Author: Mark Chirwa – Assistant Research & Publications Officer – PAYZ
The Vital Role Payment Systems Play
Payment systems play a vital role in the smooth-running of an economy, especially that every economic transaction involves a payment of some sort to be made. From purchasing a sweet in a shop, buying electricity units, water, school fees, purchasing of fuel, commuting from home to work/school, government dismantling of arrears, social cash transfer disbursement to mention but a few. In short, part of our daily lives is supported by payment, hence, safe, and efficient payment systems become important for financial stability.
According to Bank of Zambia annual payments report 2022[i], Zambia’s national payment system (NPS) is made up of two systems -the Systemically Important Payment Systems (SIPS) and Non- Systemically Important Payment Systems (NSIPS). A SIPS is defined as a payment system which has the potential to trigger or transmit systemic disruptions. This includes systems that are the sole payment system in a jurisdiction or the principal system in terms of the aggregate value of payments, and systems that mainly handle time-critical, high-value payments or settle payments used to effect settlement in other FMIs. SIPS in Zambia include the BoZ operated Zambia Interbank Payment and Settlement System (ZIPSS) commonly referred to as the Real Time Gross Settlement System (RTGS), the Central Securities Depository (CSD) for Government securities, the CSD for bonds and shares at the Lusaka Securities Exchange (LuSE) and the systems operated by the Zambia Electronic Clearing House Limited (ZECHL), which include the Direct Debit and Credit Clearing (DDACC) and the Cheque Image Clearing System (CICS).
On the other hand, NSIPS are retail payment systems that do not have the potential to cause significant disruptions in the payments ecosystem. NSIPS include the National Financial Switch (NFS), systems for mobile money payments, remittances, Automated Teller Machines (ATMs) payments and Point of Sale (PoS) payments.
[i] Bank of Zambia Payments Annual Report 2022
Who Then Are The Players In The Payments Ecosystem
- 1-Customers/End user: You and I who access or use these platforms to complete a transaction. Mostly with an anticipation that the payment platform is safe and convenient.
- 2-Merchants/Retailer: These are the people selling the goods the people want to buy. For example, the leading retail stores such as Game, Shoprite etc
- 3-Payment Service Providers: These are companies that provide payment services. Such as MNO’s and Fintechs.
- 4-Banks and Non-Bank Financial institutions: These issue products such as debit cards for customers’ use.
- 5-Government: Government also plays a role in the ecosystem, for example Government makes payments to civil servants, to suppliers, to social welfare beneficiaries, these sorts of payments are usually described as high value payments also known as Government to persons (G2P). Citizens also make payments to government as well which is referred to as persons to Government payments (P2G).
- 6-Back-end service providers: These are not seen as they operate in the background. These provide services such as payments switching services and aggregation. For example, ZECHL who operate the NFS by providing switching for ATM’s and Mobile Payments.
- 7-Regulators: These are institutions with the mandate of regulating the ecosystem such as the Bank of Zambia, Securities Exchange Commission, ZICTA and Pensions Insurance Authority.
What Types Of Electronic Payments Are Available?
- 1-Real Time Gross Settlement System (RTGS) – This is operated by the Bank of Zambia and characterized as a high value (Amount transacted) payment platform.
- 2-Electronic Fund Transfer (EFT)
- 3-Automated Teller Machines (ATM)
- 4-Point of sale (POS)
- 5-Mobile Money – Characterized as the highest in terms of volumes (Number of transactions).
- 6-Money transfer (remittances) – These ranks second in volume of transactions.
- 7-Quick Response (QR) codes
- 8-Near Field Connection (NFC)
- 9-Internet Banking
- 10-Virtual Cards
As of December 2022, the RTGS Platform has continued to be the number one payment platform for high value (Amount) transactions processed, seconded by the Electronic Fund Transfer (EFT) this has made the Systemically Important Payment Systems (SIPS) to be the number one system of choice for high value transactions.
With regards to volumes of transactions processed, Mobile money transactions are currently dominating followed by Money transfers transactions (remittances) and POS. This is largely attributed to the increased number of active mobile money wallets, currently above 11 million users (Boz 2022). In terms of volumes of transactions, this makes the Non- Systemically Important Payment Systems (NSIPS) number one system in volumes transacted. This is largely attributed to the increased use and adoption of Digital Financial Services (DFS) by the population.