Payment & Settlement Systems in Sri Lanka and the Future Expectations. Ranjani Weerasinghe Director Payments and Settlements

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1 Payment & Settlement Systems in Sri Lanka and the Future Expectations Ranjani Weerasinghe Director Payments and Settlements

2 Outline Payments and Settlement Systems in the country Recent Developments Future prospects Challenges Conclusion 2

3 Payment Systems & Instruments in Sri Lanka Large Value Payment System Retail Payment Systems/ Instruments Real Time Gross Settlement (RTGS) System Cash Sri Lanka Interbank Payment System (SLIPS) Card based Payment Systems E-money Schemes Cheque Imaging & Truncation System (CITS) Other Paper based Payment Instruments Tele/ Mobile Banking Internet Banking

4 Real Time Gross Settlement (RTGS) System Operator Central Bank of Sri Lanka Introduced in September 2003 Electronic and computer based fund transfer and settlement system Currently there are 36 participating institutions (25 LCBs, 8 PDs, EPF, CSE and CBSL) Used for high value and time critical payments and for final settlement of net balances of retail payment clearing systems Transactions are settled on Real Time Gross basis

5 Real Time Gross Settlement (RTGS) System The RTGS system replaced the Current Account Settlement System, which had been a cheque based end-of-day net settlement system, operated manually by the Central Bank Central Bank maintained current accounts for all commercial banks Banks had to physically deliver cheques to the Central Bank before the cut-off time At the end of the day, Central Bank netted the liabilities of each commercial bank and debited and credited the relevant accounts

6 Real Time Gross Settlement (RTGS) System Since the transactions are settled on real-time basis in the RTGS system, the risk on non-settling of obligations is minimized. However, participants have to maintain higher balances in their settlement accounts, compared to the previous system. The Central Bank provides interest free, fully collateralized Intraday Liquidity Facility (ILF) to assist participants to meet their liquidity requirements, in order to ensure the smooth functioning of the system

7 Real Time Gross Settlement (RTGS) System Daily Average Volume of Transactions (in 2013) 1,263 Daily Average Value of Transactions (in 2013) Rs. 223 bn

8 Cheque Imaging & Truncation System (CITS) Operator LankaClear (Pvt) Ltd. Introduced in 2006 for clearing cheques based on images of cheques forwarded by presenting banks.

9 Prior to implementing CITS Outward Cheques Inward Cheques Presenting Banks LCPL Paying Banks Inward Return Cheques Outward Return Cheques

10 After implementing CITS CBSL RTGS Settlement File LCPL Images of Cheques Images of Cheques Presenting Bank CRNs, Images, Data Records & Reports Data Records Paying Bank Cheque Return Notification (CRN)

11 Cheque Imaging & Truncation System Implementation of CITS enabled to reduce the cheque realisation time to T+1. Cheque collection time was extended to 3:00 p.m. and account crediting time was advanced to 2:30 p.m. Island-wide 11

12 Cheque Imaging & Truncation System (CITS) Daily Average Volume of Transactions (in 2013) 197,021 Daily Average Value of Transactions (in 2013) Rs. 29 bn

13 Sri Lanka Interbank Payment System (SLIPS) Operator LankaClear (Pvt) Ltd. Introduced in 1994 as a national-level electronic retail fund transfer system for small value and bulk payments SLIPS was introduced as an offline system and was subsequently upgraded to an online system with T+0 (same day) settlement in 2010 Credit transfers and Direct debits can be effected Maximum per transaction value of SLIPS is Rs. 5 million Final settlement of net balances takes place in the RTGS system

14 Sri Lanka Interbank Payment System (SLIPS) Transaction Types Credit Transfers Salaries Standing orders (e.g. loan repayments) Insurance premium payments Pensions EPF repayments / ETF repayments Dividends Direct Debits Utility Bill Payments (Telephone, Electricity, Water Bills) Credit Card Payments EPF Contributions collection ETF Contributions collection Lease payments Insurance payments Share purchase collections

15 Sri Lanka Interbank Payment System (SLIPS) Daily Average Volume of Transactions (in 2013) 70,460 Daily Average Value of Transactions (in 2013) Rs. 2.9 bn

16 Card based Payment Systems Credit Cards Provides a line of credit to a cardholder, where the cardholder may settle the credit utilized in full or part before a specified date. At present, there are 12 credit card issuers in Sri Lanka. Debit Cards Provides the cardholder electronic access to his/her account at a financial institution in order to perform banking transactions and make payments. At present, there are 23 debit card issuers in Sri Lanka.

17 Card based Payment Systems

18 Card based Payment Systems

19 ATM and POS Machines The number of ATM machines increased by 120% over the period from 2007 to The number of POS machines increased by 45% over the period from 2007 to

20 Tele-Banking / Mobile Banking Financial institutions operate customer account based tele/mobile payment systems which enables the customer to obtain information about his/her account and/or perform banking transactions. Banking transactions are effected based on information exchanged through the use of tele/mobile phones Mobile phone based banking services offered by financial institutions are of three types; Basic Type Services Standard Type Services Extended Type Services

21 Tele-Banking / Mobile Banking Customer Account based Mobile Payment Systems BASIC TYPE STANDARD TYPE EXTENDED TYPE (INFORMATION SERVICES) (FUND TRANSFERS) (OPERATED THROUGH AGENTS) Balance Inquiry Record of previous transactions Other financial information Own Account Fund Transfers Third-Party Fund Transfers Utility Bill Payments Stop Payments Facility to deposit/withdraw cash through agents appointed by the respective banks

22 Tele-Banking / Mobile Banking

23 Mobile Phone Based E-Money 23

24 Mobile Phone based E-money Systems Physical money is converted into e-money and stored in virtual e-money accounts in order to be used to make payments for purchases where e-money is accepted and/or to make transfers to settle monetary obligations The first mobile phone based e-money scheme in Sri Lanka was launched in June At present there are two e-money scheme operators in the country.

25 Internet Banking Customer uses the Internet based channel to access his/her account at a financial institution and perform banking transactions and to make payments, At present 9 banks provide internet banking facilities.

26 Other Paper based Payment Instruments Rupee Drafts Rupee Draft Clearing System is operated by LankaClear (Pvt) Ltd. Postal Payment Instruments Includes Ordinary money orders, Telegraph money orders, Fax money orders, International money orders and British postal orders. Usage of postal payment instruments has shown a declining trend during the past years. However, usage of electronic based money orders is in an increasing trend.

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28 Recent Developments in Payment & Settlement Systems Adoption of Line Encryption technology for payment cards. Revising the regulations Implementation of the Common ATM Switch Facilitating the transport card system

29 Future Prospects Common Card & Payment Switch (CCAPS) LankaClear (Pvt) Ltd will be the operator of the switch Implementation will be based on five phases Phase I - Common ATM Switch Implemented in July 2013 Phase II Common EFT Switch by Q Phase III - Common Mobile Switch Phase IV POS Switch Phase V Shared Services Switch

30 Challenges in PSS PSSs are evolving day by day depending on the global financial market requirements Non-bank entities are engaged in PSSs aggressively Fraudulence activities are in increasing trend PSSs oversight has become a complex task 30

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