National Payment Systems · Key stakeholders commitment and cooperation with each other. Provision of resources by key stakeholders for implementation. 4.1.2 Implementation of straight

National Payment SystemsVision & Strategy 2013-2017

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To have an efficient, convenient, reliable and secure National Payment System in Zambia by 2017.

It is envisioned that all payment systems available in Zambia will contain the following attributes as follows:

1.0.1 Efficiency

Payment systems will be responsive and timely in relation to both confirmation/validation of payment information and delivery of value. Payment systems will support customers' own business processes such as account reconciliation by providing payment details together with value where necessary.

1.0.2 Convenience

Payment systems will be easy to access and use by customers; allow payments from one user to the other in and outside the country; the systems should be easily accessible anywhere.

1.0.3 Reliability

Payment systems will be available when customers want to use them and will ensure that transactions are completed from end to end. In addition, the systems should be available at all times to ensure that people have access to their financial resources.

1.0.4 Security

Payment systems providers will ensure that their systems are secure to prevent unauthorised access to information or value and will prevent unauthorised modification of information. Payment systems will operate in a safe manner so as not to introduce systemic risk to the payment systems as a whole.

1.1 Goals

1.1.1 The first goal of developing a National Payment System is for the safe and efficient transfer of money in the economy.

1.1.2 The second goal is to reduce the usage of cash (notes and coins) in the settlement of financial transactions.

1.1.3 The third goal is to reduce transaction costs and increase access to electronic payments.

1.1.4 The fourth goal is to be prepared to connect to systems for cross border payments in the region.

1.0 Vision 2017

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This vision of payment systems is captured in various aspects of the payment systems as follows:

The Bank of Zambia in consultation with key stakeholders has put in place an enabling environment for payment systems initiatives and innovations. For example the National Payment Systems Act was enacted in 2007 for Bank of Zambia to regulate and oversee operations of payment systems in order to ensure the effectiveness, efficiency and safety of payment systems so as to promote the stability and safety of the Zambian financial system. The National Payment Systems Act is expected to be reviewed to make it more robust and comprehensive. The review of the Act will also seek to harmonise the NPSA with other laws in the country as well as laws related to regional initiatives that the country is party to.

Further, oversight structures would be developed significantly in this period. This will involve enhancing the approach towards oversight and fostering a consistent and systematic use of the oversight tools.

2.1 Strategic Objectives

2.1.1 Enhancement of Legal framework

The legal framework surrounding all aspects of payment systems should be enhanced. The legal framework should cover the following areas:

i. National Payment Systems Act

Vision 2017 envisions that the National Payment Systems Act (NPSA) 2007 will be amended to ensure that it comprehensively deals with all payment systems matters and it has greater clarity. It is also anticipated that sub-regulations/directives under the National Payment Systems Act will have been issued to provide more detailed guidance. For example by 2017, sub-regulations/directives should have been issued to guide payment service providers wishing to offer electronic money services and money transmission services. Furthermore, the CPSS-IOSCO principles for financial market infrastructure as they relate to systemically important payment systems will have been domesticated. The NPSA should also take into consideration other laws and regional initiatives.

Critical success factor

Revising the National Payment System Act and issuing appropriate directives and regulations as well as harmonisation of the National Payment System Act with other laws and regional legal frameworks.

2.0 Regulatory environment

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ii. Rules and Standards

Standards are defined as minimum requirements regarding infrastructure and design (for example technology, security and payment products), as well as business aspects (for example practices and arrangements) in the payment system. Standards ensure a common understanding of requirements. A major objective of implementing standards is to enhance security and enable interoperability within the payment system. These standards focus on prevention of fraud, increasing trust, integrity, and confidence in the payment system.

In this regard, it is expected that rules and standards that are effective and enforceable should have been developed for all payment streams by 2017. These standards should be in line with international standards where applicable. It is anticipated that standards would have been developed for such areas as online clearing and card payment schemes in Zambia, automated teller machines and point of sale terminals on issues such as uptime, interoperability, interchange fees and security, among other things.


The industry needs to cooperate and issue appropriate rules and standards.

2.1.2 Enhancement of oversight

Oversight is defined by the Bank for International Settlements as a function whereby the objectives of safety and efficiency are promoted by monitoring existing and planned systems, assessing them against the objectives of safety and efficiency and, where necessary, inducing change. The National Payment Systems Act mandates the Bank of Zambia to oversee all payment systems in the country.

Vision 2017 anticipates that the Bank of Zambia would have implemented an oversight function in line with international recommendations and conducted an assessment of payments systems. Oversight of payment systems is therefore expected to look as follows:

I. Oversight approach

A risk based approach should be implemented to augment the standards approach based on qualitative methodology to oversight of payment systems by 2017. This approach to oversight will ensure that there is a methodical, consistent and systematic approach to oversight. The risk based approach to oversight will also ensure that the intensity and focus

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of oversight activities corresponds to the degree of risk identified by allowing more precise estimates of risks in payment systems.

ii. Oversight tools

Competence and a systematic approach in applying oversight tools should have been fostered by 2017. In this regard the following tools should be in effective use:

Monitoring

Monitoring of payment systems should involve collection of information through different means such as evaluating agreements between participating parties, returns, profiling (institutions, instruments or the payment stream, risk, the industry), stress testing of systemically important payment systems, testing of liquidity needs of systemically important payment systems and on-sight examinations among other things.

Assessment

Payment systems must be assessed periodically to ensure that they meet the oversight objectives. This will involve off-site and on-site examinations, use of audit reports, and dialogue with payment systems operators among other things.

Inducing Change

Inducing change involves encouraging payment systems to address any weaknesses that are revealed during monitoring and assessments. This will involve using a number of tools including moral suasion, enforcement and sanctions, voluntary agreements with payment systems and public statements.

Where the Bank of Zambia sees need they may also issue directives to compel payment systems to comply with specific requirements.

Critical success factors

The Bank of Zambia to enhance its oversight methodology.

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Large Value payments or wholesale payments are made using the Zambia Interbank Payment and Settlement System (ZIPSS). Vision 2017 assumes that for systemic and stability reasons, the ZIPSS system will continue being the large value settlement system for the country. In addition, the ZIPSS will enable players in the Zambian market to be able to make multi-currency settlements and payments in the region through the integrated systems within the COMESA and SADC regions. To this end Vision 2017 envisages that the ZIPSS will continue to be resilient and maintain high integrity.

3.1 Strategic objectives

3.1.1 Achieve operational resilience for the ZIPSS

Vision 2017 anticipates that the ZIPSS will meet the expected operational resilience standards and target uptimes.


ZIPSS to have effective backup arrangements.

3.1.2 Implement straight through processing

Participants on the ZIPSS system will integrate their core banking systems with the ZIPSS to ensure that updating of customer accounts is automated in order to ensure straight through processing.


Participants to develop interfaces between their core banking systems and the ZIPSS.

3.1.3 Implementation of an electronic interface with clearing houses

An electronic interface should be implemented between clearing houses and the ZIPSS for transactions that are settled on ZIPSS.


The clearing houses to establish an electronic interface to the ZIPSS.

3.1.4 Implement multicurrency feature on the ZIPSS

It is envisioned that by 2014 the ZIPSS system will allow processing of multi-currencies to facilitate making of cross border payments.

3.0 Large value payments

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Bank of Zambia to include the multicurrency feature in the next generation of ZIPSS.

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The dominant form of payment in Zambia is currently cash which is less than ideal and increases costs to the economy as a whole. Electronic payment methods such as RTGS, DDACC should therefore be promoted to become major competing methods of making payments to cash. Furthermore, electronic payments are not widely used because of infrastructure challenges or inefficiencies such as limited sharing and interoperability of retail infrastructure, limited access points due to lack of wide geographical representation of payment methods, limited acceptance points and high transaction costs in some cases. Vision 2017 therefore anticipates that retail payments will, make a reasonable shift to electronic ones, transcend boundaries of individual retail platforms, be cost effective, accessible, convenient and facilitate easy reconciliation.


4.1.1 Implementation of National Switch and achievement of Interoperability

Vision 2017 envisages that retail payment infrastructure will be interoperable irrespective of the payment platform. It is expected that all retail payment systems will allow cross network acceptance of payments. It is therefore expected that minimum objective standards for network connectivity will be adopted by payment systems providers. Furthermore it is expected that a national switching platform at the Zambia Electronic Clearing House Limited through which all retail payment systems are connected to each other will be implemented to ensure that interoperability is achieved efficiently.

Critical success factors

Key stakeholders commitment and cooperation with each other. Provision of resources by key stakeholders for implementation.

4.1.2 Implementation of straight through processing

Vision 2017 anticipates that all payments made on electronic retail payment platforms will be processed straight through, without manual intervention. It is expected that all inward payments will be processed straight through to backend systems.


Payment systems interfacing their backend systems to retail payment systems.

4.0 Retail payments

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4.1.3 Increasing of access channels

It is envisioned that by 2017, access points for retail payment mechanisms will be widely spread to allow ease of access to payment channels by consumers so that a consumer will not need to travel a long distance to reach an access point. It is also envisioned that payment channels will allow all consumers to easily access them without excluding anyone.


Payment systems to increase access channels. New products/services that can be accessed by more people especially the unbanked.

4.1.4 Facilitate easy reconciliation

Vision 2017 anticipates that retail payment methods will be designed with the ability to transmit key payer information so as to facilitate easy reconciliation by payees.


Retail payment systems designed with ability to transmit key payer information.

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Government payments constitute a very key part of all payments made in Zambia due to the volumes and values of payments made by Government. They also facilitate growth and innovation in underlying retail payment infrastructure. Government payments normally fall in the following categories: government to person payments (e.g. salaries, pensions, tax refunds); payments to government by citizens and businesses (e.g. taxes, license fees); and government to business payments (e.g. payments to suppliers). Currently, a significant part of government payments are cash or paper based. Vision 2017 anticipates that government payments will predominately be made electronically, using efficient payment mechanism that will allow prompt delivery of the funds, easy reconciliation and maintenance of clear audit trails.


5.1.1 Achieve significant adoption of electronic payments

It is envisioned that by 2017, majority of government payments will be made through electronic payment channels.


Government's migration to electronic payment methods.

5.1.2 Facilitate easy reconciliation

It is envisioned that government payments will be designed in such a way that they will allow easy reconciliation of accounts.


Providers of electronic payments to ensure that their systems facilitate easy reconciliation.

5.1.3 Ensure electronic payment systems adopted contain clear audit trail

Vision 2017 foresees that the electronic payment channels that will be used for government payments will allow maintenance of clear audit trails.


Providers of electronic payments to ensure that their systems have clear audit trail.

5.0 Government payments

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5.1.4 Linking of automated government management information system to ZIPSS

It is envisioned that government's automated management information system will be electronically interfaced with the ZIPSS to allow automated updating of Government accounts.


Interface of the government automated management information system to the ZIPSS.

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A number of regional integration initiatives for payment systems are being worked on by regional bodies such as SADC and COMESA. These developments are aimed at facilitating more efficient cross border payments so as to enhance regional financial stability. Vision 2017 envisions that Zambia will participate actively in the integration initiatives of both SADC and COMESA.


6.1.1 Participate in SADC/COMESA payment, clearing and settlement initiatives

It is expected that Zambia will take an active role in efforts to integrate regional payment systems.


Development and implementation of SADC and COMESA payment and settlement systems.

6.0 Cross Border Payments

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Education of consumers of payment services is very critical in ensuring that they understand the underlying payment systems issues. Education is also critical in ensuring that frontline personnel clearly understand and adhere to the rules of a particular payment stream. Furthermore, education can also serve as a tool for promoting and encouraging more intensive use of electronic payment methods. Vision 2017 envisages that payment systems education will be developed and provided to all stakeholders.


7.1.1 Education of consumers and all staff

Vision 2017 anticipates that sufficient payment systems education and training will be provided to consumers as well as staff involved in the provision of payment services.


The commercial banks, Bank of Zambia and other players must develop sensitisation programmes on payment system issues.

7.1.2 Inclusion of payment system issues in secondary and tertiary education curriculum

Vision 2017 anticipates that efforts will be made to lobby for the inclusion of payment systems issues in secondary and tertiary education curriculum.


Inclusion of payment system issues in school curriculum. The Bank of Zambia through the FSDP to take up these issues.

7.0 Consumer Education

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The envisaged National Payment System will be based on the following fundamental principles:

Principle 1: Settlement at the Bank of Zambia will remain the domain of banks though other persons or businesses may provide payment services to their customers

To contain risks in the payment system, only banks licensed by Bank of Zambia shall be entitled to have settlement accounts with the Bank of Zambia. Other persons or businesses may however provide payment services to their customers. These other Payment Service Providers will however need to have a sponsor bank perform the settlement function on their behalf. This will ensure that banks remain the gateways to payment clearing and interbank settlement.

Principle 2: Management of Settlement Account(s) at Bank of Zambia will remain a responsibility of banks

Banks will be responsible for the management of their settlement accounts. Only banks can authorise transfers from their settlement accounts with the exception of transfers in respect of netting arrangements as advised to the settlement system by the Payment Clearing House or Financial Market Exchange. Banks will only send payment settlement instructions when sufficient funds are available in their settlement accounts.

Principle 3: Settlement shall be subject to availability of funds; Credit push instruments and prefunding shall be encouraged

All Interbank settlement transactions regardless of the stream under which the originating transaction falls will require prefunding of accounts. Any arrangements to obtain a loan facility from the Bank of Zambia shall be at the sole initiation of the bank in need. The Bank of Zambia shall act according to the provisions of the Bank of Zambia Act 1996. Settlement instructions received by Bank of Zambia without sufficient funds or arrangement for such funds will not be settled and may attract penalties. Further, Banks will be encouraged to develop credit push instruments and prefund their settlement accounts to ensure settlement finality.

8.0 Principles for the National Payment System

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Principle 4: Payment Finality is to be dependent on Settlement Finality Irrevocable Payment

Finality will only occur after Settlement Finality. Settlement Finality will be achieved once entries have been passed through the settlement accounts held at Bank of Zambia. The Bank of Zambia shall ensure that payment finality is clearly and expressly stated in all payment stream rules and regulations to provide certainty.

Principle 5: All participants should identify and adequately manage and take responsibility for risks that they introduce in the system.

Participants can only effectively manage risks if they are responsible and accountable for such risks. All participants, individual or collectively will be responsible for the risks they introduce in any payment system. They will be required to develop and deploy suitable risk reduction measures in all arrangements; in bilateral or multilateral netting or clearing. The National Payment System shall also provide facilities and information for participants to manage their risks.

Principles 6: The Bank of Zambia shall monitor the overall soundness, security and efficiency of the National Payment System

The Bank of Zambia shall develop mechanisms to monitor the National Payment System with regard to among other things risk, operational efficiency, security, infrastructure and compliance to ensure overall safety and soundness of the payment system. It shall also carry out its regulatory and supervisory functions of the National Payment System as a whole.

Principle 7: Responsibility for initiating the transfer of funds to an account resides with the payer

In the exchange of payment instructions, the payer initiates the transaction to transfer value either by instructing the payer's bank to debit his/her account (credit push) or the payer writing a cheque (debit pull). At all times the payer shall ensure that sufficient funds are available in the account before initiating the payment instruction. Credit push will be the most preferred method of effecting payments so that risks can be reduced.

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Principle 8: Reform of the National Payment System shall continue to be based on a co-operative responsibility with various stakeholders

Any component of the payment system that will be deployed will be discussed with all the concerned parties before its implementation. Cost and public interest issues will be considered in all cases without compromising the set standards.

Principle 9: The National Payment System shall be accessible to whoever wishes to issue a payment instruction

Access rules shall be open to end-users, service providers and banks. In particular end-users must have a choice of payment instruments appropriate to their use regardless of their location.

Principle 10: Access and utilisation of infrastructure

To facilitate competition and open participation, the ownership of the infrastructure components will not impede the utilisation thereof by any participant who meets the set criteria of participation on equal terms.

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9.0 Implementation Matrix for Vision 2017

GENERAL ORGANISATIONPrinciple 1: Legal basis

An FMI should have a well-founded, clear, transparent, and enforceable legal basis for each material aspect of its activities in all relevant jurisdictions.

Principle 2: Governance

An FMI should have governance arrangements that are clear and transparent, promote the safety and efficiency of the FMI, and support the stability of the broader financial system, other relevant public interest considerations, and the objectives of relevant stakeholders.

Principle 3: Framework for the comprehensive management of risks

An FMI should have a sound risk-management framework for comprehensively managing legal, credit, liquidity, operational, and other risks.

Credit and liquidity risk management

Principle 4: Credit risk

An FMI should effectively measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes. An FMI should maintain sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence. In addition, a Central Counterparty (CCP) that is involved in activities with a more-complex risk profile or that is systemically important in multiple jurisdictions should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the two participants and their affiliates that would potentially cause the largest aggregate credit exposure to the CCP in extreme but plausible market conditions. All other CCPs should maintain additional financial resources sufficient to cover a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would potentially cause the largest aggregate credit exposure to the CCP in extreme but plausible market conditions.

Appendix I – BIS PRINCIPLES FOR FINANCIAL

MARKET INFRASTRUCTURE (FMI)

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Principle 5: Collateral

An FMI that requires collateral to manage its or its participants' credit exposure should accept collateral with low credit, liquidity, and market risks. An FMI should also set and enforce appropriately conservative haircuts and concentration limits.

Principle 6: Margin

A CCP should cover its credit exposures to its participants for all products through an effective margin system that is risk-based and regularly reviewed.

Principle 7: Liquidity risk

An FMI should effectively measure, monitor, and manage its liquidity risk. An FMI should maintain sufficient liquid resources in all relevant currencies to effect same-day and, where appropriate, intraday and multiday settlement of payment obligations with a high degree of confidence under a wide range of potential stress scenarios that should include, but not be limited to, the default of the participant and its affiliates that would generate the largest aggregate liquidity obligation for the FMI in extreme but plausible market conditions.

Settlement

Principle 8: Settlement finality

An FMI should provide clear and certain final settlement, at a minimum by the end of the value date. Where necessary or preferable, an FMI should provide final settlement intraday or in real time.

Principle 9: Money settlements

An FMI should conduct its money settlements in central bank money where practical and available. If central bank money is not used, an FMI should minimise and strictly control the credit and liquidity risk arising from the use of commercial bank money.

Principle 10: Physical deliveries

An FMI should clearly state its obligations with respect to the delivery of physical instruments or commodities and should identify, monitor, and manage the risks associated with such physical deliveries.

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Central securities depositories and exchange-of-value settlement systems

Principle 11: Central securities depositories (CSD)

A CSD should have appropriate rules and procedures to help ensure the integrity of securities issues and minimise and manage the risks associated with the safekeeping and transfer of securities. A CSD should maintain securities in an immobilised or dematerialised form for their transfer by book entry.

Principle 12: Exchange-of-value settlement systems

If an FMI settles transactions that involve the settlement of two linked obligations (for example, securities or foreign exchange transactions), it should eliminate principal risk by conditioning the final settlement of one obligation upon the final settlement of the other.

Default management

Principle 13: Participant-default rules and procedures

An FMI should have effective and clearly defined rules and procedures to manage a participant default. These rules and procedures should be designed to ensure that the FMI can take timely action to contain losses and liquidity pressures and continue to meet its obligations.

Principle 14: Segregation and portability

A CCP should have rules and procedures that enable the segregation and portability of positions of a participant's customers and the collateral provided to the CCP with respect to those positions.

General business and operational risk management

Principle 15: General business risk

An FMI should identify, monitor, and manage its general business risk and hold sufficient liquid net assets funded by equity to cover potential general business losses so that it can continue operations and services as a going concern if those losses materialise. Further, liquid net assets should at all times be sufficient to ensure a recovery or orderly wind-down of critical operations and services.

Principle 16: Custody and investment risks

An FMI should safeguard its own and its participants' assets and minimise the risk of loss on and delay in access to these assets. An FMI's

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investments should be in instruments with minimal credit, market, and liquidity risks.

Principle 17: Operational risk

An FMI should identify the plausible sources of operational risk, both internal and external, and mitigate their impact through the use of appropriate systems, policies, procedures, and controls. Systems should be designed to ensure a high degree of security and operational reliability and should have adequate, scalable capacity. Business continuity management should aim for timely recovery of operations and fulfilment of the FMI's obligations, including in the event of a wide-scale or major disruption.

Access

Principle 18: Access and participation requirements

An FMI should have objective, risk-based, and publicly disclosed criteria for participation, which permit fair and open access.

Principle 19: Tiered participation arrangements

An FMI should identify, monitor, and manage the material risks to the FMI arising from tiered participation arrangements.

Principle 20: FMI links

An FMI that establishes a link with one or more FMIs should identify, monitor, and manage link-related risks.

Efficiency

Principle 21: Efficiency and effectiveness

An FMI should be efficient and effective in meeting the requirements of its participants and the markets it serves.

Principle 22: Communication procedures and standards

An FMI should use, or at a minimum accommodate, relevant internationally accepted communication procedures and standards in order to facilitate efficient payment, clearing, settlement, and recording.

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Transparency

Principle 23: Disclosure of rules, key procedures, and market data

An FMI should have clear and comprehensive rules and procedures and should provide sufficient information to enable participants to have an accurate understanding of the risks, fees, and other material costs they incur by participating in the FMI. All relevant rules and key procedures should be publicly disclosed.

Principle 24: Disclosure of market data by trade repositories (TR)

A TR should provide timely and accurate data to relevant authorities and the public in line with their respective needs.

Responsibilities of central banks, market regulators, and other relevant authorities for financial market infrastructures

Responsibility A: Regulation, supervision, and oversight of FMIs

FMIs should be subject to appropriate and effective regulation, supervision, and oversight by a central bank, market regulator, or other relevant authority.

Responsibility B: Regulatory, supervisory, and oversight powers and resources

Central banks, market regulators, and other relevant authorities should have the powers and resources to carry out effectively their responsibilities in regulating, supervising, and overseeing FMIs.

Responsibility C: Disclosure of policies with respect to FMIs

Central banks, market regulators, and other relevant authorities should clearly define and disclose their regulatory, supervisory, and oversight policies with respect to FMIs.

Responsibility D: Application of the principles for FMIs

Central banks, market regulators, and other relevant authorities should adopt the CPSS-IOSCO Principles for financial market infrastructures and apply them consistently.

Responsibility E: Cooperation with other authorities

Central banks, market regulators, and other relevant authorities should cooperate with each other, both domestically and internationally, as appropriate, in promoting the safety and efficiency of FMIs.

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DEFINITIONS

CPSS-IOSCO principles for financial market infrastructure: Standards for payment, clearing and settlement systems issued by the Committee on Payment and Settlement Systems and the Technical Committee of the International Organisation for Securities Commission.

Interchange fees: a term used in the payment card industry to describe a fee paid between banks for the acceptance of a card based transactions. Usually it is a fee that a merchant's bank (the "acquiring bank") pays a customer's bank (the "issuing bank").

Online clearing: clearing of payment transactions made on web merchants' sites.

Payment Stream: a group of payment instruments with similar risks and rules.

Payment System(s): refers to payment systems, payment system businesses and payment system participants as defined by the National Payment Systems Act 2007.

Uptime: a measure of the time a machine or system has been up without any downtime.

Confirmation: is the act of establishing, ratifying, or sanctioning of a settlement or payment

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Documents

National Payment Systems · Key stakeholders commitment and cooperation with each other. Provision of resources by key stakeholders for implementation. 4.1.2 Implementation of straight