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Wednesday, 2 October 2013 00:00 - - {{hitsCtrl.values.hits}}
nCommon ATM Switch (CAS)
nShared ATM Switch (SAS)
nCommon Electronic Fund Transfer Switch (CEFT) and Common Mobile Switch (CMobS)
nCommon Point of Sale (POS) Switch (CPS)
The primary objective of this national switch is to provide the general public, payment facilities at cost effective prices from any channel (e.g. ATM, POS, Mobile, Computer, etc.) island wide, through any bank which has joined the national switch. CCAPS is an online real-time system and banks and the general public will have 24x7 payment facilities through this system while the settlement of transactions will be via the RTGS system operated by the Central Bank of Sri Lanka.
LankaClear expect that all banks would use this common infrastructure and achieve economies of scale thus ushering a new era in the payment industry, not only in Sri Lanka but also in the region. CCAPS is the national payment switch of Sri Lanka and the first phase was launched on 23 July 2013 at which the CAS (the Common ATM Switch) was launched. CCAPS is operated under the brand name of “LankaPay”. With the full implementation of CCAPS many value added payments services can be introduced in the future. LankaPay CAS initially connected the ATM switches of the two state banks (Bank of Ceylon (BOC) and People’s Bank (PB)), enabling Bank of Ceylon card holders to withdraw cash or obtain a balance inquiry from any ATM belonging to People’s Bank and vice versa at a minimum cost. Later it will facilitate other banking services as well.
Charges from a customer for a cash withdrawal are Rs. 15 and for a balance inquiry it is Rs. 7.50 Subsequently, Union Bank (UB) also joined this switch enabling the customer of BOC, PB and UB to use the any ATM belonging to any of these banks for cash withdrawals and balance inquiries. With the other banks participating in CAS, which we expect to happen shortly, the general public will have the convenience of cash withdrawal from any ATM of another banks at Rs. 15 and balance inquiry at Rs. 7.50.
Background of the national payment switch
Over the years, payment methods and instruments have evolved as the banking sector developed. With the development of the technology, people are seeking more convenient and secure payment systems and cash as a payment method is losing its attraction. Even for monetary authorities handling cash has become an expensive task.
There was a time when the “cheque” used to be the most important payment instrument other than cash, but it is no longer the case. In the recent past, many countries including Sri Lanka have routed their high volume and retail payments through electronic methods.
It is also important to note that new payment types are being developed continuously and it is difficult to predict what kind of payment methods will be developed in the future. It is not an exaggeration to say that in the future, people may get most of their work done through mobile phones.
New developments in the global payments arena
1. Electronic payments
The usage of electronic payment methods are growing at a modest pace and is concentrated very much in developed markets. On the other hand in developing markets, the authorities are enhancing their payments infrastructure with the adoption of greater usage of, non-cash payment methods, in other words electronic payment methods.
Electronic payment methods include credit cards, debit cards, pre-paid cards, electronic fund transfers and electronic payments that are executed through Automated Clearing House networks.
Among the most convenient electronic payment methods, cards remain the preferred instruments. Cards enable the holder to carry, store and spend the total cash value held on the card. It is faster than handling currency and in many cases safer and also behaves exactly like cash.
Developed economies usually have multiple interconnected networks and switching systems such as MasterCard, Visa and these networks allow the cardholder to use almost any ATM anywhere in the world. Mobile Payments are also expected to grow markedly. Going forward, mobile financial services will be one of the key drivers of the unbanked population for financial inclusion.
As indicated above, hybrid forms of electronic payments now combine various payment channels to give customers more options for payments. Mobile payment usage is similarly surging because of the increased usage of smart phones.
2. Usage of common infrastructure for payment systems
The other noticeable trend in the global payments arena is the usage of common infrastructure.
If banks and other financial institutions implement their own switches, it will be very expensive and become a financial burden to these institutions. In addition, if there are many switches available in a country for one purpose, monitoring of security, verifying technical and operational standards and controlling these will not be easy for regulators. Therefore, many governments and monetary authorities advise their banks and financial institutions to use shared networks and common switches. The Common Payment Network (CPN) in Australia, the Single Euro Payments Area (SEPA) are a few examples. The implementation of Basel III is being accelerated in certain countries and to prepare for Basel III banks are cutting costs and investments to preserve capital. In such an environment shared services are very attractive.
3. Non-bank service providers
The role of the non-bank service providers in the payment system is also another significant development. In many countries they have moved faster in promoting electronic money transfers.
4. Secure transactions (cyber security)
Another important development in the payment arena is the pursuance of various innovations to mitigate fraud, while facilitating convenient and efficient payments. In order to mitigate card fraud, many countries have moved towards chip technology. Chips combined with a Personal Identification Number (PIN) provide strong authentication for a transaction.
The above mentioned advancements are taking place in the payment systems worldwide and obviously Sri Lanka cannot escape from this sea of change. Customers seek efficient, convenient and secure payment methods and service providers seek most profitable payment systems.
Requirement for a developed payment system for Sri Lanka
High liquidity, high security, instant payment realisation in the payment system is essential for economic development of a country. With expected increases in economic growth and taking into consideration the new developments in the international payments arena and also the Sri Lankan market requirements, LankaClear has developed the Common Card and Payment Switch (CCAPS) with the brand name “LankaPay” with the guidance of the Central Bank of Sri Lanka.
Given the different payment products available in the country, and the planned new payment system, LankaClear decided to implement an interoperable switch since it will facilitate multiple payment modes to exist, so that the customer can select the most convenient/suitable payment method. It is noteworthy to mention that in a small country like Sri Lanka, it is not economical to have several payment switches, as then it will be hard to achieve economies of scale.
In a national switch, features such as security, fraud management, back office functions, dispute resolution etc., should be available in keeping with international standards and best practices. In considering the complexity of the national switch requirements, LankaClear decided to purchase a proven and internationally well recognised payment switch.
The CCAP switch implemented by LCPL is a proven, internationally well recognised interoperable switch. It consists of features such as security, fraud management, back office functions and online dispute resolution, in complying with national switch requirements.
Once the CCPAS is fully implemented, it will provide a comprehensive payment infrastructure by means of the above mentioned payment systems to the general public and thus the customers of any participant bank can initiate a payment through many payment channels (e.g. ATMs, POS, Mobile, Internet, etc.) based on the customer’s need. Another objective of this initiative is to bring all commercial banks into LankaClear’s common national payment infrastructure.
Since the Common ATM Switch (LankaPay CAS) is already launched, it links all ATM switches of LankaPay CAS Members to facilitate domestic transactions originating from any ATM connected to LankaPay. The main function of the LankaPay CAS is switching and clearing of Not-on-Us (off us) payment card based domestic ATM transactions between the acquirers and the issuers.
A “Not on Us” transaction is where a customer of a bank obtains the service of an ATM belonging to another bank i.e. a customer of BOC going to an ATM of PB to obtain a service. The settlement between CAS members will be via the RTGS operated by CBSL.
Benefits of CCAPS to banks
CCAPS help banks in many areas namely, higher operational efficiencies, reduction of costs on infrastructure, hi-tech capability, profit making opportunities through value added products which can be developed around the switch.
In terms of higher operational efficiencies, banks will be able to lower operational overheads by reducing manual work and errors due to manual work. Since most processes are being implemented in electronic platforms, banks can save costs associated with counter times since customers’ physical visits can be reduced with these payment systems. Currently, banks need to have their own switches, ATMs and other required infrastructure and the common infrastructure deployed by LCPL would avoid duplication of infrastructure and provide a common platform. This will facilitate relatively faster development of new payment products.
With the introduction of the National Card Scheme (NCS) in this initiative, it will greatly facilitate lower transaction costs and will popularise electronic payments through card based transactions, thus meeting the objective of moving Sri Lanka towards cashless payments.
Further, banks can easily take advantage of creating efficient electronic payment methods by means of this national payment infrastructure. Thus the banks can significantly increase their top line and customer satisfaction.
Since CCAPS is an online real-time system and banks will have 24x7 access to standard or customised reports, transaction verification, dispute resolution, etc. Also, it will integrate seamlessly to the existing banking systems in a secure way.
In line with the plans of the Government and the Central Bank, it is expected to expand banking and financial sector activities in coming years. Under these plans, infrastructure financing, debt/equity participation, leases on commercial properties, lending to greater Colombo and suburban infrastructure projects will increase. Industrial financing in and around port cities, IT, BPO, PPP Ventures, external sector developments, foreign currency flows, including NRFC funds and use of electronic and innovative systems to link up with foreign counterparts can be expected. Thus convenient, secure and efficient payment facilities will be required, which will be met by the CCAPS.
Benefits to the general public
Bank customers will benefit from 24x7 payment methods, through multiple access points i.e. ATM, POS, Internet banking and mobile banking at a minimum cost. Un-banked customers will have banking facilities through the Mobile Switch.
Benefits to the country
A National Payment Switch is the pride of a country. This is an essential component as Sri Lanka gears more towards being a financial hub in the region. The ability to connect to regional national switches i.e. India, Pakistan, Malaysia, the Middle East, Thailand and China is another great advantage. It will save foreign exchange payments made to international networks for domestic payments. Lower transaction costs in the national switch will facilitate greater accessibility of electronic payments for all segments of the general public.
Higher efficiency in the payment and settlement systems of Sri Lanka will greatly facilitate payment requirements in Sri Lanka. This need will be even more, when the $ 4,000 per capita is achieved.
The benefits of a national payment system such as cost effectiveness, lower financial risks with international recognition, acceptability to all segments of the population can be experienced with CCAPS. It may help Sri Lanka to rise upwards in the Doing Business Index and South Asian Payment Index.
It will benefit monetary authorities by means of better reporting on payments. Ability to define high security and improved technical and operational standards are available through the national switch. The national switch operates under the guidance of the monetary authority and it is required for greater financial system stability.
With the changing world, all of us need to change. Colombo may become a knowledge city in the coming years. With that, smart IT infrastructure, smart institutions and smart businesses will appear. The telecommunications system will bring digital links. Banks will be able to handle all these activities through multi-skilled staff. Customers will move out of paper based instruments and use electronic payments and one could see the trend moving towards mobile payment and banking.
The CCAPS initiative will facilitate and accelerate these developments even faster. The leadership of the Central Bank, the commitment and skills of the LankaClear staff and the collaboration of the commercial banks are greatly appreciated for the success of LankaPay CAS.
(The writer is the Chairperson of
LankaClear Ltd.)
