De Nederlandsche Bank
Oversight on Retail Payments
Paul Osse
Conference Financial Sector of Macedonia
on Payments and Securities Settlement
Systems
Ohrid
25 June 2008
De Nederlandsche Bank
Eurosysteem
Content
 Objective
presentation
 Objects
 Influence
of developments
 Non banks
 Oversight on retail payments;
the role model
De Nederlandsche Bank
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Objective presentation
 Not
to detail how oversight is performed
BUT
 To high light organisational structure for
inter-institution payments
 To discuss the impact of changes on this
organisational structure
 To high light effect on oversight
De Nederlandsche Bank
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Objects of oversight
System of retail payments in NL
*
Owner
Interbank
Payment
Products
National
Central Bank
*
Debtor’s
Commercial
Bank
*
Creditors
Commercial
Bank
*
Automatic
Clearing
Houses
Payer
Legend:
. payment order
. order flow info
. owner relation
. payment products
. goods/services
. owner payment *
product relation
Electronic
Money
Institutions
Payee
De Nederlandsche Bank
Eurosysteem
Oversight on the payment
system: the role model
Object of oversight:
Payment
instrument
Channel/
medium
Transaction
Processing
Clearing
Settlement
The whole payment chain
De Nederlandsche Bank
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Objects (general)
 Retail
Payment Systems
 Payment
Instruments
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Objects (2)
The objects are systems and instruments, but
it is inevitable to look at the actors/roles
involved:

system/instrument owner

operator/processor

issuer/acquirer

etc.
De Nederlandsche Bank
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Objects (3)

More and more non-banks involved in the
payment system.

Not (yet) regulated by banking supervision
acts (in NL).

Payment Services Directive.
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Objects (4)
Starting point and so far mainly inter bank
systems and instruments, however:

correspondent banking

systems of large banks/consortia

instruments of one bank (or
payment service provider)
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New technologies and retail
payments
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Influence of developments (1)
Trends retail payments:
 European Consolidation




TARGET
SEPA
Specialisation/Unbundling
Multiple operators/owners: card schemes,
transaction networks, etc
De Nederlandsche Bank
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Influence of developments (2)
Market developments
 New technologies

 contactless, mobile payments


internet
biometrics
 New
providers of payment services
 telecom
providers
 public transfer
 etc etc
De Nederlandsche Bank
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Non banks in the payment
system


Outcome recent survey: >125 non banks
Non banks are active in the whole payment chain
Many ways to use a
payment instrument (to
initiate the payment
transaction)
Payment instrument
processing provides
input (often batches) for
the clearing and
settlement process
Payment initiation channel
Capturing device
Payment
instrument
Strict Payment
C& S process
Clearing
Settlement
1.
1.
POS
2.
Internet
3.
M-phone
4.
Other card-not
present
5.
1.
Sorting of “onus”
transactions
2.
Bilateral (bank)
clearing
Money remittance
3.
ACH
E-money and other
stored value
4.
Other retail
clearing
systems
5.
Card networks
1.
Cheque
2.
Credit transfer
3.
Debit transfer
4.
Card payment
5.
6.
7.
Other/innovative
EBPP
Internalisation
of “on us”
transactions
(e.g. some card
transactions,
some e-money
products like
PayPal,…)
2.
Correspondent
banking
(bilateral) (e.g.
money
remittance)
3.
Retail Payment
systems
(commercial or
central bank
money) e.g.
ACH, some card
schemes
4.
In the books of
a (commercial
bank)
settlement
agent (e.g.
some card
schemes)
Post-payment
services
Post-payment
services
1.
E-reconciliation
2.
Other eproducts
(confirmation of
settlement via
sms,…)
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Oversight on the payment
system: the role model
General approach oversight:
 Licensing
or moral suasion
 Assessments of systems and products
against standards
 Regular oversight
De Nederlandsche Bank
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Oversight on the payment
system: the role model
Oversight based on standards like:





Wholesale systems (e.g. Core principles for
systemically important payments systems, SIPS)
Retail systems (e.g. Oversight standards for Euro retail
payment systems and (Subset of) Core Principles
Payment products (e.g. Recommendations for payment
products)
Securities settlement systems (CPSS/IOSCO
Recommendations)
Technical standards (ISO, ECBS, NVB,...)
De Nederlandsche Bank
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Oversight on the payment
system: the role model
Disadvantage of current basis:
 No legal instruments
 Standards pay to less attention to:
the
control of the system operator/product
owner
other participants in the chain
In addition:
 Supervision/oversight is split up over
several authorities
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AFM
DNB Prudential Supervision
DNB Oversight
Overview supervision on
the non cash payments
*
Owner
Interbank
Payment
Products
Legend:
. payment order
. order flow info
. owner relation
. payment products
. goods/services
. owner payment *
product relation
National
Central Bank
*
*
Creditors
Commercial
Bank
Debtor’s
Commercial
Bank
*
Automatic
Clearing
Houses
Payer
Electronic
Money
Institutions
Payee
De Nederlandsche Bank
Eurosysteem
Oversight on
the payment system
Consequences. The risk exists:



Gaps in control aren’t detected
Risks introduced by current other players
aren’t (timely) detected
Risks introduced by new players aren’t
(timely) detected
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Oversight on the payment
system: the role model
To solve these problems our
oversight approach is changed to:
A role based approach
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Scheme oriented organisation retail payments
Legal Owner
Issuer
Clearing
Institution
Acquirer
Acquirer
Acceptant
Payment
Service
Service
Providor
Provider
Consumer
Issuing
processor
Clearing
processor
Acquiring
processor
Settlement
processor
Network
processor
Merchant/
acceptant
Retailer
Settlement
Institution
De Nederlandsche Bank
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Oversight on the payment
system: the role model
Possible roles in the payment scheme
Scheme owner
Consumer
Issuer
Merchant
Issuing processor
Card manufacturer
Acquirer
Card personalisation
Acquiring processor
Card destroyer
Network processor
SAM manufacturer
Clearing institution
SAM personalisation
Clearing processor
SAM destroyer
Settlement institution
POS manufacturer
Settlement processor
Acceptant Payment Service Provider
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Oversight on the payment
system: the role model
Advantages role based approach:

Alignment with the scheme oriented
organisation of the retail payments

More efficient approach

Improvement in the process of defining
standards

Tie-up to new developments will be more easy
De Nederlandsche Bank
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QUESTIONS?
De Nederlandsche Bank
Eurosysteem
Time’s up………
Thank you for your
attention
P.W. Osse RE RA CISA
De Nederlandsche Bank N.V.
+31 20 - 524 3292
[email protected]
De Nederlandsche Bank
Eurosysteem