‘switching, interoperability and interconnectivity’ bridget morris november 2009
TRANSCRIPT
‘Switching, Interoperability and Interconnectivity’
Bridget Morris
November 2009
Programme
• Introductions
• The Problem(s)
• Overview & key concepts
• Some Answers?
• Suggested way forward
Introduction – TPS & Liquid
• TPS started in Zimbabwe, early 90’s
• Bought by Econet Wireless in late 90’s
• Liquid Telecomms grew out of Econet
• TPS moved into Liquid sphere 2008
• Re-positiioned in payments and
wholesale telecoms market
Introduction – Bridget Morris
• Payments Industry - 2 decades experience
in/around ‘payments’ and payment systems
• 12 years self-employed independent payments
consultant, payments workshops
• Joined the new TPS earlier this year
• Payments initiatives all over Africa, Europe,
Caribbean, Central Asia
• Nigeria – was involved at begining of InterSwitch
and also some work for DfID on remittances
The Problem, the confusions..
• Currently 3 bigger ‘switches’ (and various
smaller ones)
• InterSwitch
• Valuecard
• eTranzact
• NIBBS Central switch
But are they all really EFT ‘switches’?
Is a central switch needed?
The Problem, the resentments?.
• Scepticism?
• Compulsory connection to central switch?
• Adding another layer of cost?
• Eroding market share?
• Is a central switch needed? Yes a central switch
is desirable… reasons to become clear in the
following….
Why a central switch?
• Regulator DOES NEED to
• see all the payment flows
• to balance
• real time and netted payment streams
• demand for intra-day liquidity
• Regulator does NOT NEED
• to make a profit out of switching
• to own the central switch
Why a central switch? contd.
• Received wisdom, best practice
• Important in Africa to comply with ‘best practice’
• Standard, internationally accepted payment
systems are very important w.r.t.
• Ratings
• Bretton Woods institutions
• Readiness for international trade
• Credibility generally
Some pertinent questions….
These are rhetorical questions for the moment..
• Is a given payments initiative, an infrastructure
company? Or a commercial scheme?
• What is its position in the National Payments
System environment
• Who are the owners? Who are the customers?
Overview – key concepts
• Technology is the easy part
• Understand your position in the National
Payments system infrastructure
trade payment
Issuing bankPayment systemAcquiring bank
CustomerPSP / Scheme
Merchant
The 2 ‘legs’ of commerce
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SSeeccuurriittiieess DDeeppoossiittoorryy
CCeennttrraall BBaannkk
EElleeccttrroonniicc CCoommmmeerrccee
CCoommmmeerrcciiaall BBaannkkss
AAuuttoommaatteedd CClleeaarriinngg
EElleeccttrroonniicc FFuunnddss TTrraannssffeerr
Physical picture very different…
A more realistic picture…..
CB enpowered by NPS Act
NIBSSPaper clearing house
EFT Switches + VISA/Mcard
Bank
Bank Bank
Bank
System Operatorsm-commerce
EBPPATM/POS Acquirers
E-commerce
Card Issuers
Etc., ad infini
Overview – key concepts 1
• Technology is the easy part
• Understand your position in national
Payments system infrastructure
• Only banks can guarantee payment
• High value – low volume or high volume –
low value?
• Retail payments are business of retail banks
• Real time stream or DNS (netting systems)
• Risk vs Efficiency
Risk and Efficiency
• Real time streams are the most ‘efficient’ involving cash or hi-value transfers
• Batch streams which contain lots of low-risk, low-value payments can be less efficient i.e. slower, provided they settle same day
• Risk assessment for each type of payment will dictate the payment stream, real time or batch
• Neither are ‘absolutes’ so always compromises and tensions
Overview – key concepts 2
• Management of Settlement risk in a deferred
net settlement environment is vital
• Create a robust system, probably branded,
that consumers can trust absolutely 24 x 7
• Majority ownership likely to be with the
banks, even if initially driven by the Central
Bank
• Central Bank as ‘overseer’ of whole
payments system, should provide policy
guidelines, to preserve level playing field
Overview – key concepts 3
• Is the Central Bank just being difficult? No, needs
to
• ‘see’ the flows, volumes, patterns
• Adjust the high-value threshold, ‘lubricate’
• Monitor settlement risks, assist
collateralisation
• All the above makes for credible,
internationally recognised payment system
• But Central Bank may be slow, innovation always
precedes regulation…
Overview – key concepts 4
• Understand difference between an infrastructure
company (not for profit) and a scheme (for profit)
• Who are owners, who are customers
• Core Principle compliance at micro and macro
level
ATM, POS, the realtime stream
• EFT switching of ATM and POS (and possibly
airtime) really belong in the real time
authorisation stream with deferred net
settlement
• 90/10 ratio - high volume / low volume streams
• ATM is relatively easy, POS is where the fun
begins, usually…
• POS switching is good area for Central Bank to
provide guidelines and prevent the expensive
disasters seen many times, in many countries
6 POS policy guidelines
• All EFT terminals must accept ALL cards
• Cardholder must pay marked price of goods at POS
• All local transactions switched and settled locally
• Universal principle of interchange at approx. 1%
• No multi-acquiring at POS
• Cash back, authorised by PIN, at all POS terminals -
(no offline transactions anywhere)
Infrastructure, Scheme initiatives
Infrastructure companies• No profits• Owners and customers the same• Fees and charges set by treaty• Usage often licensed
Schemes are the ‘free-market’ entities• Differentiated by product, service,• “Co-opetition” on standards, protocols, rules• Should be profitable
National switch? Yes or no?
PRO’s
• All can see all streams• No profit in infrastructure• Push ownership onto
banks• Push risk management
onto banks• Internationally accepted
best practice
CON’s
• Duplication of existing structures?
• Competing with PSPs?• Additional layers of fees.
Charges?• CB should maintain a
good regulatory, oversight independence
Some points arising….
Keeping an eye on ‘best practice’ one could …• Look at APACS and PASA web sites• Create a regulatory framework for payment system
operators
Various interest groups should set up ‘schemes’ or associations to
• Provide some self-regulation, rules, codes of conduct • Ensure, aggregate viable transaction volumes• Rationalise common transactions, formats, protocols
etc., so as to ensure interoperability where needed
Trust and Confidence
• As with all things in banking and finance, TRUST and CONFIDENCE are paramount
• Absolute clarity needed as to when ‘value’ will be given for any payment – ‘certainty’
• All participants in a payment system need to work toward such robustness and reliability.
Conclusion – key points
1. TWO equal legs of e-commerce
2. Only banks can provide ‘certainty’
3. Technical/physical interactions with payment infrastructure are completely different from business, risk, legal interactions
4. TRUST, CONFIDENCE, FINALITY, CLARITY
Thank YouBridget MorrisMobile +263 912 222 569 / +260 966 306 982Office +260 211 257 147 [email protected]