Guardian Global payments’ development: Imperatives, successes WEDNESDAY, 03 JULY 2013 15:54 CHIJIOKE NELSON BUSINESS SERVICES -MONEY WATCH Payment reforms and central banks’ roles in stabilizing the monetary economy of various countries have been in the front burner of discussion on global financial system. But curiously, the drumbeats have become louder of recent, with significant emphasis on situational factors driving the system in Nigeria. CHIJIOKE NELSON writes. The glitz, razzmatazz, glamour and realities associated with reforms in the global payments systems have been reckoned with, especially in our country where the cash-less project has taken the lead in the scheme of things. Yes, the reform has “come, seen” but the third stage- “conquer” is still trudging and we cannot rule it out entirely. So far, the challenges are there- leadership issues, infrastructure, literacy level, right product development, attitude, among others, yet the nation’s payments systems are no longer the same. The second phase of the cash-less Nigeria, which was piloted in Lagos, has just taken off, with Abia, Anambra, Rivers, Ogun, Kano states and the Federal Capital Territory in the purview. But a top official of the Central Bank of Nigeria (CBN) said that the apex bank was also working to ensure that the challenges experienced in the first phase are mitigated in this second phase. But, why the much emphasis on payment systems’ reforms, especially the cash-less project in the case of Nigeria? What are the global perspectives? Recently, at the conference on cash-less initiative, with the theme: “Nigeria Transiting to a Cash-less Society: Charting the Way Forward,” organized by DeNovo Limited and Reach Legal Consulting, in conjunction with the Central Bank of Nigeria (CBN), in Lagos, the Lagos State Governor, Babatunde Fashola, said that the ideals of a cash-less economy should be vigorously pursued, as the system offers a better management of the societal ills bordering on money laundering, among others. He said that transiting to a cash-less society means moving to a system that is more efficient and safer, in which most transactions are conducted, not with “Ghana-Must-Go” bags any more. According to him, Lagos is at the forefront of this transition in Nigeria as the CBN chose the state for the pilot run of the policy. “There are various reasons why the transition to a cash-less society can no longer be ignored. Some of these reasons include safety, reduced cost of cash management and to enhance the speed of doing business. It is easier to track online transactions and thus prevent money laundering and other fraudulent practices. The government has both participatory and supportive roles to play in the success of the transition to a cashless society and the first and important way through which this can be done is by implementing policies and laws that creates an enabling environment for it to thrive. In Lagos state, we have started passing legislation on the cash- less system. Primarily, we are trying to ensure that we have laws in place to protect both the users and the providers.” But the apex bank said that the cash-less project currently undergoing several phases in the country is one of its intervention strategies in the country, as central banks all over the world are now at the centre of development of various banking and payment systems to ensure stability. The Deputy Governor, Operations, CBN, Tunde Lemo, said that the initiative is imperative, given the fact that an efficient payments system enhances financial inclusion, effective transmission mechanism of monetary policy and overall financial stability. “This is because the cost of cash and associated risk of a cash-driven economy to Nigeria’s financial system were high. Just this month, we went live on cheque truncation nationwide, thereby making cheque payments to clear within a clearing cycle of T+1. The CBN has licensed about 18 mobile payment operators to offer payment services via the mobile phone that over 100 million Nigerian are carrying.” Lemo added that CBN has been at the forefront in the reformation of the banking and payments system in the country, including the development and launching of the Payments System Vision 2020 document in 2007, aimed at providing a roadmap for efficient payments system infrastructure that would be nationally utilized and internationally recognized. He explained that the cash-less policy was designed to promote financial intermediation, financial inclusion, minimise revenue leakages and increase revenue generation, reduce incidences of robbery and amount of cash payments in the system by encouraging electronic payments. Also, the World Bank’s Payment Systems and Remittances Specialist, Carlo Corazza, said that going electronic in payments systems can save about 75 per cent of costs usually associated with cash-based regime, which is huge, especially in this era of stretched resources. According to him, the system has also lowered the costs associated with physical barriers in international trade, making it easier for accessing financial services in other countries. Corazza, in his presentation titled: “Global Payments Systems Development and Successes: World Bank Perspective,” noted that payment and settlement systems facilitate access to financial services, safe transfer of funds, mitigation of financial crises by reducing settlement risks and by extension, determine the price and efficiency of sending/receiving money by migrants to their families in international remittance systems. Corazza said that a poor national payments system imposes a constraint upon financial institutions in many developing countries, hindering efforts to offer financial/payment services and to serve the under- served segments (hinders financial inclusion drive). It also creates risk that can threaten the financial system. He also noted that the adoption of Real Time Gross Settlement (RTGS) worldwide has risen from 10 in early ‘90s to 116+ in 2010, leading to improved risk management in interbank settlement and increased financial stability of the individual nation’s financial system Explaining the how the system enhances efficiency and effectiveness for the society, he said that regardless of a country’s stage of economic development, all governments make payments to and collect payments from individuals and businesses. Presently the estimate is put at 15 to 45 per cent of Gross Domestic Product. (GDP). “However, only 25 per cent of low-income countries worldwide process cash transfers and social benefits electronically, noting that a 2010 study estimates that the Indian government could potentially save Rs 1,000 billion (1.6 per cent of GDP) by moving all of its payments to electronic non-cash mechanisms. “A more intensive usage of electronic- based instruments against cash can produce a potential saving to the country of 0.7 per cent of the GDP per year, releasing resources to the economy, according to Central Bank of Brazil. At launch, the Single European Payments Area (SEPA) project was estimated to bring benefits as high as 123 billion euros over a period of six years.” This could be averaged at 20.5 billion euros (about N4.8 trillion) yearly savings. Even the European Central Bank noted that retailers incur 46 per cent of the social cost of retail payments, due to high usage cost of cash-based transactions. At the global efforts, led by the World Bank, interventions at the country level are bringing down the cost of remittance services put at $33.87 billion (about N5.3 trillion saved). Improving financial infrastructure is an innovative way to lower costs and physical barriers for accessing financial services However, the usage of innovative payment products is still low and innovative products are important for financial inclusion in over 14 per cent of the jurisdictions, which report that a majority of the users had access only to innovative retail payment products, according to World Bank’s Global Payment Systems Survey. However, retail payment systems in developing countries still lag behind significantly when compared to those of developed countries. Perhaps, this may be the reason to support the current reforms in the nation’s payment system. While there is 100+ per capita cashless transactions per year in the European Union and15 to 20 for East Asian Pacific (EAP) countries, there is less than one for Africa. The challenges are further aggravated by access (cost, geographic coverage, lack of coherent national payments strategy, parlous infrastructure, inefficient payment instruments, customer attitude and confidence in electronic payments. Financial Inclusion Financial inclusion is universal access, at a reasonable cost, to a wide range of financial services, provided by a variety of sound and sustainable institutions. Greater financial inclusion gives people more power over their lives and it is a means to an end – to help reduce poverty and meet other social and economic development objectives. Perhaps, this is what the payment system reform in the country is targeting, if only the clogs in the wheels of its progress would be overcome. To achieve financial inclusion’s objective, as part of the overall payment system reform, a comprehensive strategy would be adopted to develop retail payments. Still, innovative payment solutions can help, at least. to tackle one piece of the value chain. To achieve this, the World Bank survey prescribed that the market for retail payments should be transparent, have adequate protection of payers and payees’ interests, and be cost-effective; • retail payments require reliable underlying financial, communications and other types of infrastructure; • retail payments should be supported by a sound, predictable, non- discriminatory and proportionate legal and regulatory framework; • competitive market conditions should be fostered in the retail payments industry, with an appropriate balance between cooperation and competition • retail payments should be supported by appropriate governance and risk management practices; • public authorities should exercise effective oversight over the retail payments market and consider direct interventions where appropriate Efficiency and Customer Considerations As part of the retail payment system, these should contribute to the overall effort to enhance the efficiency of the sector. This means that one of the objectives of regulation should be to ensure that the benefits on any improvement in the retail payment space accrue to the end-users and the economy in general, without creating un-justifiable rents in some part of the value chain. Independently of the kind of commercial relationship between the provider and the user of the service, either durable or occasional, rules on transparency and protection of customers must be granted The establishment of an effective oversight function on payment systems and services is instrumental to foster the adoption of electronic payments, including mobile money. Integrating the Agenda on Remittances Leading Group of Eight (G-8) and now Group of 20 (G-20) remittance work, in adoption of remittance, targets higher price reduction as its objective. The groups have also created global standards for efficient remittance markets together with the relevant standards. Assessment/implementation programmes have covered over 20 countries. They also target hosting the Secretariat of the Global Remittance Working Group, an international monitoring and coordination body and operating Remittance Prices Worldwide, a global survey and database of remittance prices that is used to monitor G8 and G20 targets; Coordinating/certifying a number or regional/national databases, among others. The question still overhang is “Where will we (Nigeria) be when these are achieved?”
Posted on: Thu, 04 Jul 2013 06:56:11 +0000
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