“Exploring Frontiers in Payment System Development”

1. “Exploring Frontiers in Payment System Development” Dr Ranee Jayamaha Deputy Governor Central Bank of Sri Lanka

2. Background • High value domestic payment systems: modernized given their importance in financial system stability and linked to customer services • Cross border large value payments: modernized due to importance in global payment flows. • Retail payment mechanisms: modernized, but • progress is slow • no open link to customer services • risk mitigation is not wide spread

3. Public Policy Responsibilities • Both, enhancement of access to finance and development of retail payments are public policy objectives • Public policy demands governments and relevant authorities to provide conducive macro economic environment, legislative support and promote higher financial inclusion • Previous efforts to enhance access to finance through financial institutions have had limited success • Retail payment system development should be an important part of a multipronged approach

4. Key Issues and Challenges • Diverse Institutional arrangements and complex processes • Usage of electronic payments is not uniform • Reluctance of operators and service providers to invest in retail payment development • Limited interoperability and product related instruments to facilitate supply chain and retail businesses • Absence of national and international standards

5. Critical Elements and Success Factors • Easy accessibility and interoperability by users • Public/private partnership • Customer protection and rights • Balance between efficiency and confidence • Guidance at national level through Payment Councils/Advisory Committees

6. Easy Accessibility and Interoperability • Use of advanced technology to facilitate retail transactions • ACHs: automated and Cheque Imaging and Truncation introduced • Electronic cheque payments and credit cards are popular • Giro systems: electronically linked to utility and retail payments • Telephone and agency banking facilities introduced

7. Public/private Partnerships (PIPs) • Governments to provide macro economic environment and basic infrastructure to promote private sector involvement • Financial institutions and service providers should develop necessary infrastructure to facilitate customer services • Development of supply chain linked financial products, instruments and delivery channels should be coordinated • PIPs should share common platforms and services and reduce transaction costs to enhance access to finance

8. Customer Protection Rights • Clear departure from pervious legislation to include customer protection and rights • Exploitation by service providers, infrastructure operators and financial institutions should be discouraged by law or other means • Inbuilt legal and regulatory safeguards are necessary to protect customers • Impediments to fast development should be removed

9. Technological Advances and Confidence • Cash – Most trusted payment mode and has established public confidence compared to credit cards • Pushing efficiency too far could raise confidence issues • Advanced technology should be used to link retail payment instruments to customer services, i.e. facilitating remittance flows and supply chain transactions

10. National and International Standards • Domestic Payment Councils/Advisory Committees should set standards for retail payment development • Where possible, international standards should be developed taking financial inclusion and public policy into consideration • Standard setters should enhance awareness of payment system stakeholders and users

11. Medium Term Strategy • Proactive approach and stakeholder commitment are essential • Institutions, service providers and vendors should be encouraged to move out of obsolete and archaic systems • The approach should depend on country conditions, availability of financial and human resources

12. Who should lead? • There are many stakeholders • governments, central banks, banks and financial institutions, system operators, service providers, regulators • Where possible, govt. should lead, given its public policy responsibility and provide enabling environment • Central Bank should guide financial markets and institutions in the interest of meeting both access to finance and retail payment development • Central Bank need not compromise on its core objectives • All stakeholders, including international organizations, standard setters, system providers, governments, banks and users etc. have a role to play

13. Thank you