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Payments Systems Presented By
Wayne Shah
A payment system is a system used for the transfer of money
What makes it a "system" is that it employs cash-substitutes
Payment systems are used in lieu of tendering cash in domestic and international transactions
Payment systems are require processing, cut off times and currency specifications
DiscussionConcepts
• Cash Substitute• Checks• Drafts• Credit Card – Visa, MasterCard,
Discover American Express,• Diners Club• Debit Card• Stored Value card• International ACH• E commerce Payments
• SWIFT• ATMs• On Line Banking• Internet Payment – Paypal,
Amazon, Face Book• Mobile Phone Payment• Wire transfer• Book transfer• Domestic ACH• Letters of credit• Hawala
DiscussionDiscussionPaysPays
$ £
€
¥
BRLARS
ZAR
AED
INR
RUBCAD
MXN
AUD
¥
CSM
FI CSM
CSM
FI
FI
CSM
CSM
CSM
CSMFI
FXMarketsLanguageRegulationTime ZonesLocal Banking Practices
• USA• Japan• China• India• Europe• Latin America and Caribbean
– Brazil, Chile, Mexico– Panama, Guatemala
DiscussionMajor Markets
Page 10
Retail (Low Value/High Volume)
CHIPS
Fedwire
Wholesale (High Value/Low Volume)
Automated Clearing House
Check Clearing System
Debit/Credit Cards
Book Transfer ?
DiscussionDiscussionPayments - USAPayments - USA
11
Credit Card Payment Clearing Process
4. Authorization Granted
Merchant Merchant Bank
Credit CardNetwork
Issuing Bank
ConsumerAccount
1. Credit Card Presented toMerchant for Purchase
2. Authorization Request
5. Charges sent for clearing
5. Hold Convertedto Charge
5. Funds Remitted
3. Hold Placed on Credit Limit
Authorization = Clearing = Settlement =
6. Settlement
13
• There are 4 major clearing systems for settling inter-bank payments in Japan
• Three are private and one is operated by the BOJ
• The 3 private systems are – Zengin System – retail credit transfers– FXYCS – Yen legs of FX transactions– BCCS – Bills and Checks collected at regional Clearing
houses
• BOJ Net – settles inter-bank transactions
• Net positions calculated by these clearing systems are settled through current accounts at the Bank of Japan
DiscussionPayments - Japan
15
• 4 Large State-Owned Commercial Banks dominate banking system
• Bank of China (120) (11,608)
• Industrial and Commercial Bank of China (134) (24,129)
• Agricultural Bank of China (110) (48,163)
• China Construction Bank (131) (16,472)
• 4 banks control 55% of the banking assets and 60% of the market share
• Extensive nationwide branch network w/ as many as 5 tiers or layers in some cases
DiscussionDiscussionPayments - ChinaPayments - China
16
People’s Bank of China
State Council
China Banking Regulatory Commission
State-owned Policy banks
State-owned Commercial banks
Shareholding Commercial banks
City Commercial banks Foreign Banks & JVs
State Administrati
on of Foreign
Exchange
Chinese Banking System
17April, 2001 Slice 3
CUSTOMERS
BOSS
COLLEAGUES
Customers
Shanxi
Shaanxi
Zhenjiang
Zhejiang
Zhanjiang
Quanzhou
Guangzhou
City Name Similarities
20
Indian Banking Structure
68,300 branches
Can have FX acctounts
FX and Rupee.
No positions in FX rupees only
22
The Pre Euro Landscape € Large differences in payment practices and price levels
€ Every country has it’s own clearing systems
€ Difference in local data formats and contents (e.g. account number)
€ Substantial differences in tax, legal and central bank reporting requirements
€ “Fragmented”
DiscussionDiscussionPayments - EuropePayments - Europe
23
Retail Clearing Systems in Euro Area
• CEC - Belgium • CHS -Brussels • PMJ - Finland • SIT - France • RPS -Germany • ACO - Greece • DIAS - Greece • IRECC - Ireland • IPCC - Ireland • BI-COMP - Italy • LIPS-Net - Luxembourg • CSS - Netherlands • SICOI - Portugal • SNCE - Spain • STEP 2 - European Banking Association
Euro (EUR) Payment Systems
€ TARGET – RTGS (being replaced by TARGET2)
€ EURO 1 - Netting System
€ STEP 1 – A sub-system of Euro 1
€ STEP 2 – European ACH system (SEPA)
€ Domestic Schemes – RTGS/Net/ACH – Phased out
Revenue Loss as a Consequence ?
Where is the Caribbean headedGovernment and regulationPolicyTechnologyForeign BanksGlobalization
Are we a geography or a financial region?
29
REGULATION AND COMPLIANCE
Compliance and regulation have
dominated the banking sector.
Several banks have been levied heavy
fines by regulatory authorities in the
past 5 years for failure to comply with
regulations
As regulatory bodies are highly
reactive to world events, compliance
and regulations will remain a top
priority for banks to survive.
30
Managing Risk• Regulatory Environment
PAC
KYC
KYCC
AML
EDD
FATF
FINCEN
OFAC
PEP
FIU
SEC
CATF
CRA
BASEL
FDIC
BIS
ISO
BSA
Latin America
•Credit cards are growing rapidly
North America
•Debit card use continues to grow rapidly
•Demand for more detailed remittance data
Europe
•Credit cards have not been embraced
•Significant margin pressure across region due to SEPA
Middle East and Africa
•Individuals more likely to have a relationship with a mobile network operator (MNO) than a bank
Asia Pacific
•Fast growth in domestic non-cash payments
•Significant payments innovation
•Mobile Phones
Source: BCG, KPMG, and McKinsey reports, and EPS analysis
36
PAYMENTS - TRENDS
• Type of bank in food chain– Retail, Corporate, Private/Wealth– Footprint, Scale, Reach
• Tactics and Strategy - direction• Target Market – level of sophistication,
technology adoption of customers• Spend and Budget• Human capital
DiscussionThings to consider
• Ease of expansion and upgrades• Product deployment - modular• Product development - Business• Independence from vendor• Trainability• Open Architecture – Hardware Independence• Standards and best practices – SWIFT, IACH• References that are relevant – right sizing
DiscussionThings to consider
• Reporting and Metrics• TRX Tracking and research• Workflow • Compliance interface – AML, OFAC• Enhanced data capture and transfer – e.g.
Travel Rule and Bene Information• FX and Multicurrency• Customer Pricing and Flexibility - IQ
DiscussionThings to consider