National Payment System Secretariat (NPSS)

1. NPSS MISSION AND OBJECTIVES

In February 1998, the Bank of Uganda embarked on a systematic and deliberate process of modernising Uganda’s payment system. To this end, a National Payment System Secretariat (NPSS) was set up to spearhead the reform and development of the country’s payment system.

This brief report summarises the developments and state of affairs of the National Payment System Secretariat as at the end of September 2002.

The NPSS Mission is the development of an effective, efficient, reliable and secure payment system for Uganda, with the following as fundamental features of the system:

• Adequate legal infrastructure to regulate the payment and settlement activities
• A variety of debit and credit payment instruments, and appropriate payment technologies (e.g. ATMs) that can adequately support the efficient discharge of payment obligations
• Sufficient risk management measures and techniques to cater for the different risk profiles in the payment system.
• A strong and widely accessible institutional framework to take cost-effective payment services to the people. Institutions in or supportive of the payment system include banks, Post Bank, factors, credit rating bureaus and other financial and non-financial actors.
• Adequate communication and energy infrastructure that can effectively and efficiently support modern payment system activities
• Suitable technical processes and solutions (e.g. for both hardware and software) that are most appropriate to Uganda
• Wide stakeholder acceptability, ownership and legitimacy of the payment system solutions
• An important and significant role for the private sector in the provision of competitively priced, suitable and widely accessible payment services, whenever possible and prudent.

2. STRATEGIC APPROACH TO PAYMENT SYSTEM DEVELOPMENT

Consistent with the project vision, the Bank of Uganda has adopted a strategic and collaborative approach to develop the country’s payment system. The basic tenets of the approach include:

• A holistic approach to the analysis of the existing system, determination of the present strengths, weaknesses and challenges
• Development of appropriate strategies to enhance the efficiency and strengthen risk management in the country’s payment system
• A collaborative approach with the different stakeholders in the payment system process

2.1 Advantages of Strategic Approach

The strategic approach;

• broadens the ownership and promotes the legitimacy of the payment system development process
• expedites the implementation of payment projects as unnecessary misunderstandings are minimised
• weeds out unrealistic and unviable ideas at an early stage, thereby freeing scarce intellectual and financial resources to focus on potentially more useful work

3. INSTITUTIONAL FRAMEWORK FOR PAYMENT SYSTEM DEVELOPMENT

There is an institutional framework within which the National Payment System (NPS) project is executed. The institutions include:

• National Payment System Council (NPSC)

Drawn from different payment system stakeholders, this is the highest policy making body on all matters pertaining to Uganda's payment system reform and development. The NPSC is chaired by the Governor, with the Deputy Governor as the alternate Chairman.

• National Strategy Team (NST)

The National Strategy Team (NST) is the technical arm of the NPSC. Its membership is drawn from the different stakeholders. The NST has been decomposed into three constituent committees; Operations, Technology & Standards, and Legal and Regulatory Committees

• Payment System Policy Committee (PSPC)

The PSPC is a Bank of Uganda internal committee that is charged with overseeing and tendering advice on matters related to payment system activities. Like the NPSC, the PSPC is chaired by the Governor, with the Deputy Governor as Vice Chairman.

• National Payment System Secretariat (NPSS)

The NPSS is responsible for the administration of the National Payment System project activities. It also serves as secretary during the NPSC, PSPC and NST deliberations. The NPSS also works closely with Uganda Bankers’ Association (UBA) on matters related to payment system development.

• Regional and International Institutions

With a view to developing a payment system that is in consonance with international standards and a facilitator of regional economic integration, the NPSS has liaised and coordinated with a number of regional and international bodies on payment system development issues.

Among them are the East African Payment System Harmonisation Committee (EAPSHC), which is a sub committee of the Monetary Affairs Committee (MAC) of the East African Community (EAC), International Standards Organisation (ISO), Bank for International Settlements (BIS), German Technical and Development Agencies (GTZ & KFW), and Association of Payment and Clearing Services (APACS) of the United Kingdom.

4.1 Major Payment System Projects Undertaken And Completed

Since its inception, the NPSS has undertaken and accomplished several major projects, including the following:

1. Payment System Stocktaking and Situational Analysis Survey

In 1998, the NPSS carried out a survey to establish the strengths, inadequacies and challenges of the country’s payment system. Among others, the survey findings revealed a payment system with a narrow payment instrument base, low utilisation of basic payment technologies, manual clearing and settlement processes, inadequate legal framework, inadequate or unreliable infrastructure, a paucity of sound risk management measures and low levels of knowledge on payment system issues. Details of the report are available on the website.

2. Strategic Plan

Based on the findings of the stocktaking survey, a Vision and Strategic Framework to develop the country’s payment system was developed. Details are available on the website.

3. National Cheque Standard

In order to strengthen risk management and improve efficiency in cheque clearing, the NPSS developed a National Cheque Standard, which spells out the basic security, physical and codeline features of cheques issued in Uganda. All cheques issues in Uganda must conform to the standard. Details of the standard are available on the website.

4. Electronic Clearing System (ECS)

In May 2002, an Electronic Clearing System (ECS) to automate both cheque processing and clearing was implemented. The system, which has both debit and credit clearing functionality, has been operating smoothly since implementation.

Banks deliver electronic cheque data to the clearing house which is then verified, scanned for viruses and processed to derive net financial obligations for each bank. Thereafter, the ECS system prepares electronic inward clearing files, which are then secured by a file authentication system (FAS) before dispatch to the clearing banks.

5. Payment System Sensitisation

Owing to the low level of knowledge on payment system issues, the NPSS has been carrying out payment system sensitisation seminars since 1998. Areas covered include payment system concepts and processes, an evaluation of the strengths and weaknesses of the different payment instruments, risk management, quality review of the country’s payment system strategic plan and the operation of electronic clearing systems.

6. MICR-based Cheque Clearing

Bank of Uganda has implemented an internal system that facilitates MICR-based data capture and electronic cheque processing for both outward and inward clearing.

4.2 Ongoing Payment System Projects

Several payment system projects in the areas of payment instrument diversification, risk management, payment system oversight and legal and regulatory framework are under implementation.

1. Electronic Fund Transfer (EFT)

As already noted, Uganda’s payment transactions are primarily conducted in cash, with cheque usage a distant second. Bank of Uganda, in close collaboration with commercial banks, is currently implementing an Electronic Fund Transfer (EFT) project, in which direct debits and credit transfers will be used.

2. Payment System Legal Review

In 1999 and 2000, Bank of Uganda, together with other stakeholders, including commercial banks, Government, private sector organisations and the Law Reform Commission, reviewed the adequacy of the payment system legal and regulatory framework and made some recommendations.

A team of consultants has been contracted to assess the adequacy of the current laws, review the stakeholders’ proposed recommendations and draft legislation that can adequately regulate the payment system activities in the country. Draft laws have been submitted and are being reviewed before submission to the appropriate authorities for enactment.

3. Payment System Oversight

Details of overseeing the payment system with a view to monitoring the efficiency and risk management trends in the country have been finalised. Data on different payment system aspects will be periodically collected, collated, analysed, interpreted and corrective action invoked whenever deemed necessary. Implementation of a structured payment system oversight regime is expected to enhance efficiency and strengthen risk management in the payment system.

4. Real Time Gross Settlement (RTGS) System (Large Value Transfer System)

In line with the Bank’s objective of building an efficient, safe, reliable and convenient payment system, Bank of Uganda is currently developing an implementation plan for a large value transfer Real Time Gross Settlement System (RTGS). Large value payments will be settled in real time and on gross (individual) basis.

5. Failure to Settle Rules

Failure to Settle Rules spell out specific actions that are undertaken in the event of a clearing bank’s inability to meet its net clearing obligations out of balances on its settlement account. A Failure to Settle Rules document has been drafted and is being reviewed. The draft rules comply with the Core Principles for Systemically Important Payment Systems (CPSIS).

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