opening address: transformation ofpayment and settlement systems in bangladesh

Transformation of Payment and

Settlement Systems in Bangladesh

and the Subcontinent

SWIFT Business Forum Bangladesh 2014

Transformation of Payment and Settlement Systems in Bangladesh and the Subcontinent

SWIFT Business Forum Bangladesh 2014 August 13, 2014

Transformation of Payment and Settlement

Systems in Bangladesh and the Subcontinent

Organized by

Society for Worldwide Interbank Financial

Telecommunication (SWIFT), Asia Pacific

Anis A. Khan

Chairperson,

SWIFT Member & User Group of Bangladesh

Managing Director & CEO

Mutual Trust Bank Limited

Presented by

Introduction

New Frontiers

in Payment

The Way We Pay Is shifting away from

traditional means

THE SHIFT

The use of cash and cheques are on the decline and

there is now an increasing trend in use of credit and debit cards.

New means of payments are being introduced everyday

People are beginning to make payments with their phones

QR code payment

Beacon

Mobile POS devices

THE IMPACT

Credit and debit are replacing cash and checks.

Merchants will continue to adopt mobile card readers.

Mobile-enabled commerce is going to take off

THE DRIVERS

Driving Forces

Mobile devices are everywhere

Convenience

Mobile payments are catching on in retail

Financial inclusion

Mobile-enabled commerce

Security

Payment Systems

in the subcontinent

Regulatory body

Board for Regulation of Payment

and Settlement Systems

Schemes

Real Time Gross Settlement (RTGS)

National Electronic Funds Transfer (NEFT)

Notable fact

E-payments in India have been growing

at a fast rate of 60% over the last 3 years

Regulatory body

Nepal Rastra Bank (NRB)

Schemes

Indo-Nepal Remittance Facility, based on NEFT

Introduction of National Payment Switch (NPS),

soon to come into operation

Notable fact

NPS aims to cover government collections/

disbursements and welfare payments

PAKISTAN

Regulatory body

State Bank of Pakistan (SBP), payment system

authority

State Bank of Pakistan Act & Payment Systems and

Electronic Fund Transfer (PSEFT) Act

Schemes

Pakistan Real Time Interbank Settlement Mechanism

(PRISM), based on RTGS

NIFT, a semi-automated clearing house

Central Depository System (CDS) for Corporate

securities settlement

SRILANKA

Regulatory body

Central Bank of Sri Lanka

Schemes

RTGS, a combination of

Sri Lanka Interbank Payments System (SLIP)

Cheque Imaging and Truncation (CIT)

Situation in Bangladesh

Traditional Scenario

Paper based payment system

Semi-automated

Time consuming and prone to risks

Traditional Scenario

Old Payment and Settlement Systems

Interconnected systems

BB’s Clearing Houses

Sonali Bank's

Clearing Houses

BB large value

cheque settlement

system

BB Foreign

Currency Clearing System

Recent Developments

Payment Systems Strategy

Strategic Plan 2010-2014

“Develop effective and efficient currency

management alongside establishing fast

and secure electronic payment systems for

facilitating financial inclusion.”

Bangladesh Bank

Establish required legal and regulatory framework for electronic payment systems

Promote and encourage the use of electronic funds transfer, mobile financial services, ecommerce, m-commerce, ATM, POS

Establish National Payment Switch (NPS)

Establish e-Payment gateway.

Establish Real-Time Gross Settlement (RTGS)

Objectives

Modernization of existing

payment platforms

Real Time Gross Settlement

Payment process and settlement take place continuously in real

time (without deferral) and gross (transaction by transaction)

Settlement Account Processing

Settlement of only credit transfer instruction with sufficient

balance in the settlement account with the Central Bank

Finality and Irrevocability

Settlement of Credit Transfer Instruction is guaranteed for its

Finality and Irrevocability. Thus, it gives minimum scope for

settlement risk.

RTGS - Features

Key focus areas for RTGS

Efficiency enhancement in

payment systems

Standardization and inter-operability

Payment system literacy and

visibility

Risk mitigation in payment

systems

Compliance with international standards through oversight

Payment / Settlement Workflow Bangladesh Bank

BEFTN BACPS

NPSB Visa

Master

Chinapay

Europay

Issuing Bank

Merchants

Member Banks

Customers

Mobile Financial Services

Agent Banking

National Payment Switch Bangladesh

(NPSB)

Facilitation of e-Commerce & m-Commerce

Internet Payment Gateway(IPG)

Introduction of other

Financial Services

Disbursement of foreign remittances

Cash in /out using mobile account

Person to Business Payments

Business to Person Payments

Government to Person Payments

Person to Government Payments

Microfinance

Overdrawn facility

Insurance premium

Deposit Schemes (DPS)

Mobile Financial Services

National Payment Switch Bangladesh

Internet

Mobile

(Internet Payment Gateway)

BB has permitted inter-bank transfer of funds up to

BDT 500,000 via internet banking

Telcos have permission for m-Commerce related

transactions

e-Commerce &

m-Commerce

Introduction to Agent Banking

BB has given us the guidelines

Browser based agent banking solution introduced

A number of banks received approval for agent banking

Risk Management

Developing Regulatory Framework

Payment Systems Oversight

Technological means

Measures Taken

Bangladesh Payment and Settlement Systems

Regulations (BPSSR), 2009

ICT Guidelines

Bangladesh Automated Cheque Processing Systems

(BACPS) Operating Rules and Procedures, 2010

BEFTN Operating Rules, 2010

Guidelines on Mobile Financial Services, 2011

Guidelines on Agent Banking for Banks, 2013

BPSSR, 2014

Regulatory Framework

Responsibility of Central Bank

Maintains systemic stability in payment

systems

Aims at ensuring that the systems are set

up in such a way as to minimize the risk

potential

Payment Systems Oversight

Technological means

Initiatives taken by:

Regulatory bodies Market players Two Factor Authentication

For e-commerce –

1) Initiation

2) Transaction verified through

cellphone

Digital Signature

Electronic Security Key

Two Factor

Authentication

Digital Signature

Electronic Security Key

Introduction of “Chip and

PIN” (EMV)

Future prospects

RTGS will work as the back-end

Linked to BB core banking solution

Both individual interbank transactions as

well as Deferred Net Settlement Batches

will go through RTGS

Migration to RTGS

BACP, BEFTN, NPSB

RTGS BB

Inclusion of commercial

payment providers

Why is it necessary ?

It will help local outsourcing agencies

Increased participation in global economy

Greater economic growth

payment providers

Challenges

Lack of confidence from payment providers

Hesitation about the readiness of our financial

infrastructure

payment providers

How to overcome challenges

Increase interoperability between payment systems

Commitment from government

Encouragement and support from regulatory bodies

TRADE SERVICES UTILITY (TSU)

A SWIFT Product

What is it?

A SWIFT initiative

A centralized matching and workflow engine

This enables open account transactions

Benefits

Lower investment costs

Better productivity

Supply chain visible to the bank

Predictability

Interoperability

TSU Workflow

Currency Hedging

In-sourcing Payables/

Receivables

Risk Management

Supply Chain Finance

Guaranteed Payment

Data Checking

Document Preparation

Cash Forecasting

Process Efficiency

Liquidity Management

Incorporating SWIFT in RTGS

SWIFT Member and User Group of Bangladesh

is looking forward to SWIFT’s support

Settlement done via SWIFT platform

A safeguard against operational disruptions

As a backup platform

Benefits

Increased interoperability between banks

Standardization (ISO 20022, used by BB for RTGS)

Increased security

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