Retail Payment System in Korea
56
Retail Payment System in Korea October 22th, 2018 Sang Seung Oh (Sam Oh)
Transcript of Retail Payment System in Korea
Retail Payment System in Korea
October 22th, 2018
Sang Seung Oh (Sam Oh)
Introduction of Presenter
• Name : Sang Seung Oh (Sam Oh)
• Position : Head (Global Business Team)
• Joined KFTC in 1995
• MBA (University of Texas at Arlington,2011)
• Project Manager of KSP(Knowledge Sharing Program) Consulting Project
: Supported by MOSF(Ministry of Strategy and Finance) of Korea
- NBC(National Bank of Cambodia) : Development of Payment System in Cambodia (2015)
- CBE(Central Bank of Egypt) : Retail Payment System Improvement Plan (2018~2019)
• Project Manager of KPP(Knowledge Partnership Program) Consulting Project
: Supported by BOK(Bank of Korea)
- BOL(Bank of Lao PDR) : Enactment of Payment & Settlement System Regulation (2018)
• Head of Cambodia Task Force (2017~2018)
- Establishment of National Payment System in Cambodia (ODA from KOICA)
• Auditor of CIFC(Council on International Financial Cooperation) (2017)
Contents
1. What is FMI ?
2. What is payment system ?
3. Retail Payment system in Korea
4. KFTC Financial Switch
5. References & Recognition
6. Long-Term Cooperation Plan
© 2011 IDC -4-
1. What is FMI ?
(Financial Market Infrastructure)
Infrastructure
Rules
When the Rules are Broken ~
Regulation
FMI (Financial Market Infrastructure)
A multilateral system among participating institutions, including the operator of the system,
used for the purpose of clearing, settling, or recording payments, securities, derives, or other
financial transactions.
- PFMI (Principles for financial market infrastructure) of BIS -
Definition
▪ Payment System (PS) - Large Value Payment System & Retail Payment System
▪ Central Securities Depositories (CSD)
▪ Securities Settlement System (SSS)
▪ Central Counter Parties (CCP)
▪ TR (Trade Repository)
5 Types
2. What is Payment System ?
Definition
A payment system is a set of instruments, procedures, and rules for the transfer
of funds between or among participants; the system includes the participants and
the entity operating the arrangement.
- PFMI (Principles for financial market infrastructure) of BIS -
Payment system is not a IT system which is composed of hardware and software,
but a comprehensive arrangement of multiple components.
Arrangement
Instruments Procedures Rules IT Systems
The entity operating the arrangement
Participants
Types
System Types
RTGS
(Real-Time Gross
Settlement System)
DNS
(Designated-time Net
Settlement System)
UseLarge Value Payment
(Inter-FIs Payment)
Low Value Payment
(Retail Payment)
Settlement Time
Real-Time
(Processed and Settled in
real time)
Designated-Time
(1~n times a day)
ClearingGross Settlement
(Without Clearing)
Net Settlement
(After Clearing)
AdvantageNo Credit Risk
(Settlement Finality)
Reduction of Required
Liquidity
DisadvantageExcessive Required
LiquidityCredit Risk
Retail Payment Process
Central BankSettlement
Clearing HouseClearing
Financial Institution
(Bank, securities, etc.)Payment
What is Payment?
Payment instruments
Payment by Cash
Payment = Clearing = Settlement
Payment by non-cash instruments
Bank Clearing CenterBank
Settlement Center
Clearing
Settlement
Payment
3. Retail Payment System in Korea
KFTC
Instruments Procedures Rules IT Systems
KFTC
Participants
KFTC in Korea
Retail Payment System
What is KFTC doing ?
Instruments
Procedures
Rules
IT Systems
Participants
KFTC (Korea Financial Telecommunications and Clearings Institute) was established as one of the national
infrastructures to build and operate the financial information network in 1986 .
Establishment
Background of establishment of FIN[5 National Backbone Information Networks]
Financial Information
Network
Administration Information
Network
Research & EducationNetwork
DefenseInformation
Network
Security Information
Network
• Needs for FIN as a core infrastructure for economic
development
• Cash-based economy (43.5% of transactions in cash
in the early 80’s)
• Needs for various non-cash payment means
• Needs for boosting savings rate by stimulating use
of bank accounts
• Increase of cost for issuing/handling notes & coins
• Prevention of overlapping IT investment of banks
KFTC’s Roles in Korea Payment System
Develop & Operate Retail Payment System
▪Develops inter-bank networks
▪ Introduces new e-payment services
Operate Public Authentication Center
▪Operation of national PKI, OTP, Biometric center
Key Facts
Overview
Provide Shared Infrastructure
▪Provides various value added services such as Fintech
Open Platform
Non-profit institution
Hub institution for processing interbank financial
transactions
All kinds of financial institutions in Korea are
participating (69 members )
Securities Firms
Central
Government
Police AgencyLocal
Governments
Bank of Korea
Interbank Fund Transfer Network (Internet/Mobile Banking,
ATM, POS, e-Money, etc.)
e-Payment Gateway
ACH (Debit/Credit transfer), etc.
[Main interbank payment service]
Post
Savings Banks
Organization
General Meeting
Board of Directors
President
Vice President
Administration Strategy Group
▪Administration and
Planning Dept.
▪Customer Service Dept.
▪Research Centre
▪General Affairs Dept.
▪Security Office
▪Secretariat
Financial Telecommunication & Clearings Group
IT Group e-Business Group
▪Electronic Payment Dept.
▪Future Payment Dept.
▪ International Business Dept.
▪Check Clearing Dept.
▪Giro Dept.
▪ IT Planning Dept.
▪ IT Development Dept.
▪ IT Operation Dept.
▪ Information Security
Dept.
▪ e-Business Dept.
▪Value Added
Network Business
Dept.
▪ e-Business System
Dept.
Auditor
Audit Dept.
KFTC started with 6 departments in 1986,
but we now have 21 departments with around 700 employees
Financial Information Group
▪Financial Information
Business Dept.
▪Digital Certification
Dept.
▪Advanced
Authentication Dept.
SW engineers and analysts: 170, Operators : 65
Business Planners/Consultants : 230
Management & Support: 155
Information Security Specialists : 80
Development & Implementation
Payment
Service
Offering
2002 ~ 2008
Provide e-Commerce
servicesJoin CLS
2008 ~ NOW
Global Cooperation and payment
1986
Gov-led efforts to build financial
networks
1987 ~ 1990
Build national payment and
settlementnetworks
1991 ~ 2001
Introduce new electronic payment
services
Internet/Mobile Technology & SecurityNationwide
Centralization Needs
Real-TimeTransaction Needs
Bulk Fund Transfer, Paperless
Needs
Globalization Needs
AdditionalBusiness
• Electronic Tax
Payment
• Accredited
Certification
• Mobile Banking
Global Business
• Global Cooperation
• Cross-Border
ATM/Remittance
Network
Establishment of KFTC
• Check Clearing
• Giro
FIN Service
• ATM Network
• ARS Network
• IFT Network
Enhanced FINService
• CMS
• Internet/Firm Banking
• Payment Gateway
• EFT/POS Network
Technological Evolution
4. KFTC Financial Switch
General Concept
Bra
nch
Financial Switch(Clearing/Settlement
Arrangement)
Payment Service
Provider
(Payer’s side)Payer
Payment Service
Provider
(Payee’s side)Payee
Access Channels
* IVR: Interactive voice response
Access Devices
AT
M / P
OS/ K
iosk
IVR
ban
kin
g sy
stem
Inte
rnet
ban
kin
g port
al
Mobile
ban
kin
g ap
plic
atio
n
Paper form Card Phone PC & Mobile
Bra
nch
AT
M / P
OS/ K
iosk
IVR
ban
kin
g sy
stem
Inte
rnet
ban
kin
g port
al
Mobile
ban
kin
g ap
plic
atio
n
Paper form Card Phone PC & Mobile
Payee
$
Payer
$
Goods and Services
via large-value payment system
Based on ‘Innovation in Retail Payments (May 2012, BIS)
KFTC Financial Switch – Conceptual diagram
2. Card Processing Switch
POS terminal
Bank Bank Bank Bank
Issuing
Bank
POS Network
3. Mobile Banking/Payments Switch
Bank Bank Bank Bank
Mobile phoneMobile Banking
Network
1. EFT (Electronic Funds Transfer) Switch
ATM
Branch
Bank
Bank HQ
Branch Banking
Network
Inter-bank ATM
network
PC
PC
Bank
Bank
HOFINET
* HOFINET: Home-banking and Firm-banking Network
Telephone
Telephone
National Financial
Switch System
KFTC Financial Switch - EFT Switch (1/2)
2-1. ATM Network
ATM Acquiring
Bank HQ
Current Account
(Sending Bank)
Legend
Flow of information (Real-Time)
ATM Card Switching
(Real-time)
&
Net Clearing
(Daily Batch)
Recipient
Settlement
Data (T+1)
Current Account
(Recipient Bank)
Recipient Bank
Flow of information (Batch)
Flow of funds
Real-time notice in case of
transaction attempts from
the card reported as
fraudulent/stolen card
B. Local card processing scheme
C. Anti-fraud arrangement
A. Real-time processingNet debit cap
Local card specification
Real-time notice to police agency
2-2. HOFINET
Bank HQ
Current Account
(Sending Bank)
Recipient
Settlement
Data (T+1)
Current Account
(Recipient Bank)
Recipient Bank
KFTC Financial Switch - EFT Switch (2/2)
Internet/Mobile
Banking (each bank)
Switching
(Real-time)
&
Net Clearing
(Daily Batch)
IVR
Landline telephone
Supports all electronic funds transferFlexible to adopt new service channels
Firm Banking
System (each firm)
Bank HQ
IP/Smart Phone
TV
KFTC Financial Switch – Card Processing
For international Transactions
Issuing Bank A
Issuing Bank B
Issuing Bank C
Designated Bank
Network
Network
Network
For domestic transactions
Issuing Bank
(Oversea)
POS terminal at
a merchant
A. Merchant & POS managementInstall and maintain POS terminals/merchants on behalf of
acquiring banks
Act as a hub for all necessary network connections with
commercial banks
Support various POS terminal – PC based/hand-held,
Contactless/mobile (RF, NFC)
Support banking transactions - funds transfer
B. One terminal for all card acceptance
C. Multi-functionalities
Int’l Network
KFTC Financial Switch – FinTech Open Platform (1/2)
KFTC
❑ FinTech firms and KFTC communicate through Internet(http) in a real time basis
❑ KFTC interconnects all banks through financial network
KFTC Financial Switch – FinTech Open Platform (2/2)
Type of APIs of KFTC
❑ KFTC provides 5 Open APIs including information inquiries and money transfers
5. References & Recognition
Scope of Work: Analysis & design, development, supply and installation of Inter-Bank Payment System (IBPS)
Key roles of KFTC
System Analysis & Design / Testing & Auditing of the system / Consulting on Rules & Regulation, Operational know-how, etc.
State Bank of Vietnam (1999~2000)
Scope of Work: Analysis & design, development, supply and installation of Real Time Gross Settlement(RTGS) System
Key roles of KFTC
Consulting on Payment & Settlement system – System, S/W, Rules & Regulation, Operational know-how, etc.
Central Bank of Nigeria (2003~2006)
Global References (1/2)
System Implementation
Scope of Work: Analysis & design, development, supply and installation of Remittance Unified System
Key roles of KFTC
System Design & Project Management / Consulting on Rules & Regulations, etc.
Central Bank of Armenia (2016~2017)
Scope of Work: Analysis & design, development, supply and installation of National Retail Payment System
Key roles of KFTC
Main Project Contractor / System Design & Development / Training / Rules & Regulations, etc.
National Bank of Cambodia (2017~2018) – ODA Project (KOICA)
Bank Indonesia (2009)
United Arab Emirates Government (2010)
Bank of the Lao PDR (2011, 2018)
Bank of Mongolia (2011)
National Institutional Facilitation Technologies – Cheque Clearing House in Pakistan (2009)
National Bank of Moldova (2012~2014)
Central Bank of the Philippines (2012)
Central Bank of Algeria & Society of Automation Interbank Transactions and Electronic Payment (2008~2009)
Global References (2/2)
Central Bank of Armenia (2013~2015)
- Development and Promotion of Payment Card System
- e-Payment Gateway (On-line Tax and Bill Payments)
- National Payment System Modernization Roadmap, Rules & Regulations for National Payment System
- National Payment System Modernization Roadmap
- National Payment System Modernization Roadmap (Establishment of Clearing House)
- National Payment System Modernization Roadmap
- National Payment System Modernization Roadmap, System Development Plan for Remittance Unified System
- National Payment System Modernization Roadmap
- National Cheque Clearing System
Consulting & Technical Assistance
National Bank of Cambodia (2014~2016)- National Payment System Modernization Roadmap and System Development Plan, PKI infrastructure
Global Recognition
“NPCI would also benchmark against Bankserv in South Africa and KFTC in South Korea in
terms of operational efficiency, reach across the country and range of products and services.”
(from NPCI website)
National Payments Corporation of India
Bank of Mongolia“ It is needless to say that KFTC’s experience and solution is the world’s best” (Governor)
National Bank of Moldova
“ The World Bank advised me to study KFTC model for national payment system development”
(Director)
Central Bank of Armenia
“KFTC’s experience & expertise could be an important factor towards modernizing our payment
system” (Deputy Governor)
Central Bank of Suriname
“ I think KFTC’s in-house software development strategy and philosophy is superb” (Governor)
Case 1> NBC (National Bank of Cambodia) - (1/5)
National Retail Payment System - Overview
Case 1> NBC (National Bank of Cambodia) - (2/5)
Component 1 - RFT (Real Time Funds Transfer) System
Case 1> NBC (National Bank of Cambodia) - (3/5)
Component 2 - MPS (Mobile Payment System)
Case 1> NBC (National Bank of Cambodia) - (4/5)
Component 3 - QPS (QR-Code Payment System)
• QPS is the title of the payment system that KFTC is building in Cambodia
through ODA project.
• It is the first QR-Code Payment Switching System operated and settled by a
Central Bank in the world.
• NBC(National Bank of Cambodia) and KFTC designed together to
overcome the lack of infrastructures.
• It is using only mobile debit cards in mobile applications. So, the all that a
customer needs for payment is just a smartphone.
• Merchants also do not need POS terminals and any other devices, only a
smartphone is enough.
• It can reduce a tremendous amount of costs and fees.
• Korea(BOK) also made a decision to build the same system in Korea.
So, BOK, KFTC, and participating banks are preparing it.
Case 1> NBC (National Bank of Cambodia) - (5/5)
Component 4 - ACH (Automated Clearing House)
Case 2> CBA (Central Bank of Armenia)
Cross-Border Remittance System - Overview
6. The Long-Term Cooperation Plan
Mak
e a
Imp
lem
en
tati
on
Pla
n
Technologies
Experiences
An
alyz
e o
f th
e s
yste
m
spe
cifi
cati
on
De
sign
of
the
sys
tem
sp
eci
fica
tio
n
De
velo
pm
en
t
ImplementationPreparation
Pro
ject
Bu
dge
t A
lloca
tio
n
Test
Go
-liv
e
Trai
nin
g an
d C
apac
ity
Bu
ildin
g
Post-implementation
Ro
bu
st O
pe
rati
on
Mai
nte
nan
ce/
Furt
he
r D
eve
lop
me
nt
Rules and Regulation / Policies
Serv
ice
exp
ansi
on
& P
rom
oti
on
De
fin
e R
eq
uir
em
en
ts a
nd
co
mp
ose
P
roje
ct d
ocu
me
nts
Tech
nic
al
Ass
ista
nce
Imp
lem
ent
Consultation & knowledge
sharing
KFTC’s cooperation scope (1/2)
Project Cycle
Pre
par
atio
n o
f B
idd
ing
Tech
nic
al
Ass
ista
nce
Long -term Strategic Partnership
Consulting
Project Consulting /
Technical Assistance
Bidder /
Partner
• In a preparation stage of the Project, KFTC shall provide a technical assistance on the technical, business and operational issues.
• The scope of work may include, not limited to, (i) conduction of necessary analysis and research for designing the project and determining the best option, (ii) helping to communicate with key stakeholders on various issues related to the project, (iii) provision of technical and business knowledge and know-how, (iv) providing technical documentations, advice and training, and (v) assisting to make bidding documents.
• From a preparation stage to implementation stage, KFTC shall act as a chief technology advisor for the whole process of the Project.
• The scope of work may include all responsibilities of a Technical Assistant as mentioned above, and plus participation in technical tasks in implementation stage (project management, system analysis and design, test and software audit and so on) which entails no software development.
• KFTC shall participate directly in the Project as a bidder or sub-contractor of a bidder, to take part in the implementation as a consultant and also developer.
• KFTC also can participate in joint-venture businesses as a partner.
KFTC’s cooperation scope (2/2)
The Time Schedule Plan for the Cooperative Project
20212019 20202018
Application forSystem Consulting
& ODA
We Are Here
System DevelopmentRegulatory Framework
Capacity Building
Self Operation & Maintenance
PreparationImplementation
Project
ODAApproval
2022
System
consulting
ODA : Official Development Assistance (Loan or Grant)
Plan for Implementation Project
Establishment of Regulatory Framework
Joint-development of IT system
Focus on Capacity Building
Joint Development of IT System
Purchasing Packages Outsourcing
(External Assistance)
Self Building
(In-house Development)
⚫Most packages are not only too
complicated, heavy, and expensive,
⚫ But also inappropriate to the developing
countries in intermediary level.
⚫ Unnecessary functions are included.
⚫ Hard to solve the issues instantly when
problem occurs.
⚫ External system developers usually
want to make a profit as much as
possible.
⚫ It leads to huge quality issues such as
- Not to meet requirements
- Incompletion
- Insufficient performances
- Inextensible structure
⚫ Self-builders can achieve and
accumulate related knowledge and
know-how.
⚫ Self-builders also can easily extend
their business areas based upon
increased capability and sophisticated
software asset.
⚫ It can be optimized for the retail
payment systems currently in need.
Comparison of IT System Development Types
Joint Development of IT System
Process of Joint Development
Requirement
AnalysisDesign Implementation
Integration
& TestGo live
▪ The partners of Lao will have the same effect with in-house development through Joint-
development.
- How : Organizing of a joint development team
- Where : Korea & Lao
The staffs of Lao will participate in all the processes.
The Lao partners will acquire the ability to develop, operate, and maintain the
system by itself.
Focus on Capacity Building
Why ?
▪ It is impossible to establish, operate, maintain, and regulate the national payment system
without trained staffs.
▪ Thus, human resources and their experiences are much more important than H/W & S/W.
Long term partnership
Let’s make a history together !
ⓒ 2010-2014 Korea Financial Telecommunications & Clearings Institute. All rights reserved.
Contact information
Sang Seung Oh (Sam Oh)
Principal Consultant / Head
Global Business Team
