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These tasks become increasingly complex as competition and innovation push constantly to the limit the search for better combinations of efficiency, reliability, safety, and system stability in the provision of payment services to larger numbers of individual users and institutions. A strategic and cooperative approach is the most efficient way to overcome reform obstacles.

A strategic process is important to reach an agreed Vision by all stakeholders on the future of the National Payments System (NPS). This approach is likely to stimulate local interest and provide a basis for discussion with key stakeholders during the months previous to launching a reform.

Agreements on a number of policy, organizational, technical and operational issues will be required before next steps are undertaken. A successful initiative requires active participation from key stakeholders at both the policy and operational level.

Central banks normally take the leading role in formulating and implementing the strategy for payments system modernization, acting in the interests of the system as a whole. As a neutral agent, central banks are less likely to trigger competitive concerns that could slow progress and is more able to support the creation of a comprehensive vision for the future national payment system.

Emerging technology in the financial services arena is changing the way businesses, financial sector institutions, governments, and the public interact. It is important to identify the needs of each user group’s needs for an efficient development of payment and securities settlement systems.

Consumers demand cost-effective and efficient payment instruments to serve their different needs and rely on providers to minimize the risks associated to their use (e.g. counterfeiting, frauds). Businesses and corporations need reliable and fast services which can facilitate their back-office procedures and are easy to use. The financial sector and its oversight and supervisory authorities ask the payment system to minimize systemic risks and absorb to the extent possible liquidity shocks by eliminating the risk of moral hazard against the central bank.

The challenge for the public sector is to develop low-cost, easily accessible and easy to use methods for financial transactions and to keep pace with developments in financial technology. Given the important number and combined amount of the payments that the governments send and receive each year, and the number of individuals and businesses who receive or send those payments, the potential benefit to the government and to the public is significant. In several countries, the public sector has lagged behind the private sector in terms of efficient use of payment instruments and has failed to reach an efficacious integration with the banking sector.

Environmental Issues Influencing the Reform-The Constraints: The development of modern payments and securities settlement systems rely on the quality of the national infrastructure, but go beyond Information Technology (IT) systems.

Important environmental issues to be taken into account in the development and oversight of payments and securities settlement systems include: Country demographics, Physical infrastructure, Involvement in international trade and financial transactions, Macroeconomic framework, Financial sector, Legal and regulatory framework, Stakeholders, and Business perspective.

The legal basis is of special importance. A fundamental requirement for a stable and secure payment system is that it should operate in a well-defined legal environment, setting out the rights and obligations, in normal as well as in adverse circumstances, of each party involved in transmitting a payment through the system. This requires predictability in the application of rules and regulations by the system operators and overseers, and predictability in their enforcement by the courts. The legal environment needs to cover payment instruments as well as the system.

Effective governance of payment systems is essential to ensure that all user needs are satisfied. Effectively governed institutions should meet certain basic requirements. Governance arrangements should be clearly articulated, coherent, comprehensible, and fully transparent.

Governance arrangements should therefore seek to minimize the conflicts between the objectives of owners, users, and other interested parties, and as far as possible to resolve any remaining conflicts. In addition, financial markets operate most efficiently when participants have access to relevant information concerning the risks to which they are exposed and, therefore, can take actions to manage those risks.

The role of the central bank as payment system overseer is particularly relevant to ensure safe and efficient payments and securities settlement systems through reliable and efficient infrastructure and its adequate governance. Direct involvement of the central bank in managing clearing and settlement systems has been, in many countries, the first step to governing the overall structure and operation of a country’s payments system and ensuring that the desire to limit systemic risk especially in the area of large-value payment systems is adequately taken into account.

In all cases, in order to pursue the public interest in the payments and securities settlement systems, central banks and other regulators should ensure that the systems they operate comply with the principles and guidelines they establish and, as overseers, to ensure the financial and operational reliability and efficiency of the clearing and settlement systems they do not operate.

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