Payments Volumes Worldwide | Global Finance

According to the Bank for International Settlements (BIS), a payment system consists of a set of instruments, banking procedures and, typically, interbank funds transfer systems that ensure the circulation of money.

More simply, it is a system to handle the transfer of money in non-cash negotiable instruments—including checks, credit transfers, direct debits, credit and debit cards, e-money, and documentary credits (letters of credit, and so on).

The nature of the global payments landscape has changed rapidly in recent years, as traditional commonly-used payment instruments—such as cash and checks--decline in importance and the use of electronic payments rises.

According to data from the Bank for International Settlements (BIS), total number of payment transactions by non-banks in those countries that are members of the BIS Committee on Payment and Settlement Systems (CPSS) rose each year between 2005 and 2009, with a spike in growth by number of transactions in 2005. In 2009 Brazil had the largest percentage growth in overall payments made by non-banks —seeing an astounding 38.3% rise. Demonstrating their swift economic recovery, other BRIC countries India and China also saw large increases in non-bank payment transactions, with a 23.8% and a 21.5% increase, respectively, in total number of transactions.

In contrast, in the midst of the global financial crisis many CPSS countries saw payments growth slow, with two countries even seeing the non-bank payments markets shrink. Singapore saw overall non-bank payments shrink by 0.4% in 2007, and Germany saw the number of non-bank transactions drop by 9.5%.

By total value of transactions, credit transfers are by far the most important payments instrument in almost all CPSS countries, accounting for more than 70% of the total value of transactions in 2009 in all but six of 20 reporting countries.

The exceptions to this are Canada—with 58.9% of total payments by value conducted via credit transfers and checks accounting for 31.2% of total payments; the United States—where checks continue to dominate the payments landscape, accounting for 51.9% of total payments value, credit transfers for 25.9% and direct debits for 17.9%; Singapore—which saw 68.6% of total transactions by value enacted via check and 18.6% by credit transfer; China – with both checks and credit transfers each accounting for 49.4% of payments; Korea – with 52.0% credit transfers and 44.9% checks; and Australia – where 49.4% of non-bank payment were made via credit transfer and direct debits made up 36.8% of the remainder.

Global Payments Infrastructure and Risk Management

The global payments and settlement infrastructure involves a complex network of domestic and cross-border payment systems with various regulating and governing bodies overseeing the smooth function of their respective networks.

Because of the complex nature of interrelationships between different elements of the global payments architecture, efficient operation of the cross-border payments infrastructure depends on the smooth functioning of all the global system involved, and policy coordination among the various stakeholders and regulatory bodies that oversee those systems.

According to the BIS Committee on Payments and Settlement Systems (CPSS) Report on the interdependencies of payment and settlement systems: "The safety of the global payment and settlement infrastructure requires that system operators, financial institutions, and service providers have a robust understanding of payment and settlement risks, and that they manage those risks effectively."

As interdependencies among systems have grown, it has altered the risks that exist within the global payments infrastructure, and has generated new challenges for managing risk. As the report noted: "Tighter interdependencies have contributed to strengthen the global infrastructure by reducing several sources of settlement costs and risks. At the same time, interdependencies have increased the potential for disruptions to spread quickly and widely across multiple systems."

Interbank Payments: RTGS

Real time gross settlement systems (RTGS) are funds transfer systems where transfer of money or securities takes place from one bank to another in "real-time" and on a "gross" basis.

"Gross settlement" means the transaction is settled on a one-to-one basis without bunching or netting with any other transaction. The implementation of RTGS systems by Central Banks throughout the world is driven by the goal to minimize risk in high-value electronic payment settlement systems.

Fedwire is a RTGS operated by the US Federal Reserve banks. In conjunction with the privately held Clearing House Interbank Payments System (CHIPS), Fedwire is the primary United States network for large-value or time-critical domestic and international payments.

In the UK, the Clearing House Automated Payment System (CHAPS) is one of the largest real-time gross settlement (RTGS) systems in the world. In China the RTGS is China National Advanced Payment System (CNAPS), also called the Super Online Banking System. China's central bank, the People’s Bank of China, launched the second generation of the system in the autumn of 2010.

TARGET2 is the Real Time Gross Settlement system for the Euro currency, and is offered by the European Central Bank and the National Central Banks of those countries that have adopted the Euro currency.

In contrast to RTGS systems, net settlement systems, such as BACS, settle transactions at the end of the day, and all inter-institution transactions during the day are accumulated for a single total settlement amount.