The quality of the Payment System
Who’s concern?
Copyright NCB Consulting
www.ncbconsulting.nl
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Content
Definition Payment System
 Oversight (tasks and organisation)
 Poll/survey
 Concern quality payment system
 Concluding remarks
 Questions

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The Payment System - Definition
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The Payment System - Definition
ALL LINKS IN THE CHAIN SHOULD BE STRONG
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The payment chain:
Payment
instrument
Channel/
medium
Transaction
processing
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Clearing
Settlement
The Payment System - Definition
• Starts and ends at the client
• Starts with Payment Instruments like: credit
transfer, direct debit, debit and credit cards, epurses and
• In Payment Instruments are included Input
Devices like the POS terminal, the home PC,
the telephone equipment, an ATM with input
facilities
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The Payment System - Definition
•Channels: mail system and telecommunication
connections like telephone lines, local networks,
wide area networks like internet
•Other institutions like Acquirers, Clearing
institutions, Issuers, Processors, Settlement
institutions (incl. for securities settlement)
•Ends at the client via paper or electronic output
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Scheme oriented organisation retail payments
Legal Owner
Issuer
Clearing
Institution
Acquirer
Acquirer
Acceptant
Payment
Acceptantser
Service
vice
Provider
Consumer
Issuing
processor
Clearing
processor
Acquiring
processor
Settlement
processor
Network
processor
Settlement
Institution
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providor
Retailer
Basis of the Payment System:
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Payment system is all about trust...





Trust
Trust
Trust
Trust
Trust
Currency
Issuer
Payment system
Authenticity
Legal system
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Mission of the central bank


A National Central Bank (NCB) is responsible for safeguarding
financial stability.
More particularly, a NCB contributes to
– defining and implementing the monetary policy;
– promotes the smooth operation of the payment system;
– and can supervise financial institutions and the financial
sector.
– All NCB’s have an active role in payments.
– Per NCB differences may exist in the active role in
payments.
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Mission of the central bank
Scope

Monetary stability:
stable currency

Financial sector stability:
institutions
reliable financial

Payment system:
smooth and secure
payments
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Payments: different roles of a NCB
Operator
- Cash
- Large value payment system
- Services to securities settlement systems
Overseer
- Payment systems
- Payment products
Catalyst
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Oversight task
Oversight is a task of a central bank aiming:
–
Contributing to the reduction of systemic risks by
performing oversight on the payment system
–
Promoting the adequate functioning of the
payment system by performing oversight on this
system
– Contributing
to financial stability
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Systemic risk

Systemic risk is the risk that propagation of a
serious failure in a sector of the society will imperil
other sectors (a ‘domino’ effect).
The infection is propagated via the interfaces
between the sectors
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Systemic risk
In case propagation leads to a
… effect, a systemic risk has occurred
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Oversight’s objectives
Objectives
 Reduce systemic risk
 Smoothen payment system
 Maintaining public confidence
in the safety of the payment
system
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Staffing: organisation at DNB


Multidisciplinary staff (11, including head of
department): lawyers, risk management experts,
(IT) auditors, economists
experience in securities, payments and / or
supervision
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Deliverables of oversight
Assessment reports:

Initial assessment in case of new system

Partial assessment in case of major change
Annual oversight report

Internal: extensive, including sensitive findings

External: summary of conclusions
Regular oversight

Regular meetings (monthly, quarterly)

Regular reporting of statistics, incidents, financials (monthly quarterly)

Ad hoc reporting in case of crises
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Standards

Assessments based on standards

Use of international standards if available

By using standards the level of playing field is
guaranteed

Authority to set up minimum standards for the objects
of oversight (oversight framework)
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Oversight standards (1)
Wholesale

Core principles for systemically important
payments systems (SIPS) (BIS, 2001)

Terms of Reference for the assessment of
Large Value Payment Systems (LVPS) (ECB)
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Oversight standards (2)
Retail

Framework for the Oversight on Card Payment
Systems (ECB)

Recommendations for Payment Products (DNB)

Oversight standards for Euro Retail Payment
Systems (ECB)

Electronic Money Security System Objectives
(ECB)
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Oversight standards (3)
Securities
 Recommendations for Central
Counterparties (CCPs) (CPSS/IOSCO,
2004)
 Recommendations for Securities
Settlement Systems (SSS)
(CPSS/IOSCO, 2001)
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Annual report Oversight

Transparency - ´Central banks should set out
publicly their oversight policies, including the policy
requirements or standards for systems and the
criteria for determining which systems these apply
to´, CPSS 2005

Enforcement tool – no legal instruments for
Oversight, except ´moral suasion´
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Trends / developments
Consolidation / concentration
 European consolidation underway
– TARGET2
– Single European Payment Area (SEPA)
– LCH.Clearnet mergers
– Euroclear mergers
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Trends / developments
Competition, fragmentation

MiFID and Code of conduct for clearing and
settlement

New trading platforms and CCPs compete with
incumbents (EMCF new CCP in the Netherlands)

Interoperability between trading platforms, CCPs and
CSDs create equal access and competition
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Trends / developments
Specialisation


multiple operators/owners: card schemes, transaction
networks, imaging and clearing
new providers of payment products/ payments services
 telecom providers
 network providers
 public transport
 non bank ATM’s
 acceptant payment service providers
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Trends / developments (1)
Consequences

Standardisation increasingly important

Increasing (need for) co-operation between overseers
(criteria, standards, approach)

Legal and oversight frameworks need to be harmonised
(MoU’s)
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Trends / developments (2)
Consequences

Increasing (need for) co-operation with other regulators
(e.g. supervisors, securities regulators, etc.)

Currently cooperative oversight on VISA and
MasterCard has started
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Cooperation other authorities
System
Lead overseer and/or regulator
Wholesale
TARGET2.NL
TARGET2
CLS
DNB
ECB
Federal Reserve
SWIFT
National Bank of Belgium
Securities
ECC
EMCF
Euroclear Nederland
Euroclear SA
MTS Amsterdam
LCH.Clearnet Group
Ltd
LCH.Clearnet SA
Retail
Acceptgiro, Chipknip,
iDEAL, Incasso, PIN
Equens
Telegiro Nieuwe Stijl
UPSS
BaFin
AFM/DNB
AFM/DNB
National Bank of Belgium and
CBFA
AFM/DNB
Commission Bancaire
Rotating regulator
Euronext countries
chairmanship
DNB
DNB
DNB
DNB
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Other overseers and/or regulators
ESCB
G10-central banks and other central banks of issue
with a currency in CLS
G10-central banks
Bundesbank, AFM, DNB
AFM, DNB and regulators from France and the
United Kingdom
AFM, DNB and regulators from France, Portugal
and the United Kingdom
Other regulators from Belgium, France, the
Netherlands and Portugal
Trust in The Payment System
Who’s Concern?
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Poll/survey
POLL/SURVEY WITH
THE AUDIENCE
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Poll/survey (1)

Who uses for mobile phoning a mobile phone service
provider?

Who expects /requires that mobile phoning also will be
available abroad (using networks from other providers)?

Who expects support of its provider for secure and
continue telephoning?

Who is of the opinion that you has user also have a role
in the security of this service?
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Poll/survey (2)

Who expects continuity and security of the mobile
communication as part of the services offered?

Would you change from provider if this provider proves
not to have this operational?

Who has the opinion that the mobile telephone operator
has to monitor (closely) that the services he offers
meets the requirements of the clients?
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Poll/survey (3)

In case of availability of standards. Who has the opinion
that this operator has to be compliant to available
standards?

Who has the opinion that clients of commercial banks
may require the same as you require from your mobile
telephone operator regarding the security and continuity
of the payment services offered?
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Poll/survey (4)
Outcome poll/survey
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Trust in The Payment System
Who’s Concern?
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What options are possible and fully or
partly operational in the Netherlands

Founding of a central owner of interbank payment
products
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Setting by the owner of standards/regulations/rules

Monitoring by the owner on compliancy to these rules
and regulations

Internal discussion and cooperation via a national
organised association
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What options are possible and fully or
partly operational in the Netherlands

Structured communication with DNB (Dutch NCB)

Close cooperation with DNB regarding the security and
continuity of the payment system (Payment Escalation
Committee)

Participation in sector wide testing
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What improvements can still be made?

(Periodic and structured) monitoring compliance
to standards/rules set by supervising
authorities.

Showing more transparency to the public
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Concluding remarks (1)
Payment and securities (settlement) systems are of
critical importance to a country and a country’s
economy, especially during times of crisis
Payment systems …
… facilitate the exchange of goods and
services
… are necessary to conduct monetary policy
… can be transmission channels of
‘disturbances’ (financial crises)
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Concluding remarks (2)



Both retail and wholesale payment systems are
important but have different profiles and different
risks
Roles central bank: operator, catalyst and
overseer
Mission DNB: to promote the smooth operation
of payment systems, i.e. safe, efficient and
accessible
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Concluding remarks (3)
Securities settlement systems

Are essential for monetary policy operations

Link securities settlement and payment systems (via
DVP)

Are important for well-functioning financial markets
INFRASTRUCTURES, in general

Essential for Financial Stability
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Concluding remarks (4)

Central Banks Play Key Role

But all participants have to cooperate to guarantee the
required trust

In the Netherlands the financial sector already showed
its responsibility

Further improvements are still possible/recommended

Many developments going on European level
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Questions…
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Time’s up………
THANK YOU FOR YOUR ATTENTION
P.W. Osse RE RA CISA
NCB Consulting
+31 06 25 06 27 80
pwosse@ncbconsulting.nl
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