global payments systems development and successes: world bank
TRANSCRIPT
Global Payments Systems
Development and Successes: World
Bank Perspective
Payment systems in Nigeria: the changing landscape and vision 2020
September 16 -17 2013, Abuja, Nigeria
Ceu Pereira
Senior Payment Systems Specialist
The World Bank
The Importance of Financial Infrastructure
Payment and settlement systems facilitate access to
financial services and the safe transfer of
funds. PS can mitigate financial crises by
reducing settlement risks
International remittance systems determine the price
and efficiency of sending/receiving
money by migrants to their families
Credit reporting systems reduce
information asymmetries, support
efficient credit allocation and strengthen risk
management
A solid financial
infrastructure
serves both
ACCESS TO
FINANCE and
FINANCIAL
STABILITY
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Payment systems: the underlying foundations
Source: World Bank Global Payment Systems Survey 2010
0
20
40
60
80
100
120
1990 1995 2000 2005 2010
Nu
mb
er
of
Co
un
trie
s
• A poor national payments system
imposes a constraint upon
financial institutions in many
developing countries, hindering
efforts to offer financial/payment
services and to serve the under-
served segments. It also creates
risk that can threaten the
stability of the financial system
• Payment systems is the
infrastructure established to
facilitate the transfer of monetary
value between parties. Efficient
payment systems support
development and financial
stability
Adoption of RTGS systems worldwide from 10- in
early ‘90s to 116+ in 2010 has led to improved risk
management in interbank settlement and increased
financial stability
3
Payment systems: enhancing efficiency and effectiveness for
the society
Bolsa Familia program (Brazil)
Cost of delivery as % of total
Before After
82%
cost
reduction
2.6
14.7
• Regardless of a country’s stage of economic
development, all governments make
payments to and collect payments from
individuals and businesses. (15-45% GDP)
• However, only 25% of low-income
countries worldwide process cash
transfers and social benefits electronically
• By going electronic, governments can save
up to 75% on costs, a significant amount in
an era of stretched resources
• A 2010 study estimates that the Indian
government could potentially save Rs 1,000
billion (1.6% of GDP) by moving all of its
payments to electronic non-cash
mechanisms (McKinsey)
4
Improved payment systems: enhancing efficiency and
effectiveness for businesses
• A more intensive usage of electronic-
based instruments versus cash can
produce a potential saving to the
country of 0.7% of the GDP per year,
releasing resources to the economy
(Central Bank of Brazil)
• At launch, The Single European
Payments Area (SEPA) project was
estimated to bring benefits as high as
EUR 123 billion over a period of 6 years
• Retailers incur 46% of the social cost of
retail payments, also due to high usage
cost of cash (European Central Bank)
Aggregate cost of cash
to businesses in US
• $40B cash shrinkage
from retail
• $30 Bank robbery/theft
cash losses
• $5B operation and
maintenance
• $5B cash in transit Source: Cost of Cash in the United States,
TUFTS University, 2012
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• Global efforts led by
the World Bank
matched with
interventions at the
country level are
bringing down the
cost of remittance
services: estimated
US$ 33.87 billion
saved
Source: Financial Infrastructure Service Line elaboration on Remittance Prices Worldwide data
Improved payment systems: enhancing efficiency and
effectiveness for households (e.g., international remittances)
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Mobile/e-money: huge opportunity to increase financial inclusion
• Innovative way to lower costs and physical
barriers for accessing financial services
• Usage of innovative payment products is still
low. However, innovative products are
important for financial inclusion in over 14%
of the jurisdictions, who report that a majority
of the users had access only to innovative
retail payment products (WB Global Payment
Systems Survey)
• WB brings payments system, financial
infrastructure and financial regulator
perspective Source: Global Findex 2012
Improved financial infrastructure: enhancing efficiency and
effectiveness for households (e.g., innovative payment
instruments)
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15+ years of discussion and reforms have led to important progress worldwide with regard to Legal Framework and High-Value Payment Systems…
• At least 116 central banks report having a RTGS system (from 3-4 in 1995)
• Most of the RTGS in place are secure and have been designed around international standards and best practices
…but retail payment systems in developing countries still lag behind significantly when compared to those of developed countries
• 100+ per capita cashless transactions per year in the EU and ODC
• 15-20 for EAP and ECA
• Less than 1 for AFR
*Source: Global Payment Systems Survey 2010
Status of retail payments and need for reform
Challenges:
Access (cost, geographic coverage)
Lack of coherent national payments
strategy in many countries
Infrastructure shortcomings
Inefficient payment instruments
Customer attitude and trust in
electronic payments
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Cashless retail payment transactions per capita ’09 - GPSS
9
13.0 20.1 18.8
8.5 3.4
0.2
169.3
117.0
190.1
45%
60%
14%
55%
27%
50%
16%
27%
16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
20
40
60
80
100
120
140
160
180
200
EAP ECA LAC MNA SA SSA Euro-areacountries
Other EUmembers
OtherDevelopedCountries
Average number ofper capita cashlesstransactions
Growth 2009 vs.2006
Account Penetration*
*Source: Demirguc-Kunt and Klapper, 2012
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Relative importance of non-cash payment instruments (based on number of transactions)
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• Each payment instrument was
ranked based on the number of
transactions, from “1” or most
important to “ 5” or least important.
Chart shows % and # of countries in
which each payment instrument is
considered “most important”
• Analysis by income clearly shows
preference of lo countries for
cheques (cheque is the most used
payment means in 65% of low
income countries, followed by debit
cards). The divide with hi, um and lm
is also evident (13%, 19%, and
37%)
• Cheque usage is substantial in
SSA, SA, and LAC regions
11 10
8
2
2
2
20 9
9
4
5
4
1
6 6
11
11
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
hi um lm lo
Direct credits/credit transfers Direct debits
Payments by debit card Payments by credit card
Cheques
Infrastructure and access - GPSS
Interoperability of ATMs/POS terminals by Region
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• Overall, slightly more
than half of CBs indicated
that both ATMs and POS
terminals are fully
interoperable
• # of CBs indicating full
interoperability of ATMs
(57%) is higher than for
POS (45%). No major
changes from 2008
• Higher interoperability
in hi countries. No lo
country indicated full
interoperability for POS
• Highest percentages
of low interoperability are
concentrated in SSA,
EAP and ECA
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
eap eca lac mena sa ssa eu n-eu odc
Full Interoperability of ATMs
Full Interoperability of POS terminals
Payment cards are used as payment instruments (not only for cash withdrawals)
Infrastructure and access – GPSS
Types of transactions currently supported by innovative products
• 173 products surveyed in 101 countries
• 25 products support multi-currency transactions. 40 products can be used for cross-border
transactions. This information collectively shows that, as group, innovative payment products continue
to have a predominant domestic payments focus
• 17 central banks believe that payment innovations will lead to higher levels of financial inclusion
141
119
91
40
51
29
17 11
0
20
40
60
80
100
120
140
160
Retail (personto small
businesses)
Utilities P2P Cross-border P2G B2G G2P G2B
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Infrastructure and access – GPSS
Entities involved the provision of innovative payment services
Role of banks still dominant -
but in (contractual)
collaboration with other
entities:
73% Banks are involved in the
operation of the innovative product in
terms of being responsible for signing
up new customers, setting up account
and managing customer service, BUT in
only
33% banks are solely responsible
9% schemes are operated by explicit
joint venture between banks and non-
banking entities
43% of the products surveyed use agents,
with highest usage of agents found in low-income
countries (75%), EAP (100%) and SSA (71%), and
large countries >30 million inhabitants (49%)
0% 10%20%30%40%50%60%70%80%
Other
Retailers (e.g. grocery stores)
Non-bank financial institutions(NBFIs)
Banks and their branches
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0% 10% 20% 30% 40% 50% 60%
Payments are settled at accounts maintained in theCentral Bank
Innovative scheme uses interbank payment systems inanother country as part of its operations
Innovative scheme uses domestic interbank paymentsystems as part of its operations
Payments are settled at accounts maintained at aparticular commercial bank
Payments are settled among members of the innovativescheme through correspondent accounts outside domestic
PS
Payments are settled in a bank account of the issuer of themonetary value
• The traditional clearing and settlement infrastructure is generally not used
• Less than 40% of the products settled in T+0
Infrastructure and access – GPSS
Use of clearing and settlement infrastructure by innovative products
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Infrastructure and access – GPSS
Interoperability of innovative payment products
0% 10% 20% 30% 40% 50% 60% 70%
Can be used only within the same innovativescheme
Can be used to pay to/receive frommerchants/customers of all other innovative
schemes
Can be used to pay to/receive frommerchants/customers of a few other
innovative schemes
Can be used to pay/receive payments madeusing traditional payment schemes
• Most of the innovative
payment products are
closed-loop (108 of the
173) products reported.
Only 17% were reported
having full-fledged
interoperability, while 29%
have some degree of
interoperability
• Full interoperability is
less common in high-
income countries,
especially ODCs, and
somewhat more common
in ECA and LAC
A holistic approach for the retail payment systems
development
• A comprehensive strategy should be adopted for the development of
retail payments
• Development of retail payment systems contributes to financial
inclusion
• Innovative payment solutions can help, but tackle only one piece of
the value chain
• Government payments can play an important role
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Comprehensive Retail Payments Strategy
Guideline I: The market for retail payments should be transparent, have adequate
protection of payers and payees’ interests, and be cost-effective
Guideline II: Retail payments require reliable underlying financial, communications
and other types of infrastructure
Guideline III: Retail payments should be supported by a sound, predictable, non-
discriminatory and proportionate legal and regulatory framework
Guideline IV: Competitive market conditions should be fostered in the retail
payments industry, with an appropriate balance between cooperation and
competition
Guideline V: Retail payments should be supported by appropriate governance
and risk management practices
Guideline VI: Public authorities should exercise effective oversight over the retail
payments market and consider direct interventions where appropriate
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Innovation: different instruments, common concerns
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Stored-value cards
Remittances
Mobile payments
Understanding innovative
means of payment within
the common framework of
retail payment system
regulation
Main emerging features
• Deposit-taking, stored-value, provision of pure intermediation on
transfer of money
• Access to clearing and settlement
• Role of agents/distribution agreements
• Protection of customers funds
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Risk-based assumptions
• Remittance services, m-payments and pre-paid cards are
components of the (retail) payments system
• They should consequently be taken into consideration with this
approach for the kind of risks they raise
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Efficiency considerations
• As part of the retail payment system, these should contribute to
the overall effort to enhance the efficiency of the sector
• This means that one of the objectives of regulation should be to
ensure that the benefits on any improvement in the retail payment
space accrue to the end-users and the economy in general,
without creating un-justifiable rents in some part of the value
chain
22
Competition and market contestability
• Different regulatory treatment might lead to distortions on
competition: regulatory constraints should be proportionate to
effective risks and public policy needs to ensure a level playing
field for retail payment services in general.
• Regulation should be non-discriminatory avoiding either
favouring or ignoring certain categories of service providers over
others
• Regulation should also remove business practices when they
hamper competition
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Consumer protection
• Electronic retail payment
instruments present the additional
issue of consumer protection
• Independently of the kind of
commercial relationship between
the provider and the user of the
service, either durable or
occasional, rules on transparency
and protection of customers must
be granted
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Customer funds in innovative retail payments products
Fully protected
Not fully protected
Not protected at all
Empowering the overseers
• The establishment of an effective oversight function on payment
systems and services is instrumental to foster the adoption of
electronic payments, including mobile money
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World Bank, CPSS
General
Principles for International Remittances
Services
GP1: Transparency and consumer
protection
GP2: Payment system
infrastructure
GP3: Legal and regulatory
framework GP4:
Competitive market
conditions
GP5: Governance
and risk management
practices
A valid framework for mobile money
• Responsibility of Remittance Service Providers to support implementation
• Responsibility of regulators and public authorities to ensure implementation
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The Retail Package Strategy
Stocktaking
M-payments
Global Survey
A comprehensive
package for the
development
and reform of
the national
retail payments
system published
by the World
Bank Group
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Integrating the agenda on remittances
An international remittance is a cross-border, person-to-person payment of relatively low value = retail payment
Leading G8 and now G20 remittance work, instrumental in adoption of remittance targets (5x5 price reduction objective) by both groups
Created global standards for efficient remittance markets together with the relevant standard setter (CPSS-WB General Principles for International Remittance Services). Assessment/implementation programs have covered +20 countries
Hosting the Secretariat of the Global Remittance Working Group, an international monitoring and coordination body
Operating Remittance Prices Worldwide, a global survey and database of remittance prices that is used to monitor G8 and G20 targets; Coordinating/certifying a number or regional/national databases
Technical partnerships for remittance initiatives with several IFIs: African Union, IFAD, IDB, FAO, UPU etc.
Linking international remittances to the Financial Inclusion Agenda
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