RBI Proposes New Payment Systems

The Reserve Bank of India (RBI) has proposed an action plan on payment systems which have been targeted to be achieved in the next one-to-three years. This includes putting in place alternate settlement arrangements in the event of non-availability of RBI as a settlement bank.

Additionally a road map for the National Payments Corporation of India (NPCI) is to be finalized. NPCI has been set up as an umbrella organization by the banking community to take over the retail payment system activities.

All large-value and time-critical payments will be processed only by electronic means. All bank branches will be enabled with Indian Financial System Code (IFSC) and MICR codes. The intention is to leave the user with the choice of payment product for retail and small-value transactions.

The RBI document ‘Payment systems in India — Vision 2009-12’ is available on the central bank’s website for public comment. The document may be downloaded at http://rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=573

New projects and major initiatives listed in the plan include;

• Implementing a new and feature rich RTGS system – The need to migrate to a new version of RTGS that could leverage on advancements in technology, provide for scalability in volumes, parameterize more features in line with similar facilities available in other countries, result in more flexibility in operations, better liquidity saving features, etc., would be pursued.
• India MoneyLine – A 24x7 system for one-to-one funds transfers – The existing NEFT system operates during weekdays from 9 am to 5 pm and on Saturdays from 9 am to 12 noon. The Bank would pursue the suggestion to consider the need to extend NEFT to function on a 24x7 basis or to develop a new system akin to the Faster Payments Service in the UK which operates on a 24x7 basis.
• India Card – A domestic card initiative –The concept of a domestic payment card (India Card) and a PoS switch network for issuance and acceptance of payment cards would be looked into. The need for such a system arises from two major considerations (a) the high cost borne by the Indian banks for affiliation with international card associations in the absence of a domestic price setter (b) the connection with international card associations resulting in the need for routing even domestic transactions, which account for more than 90% of the total, through a switch located outside the country.
• Redesigning ECS to function as a true Automated Clearing House (ACH) for bulk transactions – Currently, Local ECS (to facilitate bulk electronic transactions with one-to-many and many-to-one variants) is operational at 76 centres. Centralisation of this process is already underway with the launch of credit variant of NECS at Mumbai (and RECS on a pilot basis). The debit variant is also being planned for implementation. The ECS / NECS solution is internally developed and has been in use since long and the need for building a technology and feature-rich ACH network by totally redesigning the existing ECS to provide end-to-end processing in a straight-through manner would be examined.
• Mobile payments settlement network – Mobile phones are expected to emerge as an important channel for transmission of payment instructions. Efficient mobile payments would require real time transfer of funds with adequate security. Currently all inter-bank mobile transfers are payment instructions for settling funds through existing payment systems. This would require building a national infrastructure for facilitating real time mobile payments.

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Migrant Remittance to Developing Nations to Reach $317 bn

Migrant remittance flow to developing countries, will be around $317 billion this year, a lower-than-expected fall from the year-ago level, but will return to the recovery path in years to come, the World Bank has said.

Remittance flow to developing countries will touch $317 billion in 2009, and going forward, the inflows to these nations are expected to remain almost flat in 2010, (with a modest rise of 1.4 per cent) and grow by 3.9 per cent in 2011, the World Bank said in its Migration and Development Brief.

The projected remittance flow this year will represent a 6.1 per cent fall from the 2008 level against the earlier expectation of a 7.3 per cent dip.

The officially recorded remittance flow to developing countries reached $338 billion in 2008, higher than the previous estimate of $328 billion, according to the newly available data with the World Bank.

The report further added the remittance flows this year is likely to witness certain risks, and expected to slow down "in a lagged response to a weak global economy".

In the immediate future, the flows in all the regions are likely to face three downside risks: a jobless economic recovery, tighter immigration controls and unpredictable exchange rate movements.

Global Forum on Remittances

The International Fund for Agricultural Development (IFAD) and the African Development Bank (AfDB) in collaboration with the Inter-American Dialogue (IAD) organized the Global Forum on Remittances 2009, in Tunis. This was held on 22 and 23 of October 2009.

Africans are relying more than ever on cash sent home by relatives working abroad, yet a big chunk of the money gets wasted or lost according to a United Nations study released recently. As much as 20 percent of what workers pay to support families in Africa can get swallowed up in transaction costs.

This report from Voice of America’s “In Focus” examines some of the issues raised at the forum.

US Banks Face Criticism Over Foreign Card Compatibility Issues

The Aite Group estimates that nearly 10 million US cardholders experienced problems using their credit cards abroad in 2008 alone, a majority of which changed their card usage behavior as a result.

The report which is based on a September 2009 Aite Group online survey of 1,019 US resident cardholders who traveled to countries outside of Canada, the Caribbean and Mexico between 2006 and 2009.

For cardholders traveling to Western Europe over the past three years, there is an almost 50% chance that they have experienced some form of problem using a US payment card, says the analyst house.

The Aite Group estimates that 9.7 million US cardholders experienced issues with card payments abroad in 2008, and that the US card industry missed out on $3.9 billion in transactions and $447 million in revenues as a result of the failures.

With European markets moving to smart card-based payments, US travelers are finding their magstripe cards being rejected at retailer Chip and PIN terminals and foreign cash machines. European issuers meanwhile are growing concerned at the higher incidence of counterfeit card fraud occurring on US shores, leading to calls for the US banking industry to switch to the chip-based EMV payment card standard.

"Nearly two-thirds of cardholders adjust payment behavior after a bad experience, directly resulting in lower usage of the problem card," says Nick Holland, senior analyst with Aite Group. "An issue caused by incompatible card technology is treated far more seriously by cardholders than issues stemming from card acceptance, fees or merchant policies. A quarter of cardholders experiencing these types of problems will agree either somewhat or totally that the problem ruined or almost ruined their trip."

Eight Key Issues in Managing Operational Risk

Author: Stanley Epstein

In much the same light as the management of market risk and credit risk is vital to preserve a business. Many banks and firms see operational risk and its management only as a response to the requirements of regulators.

They see operational risk from a totally different viewpoint to the management of market risk and credit risk. The latter two are accepted as being vital to ensure the survival of the business, while operational risk is seen as something else entirely. For many businesses the management of operational risk is perceived as a nuisance with added costs and other inconveniences imposed by some outside bureaucrat.

Of course this perception is totally wrong.

In this article we are going to examine the 8 key issues that one needs to keep in mind when managing operational risk. Let us begin with a definition of operational risk.

“Operational risk is the risk of loss resulting from inadequate internal processes, people, and systems or from external events”.

Operational risk can be equated in a broad sense with unexpected risk, meaning that while we may have a pretty good feel for risks such as credit risk or market risk which can often be anticipated with a fair amount of accuracy, when we get to the operational side this usually is pretty much an unknown quantity.

Let’s look a little more closely at the elements of this definition. What do we understand by some of its components?

"People” - People are employees; our workers. Employees can make mistakes. These could be intentional or unintentional. People also often fail to follow correct procedures which can result in losses.

“Processes” – All business activities are made up of processes. These may be complex sequences of events such as one finds in a factory engaged in manufacture or a more simple sequence of tasks involved in taking an order and dispatching the goods to a purchaser. All activities involve procedures. Just think of all the detail involved in the procedure that we all follow each and every day when we wake up and get ready to leave home to go to work.

If there are deficiencies in an existing procedure, or if no procedure is defined, this could result in losses.

“Systems” – Most procedures require the use of outside apparatus. These could be computer systems or machinery or tools. Getting back to our waking up “process” something like our toothbrush can be seen as such a system.

“External events” – Our processes take place in the wider world. This environment is constantly under threat of disruption. Disruptions could be bad weather, natural disasters, pandemics, political turmoil, social unrest and so on.

Within this context there are eight key issues that need to be addressed if management of Operational Risk is to be effective.

1. Internal Environment. The internal environment relates to how the firm sets the tone and what is called its “risk appetite”. This relates to the firms’ policy in relation to risk and the extent to which the firm is prepared to accept risk. Remember that risk cannot be eliminated entirely but it can be mitigated.
2. Setting Objectives. Based on the firm’s define risk appetite explicit objectives can now be set in terms of “risk events” and their management.
3. Event Identification. This is a definitive list of what risks the firm faces and how they can be identified.
4. Risk Assessment. It is vital that in reviewing the risks these have to be understood in terms of the dangers that they present to the firm. This assessment requires an analysis of and an understanding of what these risks are.
5. Risk response. What is the firm going to do about the risk? What actions is it going to take to reduce and mitigate these risks or to compensate for the potential loss?
6. Control Activities. This is part of the risk management process that in advance develops plans to respond to these previously identified risks.
7. Information and communication. A vital part of managing risk is effective communication and information to people both inside and outside the organization in relation to the roles and the responsibilities they have in responses to the various risks.
8. Monitoring. This is the ongoing process of reviewing and evaluating the business processes and the effectiveness of the risk management programme.

Managing Operational Risk is a continual task. It is not something one does and then simply forgets about. It has to be practiced all the time. To use an old adage “Operational risk management is a journey, NOT a destination”.

About the Author:

Stanley Epstein is a Principal Associate and Director of Citadel Advantage Ltd., a consultancy dealing in bank operations and specializing in Operations Risk and Payment Systems. Citadel Advantage provides comprehensive range of Risk Management & Payments related Training Courses for banks and other financial institutions. Further information and details can be found at http://www.citadeladvantage.com . For regular insights into payments & risk issues, visit Citadel Advantage’s blog at http://citadeladvantage.blogspot.com/

Article Source: ArticlesBase.com - Eight Key Issues in Managing Operational Risk

Eight Steps To Protect Your Corporate Reputation

By Jonathan Hemus

A strong corporate reputation is recognised as a valuable asset, one which takes years to build, and requires constant nurturing to maintain. A crisis, whether a product safety scare, an environmental incident, labour relations, management scandal or online attack, puts that reputation to the test. The outcome can be devastating; but it doesn't have to be.

Rigorous preparation is the most important factor in protecting the corporate reputation in the event of a crisis. More than that, research shows that thorough preparation actually reduces the likelihood of a major crisis happening in the first place. This is because the preparation phase highlights flaws and vulnerabilities that can be addressed, and creates a heightened sense of crisis awareness and vigilance that acts as an early warning system to snuff out potential crises before they escalate and emerge. So engaging in crisis preparation and prevention is one of the best investments you can make.

What are the key areas you should address? Here are eight steps to protect your corporate reputation:

1. Compile a list of reputational risks - involve colleagues from different functions in this process to ensure you cover as many threats as possible. Encourage people to think worst case scenario rather than adopting an attitude of "it could never happen here".

2. Identify your stakeholders - these are likely to include emergency services, regulators, bodies, employees, even competitors and suppliers, as well as the media. Make sure you have up to date contact details always to hand.

3. Work out the best communication methods to reach your stakeholders in a crisis - this can vary from simple telephone calls, emails and briefings through to media interviews and press conferences. Don't overlook online channels: for example, have Twitter accounts set up and ready to go.

4. Form a crisis team - convene a small team of individuals with the relevant expertise and personal qualities necessary to handle a crisis. But remember, you will still need to run the rest of your business, and ensure you have deputies for all team members.

5. Identify and equip a training room - a dedicated room containing items such as direct phone lines, Wi-Fi, fax machine, TV, crisis manual, telephone contact list, whiteboards, flipcharts and so on. An adjacent quiet room, in which statements and other documents can be prepared, is also useful. Make sure that these rooms are out of range of camera lenses.

6. Prepare a crisis manual - a set of clear processes and materials is an invaluable aid to effective crisis management. But make sure it is not so large and detailed that it is unusable in a real incident.

7. Train the crisis team - make them familiar with crisis procedures, test them using simulations, and put spokespeople through professional media training.

8. Make your crisis planning come alive - re-visit the manual regularly, plan a schedule of training courses, and build bridges with your stakeholders before a crisis occurs.

Preparation is essential if organisations want to protect their corporate reputation in the event of a crisis. Sound judgement and skilful leadership will also be required, but having strong foundations on which to apply these skills provides a significant headstart.

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Jonathan Hemus is the founder of Insignia Communications - http://www.insigniacomms.com - a consultancy specialising in corporate reputation management and crisis communication. His experience in crisis management for a range of global corporations and public sector organisations has helped to protect and preserve many reputations. For regular insights into corporate reputation management, log on to Insignia's blog at www.insigniatalks.com