments and Methods Worldwide ). The outcomes will be discussed in a separate World Bank publication. 3 Some of these countries share one system, as in the case of the countries comprising the West Africa Monetary Union, and the euro-area countries. According to survey data, 19 RTGS systems were implemented since The PSDG is also aware that RTGS systems are currently being implemented in Honduras, Papua New Guinea, Macao (China), and Paraguay. The RTGS component of the Rwanda Automated Transfer System (ATS) went live in February The Ethiopia ATS was launched in May These are not reflected in Table II.1.

9 Global Survey 2010 are available to manage payment flows smoothly within the operating day (in about 90% of cases) with high quality collateral being required in 90% of cases of this subset. Optimization tools such as queuing mechanisms are available in 88% of the cases. Survey outcomes also show that RTGS operators have placed operational risk management at the top of their list of priorities over the last few years, resulting in significantly stronger resilience and business continuity practices. Adoption of modern, safe and efficient large-value systems is highest among high income and upper-middle income countries (more than 90% in each case); on the other hand, percentages for lower-middle income and low income countries have increased since The EAP region shows the lowest adoption of RTGS systems. Compared to 2008, a relatively smaller number of countries still indicate that large-value payments are being processed, exclusively or in parallel to the RTGS system, through cheque clearing systems (23%) or vii other non-rtgs large value systems (13%). It is wellknown that cheque systems have special difficulties for complying with international standards for large-value payment systems, in particular with regard to management of risks, settlement finality, effectiveness and efficiency. Settlement of large-value payments through cheque systems is especially common in lower-middle and low income countries. From a regional perspective, cheque systems are used alongside RTGS systems especially in the SA, MNA, and SSA regions, while a significant reduction from the previous survey was observed in the LAC region. The retail payment systems area is where the largest differences continue to exist between higher income and lower income countries, and between developed and developing regions. While the vast majority of countries indicate they are already operating one or more cashless payment systems, differences in volumes and value of transactions handled through such systems are still extremely large when comparing developed countries/regions to developing ones. While, Executive Summary

10 viii PAYMENT SYSTEMS WORLDWIDE CASHLESS RETAIL PAYMENT TRANSACTIONS PER CAPITA (FOR YEAR 2009) % % 80% 70% % 60% 55% 50% % 50% 40% Average number of per capita cashless transac ons 14% % EAP ECA LAC MNA SA SSA Euro-area countries Growth 2009 vs % 27% Other EU members 16% Other Developed Countries 30% 20% 10% 0% for example, in the EU and ODC regions an individual performs on average 100 or more cashless transactions per year (and even 300 or more in several cases), this same indicator is around 13 for EAP, 20 for LAC and ECA, and less than 1 for the SSA region (South Africa excluded). Survey results show that this situation may be explained by, among others, the following factors: i) the slow development of access channels to initiate and deliver cashless payments e.g. point of sale (POS) terminals in many developing countries, coupled with limited interoperability of the infrastructure already deployed; ii) iii) iv) limited access by individuals to modern payment instruments in most developing countries, especially outside urban areas; limited competition among banking institutions and, where available, between banks and other payment services providers, typically resulting in higher costs and more limited coverage of these services; the specific needs of the government as one of the major originators and receivers of payments in the economy, and/or these same needs of utilities and other large commercial firms not being adequately addressed by those in charge of reforming the national payments system, resulting in a preference for cash transactions.

11 Global Survey 2010 ix Another relevant point arising from the survey results is that, notwithstanding some improvement, risk management in cheque systems and automated clearinghouses (ACHs) is still weak. While some operators may argue that tough risk control mechanisms are not necessary for a system that is no longer systemically important, facts and data in the survey point at cheque systems still having some degree of systemic importance in several countries, and/or cheque systems being the only system for retail payments or the most relevant ones. On the other hand, regardless of their implications for systemic risk, ACHs are a key tool to facilitate commercial as well as person-to-person payment transactions, and as such have a significant impact in the overall efficiency of the national payments system. In the area of settlement of foreign exchange transactions, there are 41 organized markets for the trading and settlement of foreign currencies (FX) worldwide. 4 Similarly to 2008 results, in the majority of these cases it was reported that settlement is made on a payment versus payment (PVP) basis using either central bank accounts only (12 cases), or a combination of accounts in the central bank for the local currency and accounts in foreign correspondent banks for the foreign currency leg. However, in bigger markets the over-thecounter (OTC) market for FX transactions is far more prevalent. In the latter case, 44 countries reported that a mechanism is in place to achieve PVP. Most euroarea countries, 2 non-euro EU members, 8 ODCs and one country from the SSA region specifically indicated the use of the CLS Bank as a major mechanism for reducing FX settlement risk. Approximately half of all central banks either responded partially or did not respond at all to the various questions related to FX settlement. This appears to be a clear indication that central bank awareness 4 Based on survey responses. of settlement risks in foreign exchange markets is, in general, still low, particularly in developing countries and regions. The following trends have emerged in the area of international remittances and other cross-border payments: i) In about 79% and 77% of all countries commercial banks and, to a lesser extent, international money transfer operators (MTOs) are considered the most relevant types of remittance service providers (RSPs) for sending and receiving remittances, respectively. On the other hand, the role of the Postal Service (as well as other nonbank financial institutions such as microfinance institutions) is confirmed generally limited, with some exceptions for specific regional markets. It is also interesting to note that no central bank ranked mobile phone providers as the most relevant RSP; ii) iii) RSPs require a license in 66% of the countries. The number of countries where there are no registration or licensing requirements for all entities acting as RSPs decreased to 28 from 47 in Registration is less common in EAP and ECA regions, and non-euro EU members, while licensing is less common in the LAC region and in ODCs. From an income perspective, licensing requirements are more common in low income countries; Survey results show very clearly that cash and current account transfers are regarded as the most relevant payment instruments for both sending and receiving remittances. As for prepaid cards and mobile payments, while there are recent and rapid developments of such products, no central bank indicated that prepaid cards are the most relevant payment instrument for send- Executive Summary

12 x PAYMENT SYSTEMS WORLDWIDE iv) ing/receiving remittances, and only one country indicated that mobile payments are the most relevant instrument for sending/receiving remittances (along with current account transfers). The relevance of cash is clearly lower in high income countries, especially in ODCs; on the other hand more than 60% of central banks in the ECA region and a similar percentage in the SSA region indicated that cash is the most relevant payment instrument for both sending and receiving remittances. With regard to transparency and consumer protection, only in 56% of the countries are RSPs legally required to disclose all transaction details before the transaction itself is performed. Although 57% of the countries have legislation on consumer protection, in less than a third consumer protection legislation for financial services is in place. These results are correlated to a significant extent: in many cases inadequate transparency in the market for remittance services (e.g. RSPs being legally required to disclose fees and other charges, and/or complaint mechanisms) is the result of the lack of an appropriate consumer protection framework for financial services users. The 2010 survey provides a more detailed picture of the securities settlement systems (SSSs) worldwide. While 102 countries reported having one or more stock exchanges, in general, these tend to exist in high income countries and countries with a larger population. The securities market is still at a nascent stage in 35 countries which are mainly located in the SSA and ECA regions. Securities immobilization or dematerialization have been largely accomplished in 71% of the countries, compared to the 66% reported in the 2008 survey. This has been accomplished in all SA countries, in all noneuro EU members, and in all but one country of the euro area. 5 The SSA countries show the lowest level of securities dematerialization. Since 2008, the LAC and EAP regions have made significant progress in the level of dematerialization. In 49 countries there is a single central securities depository (CSD) handling all types of securities that are traded in the country, while in 48 other cases there are two or more specialized CSDs. A single CSD is more common in high income countries, although different regions seem to have their own preferred model. The majority of countries have one or more specialized clearing institutions for the clearing of securities transactions. Only a minority of countries (34%) has a central counterparty (CCP) operating either for securities or derivatives products. Large differences are visible across country types: most high income countries have a CCP, whereas this is the case only for 14% of lower-middle income and 6% of low income countries. The use of DVP as a measure to reduce principal risk is widespread. In the EAP region and EU countries all transactions are settled on a DVP basis. Overall, only 8% of responding CSDs do not use a DVP model at all. Significant improvements have been made in the area of resilience and business continuity arrangements for SSSs and CSDs since Notwithstanding these improvements, when compared with RTGS systems, CSDs and SSSs have weaker business continuity practices. Recent PSDG experience shows, however, that CSDs are increasingly investing in operational reliability, which should lead to further convergence of RTGS and CSD systems with regard to this specific feature. As for CCPS, at present throughout the EU, LAC and EAP regions, these deal with business continuity issues more thoroughly than in other regions. 5 Countries surveyed.

13 Global Survey 2010 xi The development of the payment system oversight function has been one of the key features of recent payment system reforms. The survey confirms that 99 central banks (7 more than in 2008) have already established the payment system oversight function, and this function is performed on an on-going basis. Regions lagging behind in the previous survey show significant improvements, especially in the LAC and SA regions, and the non-euro EU members. In 85% of the cases there is a specific unit at the central bank in charge of payment system oversight duties. To some extent, the 2010 survey shows a shift in the objectives of payment system oversight, from safety and efficiency solely to broader goals, such as promoting higher levels of competition in the market for payment services, consumer protection, and others. In the same vein, more central banks are moving towards a wider scope, overseeing all relevant payment systems in a country regardless of who the operator of the system is (64% compared to 57% in 2008). Only 11% of central banks limit their oversight scope to central bank-operated systems. In general, central banks continue to prefer soft oversight instruments, such as monitoring, dialogue and moral suasion, and publication of statistics/reports. Only about one-fourth of central banks reported using more formal oversight instruments, such as the application of sanctions. A trend worth noting is the increase in the number of countries that rated on-site inspections as a highly relevant instrument for payment system oversight. Cooperation remains an issue, since only about half of the countries surveyed state that the relevant authorities have established formal mechanisms to exchange information and coordinate actions with relevant stakeholders. Nevertheless, 49 formal National Payments Councils (NPCs) have been created in order to promote a more structured cooperation. The SSA region continues to show the highest percentage of NPCs in place. Unsurprisingly, central banks play a limited role with regard to the pricing of payment services, especially in retail payments (including remittances). In contrast, 47% of central banks indicate that they actively regulate prices of large-value payment systems. The major factor behind this result is that almost all central banks operate the large-value payment system in their respective countries and, as such, play a major role in pricing the corresponding payment services. The 2010 survey confirms that most countries are engaging in reforming payment and securities settlement systems as an on-going effort. More than 80% of countries of all income levels and from all regions are currently reforming at least one component of their national payments system. Two-thirds of all countries are currently reforming retail payment systems and/ or the legal and regulatory framework. While legal reforms are being undertaken mainly, though not exclusively, in lower income countries, reforms to retail payment systems are present with practically the same frequency across all country income categories. This last outcome is especially relevant given that only a few years ago most central banks were involved solely in reforming systemically important payment systems. Nonetheless, a relatively large number of countries are still involved in the reform of large-value payment systems. KEY CONCLUSIONS Of the three variables used throughout the survey to classify countries and make cross-country comparisons, the income per capita variable and the geographical location variable still have a significant correlation Executive Summary

14 xii PAYMENT SYSTEMS WORLDWIDE with the level of payment system development. 6 On the other hand, with a few exceptions a country s population size does not appear to have any significant correlation with development in the various areas of the payment system. The factors mentioned above, however, do not mean that payment system development will necessarily move pari passu with a country s overall economic development. The Global Survey 2010 shows that many countries, regardless of income level, are making important progress, mainly in those areas where the central bank is able to exert an important degree of intervention. Together with the World Bank, other international financial institutions such as the Bank for International Settlements and the International Monetary Fund, as well as peers from the central bank community, have directly supported these efforts in many cases. However, in the area of retail payment systems, progress is much slower. The Global Survey 2010 results confirm the very high correlation between the level of development in this subcomponent of the national payments system and the overall economic development of any given country. In the retail sector, intervention from the central bank not only as operator but even as payment system regulator or overseer is generally very limited and in many cases subject to substantial controversy. Moreover, the traditionally dominant position of commercial banks over retail payment systems and services is being increasingly challenged by a variety of non-bank payment service providers. This translates into additional difficulties for payment system overseers and regulatory authorities in defining and carrying out their policy goals in the area of retail payment systems. Faster progress at a system-wide level in key aspects such as efficiency and accessibility does not seem likely under the current circumstances. For the World Bank, the Global Survey 2010 exercise has been particularly useful to confirm that the increasing attention paid by authorities and market players to payment system development has resulted in numerous concrete reforms contributing to the improvement of the safety and efficiency of financial systems, and that of the overall economy, in many countries around the world. The recent financial crisis also raised awareness on the role of safe and efficient payment systems in mitigating risks in financial markets: domestic payment system (e.g. RTGS systems) and global payment infrastructure (e.g. CLS Bank) were instrumental in facilitating immediate authorities action and shock absorbance. The survey results also show encouraging improvement in areas where national central banks and the World Bank s PSDG have increasingly focused their efforts over the last few years, such as legal and regulatory framework and payment system oversight. On the other hand, the Global Survey 2010 confirms that more work is still needed in the areas of retail payment systems, including international remittances. The World Bank, together with its partners in the international community, will continue to support reform efforts for the years to come. 6 These two variables are also correlated between them, given that the various countries in any region would typically, though not necessarily, exhibit a similar level of per capita income.

15 ABBREVIATIONS ACH Automated Clearinghouse AML Anti-Money Laundering API Arab Payments and Securities Settlement Initiative ATM Automated Teller Machine ATS Automated Transfer System BEAC Banque des Etats de l Afrique Centrale BCEAO Banque Centrale des Etats de L Afrique de l Ouest BCP Business Continuity Plan BIS Bank for International Settlements CCP Central Counterparty CFTC Commodity Futures Trading Commission CIS Commonwealth of Independent States CISPI Commonwealth of Independent States Payments and Securities Settlement Initiative CLS Continuous Linked Settlement CPSS Committee on Payment and Settlement Systems CSD Central Securities Depository DTCC Depository Trust & Clearing Corporation DVP Delivery versus Payment ECB European Central Bank EPC European Payments Council EU European Union FIFO First in, First out FSAP Financial Sector Assessment Program (World Bank-IMF) FX Foreign Exchange GPs General Principles for International Remittance Services IMF International Monetary Fund IOSCO International Organization of Securities Commissions IT Information Technology MOU Memorandum of Understanding MTO Money Transfer Operator NPC National Payments Council OTC Over-the-Counter PAPRI Pacific Payments and Remittances Initiative POS Point of Sale PSDG Payment Systems Development Group (World Bank) PVP Payment versus Payment RSP Remittance Service Provider RTGS Real Time Gross Settlement SADC Southern African Development Community SAPI South Asia Payment and Securities Settlement Initiative SEC Securities and Exchange Commission SEPA Single Euro Payments Area SIPS Systemically Important Payment Systems SML Securities Market Law SRO Self-Regulatory Organization SSS Securities Settlement System SWIFT Society for Worldwide Interbank Financial Telecommunication T2S TARGET2-Securities USD U.S. dollar WHI Western Hemisphere Payments and Securities Clearance and Settlement Initiative xiii

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17 INTRODUCTION The payments system is the infrastructure (comprised of various components which include institutions, instruments, rules, procedures, standards, and technical means) established to enable the transfer of monetary value between parties discharging mutual obligations. Its technical efficiency determines the efficiency with which transaction money is used in the economy, and the risks associated with its use. An efficient payments system reduces the cost of exchanging goods and services, and is indispensable to the functioning of the interbank, money, and capital markets. A weak payments system may severely hamper the stability and developmental capacity of an economy; its failures can result in inefficient use of financial resources, inequitable risk-sharing among agents, actual losses for participants, and loss of confidence in the financial system and in the very use of money. Historically, payment systems have lain at the heart of banking. Yet still in the middle of the 20th century, as payment technology stabilized, payment system issues were considered less important than other aspects of the financial system, and were seen mostly as technical matters to be dealt with by subunits of information technology (IT) departments in both the central banks and the commercial banks. It was not until the mid-1980s that the debate on payment system reform policies took on greater weight in countries with more advanced financial systems. First, early in this decade it became widely recognized that payment systems are a primary channel of central and commercial bank credit extensions. Moreover, financial market liberalization led private sector agents and national regulators to identify technical and institutional solutions to serve the increasing demand for new payment services, while protecting the economy from the risks originating from rapidly growing volumes of financial transactions. Also, the internationalization of financial markets and episodes of financial crisis around the world fostered closer cooperation among industrial countries, and between the latter and emerging economies, on how to set up and enforce standards to improve payment system performance in terms of risk control and shock resilience. Over the last 15 years the World Bank s Payment System Development Group (PSDG) has supported payment system reforms in more than 100 countries. In addition, the PSDG has facilitated the production of descriptive reports and statistical information in many of these countries. 7 In more recent years, the PSDG 7 Descriptive reports are available for Europe ( blue books ), G-10 and other countries ( red books ), Latin America and the Caribbean ( yellow books ), the Commonwealth of Independent States ( silver books ), the Arab region ( white books ), the Southern Africa Development Community ( green books ), South East Asia ( orange books ), and South Asia ( purple books ). References are available at xv

18 xvi PAYMENT SYSTEMS WORLDWIDE COUNTRIES THAT PARTICIPATED IN THE GLOBAL PAYMENT SYSTEMS SURVEY 2010 Albania Angola Argentina Armenia Australia Austria Azerbaijan Bahamas, The Belgium Belize Benin Bolivia Bosnia and Herzegovina Botswana Brazil Bulgaria Burkina Faso Burundi Cambodia Canada Cayman Islands Chile China Colombia Congo, Dem. Rep. of Costa Rica Cote d Ivoire Croatia Cyprus Czech Republic Denmark Dominican Republic Ecuador Egypt, Arab Rep. of El Salvador Eritrea Estonia Ethiopia Fiji Finland France Georgia Germany Ghana Greece Guatemala Guinea Bissau Honduras Hong Kong (China) Hungary India Indonesia Iran, Islamic Rep. of Iraq Ireland Israel Italy Jamaica Japan Jordan Kazakhstan Kenya Korea, Rep. of Kosovo Kuwait Kyrgyz Republic Latvia Lebanon Lesotho Libya Lithuania Luxembourg Macao (China) Macedonia FYR Madagascar Malawi Malaysia Mali Malta Mauritania Mauritius Mexico Moldova Mongolia Montenegro Morocco Mozambique Namibia Nepal Netherlands New Zealand Niger Nigeria Norway Oman Pakistan Peru Philippines Poland Portugal Romania Russian Federation Rwanda Samoa San Marino Saudi Arabia Senegal Serbia Seychelles Sierra Leone Singapore Slovak Republic Slovenia South Africa Spain Sri Lanka Sudan Swaziland Sweden Switzerland Taiwan (China) Tanzania Thailand Timor-Leste Togo Trinidad and Tobago Turkey Uganda Ukraine United Arab Emirates United Kingdom United States Uruguay Vanuatu Venezuela, R. B. West Bank and Gaza Yemen, Republic of Zambia Zimbabwe has conducted comparative analysis in some regions or sub-regions. 8 In April 2007, the World Bank launched the first Global Survey among national central banks to collect information on the situation of national payment and 8 See Cirasino and Guadamillas, Payment and Securities Settlement Systems in Central America, - Structural Foundations for Regional Financial Integration, IMF, 2006; and Cirasino, Garcia, Guadamillas and Montes-Negret, Reforming Payments and Securities Settlement Systems in Latin America and the Caribbean, World Bank, securities settlement systems worldwide and provide a snapshot in both advanced and emerging economies with a view to identifying the main issues that should guide the agenda of authorities, multilaterals and market players in the field over the next few years. As part of the process of refining this survey and updating information collected in the 2008 survey, a second iteration of the survey was initiated in July The questionnaire was sent to all countries, regardless of whether they had participated in the first survey or not. The preliminary results were presented during the

19 Global Survey 2010 xvii World Bank Global Payments Week, which took place in Amsterdam, The Netherlands, from the 19 th to the 22 nd of October This publication therefore constitutes detailed outcomes of the 2010 Global Payment Systems Survey, based on the 132 responses involving 139 countries. Countries that participated in the 2010 survey are shown at left in alphabetical order. As in the 2008 survey, the detailed questionnaire consists of eight sections covering a broad set of topics considered an integral part of the national payments system. Areas covered by the questionnaire are as follows: Part I: Part II: Legal and Regulatory Framework Large-Value Funds Transfer Systems Methods Worldwide ). The questionnaire captures innovations resulting in new products as well as innovations in processing; 98 central banks completed the Annex on Innovations. The outcomes of the Annex will be the subject of a future publication. The study is organized as follows: Chapters I through VIII analyze the main results and trends derived from the responses to the survey. The outcomes are discussed both at the worldwide level and on the basis of country classifications as discussed in the Methodological Note. The questionnaire that was distributed to national central banks is presented in Annex I. Part III: Part IV: Retail Payment Systems Foreign Exchange Settlement Systems The full set of tables with country-by-country answers to each of the questions included in the questionnaire is shown in the Appendix. Part V: Part VI: Part VII: Cross-border Payments and International Remittances Securities Settlement Systems Payment System Oversight and Cooperation Part VIII: Planned and On-going Reforms to the National Payments System In recognition of the relevant innovation taking place in the retail payments arena and the interest on this matter expressed by local authorities as well as international bodies such as the G-8 and the G-20, a dedicated questionnaire to capture developments in this space was added as an Annex to the survey (Annex 1: Questionnaire for Collecting Information on Innovations in Retail Payment Instruments and The World Bank s PSDG has made an attempt to strike the right balance between presenting all relevant issues in a level of depth that is appropriate for the various interested audiences, and making the information and data stemming from the Global Survey available to the overall public as soon as practicable. For more detailed or more area-specific analysis, payment system practitioners and scholars have at their disposal the Appendix with the full dataset of country responses. In the following months the World Bank s PSDG will also produce additional studies and research papers based on this information. Introduction

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