Sviaz-Bank Discusses National Payment System in Russia
OREANDA-NEWS. April 24, 2014. Sviaz-Bank and the International Analytics Unlimited Bank Club met with leading experts to discuss establishment of a joint payment and settlement infrastructure for a national payment system (NPS) in Russia.
The hosts were joined by a partner, the National Payment Council, a nongovernmental institution closely involved in discussions of NPS establishment prospects at various levels.
The meeting participants discussed the recent trends in current experience in other countries in establishing national payment systems, NPS options open in the Russian Federation, technological and infrastructure problems facing NPS establishment, a platform for a card to be developed on, and inter-hosting communication between big Russian banks, among many other issues.
Timur Aitov, Vice President of the National Payment Council Nongovernmental Institution who was the round table moderator, said in his address that establishment of an NPS was, above all, a matter of national security.
Svetlana Krivoruchko, Director of the Payment Systems Center, University of Finance under the Russian Government, gave a theoretical view on NPS infrastructure development. “Developing a network in a new market segment is a costly undertaking largely because of the complex ‘critical mass’ of its users. A user can switch over to a new network for a significantly greater convenience, or he has to be given a strong incentive,” she said.
As a spokesperson for the University of Finance, she turned to the practical experience of payment systems in different countries. In particular, the U.S.Federal Reserve System (Fed) fixed the interbank commission charged on payment card transactions, and in the European Union, too, the interbank commission on cross-border transactions effected with Visa and MasterCard payment cards has been set at 0.2%. In Finland, the national banks reached agreement in the 1980s to charge no commission on interbank debit card transactions in the national payment card systems with the result that the number of transactions performed with payment cards rose significantly and the banks’ costs of providing cash services declined. Several local systems in Europe (in the Netherlands, Finland, Denmark, Luxembourg, and Germany), too, charge no commissions either. According to Svetlana Krivoruchko, local national payment systems have to put up heavy competition to international payment systems by using an essentially different architecture more adapted to the internal market on more favorable conditions for their participants.
Andrei Laikov, head of Sviaz-Bank’s BLIZKO Payment System, believes that interest rate setting is a very fine and sensitive instrument on the market, and if managed incorrectly, for example, through dumping, it can do harm to both the market and, above all, to bank customers. He also said that establishment of a national payment system must apply, in addition to plastic cards, to other transactions as well, such as electronic payments, money transfers, and much else. In his view, plastic cards are a nice survival of the past, and that they will take second place with the introduction of new technologies, such as the NFC.
Andrei Laikov also spoke, even if in a different context, about regulation of the money transfer market: “Operators and clearing centers of a majority of payment systems are lending organizations in control of little capital of their own, that are frequently unrated internationally. In their great majority, the operators of such payment systems and their clearing centers derive most of their total incomes from the transfer business. Such systems turn over amounts many times their capital. Accordingly, a breakdown at any point of the string of payments causes the system to collapse like a house of cards, which is a direct threat to the national payment system. In our view, capital adequacy ratios have to be applied to payment system operators and their clearing centers in relation to payment system turnovers.” Infrastructure development, both card issue and availability of software, terminal and ATM networks, and commission size, is among the principal factors of payment system market development.
“As we speak today about the convenience and security of payments for our citizens, more than 140 million of them, their needs and interests must be met. And the regulator needs assistance from the expert community because the issue is related directly to the national interest from the viewpoint of security and smooth flow of payments. Ready-made approaches and experiences can possibly be used to speed up establishment of a national payment system,” said Boris Miroshnikov, Counsel to the General Director of Cyberplat CJSC and Chairman, Security Committee, NPS Nongovernmental Institution.
Andrei Slesarenko, General Director, Union Card Processing Company, CJSC, said that many countries have national payment systems, and the issue is long past due for Russia. In his estimates, 90% of the Russian population do not travel abroad, and using a national payment card would be more justified for them in terms of costs. He believes that after a national payment system has been established, the Visa and MasterCard systems would have to accept the new rules, and control would be exercised by the Russian Central Bank. “The PRO 100 system uses certified MasterCard software that may be turned off at any moment or no updates will be available, and for this reason it is a great risk,” Slesarenko holds. He also insisted that this must be an independent system. The expert is convinced that Russia already has the perquisites for that, such as Federal Law No.161-FZ, and what it lacks are, in his view, a common brand and a common settlement and clearing center.
According to Igor Goldovsky, General Director of Payment Technologies CJSC, an NPS is needed, above all, for fulfilling national objectives and must be financed from the government budget. Implementation of the project requires infrastructure standards, certification centers, a risk management system, and a clearing center to be set up. In his view, stability of the NPS card component must be maintained by developing a National Plastic Card System (NPCS-1) based on a Russian card and a card-based system developed by short-circuiting the Russian international payment system card traffic (NPCS-2). For an NPCS-1 to be put in place within a time frame of less than a year, it can use the PRO100 system as a basis. Priority must be given to the development and introduction of a Russian standard for the payment EMV application.
Karl Summanen, Vice President of VTB Bank, said that the state had not yet taken a definite stand on the kind of card – market-oriented or nationally accepted – it is going to be. He holds that, for a start, a solution must be found to the problem cardholders will face in areas lacking regular telephone communications or having none at all, so the card must be designed on a chip that can store a large amount of information offline.
Yuri Bozhor, Head of the Plastic Cards Department, Otkrytie Bank OJSC, believes that uniform rules and principles of the National Payment System must be laid down and guarantees provided that settlements go on without a break.
In the view of Sergey Chernomorov, Chairman of the Board of Directors, HandyBank System, it will be more difficult to get something similar to the Visa and MasterCard systems than can be expected.
Muhammad Egamzod, first secretary at the Embassy of Tajikistan in Russia, said that the Federal Migration Service reported over 10 million labor migrants working in Russia who send USD23.7 billion to their respective countries, including USD 4 billion to Tajikistan, without opening bank accounts. Muhammad Egamzod also recalled the revocation of a license held by the MIGOM system and suggested that a money transfer insurance system be set up by analogy with the deposit insurance system.
To conclude the discussion, Timur Aitov set out, for the meeting participants’ attention, the basic ingredients of an NPS infrastructure to be developed in the country: the project must go far beyond plastic cards alone – the National Payment System must cover all transactions performed in customers’ accounts; appropriate instruments must be developed; the project has to be secured and subsidized; its functions must be identified; and consideration must be given to the interests of other partner countries, in particular, CIS and BRICS countries, among others.
The round table was attended by around a hundred delegates representing bank associations, executive government agencies, leading Russian banks having a stake in payment system development, and corporate developers.