global trends in large value payment systems
DESCRIPTION
We discuss 10 main trends in the settlement of large-value interbank payments; 1. Diffusion of Real Time Gross Settlement 2. Take Off of Hybrid Systems 3. Emergence of Cross Border and Offshore Payment Systems 4. The Rise of CLS 5. Increasing Settlement Values and Volumes 6. Shrinking Average Payment Size 7. Falling Number of System Participants 8. Extended Operating Hours 9. Declining Transaction Fess 10. Adoption of Common Standards for LVPSTRANSCRIPT
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February 6, 2009OENB, Wien
Global Trends in Large Value Payment System
Morten L. Bech1, Christine Preisig1 and Kimmo Soramäki2
1 Money and Payment Studies, FRBNY 2 Helsinki Univ. of Technology, www.soramaki.net
The views expressed in this presentation do not necessarily reflect those of the European Central Bank the Federal Reserve Bank of New York or the Federal Reserve System.
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Ten Trends
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fess10. Adoption of Common Standards for LVPS
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Key Drivers
1. Diffusion of Real Time Gross Settlement
2. Take Off of Hybrid Systems
3. Emergence of Cross Border and Offshore
4. The Rise of CLS
5. Increasing Settlement Values and Volumes
6. Shrinking Average Payment Size
7. Falling Number of System Participants
8. Extended Operating Hours
9. Declining Transaction Fess
10. Adoption of Common Standards for LVPS
Technological change
Structural Changes
in Banking
Changes in
Central Bank Policies
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Trend #1
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fees10. Adoption of Common Standards for LVPS
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The Diffusion of RTGS
• Historically, Deferred Net Settlement
• Values Concern about settlement risk (unwinding) Real Time Gross Settlement (RTGS)
• RTGS Liquidity needs Hybrid system: elements of DNS and RTGS
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RTGS 2006RTGS 2006
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S-curve
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Trend #2
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fees10. Adoption of Common Standards for LVPS
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Mixing RTGS and Netting Features
• DNS systems adopt RTGS features → NewCHIPS, PNS
• RTGS systems adopt DNS features → RTGSplus, T2
Liquidity available/required
Lower bound Upper bound
De
lay
DNS (eod)
Pure RTGS
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DNS, RTGS & Hybrid
We consider the following systems: Fedwire, CHIPS, CHAPS, SIC, TARGET, MEPS, K-RIX, LVTS, PNS, Euro1 and HKD CHATS. DNS in 1999: Euro1 and BoJ-NET. Hybrids in 1999: PNS and LVTS. RTGS. Hybrids in 2005: PNS, LVTS, CHIPS and RTGSplus. The value for RTGSplus was subtracted from the value of TARGET in computing the value settled via RTGS.
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Trend #3
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fees10. Adoption of Common Standards for LVPS
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A LVPS Taxonomy
Settlement CurrenciesSettlement Currencies
LocalLocal ForeignForeign Multiple (PvP in FX Multiple (PvP in FX settlement)settlement)
Particip
ant T
ype
Particip
ant T
ype
DomesticDomestic
Fedwire, Fedwire, CHIPSCHIPS CHAPS, CHAPS, LVTSLVTS, ,
RIX, RIX, PNS, PNS, BoJNETBoJNET
USD CHATS USD CHATS EUR CHATSEUR CHATS
HKD, USD, EUR HKD, USD, EUR CHATS (PvP in CHATS (PvP in
CHATS)CHATS)
RemoteRemote SICSIC Euro-SICEuro-SIC
Cross BorderCross Border TARGET, EURO1TARGET, EURO1 Euro CHAPSEuro CHAPSCLS,CLS,
Rentas-CHATS Rentas-CHATS linklink
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Cross Border Flows in TARGET1999 - 2002
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Offshore USD
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Offshore EUR
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Trend #4
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fees10. Adoption of Common Standards for LVPS
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Has remote access to accounts with 15 Central Banks
Holds a multi currency account for each Settlement Member
CLS Bank is a CLS Bank is a multicurrency bankmulticurrency bank
Reserve Bank of Australia
European Central Bank
Swiss National BankUS Federal ReserveBank of Japan
Bank of England Bank of Canada
Monetary Authorityof Singapore
DanmarksNationalbank
Norges Bank Sveriges Riksbank
South African Reserve Bank
Hong Kong Monetary Authority
Reserve Bank of New Zealand
Bank of Korea
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Overlapping RTGS systemsOverlapping RTGS systems
Asia/Pacific
EuropeEurope
North America
Europe
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The Rise of CLS
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CPSS surveys on FX settlement risk
Settlement Method Value 1998 (% of total Value)
2006 (% of total Value)
CLS (PvP) 2,091 0% 55%
Traditional correspondent banking 1,224 85% 32%
Bilateral netting 304
15%
8%
Other settlement methods 203 5%
Total 3,821 100% 100%
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Trend #5
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fees10. Adoption of Common Standards for LVPS
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Slower Growth after 2000
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US flows at par with GDP
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Share of systems
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Number of Transactions
0 50 100 150 200 250 300
K-RIX
MEPS
HKD CHATS
LVTS
BOJ-NET
PNS
CHAPS Sterling
EURO1
CHIPS
TARGET
Fedwire
SIC
Millions per year
Number of transactions 1999 Number of transactions 2005
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Trend #6
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fees10. Adoption of Common Standards for LVPS
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Average Payment
0 10 20 30 40 50 60 70
SIC
EURO1
PNS
MEPS
CHAPS Sterling
HKD CHATS
Fedwire
CHIPS
LVTS
TARGET
K-RIX
BOJ-NET
1999 2005
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Change in Average Payment Size
-100 -80 -60 -40 -20 0 20 40
HKD CHATS
TARGET
Fedwire
MEPS
LVTS
CHIPS
CHAPS Sterling
BOJ-NET
SIC
PNS
EURO1
K-RIX
Inflation adjusted change in payment size
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Trend #7
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fees10. Adoption of Common Standards for LVPS
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Number of Participants
Fedwire 1 9,994 1 6,819 -32%TARGET 2 5,144 2 2,628 -49%BOJ-NET 3 409 3 357 -13%SIC 5 291 4 325 12%CHAPS 4 404 5 241 -40%HKD CHATS 6 151 6 129 -15%MEPS 7 136 7 111 -18%EURO1 9 72 8 75 4%CHIPS 8 77 9 48 -38%PNS 10 25 10 45 80%K-RIX 11 23 11 21 -9%LVTS 12 14 12 15 7%
Total Participants
2005Percentage
Change
Source: Bank for International Settlements
Note: For PNS the increase in the total number of participants is due to an increase in the number of indirect participants and can by and large be explained by a reclassification of their status that took place over the period.
System Rank
Total Participants
1999 Rank
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Trend #8
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fees10. Adoption of Common Standards for LVPS
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LVPS Business Hours
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LVPS Business Hours
0:00 3:00 6:00 9:00 12:00 15:00 18:00 21:00 0:00
PNS
EURO1
CHATS
MEPS
BOJ-NET
K-RIX
TARGET
CHAPS Sterling
LVTS
CHIPS
Fedwire
SIC
1997 2007
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Trend #9
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fees10. Adoption of Common Standards for LVPS
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LVPS Pricing Schedules
Volume Value Time of Mode of based Based Day delivery Sender Total Sender Total
Fedwire Y N N Y 0.1 0.2 0.3 0.6TARGET Y N N N 1.1 1.1 2.4 2.4SIC N Y Y N 0.01 0.03 3.7 3.7Note: Total = Sender + Receiver, Exchange rate of May 25, 2007
Highest
USD Equivalent
Transaction feeLowest
0
0.5
1
1.5
2
2.5
3
3.5
Before 8am 8 am - 11 am 11 am - 2 pm After 2pm
CH
F p
er p
aym
ent
Sender ( under 100,000 CHF) Sender ( above 100,000 CHF) Receiver
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Fedwire vs. CHIPS
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Trend #10
1. Diffusion of Real Time Gross Settlement2. Take Off of Hybrid Systems3. Emergence of Cross Border and Offshore
Payment Systems4. The Rise of CLS5. Increasing Settlement Values and Volumes6. Shrinking Average Payment Size7. Falling Number of System Participants8. Extended Operating Hours9. Declining Transaction Fees10. Adoption of Common Standards for LVPS
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Core Principles
No AssessmentSelf AssesmentFSAPSelf & FSAP
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The Future
1. Diffusion of RTGS: Well under way – 93/174 CBs
2. Age of Hybrids: More to come, investment cycle
3. Cross Border and Offshore: Unique events, niche players
4. The Rise of CLS: Growing importance, Share ~ 50%, New markets
5. Increasing Values and Volumes: At the rate of GDP
6. Smaller Large Value Payments: Fees RTGS more attractive
7. Diminishing Membership: Consolidation is continuing
8. Approaching 24/7 payments: True 24/7 ?
9. Declining Transaction Fess: ITC cost
10. The Triumph of Common Standards: White collar welfare
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A New Path?
• Check clearing, …
• Deferred Net Settlement
• Real Time Gross Settlement
• Hybrid System
Traditional Path
Canada
Emerging
Markets