Payment Systems of Financial Institutions: Current State and Future Prospects

Abstract

Economic activity is always accompanied by payment. Payment systems, which are the subject of much recent discussion, are an indispensable part of the infrastructure that supports the entire economy. Progress in the field of information technology (IT) has spurred new developments in hardware and software that affect payment systems. Of recent interest are issues of increasing payment risk and the severe situation of financial institutions in some developed countries. The costs associated with setup and operation of payment systems is high, and market participants expect efficiency. Many problems are associated with bond payments. The spread of delivery vs. payment (DVP) systems and IT-based transactions are also impacting payment systems. Links between payment systems are also important and have made concerns about systemic risk if time-designated net settlements coexist with real-time gross settlements (RTGSs), which can alter outcomes or cause cancellations, thereby increasing systemic risk. If RTGSs and the net payment system are not operated by a single rule, this problem worsens. Unification of settlement systems, rules and dealings custom is critical. The complex legal frameworks that govern payment activity would benefit from structural revisions.