Payments Systems Presented By

Wayne Shah

DiscussionDiscussionDiscussionDiscussion

Trends 2009+

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

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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

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• 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

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• 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

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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

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19New Image Geared for International Commerce

20

Indian Banking Structure

68,300 branches

Can have FX acctounts

FX and Rupee.

No positions in FX rupees only

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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

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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 ?

DiscussionDiscussionThe CaribbeanThe Caribbean

Where is the Caribbean headedGovernment and regulationPolicyTechnologyForeign BanksGlobalization

Are we a geography or a financial region?

Major Challenges

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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.

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Managing Risk• Regulatory Environment

PAC

KYC

KYCC

AML

EDD

FATF

FINCEN

OFAC

PEP

FIU

SEC

CATF

CRA

BASEL

FDIC

BIS

ISO

BSA

This is a real fear and is the cause of a lot of compliance and regulation

DiscussionDiscussionTrends

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AML Sensitivity

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PAYMENTS - TRENDS

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

DiscussionDiscussionHow do I choose the right systemHow do I choose the right system

Selecting A Payments System

• 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