10 January 2014

Nigeria: CBN Rolls Out New Payment Systems As Lemo Takes a Bow

The Central Bank of Nigeria, CBN, on Thursday rolled out a new payment system in the country, as its deputy governor (Operations), Tunde Lemo, retired.

The new real-time gross settlement, RTGS, system, integrated with scrip-less Securities Settlement System (SSSS) was put into operations in Abuja.

The outgoing deputy governor, who launched the new payment system, said the new RTGS replaced one that was implemented seven years ago as part of the then CBN transformation programme, code-named Project EAGLES.

Mr. Lemo said the SSSS was a new initiative to issue, manage and settle government and other money-market securities processed as electronic records in a Central Securities Depository (CSD) system.

An RTGS, he pointed out, was an interbank payment infrastructure that would facilitate the real-time settlement of electronic funds transfers on gross (individual), final and irrevocable basis.

Though no minimum or maximum transferable amount has been set, Mr. Lemo said the new RTGS was built on the SWIFT messaging standards to allow for safer, easier and faster interconnectivity with other payment system infrastructures locally and internationally.

He said the CBN was still discussing with market operators to determine the amount to be transferred since very large amounts would be involved in the new RTGS.

"The RTGS serves as the nucleus of the national payment system, as all payments finally settle in central bank money, through settlement accounts maintained for designated financial institutions," he said.

All retail payments, including cheques, cards, mobile money, funds transfers, ATMs, etc. cleared by the Nigerian Interbank Settlement System, NIBSS, and the net settlement positions of the settlement

financial institutions would be posted to the RTGS, he said.

According to Mr. Lemo, large-value payments would, however, be settled individually (gross) as they arose, in real-time, adding that the large-value settlement capability was particularly useful for interbank and government transactions.

The SSSS would facilitate the electronic management of the entire life cycle of securities' transactions, in addition to its ability to manage the primary and secondary markets for the securities, to facilitate efficient open market operations.

The Central Bank said the SSSS would centrally manage securities in electronic (dematerialised) form, as it was configured to settle the security trade transactions on a gross basis, using the Delivery versus Payment (DvP) Model 1 process - where both the securities and the funds are simultaneously settled with finality, on a trade-by-trade basis.

The CBN said the SSSS was implemented for fixed income securities, including treasury bills, development bonds, etc. It noted that the integration and simultaneous deployment of the RTGS and SSS was a major strategic move that would assist in radically reducing systemic risks associated with payment systems.

The Central Bank listed some of the benefits expected from the new systems to include reduction or elimination of settlement and systemic risks in the payments system, and provision of a collateral management platform to mitigate settlement, credit and liquidity risks.

Other benefits include achievement of instant value for and by bank customers through straight through processing, STP, as funds transfers are transmitted from one party to another without manual intervention; and improvement in liquidity management, facilitating more efficient monetary policy implementation.

The new systems would also facilitate efforts to improve the efficiency and transparency of government receipts and payments; provision of a more efficient, secure and appropriate payments landscape to encourage foreign investment; improve financial intermediation efficiency; and enhance financial inclusion. They would also enhance a robust infrastructure to handle faster processing of electronic payments related to banking and financial market services as well as expand the functionality and effectiveness of government securities.

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