“Exploring Frontiers in Payment System Development”

Dr Ranee JayamahaDr Ranee JayamahaDeputy GovernorDeputy Governor

Central Bank of Sri LankaCentral Bank of Sri Lanka

Background

High value domestic payment systemsHigh value domestic payment systems:: modernized given their importance in financial modernized given their importance in financial system stability and linked to customer servicessystem stability and linked to customer services

Cross border large value paymentsCross border large value payments:: modernized due to importance in global modernized due to importance in global payment flows. payment flows.

Retail payment mechanismsRetail payment mechanisms:: modernized, but modernized, but progress is slowprogress is slow no open link to customer servicesno open link to customer services risk mitigation is not wide spreadrisk mitigation is not wide spread

Public Policy Responsibilities

Both, enhancement of access to finance and Both, enhancement of access to finance and development of retail payments are public policy development of retail payments are public policy objectivesobjectives

Public policy demands governments and relevant Public policy demands governments and relevant authorities to provide conducive macro authorities to provide conducive macro economic environment, legislative support and economic environment, legislative support and promote higher financial inclusionpromote higher financial inclusion

Previous efforts to enhance access to finance Previous efforts to enhance access to finance through financial institutions have had limited through financial institutions have had limited successsuccess

Retail payment system development should be Retail payment system development should be an important part of a multipronged approachan important part of a multipronged approach

Key Issues and Challenges

Diverse Institutional arrangements and complex Diverse Institutional arrangements and complex processesprocesses

Usage of electronic payments is not uniformUsage of electronic payments is not uniform Reluctance of operators and service providers Reluctance of operators and service providers

to invest in retail payment developmentto invest in retail payment development Limited interoperability and product related Limited interoperability and product related

instruments to facilitate supply chain and retail instruments to facilitate supply chain and retail businessesbusinesses

Absence of national and international standardsAbsence of national and international standards

Critical Elements and Success Factors

Easy accessibility and interoperability by usersEasy accessibility and interoperability by users Public/private partnershipPublic/private partnership Customer protection and rightsCustomer protection and rights Balance between efficiency and confidenceBalance between efficiency and confidence Guidance at national level through Payment Guidance at national level through Payment

Councils/Advisory CommitteesCouncils/Advisory Committees

Easy Accessibility and Interoperability

Use of advanced technology to facilitate retail Use of advanced technology to facilitate retail transactionstransactions ACHs: automated and Cheque Imaging and ACHs: automated and Cheque Imaging and

Truncation introducedTruncation introduced Electronic cheque payments and credit cards are Electronic cheque payments and credit cards are

popularpopular Giro systems: electronically linked to utility and Giro systems: electronically linked to utility and

retail paymentsretail payments Telephone and agency banking facilities introducedTelephone and agency banking facilities introduced

Public/private Partnerships (PIPs)

Governments to provide macro economic Governments to provide macro economic environment and basic infrastructure to promote environment and basic infrastructure to promote private sector involvement private sector involvement

Financial institutions and service providers Financial institutions and service providers should develop necessary infrastructure to should develop necessary infrastructure to facilitate customer services facilitate customer services

Development of supply chain linked financial Development of supply chain linked financial products, instruments and delivery channels products, instruments and delivery channels should be coordinatedshould be coordinated

PIPs should share common platforms and PIPs should share common platforms and services and reduce transaction costs to services and reduce transaction costs to enhance access to financeenhance access to finance

Customer Protection Rights

Clear departure from pervious legislation to Clear departure from pervious legislation to include customer protection and rightsinclude customer protection and rights

Exploitation by service providers, infrastructure Exploitation by service providers, infrastructure operators and financial institutions should be operators and financial institutions should be discouraged by law or other meansdiscouraged by law or other means

Inbuilt legal and regulatory safeguards are Inbuilt legal and regulatory safeguards are necessary to protect customersnecessary to protect customers

Impediments to fast development should be Impediments to fast development should be removedremoved

Technological Advances and Confidence

Cash – Most trusted payment mode and has Cash – Most trusted payment mode and has established public confidence compared to established public confidence compared to credit cardscredit cards

Pushing efficiency too far could raise Pushing efficiency too far could raise confidence issues confidence issues

Advanced technology should be used to link Advanced technology should be used to link retail payment instruments to customer retail payment instruments to customer services, i.e. facilitating remittance flows and services, i.e. facilitating remittance flows and supply chain transactionssupply chain transactions

National and International Standards

Domestic Payment Councils/Advisory Domestic Payment Councils/Advisory Committees should set standards for retail Committees should set standards for retail payment developmentpayment development

Where possible, international standards should Where possible, international standards should be developed taking financial inclusion and be developed taking financial inclusion and public policy into considerationpublic policy into consideration

Standard setters should enhance awareness of Standard setters should enhance awareness of payment system stakeholders and userspayment system stakeholders and users

Medium Term Strategy

Proactive approach and stakeholder commitment Proactive approach and stakeholder commitment are essentialare essential

Institutions, service providers and vendors should Institutions, service providers and vendors should be encouraged to move out of obsolete and be encouraged to move out of obsolete and archaic systemsarchaic systems

The approach should depend on country The approach should depend on country conditions, availability of financial and human conditions, availability of financial and human resourcesresources

Who should lead?

There are many stakeholdersThere are many stakeholders governments, central banks, banks and financial institutions, governments, central banks, banks and financial institutions,

system operators, service providers, regulatorssystem operators, service providers, regulators

Where possible, govt. should lead, given its public policy Where possible, govt. should lead, given its public policy responsibility and provide enabling environmentresponsibility and provide enabling environment

Central Bank should guide financial markets and Central Bank should guide financial markets and institutions in the interest of meeting both access to institutions in the interest of meeting both access to finance and retail payment developmentfinance and retail payment development

Central Bank need not compromise on its core objectivesCentral Bank need not compromise on its core objectives

All stakeholders, including international organizations, All stakeholders, including international organizations, standard setters, system providers, governments, banks and standard setters, system providers, governments, banks and users etc. have a role to playusers etc. have a role to play

Thank youThank you