Critical Issues on Payment Systems

Critical Issues on Payment Systems

DOI: 10.4018/978-1-61520-645-2.ch008


Fourth, the efficiency of payment systems is discussed. Since a payment system provides a service with public nature, the operator should take the cost-effective way to manage the system. The cost of a payment system includes the processing cost of the system and the internal processing costs of the participants. It also includes the liquidity cost of participants, which means how much liquidity the participants should hold in order to process payments.
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Governance Structure Of Payment Systems

Ownership of Payment Systems

Governance structures of payment systems vary widely between countries. This fact is intimately related to the form of ownership of each payment system.

The ownership of payment systems can be divided into three main categories.

  • Central bank-owned systems. Some payment systems are owned and operated by central banks. It is usually the case that the central bank operates the RTGS system which has a close linkage with the central bank accounts. In this case, the central bank determines the regulations and procedures of the system, and discloses information about the system.

  • Privately-owned systems. On another front, other payment systems are owned and operated by the private sector. In most cases, the payment system operators are organized as the member-owned co-operatives. In some countries, however, the operator takes the form of a stock company owned by shareholders. In this case, it is more common that a majority of shareholders are the participants of the system, but there is a chance that some non-users could be included.

  • Jointly-owned systems. In some cases, the central bank and the private sector own and operate the infrastructure jointly or separately own the various parts of the system which make up the whole system.

Required Condition for Governance of Payment Systems

Core Principle X requires the systemically important payment systems to have the effective, accountable and transparent governance. That is because there are normally only a very few payment systems in a country and participants have no freedom of choice.

First, the governance arrangements should be clearly specified and publicly available. And the objectives of a payment system should be disclosed to the owners, participants and public authorities. Even taking the form of a stock company, the main objective of the company should not be profit-making.

The key component of governance is the composition of the board which makes important decisions on the system. The board should have the composition which reflects the interest of various participants, including the large users and small-scale users. And the board should contain members who have the necessary expertise in the payment business.

The reporting lines between management team and board member is another key factor. The reporting line should be clear and direct. The reporting line of risk management and audit functions should be independent from the line of day-to-day operations.

Public disclosure of governance structure is a requisite for the transparency of the payment system.

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