Retail payment systems
Unlike individual payment systems, retail payment systems process a large quantity of mostly low-value transactions, with 19.9 billion payments amounting to a total of €70.6 billion being processed in Germany in 2013. Most of these are everyday customer payments such as credit transfers, direct debits, card payments and cheques. As a rule, they are not urgent; instead, they are settled by the next business day.
Although the amounts of money transferred in retail payments are significantly smaller than in individual payments, the former nevertheless play an important role with respect to public confidence in the euro and, thus, with respect to the security and efficiency of the financial system as well. Any risks should therefore be mitigated wherever possible in order to ensure that retail payments can be effected as smoothly as possible.
In Germany, retail payments between banks are traditionally settled via three different channels. The majority of transactions are processed exclusively on an internal basis using the payment infrastructures of individual institutions or groups of institutions. Some institutions that handle large payment volumes exchange payments with selected other institutions solely at a bilateral level in a process known as garage clearing. Any retail payments that cannot be settled using the aforementioned channels are settled via clearing houses. As retail payment systems, these clearing houses are subject to payment systems oversight.
Typical risks that can arise in retail payment systems include the following.
- Credit risk: Under certain conditions, this can arise as a result of delays in the settlement of payment flows in net settlement systems. Any default on the part of a system participant between netting and settlement due to a lack of liquidity exposes the counterparties to default risk. The netted payment claims of all participants affected would have to be corrected and the payment flows reversed. This gives rise to the risk of a possible domino effect that could spread to the entire system.
- Legal risk: This arises if, for example, the legal basis for a retail payment system is not enforceable in all jurisdictions in which services are offered.
- General business risk: This type of risk arises if, for instance, a system operator suffers a loss in turnover due to falling demand and does not have sufficient equity capital or liquid funds at its disposal to continue its business activities under the changed market conditions.
Oversight activities for retail payment systems also cover a variety of other areas.
The following regulations form the basis for the oversight of retail payment systems.
- Revised Oversight Framework for Retail Payment Systems
- Oversight Expectations for Links between Retail Payment Systems
- CPSS/IOSCO Principles for Financial Market Infrastructures
- In the case of systemically important retail payment systems pursuant to Eurosystem classification, it is necessary to meet the provisions set out in Regulation of the European Central Bank (EU) No 795/2014 of 3 July 2014 on oversight requirements for systemically important payment systems.
The Bundesbank is responsible for the oversight of RPS, its retail payment system. In order to avoid conflicts of interest, the divisions responsible for the operation and further development of RPS are kept separate from the division responsible for overseeing retail payment systems and have their own lines of reporting and management.
Furthermore, the Bundesbank participates in the Eurosystem's joint monitoring of the STEP2-T retail payment system operated by EBA CLEARING under the lead of the European Central Bank in its capacity as a competent authority.