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INTRODUCING GOVERNMENT PAYMENTS IN THE NATIONAL PAYMENT SYSTEM

World Bank, Washington May 31, 2007. INTRODUCING GOVERNMENT PAYMENTS IN THE NATIONAL PAYMENT SYSTEM. Ferdinando Sasso Banca d’Italia - Treasury Liaison Dept. ferdinando.sasso@bancaditalia . it. Public individuals corporations. Government central administrations

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INTRODUCING GOVERNMENT PAYMENTS IN THE NATIONAL PAYMENT SYSTEM

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  1. World Bank, Washington May 31, 2007 INTRODUCING GOVERNMENT PAYMENTS IN THE NATIONAL PAYMENT SYSTEM Ferdinando Sasso Banca d’Italia - Treasury Liaison Dept. ferdinando.sasso@bancaditalia.it

  2. Public individuals corporations Government central administrations local administrations (regions, municipalities, provinces) social security institutions INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM Governmentpayments: domain Transfer of funds between: - salaries and pensions - taxes and social contributions - benefits transfers - purchases of goods and services - payments for government investments Retail payments Large-value payments

  3. Government payments: processes Citizens / Businesses INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM Information / Invoices / public services Government / Public Admin. Arrangements for the exchange of payment orders and information Payment instruments Central bank/ Commercial bank Financial intermediaries (banks, post offices) Clearing and settlement arrangements

  4. Government payments processes: activities involved INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM Administrative procedures • internal PA expenditure procedures for payment authorisation • transmission of orders of payment to central/commercial bank • reporting to administrative control bodies Commercial procedures • Trasmission of invoices by businesses to PA Payment processes • Interbank clearing and settlement arrangements • Payment instruments and procedures

  5. Government payments: some peculiarities INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM Some peculiarities of government payments • Regulatory framework may differ from that applied to “private” payments and may hinder the adoption of ICT-based solutions in administrative and payment processes • Administrative procedures for authorising payments may require interaction among different public bodies (e.g., centralised ex-ante control on expenditures by Ministry of Finance) • Reporting procedures for control purposes and for public accounts • Execution of payments may be conditional on administrative information highly information-intensive processes that, in many countries, must be managed in compliance with formal administrative rules

  6. Introducing government payments in payment systems INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM • Adoption of the same standards used in the national payments system • Processing government payments through interbank clearing and settlement system • Executing payments to/from Public Administrations by “standard” payment instruments used in the payments system This requires: • Regulatory framework not hindering the adoption of ICT-based solutions in payment processes and the use of instruments other than cash • Adequate ICT diffusion in Public Administrations (e.g., availability of a P.A. telematic network)

  7. Government payments in payment systems: BENEFITS INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM • Efficiency of government payments • Scale economies in payments system • Liquidity provision to commercial banks in RTGS systems • Wider use of instruments other than cash • New payment solutions ad hoc for public payments

  8. Gov. payments in payment systems: NEW PAYMENT SOLUTIONS INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM • New payment solutions for public services (health cards, payments for transportation via mobile phone) • Provision of public e-services via interactive portals by integrating payment and administrative procedures • Government procurement cards • Pre-paid cards for non-bancarised recipients of Gov. transfers

  9. Gov. payments in paym. systems: PROMOTION OF BANCARISATION INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM Possible measures: • Obligation to pay salaries and pensions higher than a certain amount by crediting bank accounts • Measures to limit the cost of current accounts for low-income beneficiaries of government benefits (e.g. special accounts with operational limits, fiscal incentives, initial Gov. contribution)

  10. Position of Public Administrations (PA) in payment systems: PECULIARITIES INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM • PA are heavy users of payment services and may be coordinated more easily than other end-user sectors, thereby providing a “critical mass” • PA interact with all sectors of population (in particular with non bancarised sectors) • PA may be available to act as “first mover” in the presence of coordination failures • By adopting advanced payment instruments/solutions, PA may positively affect citizens’ confidence in such instruments

  11. The role of PA in SEPA (Single Euro Payments Area) INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM SEPA is an area in which all economic actors will be able to make and receive payments in euro, whether between or within national boundaries, under the same basic conditions, rights and obligations, regardless of their location SEPA consists, inter alia, of: • a single set of euro payment instruments; • common technical standards and business practices; • a harmonized legal basis Public Administrations invited to act as first movers to SEPA: the “critical mass” provided by government payments can Promote the diffusion of SEPA standards among end-users

  12. SEPA: Implications for Public Administrations INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM • Competition in the market for payment services • Geographical reach (payments in euro area also through retail procedures) • Benefits from Internet technologies • Possibility of integrating government payments with e-invoicing and e-reconciliation • Opportunity for PA to further revise and integrate administrative and payment processes

  13. Integration in Gov. Payments processes: trends e-GOVERNMENT e-COMMERCE RETAIL PAYMENTS INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM. GOVERNMENT PAYMENTS

  14. Public Sector in Italy: scenario INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM • Central administrations • 25 state administrations and constitutional bodies • 171 other central administrations • Local administrations • 22 Regions • 8.100 Municipalities • 100 Provinces • 319 Producers of health services • Social security institutions • 27 institutions • Overall, almost 10,000 institutions

  15. Public Sector in Italy: Central Government payments processes Central Government Spending Ministries Welfare Education Health Commercial banks Ministry of Economy BANK OF ITALY TREASURY SERVICE Payment processes Administrative procedures Reporting flows INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM Citizens Businesses Information / public services/ invoices payment instruments Clearing and settlement arrangements State Audit Office

  16. The Italian case: Telematic State Teasury System BANK OF ITALY TREASURY SERVICE INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM STATE AUDIT OFFICE STATE MINISTRIES BANKS POST OFFICES Central Administrations Network (implemented in 2000) National Interbank Network (RNI) STATE PERIPHERAL BODIES Regional network Regional network CLEARING AND SETTLEMENT SYSTEMS MUNICIPALITIES Provinces MUNICIPALITIES REGION Presently being Implemented

  17. Reform of Italian Central Government payments:Computerised System for P.A. Payments (SIPA) INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM. • Expenditure procedures and payments processes handled in a fully automated way through the PA network and the interbank network • Government payments fully integrated in payment systems • Integration between administrative procedures and payment processes • Sharp reduction in payments execution time SIPA promoted as of 2001. At end 2006, more than 90% of Central Administrations’ payments were processed through SIPA

  18. The Italian case: Local Government payments Commercial banks INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM Citizens Businesses Municipality of Rome Information / public services/ invoices Ministry of Economy payment instruments Commercial bank (treasurer bank) Clearing and settlement arrangements Payment processes Administrative procedures Reporting flows

  19. The Italian case: Reform of Local Government payments and promotion of ICT INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM • Low diffusion of ICT at local government bodies: relationships with banking system based either on paper-based procedures or non-standardised electronic procedures • Low competition among banks in the provision of treasury services to local administrations • Local bodies should play - in coherence with federalism and e-Government plan - an important role in the provision of public services to citizens and businesses • By interacting with citizens and businesses, Local Government bodies may play a role in promotion of use of ICT and internet-based payment methods

  20. The Italian case: Local Government payments INITIATIVES INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM. • Impulse to use of electronic procedures in the relations between banks and local bodies as a way to foster local bodies to use ICT • Banca d’Italia urged the banking system to define a common standard for the local bodies payments based on digital signature • Advantages of standardised local administrations’ payment orders • fully telematic treasury management by local public bodies • competition in banking services to local bodies • automated collection of data on public finance • impulse to a wider adoption of digital signature

  21. Local Government payments INITIATIVES: SIOPE (Information System on Public Institutions Payments) INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM • Ministry of Finance (MoF) owner of SIOPE; Banca d’Italia manages SIOPE on behalf of MoF • “Uniform code” for payments and revenues to be specified in government payments • Obligation for banks and State Treasury not to execute public payments lacking the “uniform code”; • Public bodies’ treasurer banks daily send information on payments to Banca d’Italia through Interbank Network;

  22. The Italian case: SIOPE flow INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM Payment orders and collections REGIONS, MUNICIPALITIES, PRODUCERS OF HEALTH SERVICES, OTHER BODIES TREASURERS BANKS/POST OFFICES Information System on public bodies operations (BANCA D’ITALIA) Reporting Payment orders STATE SECTOR STATE TREASURY BANCA D’ITALIA Other users Ministry of ECONOMY Reporting

  23. The Italian case: further developments INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM • Digital Administration Code • PAs must accept citizens’ payments by telematic procedures and instruments • Generalised use of electronic payment instrumentsby PAs • Promotion of interactive portals for the provision of integrated public e-services • Obligation for businesses to pay taxes through telematic procedures (since end-2006)

  24. Conclusions INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM • Reforms of Government payments are part of the efforts of modernisation of Public administrations under way in all countries and therefore must be co-ordinated with e-Government initiatives • A reform of Government payments may generate relevant benefits for all stakeholders in terms of higher efficiency and new payment instruments/solutions also directed to non-bancarised sectors of population • The Public sector - through its interaction with citizens/businesses in executing/reciening payments - may contribute to public policy objectives in the area of retail payments systems

  25. INTRODUCING PUBLIC PAYMENTS IN THE NATIONAL PAYMENT SYSTEM THANK YOU FOR YOUR ATTENTION FERDINANDO SASSO ferdinando.sasso@bancaditalia.it

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