- Basic concept of the Inter Bank Payment System.
- Explain on the basics of Real Time Settlement System.
- Payment system in Vietnam.
- Payment system in Nigeria
- Current trend of the Large Value Payment System using other settlement method.
4. Instruction Processing Concept of IBPS Settlement Processing Interface with other systems Inter Bank Payment System Able to connect other system that requires a settlement such as Net Settlement Systems (Check Clearing, EFT, Credit Card, ATM, etc), Delivery verses Payment system, Discount House and Central Bank banking system Settle the instruction between the Settlement Accounts and give Finality and Irrevocability of the settlement. Authentication, Validation, Reconciliation and Confirmation of Payment Instruction Legal Frame Work to move funds between banks for the bank and customer. To back up the Legal Frame Work, computer system is used now a days. Gross Settlement Settlement Time Net Settlement Designated Time Gross Settlement Designated Time Designated Time Net Settlement (DTNS) Real Time Gross Settlement (RTGS) Real Time Not Applicable Concept of IBPS
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6. Risks of Inter Bank Payment System Inter Bank Payment System Risk Type Cause of risk Risk Management RTGS DTNS Credit Risk Replacement Cost Risk and Principal Risk caused by bankruptcy None Risk exist Liquidity Risk Insufficiency of Settlement Funds - No Settlement Risk - Debit Cap - Collateralization - Loss Sharing Systematic Risk Caused by Credit Risk and Liquidity Risk cascading to other Credit Institutions Reduce the Credit Risk and Liquidity Risk Legal Risk Lack of Legal Framework Sound Legal Framework BIS Core Principles Operation Risk - Application System Failure - Operator’s Understanding - Well designed system - Operator Training Risk Factor
7. By Application System (Overall Limit Control) By Policy and Agreement (Loss Sharing among participants) Debit Cap (Limit) Warning level Loss Covered by Collaterals Total Default Value Calculated based on Credit level, Collaterals, Low value activities Warning issued but keep continue Payment activity No payment instruction but can Receive payments Loss shared amongst the Participants Prevent total collapse of the Financial System Inter Bank Payment System Net Settlement Risk Management Risk Management
9. Real Time Gross Settlement Settlement Processing Finality and Irrevocability Real Time Gross Settlement System A Payment system in which processing and settlement take place continuously in real time (that is, without deferral) and gross (I.E. Transaction by transaction) Settlement of Credit Transfer Instruction will be done when there is sufficient balance in the settlement account with the Central Bank. Settlement of Credit Transfer Instruction is guarantied for it’s FINALITY and IRREVOCABILITY. Thus it gives minimum or free of Settlement Risk. Concept of RTGS
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11. Central Bank need to have legal frame work for the electronic payment system in placed before the payment system in production Central Bank need to provide Intra Day Liquidity Facilities as a last resort of source of liquidity Real Time Gross Settlement System As BIS recommended, the central bank must have clearly defined Rules and Regulation, Operation Guide to operate Inter Bank Payment System to prevent System Risk and collapse of Financial system of the country. Clearly Defined Rules and Regulation Facilities are needed to resolve the short term liquidity problem of participating bank. Facilities such as Overdraft, Central Bank Loan, Money Market, etc. These facilities are backed by collaterals such Gov Bonds to minimize Credit Risk. Intra Day Liquidity Facilities Requirements of RTGS
18. FIFO Bypass FIFO, Cancellation Payment Instruction Payment Order/Advice Instruction Process Flow Payment instruction encrypted at TAD and sent to RTGS server. Instruction decrypted and authenticated. Validate instruction Balance check for the settlement, settled if the balance is sufficient or queued if the balance is insufficient. Result of the settlement is encrypted and sent to the originator. Journal is sent to the core banking system (Accounting System) of the central bank Notify Balance Check Settlement Encryption Validation Decryption Queuing Gridlock Resolution Authentication S.A. Queue Accounting System PSC-RTGS Transaction Flow of PSC-RTGS System
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21. The PSC-RTGS has the Simulation Function of the Net Files that received from Net Settlement system such as Check Clearing system at each Net Settlement Session. At simulation, the notification will be sent to the participant(s) with insufficient balance to settle the Net Position. The participant(s) has 30 min (Central Bank can set the time) to replenish the settlement account. The time interval between the Net Simulation and the settlement can be changed by CBN. After the interval time, PSC-RTGS try to settle the Net Position. Each settlement banks’ Net Position will be settled If the balance is sufficient. If there is a participant who has insufficient balance, the Advice will be sent out to Core Banking System (or Accounting System) immediately for the required liquidity. Notification to the Participant Receive Net files Net Simulation Settlement Notification T24 GSS 30 Min Interval time NIBSS CBN Br PSC-RTGS Make Multi-Lateral Net Position of Settlement Banks Intraday facility Net Settlement Systems RTGS System Core Banking System Simulation Settlement Request Advice Request Settlement of Net Position (D+0)
22. PSC-RTGS Parameterized Scheduler: Every Processes are parameterized for their start/end time and duration, And process sequence etc. Automatic/Manual Operation: RTGS system can run Automatic or Manual mode. Change of Operation Hours: Change of the specific operation process is done by changing the duration of the process Control of Process Scheduler
27. SBV Extranet State Bank of Vietnam IBPS RTGS RPS TAD Bank 1 TAD Bank 2 TAD Bank N Low Value & High Value Trx Basic Transaction Flow Transaction Flow Overall Structure PPC 1: Branch of SBV (Provincial Payment Center) TAD Bank 1 TAD Bank 2 TAD Bank N Regional Transaction National-wide Transaction NPSC: Headquarter of SBV (National Payment System Center) PPC 2: Branch of SBV (Provincial Payment Center) TAD Bank 1 TAD Bank 2 TAD Bank N Regional Transaction
32. Required Huge amount of liquidity for the participants every day to satisfy the settlement Most of the payment instructions are entered into the RTGS at last minute Needs are arose to resolve the issues Since the RTGS settlement method is Gross base, each participant required huge amount needed a day to cover the payment instructions. And it becomes the burden of the participants. It is tendency of the financial institution that they use fund as much as they can to earn earnings of the fund. It create the situation that the payment instructions are entered into the system before the closing of the system. It requires system more efficient (larger system) and the payment system might exposed at Liquidity Risk because the lack of time to get liquidity to settle. Hybrid method is for the Liquidity Savings for the participants with Low Risk Factor HYBRID For Liquidity Saving Current Trend of LVPS Raised Issues Against RTGS as LVPS
33. Ref: Payment System Operation Report of 2007 by Bank Of Korea (BOK) Time (Hr) Current Trend of LVPS Amount of Trx Number of Trx Unit: Billion KRW Statistical Report: BOK-WIRE per 10 Min Statistical Report: Hourly Settlement Rate against Total amount of Daily Transaction Payment Entry by time (Sample)
34. RTGS Hybrid 2000 RTGS + Net (Offset) To save the liquidity that needed by participants and promote the instruction entry time, the Hybrid Method of the RTGS function and DTNS function are employed for the LVPS recently. For example, Germany developed RTGS Plus system that employed RTGS and DTNS function into the system. Now the TARGET II system will be the Single Platform for the LVPS for the EU countries. TARGET II is hybrid system. Not many countries are planning or started the project to convert their RTGS to hybrid system yet. Current Trend of LVPS Country Name of Product Live Run of Hybrid System Germany RTGS Plus 2001. 11 Italy New BI_REL 2003. 6 Singapore MEPS+ 2006. 12 EU Target2 2008. 7 Japan RTGS-XG 2008. 8 Korea BOL-WIRE 2009. 9 Migration from RTGS to Hybrid LVPS
35. Settlement Risk Factor Efficiency of Liquidity RTGS Hybrid DTNS RTGS system has no Settlement Risk but the Efficiency of Liquidity is low Hybrid System has no Settlement Risk factor and high Efficiency of Liquidity . DTNS has high Liquidity efficiency and high settlement risk factor High Low Low High Current Trend of LVPS Risk Factor of Hybrid LVPS
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37. RTGS SA Queue B Limit M Limit Express Instruction Limit Instruction Express Instruction: Time critical payment instruction Limit Instruction: Not that Time critical instruction that can be offset. Settlement Engine Module Bilateral Offsetting: When new Limit Instruction entered, it triggers offsetting between the Originator and Receiver . Multilateral Offsetting: At a time that setup, Multilateral (amongst all the participants) offsetting is processed Bilateral Limit: Limit can be set for the counter party. This limit is used when bilateral offsetting process. Multilateral Limit: This limit is for total limit. Limits are set by the participant to prevent over drawn their settlement account for the Express Instruction or to control their liquidity. Current Trend of LVPS Business Module (Call DvP OTC, Ordinary) Offsetting Bilateral Offsetting Multilateral Offsetting Concept of Hybrid LVPS
38. Bilateral Offsetting Multilateral Offsetting Bilateral offset is between the originator of the new payment instruction and the counter party (receiver) of the instruction. Entry of a new Limit Payment Instruction triggers the offsetting between two participants Multilateral offsetting is triggered by the Timer. The interval time can be setup by the central bank. Multilateral offsetting involves all the queued instruction including Express and Limit instruction from all the participants. Current Trend of LVPS A B C D E A B Offsetting Mechanism of Hybrid LVPS
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40. Current Trend of LVPS Strict First-In First-Out (FIFO) Principle Payment Priority RTGS Hybrid Highly Urgent FIFO FIFO Urgent FIFO FIFO Normal FIFO FIFO can be breached Rules of Settlements
41. In general, limits determine the payment amount (priority = normal) a participant is willing to pay to another participant (bilateral) or to the other participants (multilateral - towards which no bilateral limit is defined), without having received payments (that are credits) first. It is possible to set the following types of limits: • Bilateral limit • Multilateral limit The limits are debit limits and not credit limits. The setting of these limits enables the direct participant: • to prevent unbalanced dissipation of liquidity with regard to other direct participants. • to avoid free-riding on the liquidity of a direct participant by another participant. • to synchronize the payment flow with other direct participants and to promote its early submission. Current Trend of LVPS Use of the Limits
42. Bilateral position The bilateral position from Bank A towards Bank B is defined as the sum of payments received from Bank B (credits for Bank A), minus the sum of payments made to Bank B (debits for Bank A). This means if the result is negative, the bilateral limit will be utilized with this amount. Bank A Bank B Normal Payments to Bank B Normal Payments to Bank A Liquidity for Settling normal Payments Bilateral limit of Bank A vis-à-vis Bank B Usable liquidity for settlement with Bank B Usable liquidity for settlement with Bank B Current Trend of LVPS Effect of bilateral limit With the bilateral limit, the direct participant restricts the use of liquidity when submitting normal payments for another direct participant. Bilateral Limits
43. Bank A Bank C,D,E… Normal Payments to Bank C,D,E… Normal Payments to Bank A Liquidity for Settling normal Payments Bilateral limit of Bank A vis-à-vis Bank C,D,E… Usable liquidity for settlement with Bank C,D,E… Usable liquidity for settlement with Bank C,D,E… Current Trend of LVPS Multilateral position The multilateral position from Bank A is defined as the sum of payments (credits for Bank A) received from all direct PM participants towards which no bilateral limit has been defined, minus the sum of payments (debits for Bank A) made to these direct PM participants. This means if the result is negative, the multilateral limit is utilized with this amount. Effect of multilateral limit With the multilateral limit, the direct PM participant restricts the use of liquidity, when submitting normal payments for any other direct PM participant for which a bilateral limit has not been set. Multilateral Limits
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45. Case III : Hybrid LVPS in Other Countries – EU
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47. Standing Facilities (SF) Static Data Management (SM) Home Accounting Module (HAM) Monitoring Reserve Management (RM) Contingency Module (CM) Information and Control Module (ICM) Payment Processing Payment Module (PM) TARGET2 Hybrid System Standard Interface Internal Accounting Credit Institution (CI) Ancillary Systems (AS) LVPS in European Union Target Interlinking Participant Interface (Y-Copy) Ancillary Systems Interface Target 2 in EU Central Bank
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50. SWIFTnet PM ICM TARGET2 Hybrid System Participant SWIFT Alliance 3rd Party Solution SWIFTnet FIN Y copy SWIFTnet InterAct & FileAct Separately purchased application LVPS in European Union Transfer Mechanism using SWIFT net
51. Case IV : Hybrid LVPS in Other Countries - Korea
52. Current System Future System Current System BOK’s current Large Value Payment System is RTGS base. Web enabled client terminal for the participants Future System BOK’s future Large Value Payment System will be Hybrid base system. The future system will have Server-to-Server interface with the core banking system at participant bank. The purpose of Server-to-Server interface is to facilitate straight through processing of the payment instruction. Current web enabled client lacks direct interface with core banking system of the participant Current web enabled client will be still used for the participant who don’t want to have direct connection with payment system. Information Monitoring Participant can access the information from IM module. Bank of Korea RTGS Web Server Web PC Web PC Bank A Bank B Hybrid LVPS Middleware for Server to Server Server Server Banking System A Banking System B IM Web Server Bank Web PC Hybrid System for BOK
53. BOK Extranet Participant ‘A’ Web Terminal Settlement Engine with Queue Management This Module settle the instruction from each Business module Business Module Business modules for each different type of business Web Application Server Presentation layer Web Terminal Participant’s Terminal Bank of Korea KRW Fund Transfer DvP Call CLS PvP Management Information Module Settlement Engine Business Module Interface Module Settlement Engine Queue Management AS Interface Web Interface Host to Host G/L Ancillary Systems Web Server Bank C’s Core Banking System Participant ‘B’ Web Terminal BOK System – New Hybrid
55. TAD HELPS ® Central Bank ExtraNet SWIFT Net SWIFT Alliance Supplied by SWIFT Provided by SWIFT Note: Using SWIFT Net is optional and supported message type is only for the financial messages. For Reports, Inquiries and other messages needs to be purchased separately. Standard application Provided by CB Standard application Optional Hybrid LVPS Application Structure
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57. Participant TAD Participant TAD CB Network Settlement Module Participant Module: Terminal Access Device (TAD) Participant Alliance Participant Alliance SWIFT Net Settlement Module CB Alliance Full Copy Full Copy Full Copy Full Copy Participant Module: SWIFT Alliance Payment instruction is reassembled at SWIFT For information and control purpose, other SWIFT Network and special application is needed. TAD has COMPLETE SETS of required functions PSC Hybrid LVPS Application Configuration