Debit card interchange fees generally lead to cash-promoting cross-subsidisation

Cards and cash are competing payment instruments at point-of-sale. The twosided market platform theory, based on general benefit assumptions, supports the use of multilateral interchange fees for card payments as a means of promoting the use of cards. However, analysis of the issue from the concrete processing cost viewpoint leads to the opposite conclusion: collection of debit card interchange fees by issuers results in subsidisation of cash and so actually promotes the use of cash instead of cards. Banks use card interchange revenues to cover cash distribution costs. For merchants, interchange fees increase payment costs and thus reduce the possibilities to pass through to customers the cost savings flowing from card efficiency. Moreover, because of high merchant fees due to high interchange fees, merchants are also more reluctant to accept payment cards. An MIF based on the tourist level approach will result in all parties being indifferent between cash and cards and thereby delay the realisation of the cost benefits of increased debit card usage. The resent actions of authorities to increase transparency and reduce cross-subsidisation seem to point in the right direction – towards more efficient resource allocation in payments.interchange fee; cross-subsidies in payments

Restructuring securities systems processing – a blue print proposal for real-time/t+0 processing

Securities settlement is an area, where nobody seems to be content with the current international processing systems, but neither has a proposal for improvement emerged that has attracted common support. This paper describes a possible solution based on an international, harmonised and simplified institutional structure operating in an open real-time network structure. All deals are settled in immediate, t+0, real-time, which means that all assets and funds are delivered immediately and thereby removing settlement risk. Inter-custodian delivery problems of securities will disappear, because only securities available on investors’ accounts can be settled, which continuously equals the amount on the omnibus-accounts. This will also take out the risks related to ‘naked’ short selling, because in most cases investors have to make securities and funds available before trading. This may divide the current market in a spot t+0 and a short term t+3 futures’ market. Corporate actions can be organised in coordination and executed in synchronisation through the infrastructure network in which all custodians and registrars/CSDs participate. The paper describes the concrete new methods required (eg international custody account number system, ICAN, and DVP-codes for matching) also the probable impact of immediate real-time settlement on trading patterns, liquidity issues and risk containment. These are all areas, where the proposed new infrastructural solutions would bring benefits to the users, mainly faster/immediate delivery, less risks, lower processing costs, more competition and more efficient processing of corporate actions. Custodians’ liquidity management will need to focus on the sufficiency of the real-time balance of settlement money, which might be more or less strained compared to the current situation depending on the off- setting patterns of incoming and outgoing settlements during the day. International implementation will require coordination and engagement by key players.Securities settlement, securities settlement infrastructure, DVP processing, securities trading interfaces

Restructuring securities systems processing – a blue print proposal for real-time/t+0 processing

Securities settlement is an area, where nobody seems to be content with the current international processing systems, but neither has a proposal for improvement emerged that has attracted common support. This paper describes a possible solution based on an international, harmonised and simplified institutional structure operating in an open real-time network structure. All deals are settled in immediate, t+0, real-time, which means that all assets and funds are delivered immediately and thereby removing settlement risk. Inter-custodian delivery problems of securities will disappear, because only securities available on investors’ accounts can be settled, which continuously equals the amount on the omnibus-accounts. This will also take out the risks related to ‘naked’ short selling, because in most cases investors have to make securities and funds available before trading. This may divide the current market in a spot t+0 and a short term t+3 futures’ market. Corporate actions can be organised in coordination and executed in synchronisation through the infrastructure network in which all custodians and registrars/CSDs participate. The paper describes the concrete new methods required (eg international custody account number system, ICAN, and DVP-codes for matching) also the probable impact of immediate real-time settlement on trading patterns, liquidity issues and risk containment. These are all areas, where the proposed new infrastructural solutions would bring benefits to the users, mainly faster/immediate delivery, less risks, lower processing costs, more competition and more efficient processing of corporate actions. Custodians’ liquidity management will need to focus on the sufficiency of the real-time balance of settlement money, which might be more or less strained compared to the current situation depending on the off-setting patterns of incoming and outgoing settlements during the day. International implementation will require coordination and engagement by key players.securities settlement; securities settlement infrastructure; DVP processing; securities trading interfaces

Re-engineering Payment Systems for the E-world

Payment systems are undergoing rapid changes stimulated largely by technological progress. Distributed network technology, real-time processing and customers’ willingness to use electronic banking interfaces will further reshape payment systems during the coming years. Internet and e-commerce will have a major impact on payment systems. This paper presents the current developmental trends. It analyses the need to develop payment standards and the content of payment instructions in order to fully automate the payment process. Since interbank settlements comprise an essential part of payments, they should be made an integral part of the payment process within the Internet environment. With cross-border payments increasing in importance, any new developments should take an international perspective. Payment system development requires cooperation between the banks and other participants involved. In order to build the necessary consensus, banking industry organizations as well as central banks and other regulators will need to work together to re-engineer the present payment systems, making full use of the possibilities created by modern technology.payment systems; settlement systems; RTGS; payment system integration

Settlement in modern network-based payment infrastructures – description and prototype of the E-Settlement model

Payment systems are undergoing rapid and fundamental changes stimulated largely by technological progress especially distributed network technology and real-time processing. Internet and e-commerce will have a major impact on payment systems in the future. User demands and competition will speed up developments. Payment systems will move from conventions that were originally paper-based to truly network-based solutions. This paper presents a solution – E-Settlement – for improving interbank settlement systems. It is based on a decentralised approach to be fully integrated with the banks’ payment systems. The basic idea is that central bank money, the settlement cover, is transferred as an encrypted digital stamp as part of the interbank payment message. The future payment systems would in this model operate close to the Internet/e-mail concept by sending payment messages directly from the sending bank’s account/payment server to the system of the receiving bank with immediate final interbank settlement without intervening centralised processing. Payment systems would become more efficient and faster and the overall structure would be come straightforward. The E-Settlement and network-based system concept could be applied with major benefits for correspondent banking, ACH and RTGS processing environments. In order to assess this novel idea the Bank of Finland built a prototype of the E-Settlement model. It consist of a group of emulated banks sending payments to each other via a TCP/IP network under the control of a central bank as the liquidity provider and an administration site monitoring the system security. This paper contains an introduction to network-based payment systems and E-Settlement, the specifications of the E-Settlement model and the description, results and experiences of the actual E-Settlement prototype.network-based payment systems; settlement systems; interbank settlement; payment system integration

MEANING SHIFTS IN PASSIVE CLAUSES FOUND IN THE NOVEL HARRY POTTER AND THE DEATHLY HALLOWS

This research was a descriptive qualitative research which aimed to analyze  meaning shifts of the translated novel Harry Potter dan Relikui Kematian. This study discusses the shifts of meaning of passive clauses translated from English (source language) to Bahasa Indonesia (target language). The data for this research was collected both from the original novel Harry Potter and the Deathly Hallows and its Indonesian translation Harry Potter dan Relikui Kematian. The data in this research were passive voice or passive clauses which had translation shifts of form and meaning obtained from the novel. The purposive sampling was used in this study. The sample criteria of the study were all passive clauses found in the novel and their translation shifts

Combining liquidity usage and interest rates on overnight loans: an oversight indicator

This study utilises payment system data to analyse market participants’ liquidity usage and to trace interest rates paid on overnight loans. Our aim is to examine how liquidity usage has changed during the years 2006–2/2011 and to combine this information with data on overnight lending rates between market participants. It turns out that the Furfine algorithm used in the analysis produces overnight interest rates that correlate very closely with the EONIA curve. Based on Finnish payment system data, we identify four separate time periods: normal, start of turmoil, acute crisis and stabilizing period. The results show that, during the acute crisis period, TARGET2 participants holding an account with the Bank of Finland paid, on average, lower overnight interest rates than other banks in the euro area. However, the results reveal there has been some lack of confidence between Finnish participants since the onset of the financial crisis. A new indicator – the Grid – which we present here shows this very clearly. We suggest that this new indicator could be a highly useful tool for overseers in supporting financial stability analysis.liquidity; interest rates; overnight loans; payment systems; indicators

Interbank funds transfer systems: liquidity needs, counterparty risks and collateral

Over the next few years, we will see a pronounced increase in the speed at which payment transactions are executed and in the share of cross-border transactions, particularly in the euro area. Counterparty risks and liquidity needs connected with the transfer of funds continue to evolve and to provoke discussion. The fact that funds transfers occur and systems operate on a real-time and gross basis will significantly alter the operational character and technical solutions in this field. Systems following a daily timetable are being replaced by continuously operating systems, which will have a significant impact on banks' liquidity management. The trend toward immediate real-time payment transactions seems inevitable in the light of present trends. It is generally presumed that RTGS systems operating on a gross basis require more liquidity than netting systems. Liquidity needs depend on payment system structures and payment flows. An even flow of payments requires less liquidity than an uneven flow. Liquidity needs can be significantly reduced by choosing an appropriate payment system structure, taking measures to even out payment flows and agreeing on market practices. The pricing, collateral and reserve requirement policies of the central bank affect also the efficiency of alternative payment systems. Thus the overall efficiency of a gross or net system depends on many factors. Factors arguing for a gross system are differences in counterparty risks, lack of reciprocity, steady interday payment flows and stable liquidity needs, both within and between days. Factors favouring net systems are the existence of small and varying counterparty risks and structurally unsteady payment flows that result in large interday variations in liquidity, even though overnight variations may be moderate. Current, daily-oriented practices have focused on overnight liquidity needs. In a continuously operating environment, liquidity needs are continuously monitored across time-period borders. This means that banks' liquidity management will in the future operate under a new and broader time perspective. Significant liquidity needs and large counterparty risks are inherent parts of Finland's present funds-transfer solutions. Liquidity can be freed for other uses and counterparty risks reduced by changing the structures. The necessary changes have been agreed and soon we will see fundamental changes in Finnish payment systems.payment system settlement; gross settlement; RTGS; payment system counterparty risks; payment system liquidity needs