Scheme Rules in Fast Payments | A

FOCUS NOTE

SCHEME RULES IN
FAST PAYMENTS
Part of the World Bank Fast Payments Toolkit

FEBRUARY 2022
B | Fast Payment Systems: Preliminary Analysis of Global Developments

FINANCE, COMPETITIVENESS & INNOVATION GLOBAL PRACTICE

Payment Systems Development Group

© 2022 International Bank for Reconstruction and Development / The World Bank
1818 H Street NW
Washington DC 20433
Telephone: 202-473-1000
Internet: www.worldbank.org

This volume is a product of the staff of the World Bank. The findings, interpretations, and conclusions expressed in this
volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent.

The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations,
and other information shown on any map in this work do not imply any judgment on the part of the World Bank
concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

RIGHTS AND PERMISSIONS

The material in this publication is subject to copyright. Because the World Bank encourages dissemination of their
knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution
is given.
CONTENTS

1. SETTING THE CONTEXT   3

2. BACKGROUND  4
3. COMPONENTS OF FPS SCHEME RULES   6
Participant Management  7
3.1.1. Participation Frameworks  7
3.1.2. Objective of Participant Management in Scheme Rules   8
3.1.3. Scheme Rules for Managing Scheme Participants   9
Compliance and Guidelines   11
3.1.4. Objectives of Compliance Frameworks   11
3.1.5. Scheme Rules for Compliance Frameworks and Guidelines   12
Operation  14
3.1.6. Objective of Operational Guidelines   14
3.1.7. Scheme Rule for Operations   15
Fees and Charges   18
3.1.8. Objectives of Pricing   18
3.1.9. Scheme Rule for Fees and Charges   18
Technology  19
3.1.10. Objective of Technology Framework   19
3.1.11. Technology Framework  20
Marketing and Branding Guidelines   22
3.1.12. Objectives of Marketing and Branding Guidelines   23
3.1.13. Marketing and Branding Framework   23
4. KEY TAKEAWAYS FROM COMPARATIVE ANALYSIS OF FPS AND OTHER
PAYMENT SCHEMES  24
5. ISSUES AND POTENTIAL TRIGGERS FOR REVIEWING FAST PAYMENT SCHEME RULES   26
Objective of Scheme Rule Review   26
6. FAST PAYMENT SCHEME GOVERNANCE   28
How to Structure Scheme Governance   28
6.1.1. Introduction  28
6.1.2. Components of the Fast Payment Governance Charter   28
6.1.3. Governance Models for Fast Payments   29
6.1.4. Parameters for Defining Scheme Governance for FPS   29
6.1.5. Key Components of an Indicative Governance Structure for an FPS Governing Entity   30
6.1.6. Select Case Studies of Governance Structures of Fast Payment Schemes   31
Implications of Separating Scheme Governance from the Operation of the Payment System  32
7. CONCLUSION  34
8. ACKNOWLEDGMENTS  35

| 1
2 | Scheme Rules in Fast Payments

APPENDIXES  36
APPENDIX A: Participant Management  36
APPENDIX B: Compliance and Guidelines   39
APPENDIX C: Operations  42
APPENDIX D: Fees and Charges   46
APPENDIX E: Technology  48
APPENDIX F: Marketing and Branding Guidelines   50

2 |
1 SETTING THE CONTEXT

The World Bank has been monitoring closely the development of fast payment
systems (FPS) by central banks and private players across the globe.1 This com-
prehensive study has resulted in a policy toolkit. The toolkit was designed to
guide countries and regions on the likely alternatives and models that could
assist them in their policy and implementation choices when they embark on
their FPS journeys. Work on the FPS Toolkit work was supported by the Bill and
Melinda Gates Foundation. The toolkit can be found at fastpayments.world-
bank.org and consists of the following components:

• The main report Considerations and Lessons for the Development and
Implementation of Fast Payment Systems

• Case studies of countries that have already implemented fast payments

• A set of short focus notes on specific technical topics related to fast payments

This note is part of the third component of the toolkit and aims to provide
inputs and guidance to policymakers on fast payment scheme rules, including
regulatory implications, and scheme governance. As fast payments continue
to mature in markets, it is important for country authorities seeking to intro-
duce/foster fast payments in their jurisdiction to grasp the components and
key focus areas for setting them up.

| 3
 2 BACKGROUND

The demand for fast payments has been increasing expo- phy-specific rules and regulations brings variation and
nentially and it is reflected in the accelerating rate of new uniqueness to each implementation.
implementations across regions. Every country with differ- Every scheme has its own set of unique rules, applica-
ent conditions and challenges has its own unique scope, ble to all scheme participants. These rules specify the mini-
implementation time, features and services, schemes, and mum requirement framework applicable to all members for
systems. Increased mobile penetration and the expansion operating while upholding the safety, security, soundness,
of internet connectivity have significantly reduced the asso- integrity, and interoperability of the FPS. Scheme rules are
ciated costs for end users and payment service providers defined and modified by schemes to support the use and
(PSPs), thereby improving the viability of fast payment sys- advancement of services.
tems (FPS). As fast payment services evolve and integrate Several factors need to be considered while defining
with new-age initiatives, the need for a well-defined set of scheme rules for an FPS. These range from the way different
scheme rules for future implementations grows. participants interact and the messaging formats they use
In most cases, an FPS designed and developed by an to communicate to the type of transactions that would be
individual central bank/operator has its own scheme rules. offered to customers and the settlement between the differ-
Scheme rules define the way the system will operate and ent participants.
the behavior and interaction of participants. Scheme rules
are defined to minimize risks, maintain integrity, and pro-
KEY OBJECTIVES OF DEFINING SCHEME RULES
vide customers with a seamless, common, convenient,
secure, and reliable payment experience. Framing rules, Since scheme rules specifically govern the constitution and
standards, and guidelines with certain degrees of flexibil- administration of a particular scheme, it is important that
ity helps make implementation and subsequent upgrades they are set holistically. Well-defined scheme rules ensure
easy for participants. For example, to facilitate interoper- that the roles, processes, and responsibilities to be adopted
ability, scheme rules could define a high-level framework are upheld by all stakeholders involved. This will help cre-
that bridges differences across solutions and addresses only ate a well-balanced payment ecosystem. Scheme rules are
those areas that are essential for interoperability. Defining standardized guidelines that provide predictability and clar-
scheme rules with consideration for supporting geogra- ity to participants on all facets of the fast payment scheme,

4 |
 Scheme Rules in Fast Payments | 5

including compliance, participant management, and tech- • Defining the scope of interoperability with other pay-
nology. Below are objectives of defining scheme rules: ment schemes and enhancing the fast payment scheme
• Standardizing processes and methodologies framework

• Increasing organizational integrity and transparency • Promoting uniform end-user experience

• Complying with industry standards and laws • Upholding the value of scheme branding and marketing

• Enhancing security and fraud-management practices

3 COMPONENTS OF FAST PAYMENT SCHEME RULES

FIGURE 1 Key Components of Scheme Rules

Participant management Compliance and guidelines Operations

Fees and charges Technology Marketing and branding

6 |
 Scheme Rules in Fast Payments | 7

TABLE 1 Scheme Rules around Components

KEY COMPONENT SCHEME RULE SUBAREAS

Participant management Membership guidelines • Membership onboarding
• Membership eligibility requirements
• Rights and duties of scheme participants
• Suspension and termination
Compliance and Regulatory compliance and • Mandatory compliance framework
guidelines industry certifications • Framework for redress for scheme noncompliance
• Mandatory industry certifications
Risk management and • Internal controls
mitigation • Member restrictions
• Fraud-risk-management policy
Operations Reconciliation and settlement • Settlement framework
• Reporting
Dispute management • Dispute-resolution framework
• End-customer transactional disputes
Monitoring • Transaction monitoring
• Fraud checks and related monitoring
Fees and charges Scheme fees • Onboarding fee structure
• Cost of scheme participation
Transaction fees • Switching fee
• Interparty fees
Others • Noncompliance charges: noncompliance assessment
(process and technology)
• Financial penalty
Technology Messaging mode and • Mode of communication/messaging protocol
communication standard • Message standards
• Transaction type
Technical infrastructure and • Technical infrastructure
contingency standards • Contingency standards
Security protocols • Data encryption
• Identity and account validation
• Message security
• Protecting authentication credentials
Marketing and branding Payment scheme brand • Fast payment scheme framework for branding and marketing
guidelines guidelines
• Fast payment scheme guidelines for other branding and marketing

PARTICIPANT MANAGEMENT technology companies, wallet players, telecom companies,

and e-commerce players. PSPs that enable the last-mile
Major payment schemes around the world have focused delivery of fast payments to end users can be segregated
their frameworks for participant management on inclu- as given below.
siveness, transparency, and predictability. These rules help
in streamlining participant admission and provide a frame- TABLE 2 Types of Institutions
work for continuous scheme participation. Various payment
BANKS NON-BANK PSPs
schemes follow a set of requirements for granting access to
their payment systems. These rules might apply to a specific Authorized deposit-taking Organizations that typically play
institutions that can the role of a technology enabler
jurisdiction as defined in the scheme rule book.
play various roles in the in the payment scheme, such
payment scheme, such as overlay service providers,
3.1.1 Participation Frameworks as settling participants, but their role can be extended
connected participants, and to roles performed by bank
Payment schemes have historically restricted scheme mem-
participants that have direct PSPs as well—for example,
bership to traditional financial institutions. As payment sys- connection to the scheme technology companies,
tems have evolved, payment schemes have expanded their and can settle transactions wallet players, and telecom
ambit to include as active participants such new players as as well companies.
8 | Scheme Rules in Fast Payments

In addition to the above segregation, the payment scheme can also provide various participation options to its potential
members as below.

TABLE 3 Participation Options

DIRECT THIRD-PARTY
PARTICIPANTS INDIRECT PARTICIPANTS OVERLAY SERVICES AGGREGATORS INITIATION SERVICES
Scheme Schemes also allow indirect Digital overlay Aggregators are Third-party service providers
members who participation, wherein nonmembers services are built typically fintech now have the capability
can access can use the scheme’s core payment on top of the FPS companies but can to connect with the bank/
the scheme’s infrastructure via a direct member infrastructure that be PSPs as well. They PSP’s architecture via
core payment for settlement and connectivity adds value to the combine access application programming
infrastructure to the scheme. Some indirect core payment rail. demands from various interfaces (APIs) to initiate
directly and have participation arrangements require These services can PSPs to provide secure payments beyond
the right to settle the indirect participant to have a enable the settlement direct access to the the banking/PSP application.
transactions. direct agreement with the scheme of transactions or FPS infrastructure. Such providers are known
Also, direct owner detailing the scope of provide ancillary The unique selling as payment initiation service
members have participation of the nonmember. In payment services. proposition for providers and are governed
an explicit direct other cases, the direct participant Some examples aggregators is that they by open-banking regulations
membership is required only to intimate to the of real-life overlay guarantee the same in addition to the specific
agreement with scheme owner about the indirect services are Phone service-level agreement payment scheme regulation
the scheme arrangement, or it is required of the Pay in India, Zelle (SLA) related to FPS that is triggered after
owner. indirect member to get a sign-off in the United States direct participation payment initiation, such as
from the direct member as well as and Osko by BPay in but at a lower per- the presence of consent IDs
the scheme owner. Australia. transaction cost. in the payload.

Below is an indicative participation framework that explains the high-level participation criteria to access fast payment
schemes and certain variations in FPS participation agreements.

TABLE 4 High-Level Indicative Participation Framework

PARTICIPATION CRITERIA VARIATION IN PARTICIPATION AGREEMENTS

• Allow participants access to the scheme based on available access options • Direct versus indirect participation: In addition
and the eligibility of the institution to take advantage of the option. Some fast to direct scheme members, allow other
payment schemes can mandate the inclusion of only authorized deposit-taking institutions to participate via direct members.
institutions and other authorized/licensed non-bank PSPs as directly connecting • Participation agreements based on roles:
and settlement participants/third party initiators—although non-bank PSPs might Some direct members can have varied roles.
need to designate a settlement agent. For example, a scheme can have different
• Fulfill the financial eligibility criteria of the scheme. agreements for settling participants and
• Organizational overview and company description, including such factors as the participants that have direct connection only
name of senior officers, external auditor details, details of material shareholders, to the scheme members.
and the legal structure of the organization.

3.1.2 Objective of Participant Management in Scheme Rules

FIGURE 2 Objectives of Participant Management in Scheme Rules

Value Proposition
Participant management rules provide transparency and predictability
to existing and proposed members

Participation Arrangements Safeguarding Scheme Security

Encourages for wider scheme participation These frameworks are defined by payment
and provides a framework for scheme schemes to safeguard the stability, security
enhancement and expansion and the resiliency of the overall scheme
 Scheme Rules in Fast Payments | 9

3.1.3 Scheme Rules for Managing Scheme Participants

FIGURE 3 Managing Scheme Participants

Membership eligibility Rights and duties of Suspension and

Member onboarding
requirements scheme participants termination

3.1.3.1 Member Onboarding FIGURE 4 Member Onboarding Elements

A proposed member is evaluated against the eligibility crite-
ria defined in the scheme rule book before being admitted
to the fast payment scheme. On meeting the eligibility cri-
teria, proposed members are required to complete various Appeal Type of
process partcipation
formalities, such as account opening and paying one-time
joining fees.
The scheme can lay out the eligibility criteria to admit
only certain types of participants. This is vetted as an eligi- Decision from Jurisdiction
bility criterion by the scheme during member onboarding. scheme Member
The various types of participants in fast payment schemes Onboarding
around the world are banks and non-banks, such as e-money
issuers, telecom operators, technology companies, and fin-
Membership Settlement
tech companies.
application conditions
Based on the region in which the scheme intends to
operate, the jurisdiction is mentioned in the scheme rules, Joining fees
which, in turn, will require prospective participants to be
able to do business in a particular geography mentioned in
the scheme rule book.
Based on the settlement conditions employed by the
scheme, it can allow the participants to hold a settlement
3.1.3.2 Membership Eligibility Requirements
account with another scheme or utilize the group’s account
Upon receiving an application from a prospective scheme
to settle transactions. This would be based on the participa-
participant, the scheme would conduct a thorough assess-
tion arrangement that the member has with the scheme or, in
ment of the application and the supporting documents
the case of tiered participation agreements, with other par-
against the eligibility criteria listed in the scheme rule book.
ticipants.
The initial assessment of the scheme participant can also
The scheme typically establishes a nondiscriminatory
be succeeded by a second-level assessment by the scheme
one-time joining fee to be paid at the time of the mem-
that can include the assessment of such factors as the orga-
bership.
nization’s readiness to connect with the FPS infrastructure.
In various fast payment schemes, a prospective partici-
Below are some eligibility requirements sought of scheme
pant might be required to submit the membership applica-
members by the payment scheme:
tion in the mode preferred by the scheme (online/offline).
The application must provide sufficient details about the • General compliance attestation: A document signed by
company and justification for the scheme to assess the com- senior officials of the applicant stating that the organiza-
petency of the incumbent. From the participant’s end, the tion can comply with all rights and duties mentioned in
member application needs to be signed and vetted by com- the scheme rule book and all relevant laws external to the
petent and authorized officials. scheme, such as being in good standing with external
The scheme communicates its decision on whether regulatory authorities, including the central bank of the
the application of the proposed member was accepted or country.
rejected within a stipulated time period. • Financial soundness: The scheme can require applicants
In case of rejection, the applicant may have recourse to to provide financial statements for a specified period
an elaborate appeal process at which it can present its case that can provide insight into the financial standing of
and facts to contest the scheme decision. the organization. In addition, the scheme can require the
10 | Scheme Rules in Fast Payments

submission of a business plan that explains the intended • Scheme linkages with other regulatory bodies: From
commercial benefit that the applicant is expecting to time to time, participants must acknowledge that the
derive from the fast payment scheme. scheme will need to evaluate the performance and oper-
• Operation plan: The applicant must also provide the ations of the scheme members on the basis of various
scheme with the operational plan, detailing such param- regulations/rules established by regulatory authorities
eters as its incident-management plan, business-continu- external to the scheme—for example, sharing market
ity plan, and details of third-party service providers used competition data with authorities looking after fair mar-
by the applicant. The key intention here is to establish ket competition.
whether the participant’s business practices are sound • Scheme cooperation: Participants must cooperate and
and secure and will not harm the integrity, resilience, and exchange information with the scheme in a timely manner
security of the fast payment scheme. upon request by the scheme. Requests can be related to
payment processing, operations, expansion, and scheme
3.1.3.3 Rights and Duties of Scheme Participants enhancement.
Based on the guidelines set forth in the scheme participa- • Settlement: The participant must provide other partici-
tion rules, members are expected to behave in a certain pants with adequate settlement information and system
manner to have continued participation in the scheme. availability as defined in the scheme rule book.
Any deviation from the expected behavior can attract puni-
• Incident reporting: The participant must promptly report
tive action from the scheme in the form of warnings, fines,
any incidents related to unmitigated risks that might have
restrictions, and termination. An elaborate set of rights and
scheme-wide importance. Also, any major incidents that
duties are intimated to prospective participants during
might affect scheme operations, such as data-leakage
the member onboarding process but can be amended/
events, must be reported to the scheme.
changed—for example, amending the periodic review of
membership guidelines related to voluntary exit by amend- • Periodic review of membership: Every member in the
ing such parameters as exit fee and notice period. Below is scheme has the right to decide to continue/discontinue
an indicative set of rights and duties viewed across various its participation in the fast payment scheme. This deci-
fast payment schemes. sion can be based on multiple factors, such as the viabil-
ity of the business case presented earlier. Participants can
FIGURE 5 Rights and Duties of Scheme Participants choose either to continue or to terminate their scheme
membership as per guidelines in the scheme rules.

3.1.3.4 Suspension and Termination

Periodic In addition to the voluntary-exit scenarios discussed earlier,
Incident
review of exigencies are covered in the scheme rule book by rules
reporting
membership
and regulations related to forceful termination or temporary
suspension from the scheme. The key basis for terminating
a scheme membership is generally noncompliance with
Rights and Duties scheme guidelines, such as nonpayment of financial dues,
Scheme of Scheme
linkages Partcipants Co-operation but can also be mandates from external regulatory authori-
with other with ties, such as a ruling by a judicial authority. However, the ter-
regulatory scheme
mination of a scheme participant is a last resort, taken by the
bodies
scheme when the continued participation of a scheme mem-
ber would impair the efficiency and integrity of the payment
Settlement
scheme. Below are some of the parameters that govern a fast
payment scheme’s suspension and termination process.
 Scheme Rules in Fast Payments | 11

• Data retention: The fast payment scheme can describe The ambit for scheme compliance extends beyond the
how long the participant would be required to retain scheme and includes various guidelines/regulations that
data after the termination of the participant agree- are applicable to various payment schemes and the overall
ment. For example, FPS in the United Kingdom requires functioning of the industry. Such compliance structures
a defaulting participant to keep detailed records of its are overarching and need to be adhered to strictly by
activities related to its participation in the fast payment the scheme and its constituents—for example, Financial
scheme for at least six years after the termination of the Action Task Force (FATF) guidelines, company laws, and
participant agreement. data security.
• Appeals process: After the scheme decides to terminate Compliance with scheme rules acts as a first line of
a specific participant agreement, the defaulting mem- defense against any risks. Therefore, it is important for the
ber may present its case before the scheme or any com- scheme to evaluate and assess compliance guidelines con-
mittees formed by the payment scheme. The number of tinuously. The scheme must monitor its participants and
appeals available to scheme members would be explicitly identify those that have deviated from guidelines and pro-
mentioned in the FPS scheme rule book. cedures.
Schemes should adopt a standardized template with
• Implications of termination: Suspension and termina-
such details as requirement description, effective com-
tion do not preclude the defaulting member from hav-
pliance date, and categories such as operational integrity.
ing transactions settled through the FPS infrastructure.
Standardized templates make it easy to communicate man-
The defaulting institution can still enter into an agree-
datory compliance requirements to participants and to track
ment with another participant unless specified by the
compliance by scheme members.
scheme. From a financial perspective, the defaulting
member needs to adhere to its liability that may arise at 3.1.4 Objectives of Compliance Frameworks
any future time from any breach of the FPS regulations
Compliance frameworks are created by the scheme to
that occurred prior to or on the date of termination.
ensure that participant business does not impair the integ-
• Notification by scheme: The payment scheme will define rity, efficiency, resilience, and security of the fast payment
in its scheme rule book the stakeholders that would need scheme. A detailed compliance framework ensures that
to be notified upon the termination and suspension of participants can internally assess what is required of them
the scheme. Examples of notified stakeholders are the to comply with the framework. Below are the objectives of
central bank, the network service provider, other direct a payment scheme compliance framework.
scheme participants, and overlay service providers. As mentioned above, to achieve the objectives of scheme
compliance, the scheme needs to describe the high-level
parameters related to operationalizing the compliance
COMPLIANCE AND GUIDELINES
framework set forth in the scheme rule book. Below is an
A payment scheme continuously strives to assess if all indicative framework that describes the various compo-
its rules are unambiguous, complete, and enforceable. nents of a payment scheme compliance framework.

TABLE 5 Stages of Compliance

INTERNAL CONTROLS RISK MITIGATION MANDATORY COMPLIANCE

• Place the control mechanism • Minimize and mitigate • Certain scheme compliance rules require their participants to
within the scheme to the risk of systematic and get industry certifications benchmarked to global payment
identify, report, and idiosyncratic shocks to practices, with the aim of safeguarding the resilience of the
remediate deviance from the payment scheme and payment scheme
expected compliance subsequent impacts on • In addition to this, the scheme also obtains certifications for the
behavior promptly scheme participants scheme that help it benchmark its processes to international
standards and provide an extra layer of validation for
predefined frameworks
12 | Scheme Rules in Fast Payments

TABLE 6 High-Level Indicative Compliance Framework

IMPACT ASSESSMENT COMPLIANCE REQUIREMENTS COMPLIANCE ENFORCEMENT

Qualitative assessment A requirement set out or prospectively set Internal controls that a scheme has in place to
undertaken by the scheme to out that the scheme deems fit to be integral ensure enforcement of scheme rules. Also, specific
describe mandatory compliance to scheme performance, integrity, availability, procedures in place to deal with noncompliance
requirements related to its and resilience. In addition, schemes and remediation procedures. Below are some of the
technical risk, complexity, and provide an added impetus on periodic tools used by schemes to encourage compliance:
impact on scheme members. The assessment of the compliance framework • Independent compliance audits to check any
assessment of impacts is based to evaluate if the scheme is functioning in aspect of compliance
on measured impacts on the key line with objectives defined in the scheme’s • Optional guidance letters issued by the scheme
compliance pillars of the scheme. compliance framework, resulting in a process to provide participants with a chance to comply
Tools utilized by schemes to that includes gap identification, impact
• Non-compliance penalties levied by the scheme
assess impact are stress testing, assessment, mitigation framework, and
for infringement
heat maps, and so on. forming the final compliance requirements.

3.1.5 Scheme Rules for Compliance Frameworks and • Implementing, monitoring, and overseeing the regu-
Guidelines latory framework

3.1.5.1 Regulatory Compliance and Industry b) Framework for Handling Scheme Non-compliance

Certifications
Non-compliance-related disputes mentioned in the
Payment schemes and their members need to follow guide-
scheme rule book generally cover such areas as discrep-
lines and frameworks defined by the regulators and other
ancies in the participant admission process, financial lia-
agencies. The schemes are subject to various on-site and
bility/obligation due to be cleared by participants, and
off-site audits by the regulator to ensure compliance. The
breaches related to operational and technical guidelines.
schemes implement the following checks and balances to
Few payment schemes choose not to participate in
gain compliance:
transaction-related disputes and focus on regular moni-
• Self-assessment by the scheme of compliance with var- toring of participants to avoid any noncompliance with
ious overarching regulations under which the payment the scheme and regulatory guidelines.
scheme operates Payment schemes intervene in internal disputes relat-
• Creating technical workstreams in the scheme’s orga- ed to participants wherein a dispute or difference arises
nizational framework for compliance with regulatory for either of the following reasons:
requirements related to participation
• Any non-compliance with scheme constitution
• Highlighting issues that the scheme faced while comply-
• Any financial liability/obligation due to be cleared by
ing with various regulations
the participants
• During member onboarding or in due course, the
In addition to this, institutional processes, such as appel-
scheme mandates certain certifications to pursue the
late bodies, are established by the scheme to deal with
compliance objectives—for example, technology, secu-
various noncompliance issues—for example, the consti-
rity, data protection
tution of risk-management bodies within the payment
a) Mandatory Compliance Framework scheme ambit to deal with non-compliances related to
the risk-management policy of the fast payment scheme.
• Based on the compliance framework developed by
the payment scheme, participants baseline their pro- c) Mandatory Industry Certifications
cesses and requirements in relation to the scheme.
Certain certifications, provided by third-party institu-
The following are minimum features of the mandatory
tions, are used by payment schemes to attain a certain
compliance framework.
degree of confidence about the participant’s ability to
• Managing compliance against identified regulations comply, benchmarking to global standards and meeting
and continuously evaluating participants’ approaches scheme-level service-level agreements (SLAs). Such cer-
to taking reasonable precautions and exercising due tifications can be mandated during member onboard-
diligence ing or introduced by the scheme because of scheme
• Engaging with regulatory authorities in the event of enhancement, expansion, and reported breaches.
compliance breaches and handling participants’ rea-
sonable information requests
 Scheme Rules in Fast Payments | 13

FIGURE 6 FPS-Mandated Industry Certifications a) Internal Controls

A payment scheme must implement controls to assess
the effectiveness of its risk-management policies and
procedures. This would be useful in assessing the current
situation and provides a basis for future enhancements
Data Technical
and modifications. Internal controls exercised by pay-
security accreditation
ment schemes to monitor their risk-management frame-
work include the following:
Mandatory • Ensuring that the scheme has an appropriate risk-man-
Industry agement framework for the effective identification,
Certfications
assessment, reporting, and management of risks and
undertaking a periodic review of this framework
Business
continuity Application
certification
• Ensuring enforceability of mandated scheme rules
management
through internal and independent compliance pro-
grams
• Reviewing internal controls to ensure effectiveness
and efficiency
• Reviewing the effectiveness of the scheme’s systems
A scheme wants to attain the following objectives
for monitoring compliance with laws, regulations, and
while mandating certifications:
any actions taken by management in the event of
• Set of requirements intended to ensure that partic- noncompliance
ipants are in line with enhanced data-security stan-
• Monitoring and advising the board on the effective-
dards that ensure that customer and transaction data
ness of the scheme’s administrative policies, financial
are adequately protected (for example, PCI-DSS for
practices, and controls
the card industry)
• Ensures that the participant has adequate technical b) Member Restrictions
infrastructure to comply with scheme requirements A payment scheme’s participation requirements need to
with appropriate technical accreditation (for example, be fair and nondiscriminatory and should be tailor-made
technical accreditation by vendors identified by the to the scheme’s risk-management framework. However,
scheme during member onboarding) certain restrictions might be imposed on prospective
• Ensures that the customer-facing payment application members, based on certain risk-related criteria. Also, such
is certified in line with global benchmarks and con- restrictions can be imposed due to local laws and policies
forms to guidelines related to such parameters as per- enacted in the jurisdiction of the scheme’s operations.
formance (for example, certification of applications by Also, during the operation of the payment scheme,
the payment scheme baselined against specific tech- extra restrictions might be put on participants if the
nical and functional standards) scheme determines that a participant poses heightened
• Ability to resume critical operations during exigency risk to the scheme.
scenarios and provide assurance of availability, security, From a policy perspective, the scheme will reserve
and so on, in line with business-continuity-manage- the right to provide amendments to restrictions
ment standards (for example, business-continuity pro- imposed on participants based on predefined frame-
cedures and frameworks are baselined and approved works and triggers.
by the payment scheme)
c) Fraud-Risk-Management Policy
3.1.5.2 Risk Management and Mitigation The scheme’s overarching policies on fraud manage-
A payment scheme needs to identify, measure, and mitigate ment provide the overall framework that governs the
risks effectively to ensure that there is ample protection for identification of associated risks and their mitigants, the
the scheme and its constituents. management of fraud-related incidents, reporting, and
so on. Payment schemes typically have an independent
14 | Scheme Rules in Fast Payments

FIGURE 7 Fast Payment Risk Universe

• The probability of loss due to credit and liquidity • General business risks are the probability of losses
problems faced by large institution or several smaller that can arise in the normal course of administering
institutions that can have a knock-on effect for the the payment scheme like loss in revenues, growth
broader payment ecosystem. The probability of loss in expenses.
due to credit and liquidity problems faced institutions • A failure to manage business risks can lead to
that can have a knock-on effect on the broader disruption in scheme operations.
payment ecosystem.

• These are risks that arise out of

• The probability of loss due to the socio-
deficiencies in information systems,
economic conditions of the country Systemic Business internal processes, human errors.
has an impact on the regulatory risk risk • Can have varied impacts on the payment
environment and ease of doing
scheme like hampering the schemes
business in a region.
ability to carry out payment settlement
Country Operational for its participants.
risk Risk Universe: risk
Faster
• Faster payments schemes face Payment • Effects the legal enforcement
a heightened probability of loss Scheme of member agreements due to
Fraud Legal
due to large proportion fraudu- unexpected application of
risk risk
lent transactions. laws or regulations.
• Heightened risk of fraud can be
mitigated through technology and Liquidity Credit
policy interventions. risk risk

• This risk emanates due to participant • Fast payment scheme faces a low credit risk but
defaults which effect the ability of do monitor and face the risk of the participant’s
the scheme to continue settling payment ability to pay its due financial obligations.
flowing through the scheme.

standing committee on fraud management. The key OPERATION

responsibility of the committee is to advise and provide
recommendations to the scheme’s fraud-risk-manage- Operating rules and guidelines lay the foundation for partic-
ment policy. ipants to undertake day-to-day functioning of the payment
Key constituents of a fraud-risk-management frame- system. Payment schemes define comprehensive operating
work are the following: rules for participants to ensure efficient and transparent
operations. Geography-specific rules, depending on the
• Identifying associated risk in the payment system and its
coverage of the payment system, apply to the participants
mitigants
within the relevant geography.
• A communication and reporting process for the scheme The operational guidelines expand on the rules, provid-
and its participants for any identified fraud incident ing a complete operational framework to each participant
• Assigning the liability for fraud on relevant leak points on its routine roles and responsibilities and an overview of
clearing and settlement, dispute management, and fraud
• An elaborate framework for arbitration between stake-
monitoring and management.
holders and remediation
• Clearly defining the parameters of the scheme’s liability 3.1.6 Objective of Operational Guidelines
in the event of fraud A detailed operational framework ensures interoperability
• Overseeing the fraud-management techniques employ- among the participants and eases their day-to-day operation.
ed by scheme participants and reviewing them during Operating rules are open to change with new regulatory
audits norms and continuous risk assessment.
 Scheme Rules in Fast Payments | 15

FIGURE 8 Objectives of Operational Guidelines

Interoperable Smooth Implementation Train new

system day to day more transparent, participants
availability operations scalable & easily
efficient

FIGURE 9 Key Subareas of Operational Guidelines FIGURE 10 Settlement Framework Elements

Set Forth by Payment Schemes

Reconciliation Dispute
Monitoring Settlement Settlement
and settlement management
currency agency

3.1.7 Scheme Rule for Operations

Settlement file Settlement
To achieve the objectives of scheme operations, the scheme presentment
Settlement account
needs to describe the high-level indicative framework to type
Framework
operationalize the rules set forth in the scheme rule book.

3.1.7.1 Reconciliation and Settlement Settlement

Settlement
turn around
Settlement guidelines are mandated by payment schemes model
time (TAT)
to ensure smooth, secure, and effective operation. Payment
Settlement
schemes usually have a separate clearing-and-settlement cycle
technology platform governed and operated by the scheme.
Participants are onboarded on the platform in addition to
the transaction processing/switch platform. Each payment
scheme follows a separate onboarding process, depending
on the types of services offered by the participant. pant is required to onboard on the designated settlement
Reconciliation and settlement systems are designed to agency, as specified by the payment scheme. Another req-
settle transactions passing through the central switch and uisite for all participants is the settlement account, which
to support the dispute-resolution process for the processed is to be maintained with the central bank of the country or
transactions. Participants are onboarded on the reconcilia- any bank designated by the payment scheme and through
tion and settlement system platform in addition to the trans- which the interparticipant transactions are settled in the
action processing/switch platform. The scheme may levy a day-to-day banking activity. All participants are bound to
penalty on a participant in the event of noncompliance with maintain adequate funds to ensure seamless settlement.
any provision of the settlement procedure. Additionally, the settlement framework also entails a set-
In relation to the operations, payment schemes define tlement model that the payment schemes are required to
the settlement framework and reporting structure as may follow. Payment schemes settle all approved transactions
be applicable. Payment schemes frame rules and regula- either by way of deferred net settlement or by individual
tions, adopting globally followed best practices, to achieve settlement. In deferred net settlement, transactions are
smooth end-to-end processing and alleviate the bottlenecks settled in batches after netting with the net adjustment
and challenges associated with the reconciliation and set- amount. In individual-transaction settlement, each transac-
tlement workflows. Each participant is bound to follow the tion is settled individually by simultaneously crediting and
settlement framework laid down by the payment scheme. debiting the participants’ accounts.
As part of the settlement framework, the payment Moreover, payment schemes define settlement cycles for
scheme appoints a settlement agency to act as an inter- the participants to present the transactions for settlement.
mediary between the participants and payment scheme. Since FPS are available 24 hours a day, seven days a week,
To follow a unified settlement methodology, each partici- 365 days a year, settlement guidelines are resilient and trans-
16 | Scheme Rules in Fast Payments

parent and also subject to revision from time to time. Settle- FIGURE 11 Dispute-Management Elements
ment turnaround time is also defined by the fast payment
scheme for the participants. It refers to the time taken to set-
tle the funds between the participants after the transaction
has been processed. Depending on the linkage between
the settlement agency and the payment schemes, rules and Dispute Dispute
regulations affect the settlement guidelines, including turn- resolution resolution
panel/
around time. Another requisite for all participants is defining lifecycle
committee
the settlement file presentment method that is adopted by
the participants. It is either bulk file upload of settlement
transactions or individual transaction upload by the settle- Dispute
management
ment agency. The settlement file presentment method is
mandated by the fast payment scheme. Besides the above-
mentioned guidelines, for international transactions, the Dispute Dispute
currency-conversion methodology is specified by the pay- resolution raising
fee channels
ment scheme. For domestic transactions, payment schemes
specify transaction reconciliation and settlement currency.
Furthermore, payment schemes provide participants
with the reports in electronic format. These reports serve a
specific purpose. The raw data report comprises a list of all
transactions undertaken by end customers during the pre- protects end customers against losses related to fraud or
vious settlement cycle. For reconciliation, the participants errors and adheres to applicable laws or regulations.
compare the transactions available in raw data report with Payment schemes manage transaction disputes for ex-
the report generated by the participant switch. The settle- ception transactions. Exception transactions are those that
ment summary report comprises the net settlement posi- are not reconciled and/or are disputed by the end customer/
tion after netting the transactions disputes/adjustments, participants. Payment schemes lay out rules for transaction
penalties, customer compensation amount, interchange tax, participants to endeavor to settle disputes collaboratively
and switching fees, as applicable. Any other reports as may during the dispute-management process. To resolve the
be relevant are generated on a periodic monthly/quarterly/ disputes, payment schemes formulate dispute-resolution
annual basis as defined by the payment scheme. panels/committees whose role is to resolve disputes amica-
bly. Payment schemes form these panels/committees, whose
3.1.7.2 Dispute Management guidelines are binding for participants. Usually as a practice,
Payment schemes address transaction-related disputes once the dispute is put up to a dispute-resolution panel,
usually occurring because of fraud, authorization error, or payment scheme participants cannot withdraw the case.
processing errors. To continue operating seamlessly and to Additionally, the dispute-resolution life cycle is defined
resolve disputes, payment schemes mandate that partici- in terms of how disputes are raised, and which steps are
pants adhere to predefined dispute-resolution guidelines. involved in resolving the dispute. Below are widely followed
A few payment schemes lay end-to-end responsibility with dispute-resolution methods, adopted in sequence to resolve
the participants for resolving transaction-related disputes. transaction-related disputes.
Operating rules for dispute management facilitate how A charge-back is the first step. A dispute against an
participants raise and resolve disputes on transactions that approved transaction is raised by the end user to the remit-
had been processed earlier by the scheme. Disputes are not ter participant. As the next step, the remitter bank investi-
applicable for nonfinancial transactions. Payment schemes gates the transaction at its level. The scheme has minimal/
define roles and responsibilities related to the dispute-res- no involvement for processing charge-backs. As a general
olution mechanism that each participant is bound to follow. practice, after completing the settlement process between
Dispute-resolution frameworks cover transaction dis- participants, the remitter institution may return the original
putes generating from wrong account transfers/refund transaction to the beneficiary institution as a charge-back
transactions, double debit, and other such scenarios. The for resolution. Some disputes are not settled during the
dispute-management guidelines include the delineation of charge-back. In such cases, a pre-arbitration step is followed,
roles, responsibilities, and liability allocation that reasonably wherein the payment scheme provides another opportunity
 Scheme Rules in Fast Payments | 17

for participants to raise their concern if they were dissat- Payment schemes’ transaction monitoring is based on
isfied with the outcome of the dispute and want further defined rules to mitigate fraud, for business analytics, and
action taken. Arbitration is the next step. If the end customer for reporting. The fraud-management team updates/refines
is dissatisfied with the evidence/documents provided by the these rules based on emerging transaction and fraud pat-
beneficiary bank at the pre-arbitration stage, the remitter terns. The entire operation pertaining to the payment
bank may refer the dispute to arbitration within the time- scheme is monitored by the scheme on its own or by any
frame for referring a dispute to arbitration. An arbitration third party authorized by the scheme. Payment schemes
decision is binding for all participants. usually have a dedicated monitoring team for constant real-
• Dispute-raising channels defined by payment schemes time transaction monitoring to detect any of the following:
could be used by participants to raise disputes. Most pay- • Unusual transaction patterns or a high frequency of
ment schemes usually raise and track disputes via the por- transactions
tal being used for transaction settlement for participants.
• A sudden increase in merchant transaction volumes
• Payment schemes define a dispute-resolution fee that all
• Fraudulent transactions
participants are bound to pay depending on the pay-
ment model adopted by the scheme. For example, some Additionally, as a general practice, payment schemes may
schemes might prefer to deduct the fee at the time of net choose participant transaction monitoring to manage
settlement, and some might collect it separately. To raise thresholds, noncompliance, and any transaction spurts, if
the dispute, almost all schemes require the fee to be paid applicable.
within the scheme-specified turnaround time. The dis- Payment schemes have certain mandatory checks before,
pute-resolution fee covers administrative costs incurred or in parallel with, payment initiation and execution that
by the payment scheme in resolving the disputes. help detect and mitigate fraud—that is, fraud checks and
• Very few payment schemes provide end customers with related monitoring. Customer/merchant due diligence is
functionality to raise disputes directly with them. End one such check. Screening for fraud, money laundering, the
customers have provisions to raise disputes/complaints financing of terrorism, and sanctions is conducted within
by selecting transactions from their past transaction his- seconds for transactions that are cleared from less than a
tory and/or by entering any other unique reference, such minute to less than a day. A few payment schemes do not
as a transaction ID number. mandate fraud checking and lay end-to-end responsibility
on participants to implement suitable fraud checks in line
• Payment schemes that offer dispute-raising functional-
with their own policies, under the larger ambit of prevailing
ity extend their services to end customers by providing
legislative guidelines regarding anti-money-laundering and
customer-support services. Payment schemes’ redress
know-your-customer processes, sanctions filters, local regu-
mechanisms aim to create hassle-free experiences for
lations, and FATF recommendations as applicable.
end users regarding the resolution of various transac-
Based on the context and ambit of scheme operation,
tion-related issues.
specific rules can be introduced by the payment scheme
that participants can use as inputs in their fraud-detection
3.1.7.3 Monitoring
models and platforms. The following are parameters that
Monitoring is an important subarea that falls under opera-
can be advised as checkpoints by the scheme:
tion. Payment schemes oversee their transactions on a reg-
ular basis so they can take timely action in case of adversity. • Average transaction amount
Monitoring is broadly classified into two subareas: transac- • Suggest the window of variance between normal and
tion monitoring, and fraud checks and related monitoring. abnormal activity
Details on the two subareas are presented below. • Enhanced due diligence based on a threshold limit for
transaction values
FIGURE 12 Monitoring Elements • A threshold limit on the number of reversals on an account
based on the normal activity
Fraud checks • Managing limits on the different channels/client segments
Transaction
Monitoring and related
monitoring
monitoring
18 | Scheme Rules in Fast Payments

FEES AND CHARGES the cost of providing services for such activities as migra-
tion and routing fees. The participants will have to obtain
All payment systems require an advanced and sophisticated certification from the selected network service provider (a
infrastructure to process a high volume of transactions that list will be provided by the scheme), and the costs of cer-
are instant in nature. The cost of setting up the scheme tification and maintaining connection lines to the scheme
is very high, which is why recovering costs and eventu- are to be paid directly to the network service provider. It is
ally generating profits are key considerations while pricing a one-time fee charged by the scheme for providing com-
intelligently. Determining the fees and charges is important prehensive migration support to participants. Legal fees
to ensure that the onus of pricing does not fall on a single for drawing up relevant legal requirements are charged on
stakeholder and compensates all. a time and material basis from participants at the time of
joining. Other charges, such as insurance charges, are to be
3.1.8 Objectives of Pricing
paid. Members should cover claims against scheme partic-
The pricing objective and the fees and charges that may be ipants (for example, professional indemnity, cybersecurity,
payable vary for each stakeholder depending on the func- and insurance). A fixed and one-time application fee is also
tion and the nature of interaction. to be paid along with the completion of various onboarding
arrangements. Additionally, a technical accreditation fee is
3.1.9 Scheme Rule for Fees and Charges
to be paid by the participant to the scheme or an autho-
Fees incurred can be categorized at each step since incep- rized third-party institution.
tion of the members as follows: Support and maintenance fees could include additional
A scheme participation fee is paid by any institution that fees, such as desk support and maintenance charges, to be
wants to participate in a fast payment scheme. This may recovered from members at specified intervals. Based on
include an onboarding fee, a support and maintenance fee, connectivity setup and links opened between the scheme
or an administration fee. and members, a communication fee may be charged partic-
An onboarding fee includes a one-time fee for onboard- ipating institutions that are directly connected. Or message
ing new participants to the payment infrastructure. It covers costs may be borne by scheme participants based on how
messaging standards are set up. Additionally, a recertifica-
TABLE 7 Rationale for Fees tion fee may be charged upon the completion of testing
related to reaccreditation to the scheme or an authorized
EQUITABLE
third-party institution.
COST RECOVERY DISTRIBUTION PROFIT GENERATION
An administration fee would include an annual admin-
• Cost of setting • Ensure that the • Fees and charges
up pricing burden should be levied istration fee that can be charged to cover overlay services,
• Operational cost is equitable so they do not direct participants.
disincentivize the
participants but help Transaction fees may be imposed by members or partic-
them generate profits ipants on other members or participants in the ecosystem
after recovering costs
and are of two types: a switching fee (paid to the switch

TABLE 8 Objectives of Pricing for Each Stakeholder in an FPS

STAKEHOLDER FUNCTION FEES AND CHARGES

Participants • Members who • Participants levy fees on end users as per the business case that would be presented
participate in the to the scheme at the time of joining. This helps the participant to derive economic
scheme value from scheme participation.
• Participants also levy a fee on other participants for transactions with the purview of
promoting interoperability and correcting any imbalance that may be hampering the
ecosystem.
Scheme • Operator who • Scheme operation is a function of various costs related to running and maintaining
operator maintains and runs the the payment infrastructure and includes costs levied by service providers. Fee-based
scheme and ensures income provides a steady and predictable revenue stream that can be used to deal
adherence to scheme with the costs of doing business.
rules by participants
Switch operator • Entity that creates the • The switch operator enables a secure and seamless real-time transaction flow. It
switch and operates transmits, confirms, and settles transactions between participants, end users, and
and maintains it scheme managers (clearing function). Fees received by a switch operator compensate
it for the cost of creating and maintaining the central infrastructure.
 Scheme Rules in Fast Payments | 19

operator) or interparty fees. There are many types of inter- clearinghouse function errors or for the investigation of
party fees, which are charged and paid by different partici- disputes.
pants and stakeholders. Ultimately, the revenue stream for a
fast payment scheme can be understood as the fee that end
TECHNOLOGY
users pay to participants, who, in turn, pay the scheme man-
ager or switch operator for using the payment infrastruc- The technology guidelines provide necessary direction to
ture (switching fee) or other participants of the transaction. set up a robust governance structure and implement com-
Switching fees charged to the participants act as a means mon minimum standards for infrastructure and security
of cost recovery for the infrastructure provider. Participants controls for the scheme.
of the scheme may be charged a switching fee on a volume Fast payment schemes are modern payment infrastruc-
or ad valorem basis. It can be charged on a one-off basis, tures set up to support the nonstop digital economy by pro-
depending on the scheme structure and business model. To viding fast, flexible, data-rich payment systems that enable
maintain economic balance throughout the transaction flow, end users to receive payments in real time 24 hours a day,
various interparty fees, such as a merchant discount rate, an seven days a week, 365 days of the year.
interchange/interparty fee, a scheme fee, or a PSP fee, are FPS are highly available, focusing on a set of SLAs that
imposed on the scheme participants. To compensate for this need to be met by participants on a continuous basis.
cost, participants may charge the end consumers a conve- Schemes define a set of technical requirements that need
nience fee or an infrastructure usage fee. to be met by scheme participants to meet these SLAs, along
Non-compliance fees are penalties and compensation with elaborate guidelines for contingency scenarios ensur-
stated in the scheme rules for instances of noncompliance ing maximum system uptime and performance.
with scheme rules by participants. In case of termination of a
participant from the scheme, a one-time lump-sum fee can 3.1.10 Objective of Technology Framework
be charged directly by the scheme for offboarding. The objective of defining technology guidelines is to offer
Other fees are laid down in the scheme rules, to which baseline architecture, a technical framework, and a set of
each participant agrees to adhere at the time of onboard- standard messaging protocols to facilitate fast payments,
ing, including rules about noncompliance, offboarding, or leveraging trends such as increasing smartphone adoption,
other miscellaneous participant actions that might warrant language interfaces, and universal access to the internet and
additional fees or charges. The rules also foresee fees for data. The accompanying figure shows other objectives.

FIGURE 13 Technology Infrastructure Elements

Fast payments infrastructure

Clearing and Settlement

Settlement Account Settlement

optimization funding module

Payment Validation Bulk/File

queues engine processing
RTGS systems/Cash settlement systems

Disaster recovery
Network
Message standards and Reporting
service connectivity mode
provider Billing

Value added
services Control module Rules library

Application database
20 | Scheme Rules in Fast Payments

TABLE 9 Objectives of Technology Framework

EXPANDABLE ADAPTABLE REAL TIME SECURE

Allow for innovations in Adaptable to technological Allow participants to provide Allow for traceability through
newer forms of identity, evolution a real-time experience for the entire transaction chain
authentication, and banking interactive transactions

3.1.11 Technology Framework FIGURE 14 Operational Guidelines for Payment Scheme

The technology framework acts like a backbone of the entire

payment scheme operation. To achieve the objectives of Messaging Technical
mode and infrastructure Security
the technology framework, the scheme needs to describe
communication and contingency protocols
high-level indicative subareas for the participants to follow. standard standards
The accompanying figure shows key subareas related to the
operational guidelines of a payment scheme.
FIGURE 15 Messaging Mode and Communication
3.1.11.1 Messaging Mode and Communication Standard Standards Elements
The selection of the communication type and its proto-
col forms the base of a technical system design meant to
accommodate the multiparticipant interaction required in
a real-time payment rail. Payment schemes thoroughly eval-
uate messaging protocols available across the globe before
Mode of
selecting a protocol. Due diligence ideally includes the fol- communication/ Messaging
lowing factors: messaging standards
protocol Messaging
• Ease of implementation
Mode and
• Security Communication
Protocol
• Geographical compliance
• Flexibility and compatibility in terms of potential ramifi-
cations for future scheme enhancements
• Interoperability with other payment systems, such as Transaction types
external settlement engines and cross-border transaction
processing
• Benchmarking with global standards
ated. While a synchronous communication protocol is fast
The choice of a scheme-mandated messaging standard and limits extra overhead, an asynchronous communication
affects how participants communicate between themselves protocol provides the flexibility to maintain multiple parallel
and with the scheme and vice versa. sessions.
The key tenets of an optimal messaging mode and com- Additionally, fast payment schemes describe the min-
munication standard are mode of communication/messag- imum functionality required by the participants to ensure
ing protocol, message standards, and transaction type. seamless operation and interoperability between the partic-
Most fast payment schemes adopt API-based communi- ipants. Payment schemes specify message standards to be
cations, which are an efficient choice for payment schemes, followed by the participants. A scheme-defined communi-
but a few payment schemes have also adopted non-API- cation standard affects the transmission of payloads, recon-
based communication/messaging protocols for imple- ciliation communication, and other non-value messages in
mentation. If defined by the payment scheme, open API the payment system. Participants need to ensure that any
standards can be leveraged for communication if API-based service upgrade is in line with the scheme rules.
message communication is selected. Non-API communica- Payment schemes opt for such global communication
tion can be used by participants for internal communication. protocols as ISO 8583 or ISO 20022 or use a proprietary
If payment schemes operate via API-based communica- communications protocol catering to specific needs of the
tions, choosing to work on a synchronous or asynchronous schemes. Whereas ISO 20022 is the most common standard
mode of communication is another domain to be evalu- adopted globally for fast payments, it is costly and time-con-
 Scheme Rules in Fast Payments | 21

suming to implement, as it requires a detailed impact anal- hardware elements and technical integration rules that are
ysis and an update of legacy systems to work with new data mandated to be utilized while connecting to the scheme,
requirements. Proprietary messages provide flexibility and such as the scheme-mandated choice of network service
can be customized, and they are cost-effective but lack the providers. Each participant undergoes mandatory cer-
ability to drive interoperability for cross-border transactions. tification and onboarding to ensure that all participants
Moreover, fast payment schemes support multiple use undergo testing requirements laid out by the payment
cases for real-time payments working on a credit-push or scheme. Participants are also required to adhere to sys-
a debit-pull transaction. While technically a fast payment tem availability as defined by the schemes and to ensure
scheme can be designed to run on either or both of the that all the elements operate as per the transaction-level
transaction types, as payment systems narrow down the SLAs and that all back-office systems are available and fully
type they would choose, they need to be cognizant of the operational. In case of any deviance from SLAs due to con-
existing regulations in the underlying country. nectivity or any other technical issues, participants need to
Choosing to implement either a credit-push or a deb- report the deviances promptly, as per scheme guidelines.
it-pull use case for the entire payment scheme might be a SLAs that need to be defined by the fast payment scheme
cost-effective decision and easier to implement, but build- include the following:
ing both as a part of the design can enable multiple use • System uptime
cases and enhance customer experience.
• Response-time SLAs
3.1.11.2 Technical Infrastructure and Contingency • Overall processing time SLAs
Standards
Participants must comply with the technical infrastruc- For the benefit of its participants, the payment scheme
ture and contingency standards set forth by the payment may constitute a multichannel round-the-clock technical
scheme. Any noncompliance may lead to termination or support service for queries related to scheme components,
penalty, as defined by the scheme. additional components, and a periodic check of its produc-
Payment schemes set out the minimum requirements of tion environment to identify potential security, availability,
the technical infrastructure framework for participants that and performance risks.
install and configure infrastructure establishing a secure From a technology perspective, most of the schemes
connection to the fast payment scheme. The technical around the world have a fall-back framework, termed a
infrastructure framework primarily comprises of three ele- contingency plan, that is triggered based on certain events.
ments: technical integration, system availability, and tech- An example of such a fall-back scenario would be ensuring
nical support. Participants need to use scheme-approved system availability by switching automatically to a contin-
gent infrastructure after a network outage. During system
connectivity and testing, participants also need to ensure
FIGURE 16 Technical Infrastructure Framework
that they have uninterrupted and working links to the con-
tingent systems. Examples related to contingency switches
include the following:

Technical integration • Connectivity failures

• Security/malware breaches
• Network outages (planned and unplanned)
• Technical defects in the scheme’s orchestration layer,
Technical payment queues
Infrastructure
Framework Contingency plans add to the scheme’s end-to-end resil-
Technical System ience and are essential to develop an integrated framework
support availability
within controlled procedures.
Establish appropriate lines of defense before any con-
tingency measure is triggered by the scheme. A part of
the scheme rules is a general business-continuity plan that
aims to resume operations from an alternate site, with
minimal or no data loss, within a specified time frame. Key
22 | Scheme Rules in Fast Payments

FIGURE 17 Contingency Plan FIGURE 18 Security Protocol Elements

Business Recovery
Contingency
continuity plans
Identity
Data
and account
encryption
validation

components of a business-continuity plan include the fol-

lowing: Security
protocols
• A framework for testing the business-continuity plan
• Identifying and maintaining alternate infrastructure sites
to resume operation in the shortest possible time Protecting
Message
authentication
security
• Identifying recovery plans and tools to enable continuity credentials
of operations

Additionally, as part of a contingency plan, a scheme must

identify scenarios that may potentially prevent it from being
able to provide its core operations and services as a going
concern and assess the effectiveness of a full range of options payment scheme. The parameters for a payment transaction
for recovery plans. Based on the results of the assessment, need to be validated by various parties in the payment value
the scheme needs to plan for its recovery, in addition to pro- chain. Types of information to be validated are account own-
viding relevant information to authorities for the purposes of ership, ultimate creditors/debtors, national IDs, and so on.
resolution planning. Potential benefits of a thorough recov- For these purposes, the scheme clearly calls out the party
ery-planning framework include the following: that will be responsible for validating the data, how the data
will be validated from a channel perspective, and when the
• Helps the scheme navigate systematic and idiosyncratic
validation needs to take place in the transaction life cycle.
stress to the overall technology infrastructure
Furthermore, the transmission of payloads in the wider pay-
• Allows for the recovery of operational processes and ment infrastructure needs to take place over secure channels
provides remedial frameworks for payment orders sent and with a unique stamp in the form of message identifi-
during that period ers to track and identify duplicate requests. To address this,
• Enables modification/correction of multiple payment payment schemes outline message security–related guide-
orders, helping to remediate all transactional SLAs and lines in addition to digital signatures required during mes-
procedures sage transmission for added security. Moreover, protecting
• In addition to the contingency plans, one of the key authentication credentials is one more security protocol for a
objectives of any payment scheme is providing the payment infrastructure to safeguard authentication creden-
highest level of data security and ensuring that payment tials such as PINs and biometrics during payment capture. A
data is securely transmitted for processing. It is therefore key methodology for safeguarding credentials is encrypting
essential to build systems and operational reliability to credentials using public key infrastructure during capture.
complement the scheme’s information security protocol.
MARKETING AND BRANDING GUIDELINES
Payment schemes focus primarily on four security protocols:
data encryption, identity and account validation, message Payment schemes lay out branding and marketing guide-
security, and protecting authentication credentials. Data lines for communication between participants and end
encryption lays guidelines for the storage and transmission users, either directly or via merchants. Payment schemes’
of sensitive information, such as biometrics, account infor- guidelines define what and how participants interact with
mation, passwords, and so on. The scheme can mandate end customers, guaranteeing a similar tone and ensuring
whether participants can store and transmit various data scheme visibility. Therefore, implementing strong and uni-
types based on their participation type. In addition, iden- fied branding and marketing guidelines is a key element for
tity and account validation guidelines are laid out by the payment schemes.
 Scheme Rules in Fast Payments | 23

Schemes that effectively focus on their brand stand out channels; (iv) a brand tone, with tonality of the payment
from the competition. Branding and marketing builds a scheme; (v) a type style, showing the fonts, headers, and
degree of trust, reliability, and credibility for any business, footers; and (vi) sample templates for internal and external
and so it is for the payment schemes. The exhaustive fea- communication.
tures and benefits of an FPS are not the only factors that Other parameters included in branding and marketing
influence an end customer’s selection of a payment chan- guidelines are (i) brand positioning, which creates an edge
nel and participants’ choice for onboarding onto a payment among its competitors and occupies a distinctive place in
scheme. the minds of the end customers, (ii) usage of scheme logos/
marks, in which payment schemes define the proportions,
3.1.12 Objectives of Marketing and Branding space, and size relationships of all collaterals. In addition to
Guidelines this, payment schemes define (iii) restrictions on the usage
The accompanying table presents the key objectives of a of marks, intending to protect brand reputation. (iv) Guide-
payment scheme’s marketing and branding guidelines. The lines on the use of similar marks are also laid out by pay-
objectives’ common theme is spreading awareness of the ment schemes, making clear that participants should not
fast payment scheme among end users. use any component of the mark or a mark similar to the one
defined by the scheme for any purpose unrelated to the
3.1.13 Marketing and Branding Framework scheme. Moreover, each scheme grants to each participant
Payment schemes aim to frame best-in-class branding and a nonexclusive, nontransferable license to use the mark.
marketing guidelines that are comprehensive and have wide The right to use a mark may be sublicensed by a licensee
coverage. Few guidelines are mandatorily framed by a pay- to any sublicensee only in accordance with the standards
ment scheme, although a few others are framed and fol- and processes laid down by the scheme. Furthermore, spe-
lowed, depending on the program type. cific marketing channel guidelines are laid out by payment
Fast payment schemes’ branding and marketing guide- schemes—that is, for digital and physical (print media and
lines include (i) a business overview, with vision, mission, so on) marketing channels. A few payment schemes also
and values; (ii) a mark/logo, showing logo size and spacing; provide marketing tools to provide consistency across chan-
(iii) a color palette, describing the colors to be used across nels, helping participants in their marketing activities.

TABLE 10 Branding and Marketing Guidelines

BUILD BRAND ENHANCE INCREASE

AWARENESS CUSTOMER TRANSACTION
RETENTION VOLUMES
Acquire new leads— Build stronger
that is, participants relationship with
and, ultimately, end existing customers/
customers clients

FIGURE 19 Marketing and Branding Framework

Color palette
3 4 Brand tone

2 5
Marketing and
Mark/Logo branding Type style
framework

Business Overview
1 6 Templates
4 KEY TAKEAWAYS FROM COMPARATIVE ANALYSIS
OF FAST PAYMENT SCHEMES AND OTHER
PAYMENT SCHEMES

Below are key takeaways based on the comparative analysis, payment schemes—for example, fraud risk in fast payment
which was undertaken to compare components of fast pay- schemes and other payment schemes would be contextually
ment scheme rules against those of other payment schemes. different.
For a detailed analysis, please refer to the appendixes.

OPERATIONS
PARTICIPANT MANAGEMENT
From a reconciliation and settlement perspective, param-
The key tenets related to participant management, such as eters such as settlement agency, settlement account, set-
member application, rights and responsibilities of scheme tlement cycle, and settlement currency are defined by fast
participants, and termination scenarios, are like other pay- payment schemes as they are in other payment schemes.
ment schemes. However, the fast payment scheme can The major differentiating parameter that is adopted by a few
draft these scheme rules to make it relevant to the scheme FPS is the individual settlement model, which is not prac-
context—for example, by allowing non-banks to access the ticed by any other payment scheme. From a dispute-reso-
scheme directly, which might be different from a high-value lution perspective, most FPS do not participate in resolving
payment scheme that has only direct banking participants. transaction-related disputes as other payment schemes do,
and responsibility for transaction-related dispute resolution
lies with the participants outside the purview of payment
COMPLIANCE AND GUIDELINES
scheme. Transaction monitoring and reporting in fast pay-
From a regulatory compliance perspective, certain reg- ment schemes is mostly like other payment schemes. How-
ulations, such as FATF regulations, apply to all payment ever, details specific to fast payment schemes might be
schemes. However, certain customized regulations would different from other payment schemes, such as the number
apply only to the fast payment scheme regulations, such of steps in authenticating a transaction.
as payment application security, which would be enforced
locally by the scheme operator.
FEES AND CHARGES
From an internal control and risk-management perspec-
tive, fast payment schemes adopt customized and contextu- Fees and charges levied remain consistent across the pay-
ally relevant guidelines that would be substantially different ment systems, but transaction fees charged by fast payment
from other payment schemes, given that material risks fac- schemes have more components. Substantial importance
ing the fast payment schemes would be different from other is also given to noncompliance with fast payment scheme

24 |
 Scheme Rules in Fast Payments | 25

rules and offboarding from the scheme, as compared to explicit requirement related to security protocols might be
other payment systems. different from other payment scheme, such as encryption
methodology.
TECHNOLOGY
MARKETING
Messaging mode and communication guidelines followed
by fast payment schemes are inferred from the set of mes- Fast payment schemes lay out marketing and branding
saging and communication modes available globally. Fast guidelines for the participants. In case of overlay services,
payment schemes can follow such standard messaging the decision to give precedence to the overlay service
templates as ISO 8583 or ISO 20022 or use a proprietary logo over that of the fast payment scheme is made by the
standard and implement the template based on the local scheme operator. However, a common point with other pay-
payment scheme context. Technical infrastructure and ment schemes is laying down a standard set of branding
contingency standards in fast payment schemes are mostly and marketing guidelines for participants to communicate a
similar to those in other payment schemes. However, common branding message to end customers.
5 ISSUES AND POTENTIAL TRIGGERS FOR REVIEWING
FAST PAYMENT SCHEME RULES

Payments is a fast-paced industry, and most nations have OBJECTIVE OF SCHEME RULE REVIEW
adopted modern payment techniques to widen the pay-
ment industry horizon. Regulators continuously adapt to Reviews of the rules don’t always result in policy revisions.
changes in the market to mitigate foreseeable risks. The At times, minor tweaks to existing rules are sufficient to sync
review process of regulators is forward looking and strategic, with new laws and regulations. Regulators need to ensure
based on analysis of past performance as a benchmark for that scheme rules are aligned with the latest technology and
refining the existing scheme rule and ensuring continuous processes. The accompanying infographic states key objec-
improvement while fixing the gaps. tives of a review of scheme rules.
The process of reviewing scheme rules is intended to
assess performance and evaluate and implement necessary Identify the relevance of each rule
changes to the rules. Regulators face multiple issues while
reviewing rules. These can be broadly categorized as inter- Continuously review and identify gaps, to sync
nal and external. the rules to changing market requirements,
Outdated rules may not be in sync with new laws and upcoming technology, or process improvisation
regulations and can leave payment schemes at risk. They Comply with relevant legislation, industry and
may not keep pace with the ever-changing technology other standards, and community expectations
landscape, resulting in inconsistent processes among partic-
ipants. Hence, periodic reviews of rules and procedures are
Promote safety and soundness
needed to keep payment ecosystems up to date with the
latest regulations and technology.
Promote operational efficiency

FIGURE 20 Categorization of Issues Faced by Regulators while Reviewing Scheme Rules

Internal issues include examples like governance framework, business performance, customer satisfaction,
Internal issues
SLAs, risk management.

External issues encompass the whole environment in which the Regulator operates including social, cultural,
External issues
legal, political, statutory, economical, at all levels including local, state, country, and even international.

26 |
 Scheme Rules in Fast Payments | 27

FIGURE 21 Potential Triggers to Review Scheme Rules

Scheme rules are usually reviewed on predefined intervals as
prescribed by the regulator. Several dynamic trigger points
could lead to a review of scheme rules prior to the review
due date. On every trigger point, a set of mandatory and Promote Incident
discretionary actions may be laid down to preempt any Innovation or or policy
upcoming
loophole in the payment industry. The rationale for classify- violation
technology
ing the actions as mandatory or discretionary is that some of
the actions are immediately essential to restore the financial
health of participants, while other actions could be taken Potential Social,
Specific triggers political and
at the discretion of a regulatory body depending upon the
events to review economic
trigger point. scheme rule context
The trigger points serve as speed breakers to further
strengthen the entire payment ecosystem. Scheme rules are
usually reviewed on predefined intervals, either annually or Payment Laws and
biannually, to help detect and track any emerging issues. In scheme governmental
organization regulations
addition to the periodic interval review of system perfor-
mance indicators, regulatory bodies could review rules on
any of the potential trigger points.
Any unexpected incident or policy violation indicates the
need for a rules review. After any kind of incident, regulatory
bodies may debrief, as a cautionary measure, to ensure that
regulatory bodies, as a precautionary measure, may review
the rules cause the intended effect. Examples of incident or
the scheme rules pertaining to payment scheme manage-
policy violations include the following:
ment to determine the relevance of existing policies and
• Sudden breakdown of technical infrastructure discard any older ones. Examples of payment scheme orga-
• Sudden increase in transaction volume nizational changes include the following:

• Transaction-related fraud • Business expansion of the payment scheme to the inter-

national market
• Operational breach
• New leadership
• Stakeholder feedback
Additionally, specific events, including both natural disas-
Besides the above trigger points, the social, political, and
ters and anthropogenic events (sudden changes in market
economic context could be a considerable factor for review.
conditions or wars), demand the immediate attention of
These factors are extrinsic to the overall operations of the
regulators. The urgency of the situation influences response
regulators. Examples of factors in the social, political, and
timing. Examples of specific events that may lead to a review
economic context include the following:
of scheme rules include the following:
• A budget announcement
• Natural calamity
• A government policy promoting digitization
• Pandemic
Furthermore, laws and governmental regulations change • International agreements and treaties
constantly, affecting certain rules. Regulatory bodies need to
• Acts of war
ensure that all the existing rules and rules yet to be defined
are in line with the latest laws or regulations. Lastly, regulators may review the scheme rules to promote
innovation or upcoming technology. Regulators may review
When a payment scheme organization undergoes large- existing rules or set new rules to accommodate innova-
scale changes, such as a change in governance model, any tion. Such initiatives by regulators set a positive acceptance
change in strategic direction, new leadership, or a merger, approach among the participants.
6 FAST PAYMENT SCHEME GOVERNANCE

HOW TO STRUCTURE SCHEME GOVERNANCE • Ensuring fair and inclusive participation in the payment
scheme
6.1.1 Introduction
FPS globally have evolved considerably since their inception 6.1.2 Components of the Fast Payment Governance
and have become important pieces of the global payment Charter
landscape. Fast payment schemes are also more inclusive Effective fast payment schemes are driven by clear owner-
than legacy payment frameworks such as high-value pay- ship and agile governance arrangements, which enable a
ment systems in terms of the number of use cases avail- high-performing underlying operational framework and ulti-
able and the innovations that have helped extend the value mately have a positive effect on scheme operations and the
proposition for person-to-business and business-to-busi- sustainable growth and expansion of the payment scheme.
ness payments, among others. The rules for governance arrangements are hosted and
Some of the key functions of a governance arrangement defined in various charter documents that define the func-
that allow for efficient fast payment operation are the estab- tioning of the FPS as an organization. Key components of
lishment of goals and milestones, progress assessments, gap these charter documents include the following:
identification, and recommendations of appropriate correc-
• The powers and responsibilities of the board
tive actions.
To achieve the above objectives, fast payment schemes • Appointing and dismissing directors and key executives,
across the globe have adopted varied governance models such as the chief executive officer
based on globally recognized principles. Key factors that are • Voting rights
common across various governance models for fast payment
• Interpreting board limitation and liability
schemes are inclusiveness, support for the broad goals of
the fast payment scheme—that is, security, integrity, trust, • Sharing capital (in case of for-profit FPS organizations)
and interoperability—fair representation of stakeholder and winding up
interests and risks, and transparency. Key objectives that fast Independent directors are important constituents of the
payment schemes aim to achieve by establishing a sound board. They provide impartial and objective points of view
governance arrangement include the following: on scheme operations and can be appointed for a variety
• Sustainability and continued business growth of reasons. For example, central banks in countries such as
• Providing strategic direction to the scheme manager, India and Australia have appointed independent directors to
thereby influencing scheme operational guidelines the boards of fast payment schemes to represent the overall
interests of the local payment framework beyond the inter-
nal scheme functions.

28 |
 Scheme Rules in Fast Payments | 29

FIGURE 22 Governance Rules Documentation FIGURE 23 Shareholding Participating Options in FPS

Reference documents Roles and participation

Participating
Local central banks, institutions: financial
• Organization Charter • Executive Management example: & non-financial,
• Articles of Association • Board FAST, Turkey example:
• Any other inception NPP, Australia
documents
Shareholding
Participating
Options
in FPS
Effective fast payment schemes are also driven by a
clear and transparent ownership structure. Fast payment Industry associations, Individual investors,
schemes around the world have varied ownership models. example: PASA, example:
Real Time Clearing Prisma, Argentina
Possible ownership structures include privately held entities, South Africa
enterprises wholly owned by public entities, public-private
partnerships, for-profit and not-for-profit companies, and
public or private limited companies. Another point to note
is that ownership models are not static and may change Below are some of the high-level questions that should
over time. be addressed, ideally before proceeding with structuring
the governance arrangement for a fast payment scheme.
6.1.3 Governance Models for Fast Payments
In centrally governed fast payment schemes, a country’s What is the level of stakeholder interaction between
central bank owns and is responsible for governance. other payment market infrastructures in the country?
In participant-led schemes, the direct participants lead This would be relevant for assessing the broader local pay-
the governance arrangement for the realization of such ment infrastructure of the country and ensuring that there
common objectives as innovation, coordination, effective is participation from all relevant external stakeholders, if
scheme operations, and so on. Such models are common required.
across privately owned fast payment schemes, such as Zelle
in the United States, which is owned by a bank consortium. What regulatory and legal framework is applied to the
In fast payment schemes led by a dedicated entity, a fast payment scheme?
dedicated organization is set up to steer the governance Upon setting up of the FPS, the central bank needs to decide
arrangement. Such an organization can be built as a ded- either to take control of the scheme governance arrange-
icated entity by a regulator or work under the broader ment or to delegate it to a dedicated entity under its broad
supervision of another regulatory body in the country. From supervision. The regulatory and legal frameworks should be
an ownership perspective, such organizations can have applied in a consistent manner to other payment and clear-
shareholding by participating institutions or be owned ing systems but can be amended to the FPS context.
exclusively by a regulator.
If the target governance structure intends to mimic the
6.1.4 Parameters for Defining Scheme Governance model of an existing payment scheme or system, what
for FPS are its key benefits and objectives?
To develop contextually relevant governance arrangements A new fast payment scheme may intend to mimic the
for a fast payment scheme, there are certain key principles governance arrangement of an already-existing payment
to keep in mind and draw inference from. The principles are scheme. Key parameters to consider before deciding on this
drawn from from a document issued by the International parameter include the following:
Organization of Securities Commissions and Committee on • Synergies between the new and existing payment
Payment and Settlement Systems on standards for payment schemes
and clearing and settlement systems (that is, Principles for
• The level of flexibility provided by the existing gover-
Financial Market Infrastructures). The source document has
nance arrangement
been utilized to draw upon some principles that might be
relevant from an FPS perspective.2 • Benchmarking to global fast payment governance
arrangements
30 | Scheme Rules in Fast Payments

TABLE 11 Key Considerations for Defining Governance Arrangements for Fast Payment Schemes

KEY CONSIDERATION FAST PAYMENT SCHEME GOVERNANCE

Disclosure of rules, key procedures, Given the universal reach of fast payment schemes, the public disclosure of rules and procedures
and market data is relatively more important than it is, for instance, with a high-value payment framework.

Efficiency and effectiveness When compared with legacy payment schemes, fast payment frameworks operate in a high-
paced, dynamic environment that requires decisions and strategy to be implemented within
strict timelines.
Inclusivity and diversity Create an inclusive and diverse governance arrangement that ensures participation in the
decision-making process from all relevant stakeholders and is free from monopolies, select
participation, and so on.
Independence Ensure sufficient independence for such critical functions as risk management, internal controls,
and audit. A typical way to ensure independence from the views of management is to require
the inclusion of nonexecutive board members, including independent board members, as
appropriate.
Conflict of interest Potential conflicts of interest in fast payment schemes can arise for various reasons and are
mitigated via regular disclosures and assessments from the governance board.
Risk-based approach Like any other payment scheme, fast payment schemes also follow a risk-based approach to
governance, but due to the nature of scheme operations and the diverse participation types in
fast payment schemes, the ambit of risk assessment and internal controls is wider than it is with a
legacy payment framework.

What is the direct participation model of the fast pay- ment scheme, for which the board might exercise powers
ment scheme? allocated to it or delegate them to a person or a group
For an inclusive participation framework in the scheme’s of persons.
governance process, the direct participation models would • To facilitate the smooth discharge of the scheme strategy
dictate that various institutions should be included in the and vision, multiple board committees are constituted by
governance arrangement—that is, only banks or both banks the board with participation from the board of directors
and non-banks. to deal with matters related to human resources, risk,
technology, management, audit, and so on.
6.1.5 Key Components of an Indicative Governance
Structure for an FPS Governing Entity • Advisory committees are specialized working groups cre-
ated to oversee specific issues that arise during scheme
Below are key formations of the core governance arrange-
operations—for example, a fraud-advisory committee
ment for a fast payment scheme. Additions to, or modifica-
to look into and provide guidance on increasing fraud
tions of, the core governance arrangement might be found
events within the payment scheme. Also, these commit-
across various global fast payment schemes.
tees can be constituted on a permanent or temporary
• Pursuant to the articles of the governing organization, basis to perform an advisory role to the scheme’s gover-
the board of directors is responsible for the strategic nance construct.
direction and overall supervision/control of the fast pay-
 Scheme Rules in Fast Payments | 31

6.1.6 Select Case Studies of Governance Structures of Fast Payment Schemes

1. FPS, United Kingdom

Governance entities
Pay.UK is the payments service operator with the governance falling on
a consolidated entity known as Payment Service Regulator (Subsidiary of Not for profit vs for profit
the Financial Conduct Authority in UK) which also governs other payments • PSR (regulator): For Profit limited
schemes within the UK like BACS. However, the overall oversight is maintained company
by Bank of England across all payment systems including faster payments. • Pay.UK (PSO): For Profit

Separation of payment
operators and governing
authority
Governance structure
• Separated
PSR Executives, non-executive directors from Financial Conduct Authority
(Supervising Body) and independent directors. In addition to this various
advisory committees are formed to provide expertise on various issues
related to strategy, policy. The constitution of such committees can have
representatives from various areas on a need basis.

2. FAST, Turkey

Governance entities
Developed, owned, and operated by the Central Bank of the Republic of
Turkey. Not for profit vs for profit
• Not for Profit: Central Bank

Separation of payment
Governance structure operators and governing
Chaired by the governor of the bank along with 6 members with support of
authority
a dedicated executive committee that draws up proposals for the governing • Not Separated
board to consider and ensures collaboration with participating institutions.

3. NPP, Australia

Governance entities
Operated and Owned by a separate legal entity that has shareholding
membership from the central bank along with shareholding from 12 Not for profit vs for profit
participating institutions in the payments scheme. • For Profit

Separation of payment
operators and governing
Governance structure authority
The payment service operator is mutually owned by 12 deposit taking • Not Separated
institutions representing some of the major banks in Australia.
32 | Scheme Rules in Fast Payments

4. TIPS, Europe

Governance entities
Operated and owned by the European Central Bank
Not for profit vs for profit
• For Profit

Separation of payment
Governance structure
operators and governing
European Central Bank is constituted and owned by the central banks authority
representing the 19 member states of the EU zone. The % of ownership by
each of the central bank is determined by the population of the country. • Not Separated

IMPLICATIONS OF SEPARATING SCHEME • Easier for external stakeholders to collaborate, as there is

GOVERNANCE FROM THE OPERATION OF THE a single point of contact
PAYMENT SYSTEM • Streamlined operationalization of scheme strategy due
to enhanced control on scheme operations by the ded-
Governance and operations are two key parameters for the
icated entity
functioning of any fast payment scheme. Governance pro-
vides the strategic direction to scheme operations, whereas The timely transformation of the payment strategic direction
operational guidelines are key to ensuring the integrity, resil- to operational guidelines is more streamlined and effective
ience, and security of the fast payment scheme. These vital through dedicated entities. Some of the major aspects of
functions are institutionalized in the scheme structure as this are interoperability, the strengthening of weak links
either separate entities or an amalgamated entity looking within the scheme, addressing security concerns, and rules
after both functions. and standards for cross payments.
Overlay services provide FPS services to end users by
connecting to the FPS infrastructure. For the overlay service Disadvantages of Keeping Scheme Governance and
provider to keep on connecting to the FPS scheme, it must Operations Together
conform with all operational rules dictated by the scheme
• Increased load on a single entity, as two critical functions
operator. However, the overall strategic direction of the
of the fast payment scheme are centralized within a rela-
overlay services’ participation in the scheme is dictated by
tively small group of stakeholders
the scheme’s overall strategy, which is formed by the FPS
governing body. • Complex organizational structures might be a deterrent
Some fast payment schemes have kept both the gover- to decision-making process, adversely affecting scheme
nance and the operational function within the same entity strategy and operations
with implementation. For example, in UPI in India, NPCI takes • Dedicated entities focusing only on fast payments might
care of both the operational and the governance aspect of ignore the linkages with other payment schemes
the scheme, while with FAST in Turkey, scheme operations
Some fast payment schemes have decided to separate the
and governance are taken care of by the central bank. Below
governance and operational aspect in separate entities. In
are some of the key advantages and disadvantages seen in
other words, governance is carried out by a different entity
such an arrangement.
than the FPS operational entity, so that the latter focuses
Advantages of Keeping Scheme Governance and solely on FPS operational aspects, such as scheme connec-
Operations Together tivity and transaction processing.
In FPS in the United Kingdom, one of the earlier fast pay-
• Unified and interlinked approach toward scheme strat- ment schemes, scheme operations and governance func-
egy and operations tions are separated and held in dedicated entities, while the
• Participants have a clarity in communication, as they are operational entity (Pay.UK) works under the oversight of the
received from a single entity Financial Conduct Authority.
 Scheme Rules in Fast Payments | 33

Whether the governance and operational entities are kept Advantages of Segregating Fast Payment Gover-
separate or together is a decision that needs to be made by nance and Operations
a country’s relevant financial sector authority (or authorities), • Separation of governance and operational activities
keeping in mind such factors as the country’s overarching allow entities to focus and specialize on each of these
payment landscape, the strategy undertaken by the cen- functions
tral bank, and the level of institutionalization required for
• A separate governance entity allows a dedicated focus
multiple payment frameworks. (For example, the Payment
on collaborations between regulators, industry bodies,
Systems Regulator in the United Kingdom already looks
participants
after the broader governance of multiple payment schemes,
including fast payments.) The main reason for this is that it • Institutional entities can help in the formation of various
is the central bank that provides the initial push for a new new alternative payment frameworks with effective col-
payment infrastructure in any country and is instrumental in laboration with the fast payment scheme
setting the initial framework of the fast payment scheme. • Encourages participation forums for various market
Deciding whether to separate or amalgamate fast pay- players in a variety of issues related to governance and
ment scheme governance and operations has the following scheme operations, thereby providing an added incen-
implications for various stakeholders: tive for direct and prospective scheme participants
• The amount of control that the central bank wants to
Disadvantages of Segregating Fast Payment Gover-
exert over the fast payment scheme—that is, does the
nance and Operations
central bank want to extend its mandate of oversight and
• Possible delays to transformation/enhancement activities
own the fast payment scheme’s operations?
due to separate processes of the governance and oper-
• The level of expansion required from a fast payment ation entity
scheme’s perspective that would require dedicated insti-
• Disjointed communication received from participants
tutions to be set up and built upon consequently
from multiple entities looking after the same scheme
• Some of the most popular payment schemes around the
world have driven fast payment adoption on the back of FIGURE 25 Separation Model of Governance and
industry collaboration Scheme Operation Duties
• Clear lines around scheme governance and operational Payment Scheme Governance Duties
bodies ensure balanced economic incentives along with
safe and reliable operational models 1 Monitor and assess fast payment scheme

FIGURE 24 Separation Model of Scheme Governance 2 Manage collaboration between internal and external
and Operation scheme stakeholders

Key Governance Mandates Payment Scheme KPI’s

3 Manage and set overall Strategic vision for the scheme

• Ownership • Scheme Operations

• Rules • Switch Operations Payment Scheme Operation Duties
• Membership • Settlement Model
• Collaboration • Operational 1 Operationalize the vision laid down by the scheme
• Exploratory Initiatives Guidelines governance board
• Scheme Vision, Mission
and Goals 2 Manage scheme rule writing and day to day operations of
FPS

3 Manage various technical and administrative fast payment

scheme components
7 CONCLUSION

Fast payment services continue to evolve and integrate with increasingly prominent. One important reason for this is that
new-age initiatives. FPS scheme rules define the way in FPS tend to include a greater number and variety of actors
which the system will operate and the behaviors and inter- (that is, banks and non-bank PSPs, as well payment initiators
actions among participants and between participants and and other app developers, billers, and so on) than traditional
the operator. Therefore, clear and well-designed scheme systems. A well-balanced governance arrangement will con-
rules are critical for promoting and enabling upcoming and tinue to be key to ensuring the sustainability and continued
future developments in FPS, including by supporting such business growth of any fast payment arrangement.
aspects as robust risk management, maintaining the integ- In all cases, it is important that FPS operators and regu-
rity of the systems and its operations, and providing a reli- lators promote and eventually undertake a periodic review
able and seamless payment experience to customers. of scheme rules and procedures to keep the payment eco-
Beyond the traditional aspects covered by scheme rules, system up to date with the latest laws and official regu-
such as participant management, compliance, fees and lations, as well as with technological developments and
charges, security, technology, and marketing, among oth- social change.
ers, the governance arrangements of an FPS are becoming

34 |
8 ACKNOWLEDGMENTS

Organization Contributor
PwC India PwC India
World Bank Harish Natarajan
Nilima Ramteke
Holti Banka
Jose Antonio Garcia Luna
Peter Christian Moeller Jensen

| 35
APPENDICES

APPENDIX A: PARTICIPANT MANAGEMENT

TABLE A1 Comparative Analysis of Participant Management Elements across Global Payment Schemes

PARTICIPANT MANAGEMENT
Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Member Type of Fast payment schemes allow The core of card Broadly, two types of Two broad types of
onboarding participation for various participation scheme participation participation agreements participation arrangement:
agreements that can be is formed through are available in direct debit direct and indirect. Direct
broadly categorized as direct direct participation schemes: direct members, members are full members
and indirect. agreements. who are directly connected of the scheme, and indirect
In addition to this, the to the scheme with the right members gain access to the
scheme also allows for to settle, create, and manage scheme via direct members.
tiered participation direct debit mandates and
arrangements known as so on; and indirect members,
indirect members. who participate in the system
through direct members.
Settlement Payment settlements take Scheme members Participants are required to The scheme is operated
conditions place through a settlement/ need to open accounts open settlement accounts by separating clearing and
reserve account that must at specified banks with the central bank at the settlement infrastructures
be opened in the books of anointed by the scheme time of member onboarding. from the scheme. Direct
the central bank by direct mandatorily. members are required to
participants. open settlement accounts
at one of the designated
clearing and settlement
mechanisms in the
designated economic zone.
Member A prospective member needs A prospective member A prospective member In addition to submitting an
application to provide an application to applies to the scheme in submits its application along application to the scheme for
the scheme along with the the required format with with required documents assessing member eligibility,
stipulated documents and all necessary documents for the scheme to assess the participants can also be
application fees. for the scheme to eligibility of the incumbent. mandated to obtain unique
The scheme would assess assess eligibility of participant identifiers along
the completeness of the participation. with mandatory industry
application and decide certifications.
accordingly. In terms of a scheme
An important precursor to application, one of the key
the application process is for documents is the adherence
the participant to be part agreement, containing
of exploratory sessions with detailed information about
the scheme to understand the participant’s financial
the requirements and their stability, operations, business
impact on the participant’s plan, and schedule for
business. This will help the implementation.
participant build a business
case for participation.

continued
36 |
 Scheme Rules in Fast Payments | 37

TABLE A1, continued

PARTICIPANT MANAGEMENT
Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Member Scheme The scheme assesses The decision to approve Based on successfully Upon receipt of an
onboarding, decision the applicant against a or reject an applicant is meeting the application application, the scheme
continued predefined list of eligibility at the sole discretion of criteria, the scheme will must communicate to the
criteria and accepts the the scheme. Below are communicate to the participant within a specified
membership application eligibility criteria against incumbent its decision to time period its decision to
only if the prospective which the application is approve or reject. accept or reject.
member meets eligibility vetted:
requirements. • Compliance with
After form acceptance, the all local rules and
implementation project regulations.
is kicked off from the • Completeness of
participant’s end, and it documents submitted
would go ahead with testing, along with joining
dress rehearsals, go-live. application.
In case of rejection,
applicants can appeal to
the scheme, contesting
the decision within a
stipulated time frame. This,
in turn, would trigger an
investigation by the scheme
into the applicant’s case.
Jurisdiction Local, but there are payment Local and global. Local. Cross-border within member
schemes that have extended states.
the value proposition to
cross-border.
Rights and Compliance with such Timely payment of all Contribution to the Be active in the banking
duties of international regulatory scheme-related fees settlement guarantee fund. services or payment services
scheme requirements as FATF and for continued scheme Ensure adherence to anti- business.
participants sanctions screening. participation. money-laundering-related Continue holding a valid
Participants are obligated Provision of timely validations. banking license within the
to meet a reasonable and accurate reports Ensure effective fraud check economic zone.
information request from to the scheme as and and reporting. Be solvent, liquid, and in
various regulatory bodies. when mandated in the compliance with capital
Payment of all relevant
Follow settlement rules and operational guidelines. requirements.
scheme fees within the
guidelines laid out by the Follow scheme stipulated time frame. Ability to meet rating or other
scheme. guidelines and rules as ad hoc criteria as mandated
Maintenance of data records
Immediately report to the laid out in the scheme by the scheme.
with the scheme.
scheme incidents that pose rule book.
Immediately report to the Compliance with applicable
a major risk to the overall Compliance with anti- regulations on anti-money-
scheme incidents that pose
functioning of the scheme. money-laundering and laundering/countering the
a major risk to the overall
Two-way review of FATF guidelines. financing of terrorism.
functioning of the scheme.
membership (to continue Immediately report to Immediately report to the
or terminate scheme the scheme incidents scheme incidents that pose
membership)—that is, by the that pose a major risk to a major risk to the overall
scheme and the participants the overall functioning functioning of the scheme.
themselves. of the scheme.

continued
38 | Scheme Rules in Fast Payments

TABLE A1, continued

PARTICIPANT MANAGEMENT
Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Suspension The decision to suspend and The scheme at its sole The scheme is entitled to If the scheme considers
and terminate scheme members discretion can terminate terminate the membership that a participant should be
termination is made by the relevant the licensing agreement agreement of a participant. sanctioned, the scheme shall
function within the scheme of a member without This is intimated to the send a written notice to the
based on such factors as prior notice due to the concerned parties in participant setting out details
compliance with and breach following scenarios: advance. Below are some of the compliance breach
of scheme rules, nonpayment • The government or of the triggers for initiating and the sanction proposed,
of dues. any regulatory body termination/suspension along with the report and any
In most cases, the scheme decides to revoke procedures: material that is believed to be
will provide enough notice and suspend the • The member has failed to relevant to the matter.
to the participant to remedy operations of the comply with or violated Based on the presentation
the situation. participant any of the provisions of of facts provided by the
From a policy standpoint, • Refusal to pay accrued the scheme procedural participant in response, the
the fast payment scheme fees and charges to guidelines. scheme can terminate the
will have multiple escalation the scheme • Member commits material member from the scheme or
levels that can be triggered breach of scheme provide a warning (this can
• Failure to comply with
based on how much time operating procedures. also involve sending a letter
scheme guidelines and
has elapsed or predefined to the concerned central
rules on anti-money- • The current account with
actions that need to be bank as well) or absolve the
laundering, sanctions the central bank is closed
taken by the concerned participant from the case.
requirement, and or frozen.
participant. so on
• Inactivity for a
specified time period
as mentioned in the
scheme rules
• The member fails at
any point of time to
fulfill the eligibility
criteria satisfied during
member onboarding
• Member fails to
operate at a scale as
mentioned and agreed
to in the business plan
with the scheme
 Scheme Rules in Fast Payments | 39

APPENDIX B: COMPLIANCE AND GUIDELINES

TABLE B1 Comparative Analysis of Compliance and Guidelines Adherence across Global Payment Scheme

COMPLIANCE AND GUIDELINES

Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Regulatory Mandatory To assess adherence to To ensure compliance All participating From a local compliance
compliance compliance mandatory compliance with the mandatory institutions need to adhere perspective, members
and industry framework frameworks by the scheme compliances, the to guidelines issued by the need to comply with the
certifications and participants, heat scheme’s compliance central bank and have an frameworks mandated by
maps and various tools are framework is reviewed overriding effect on the the respective central banks,
employed by the scheme as needed on a risk- guidelines mentioned in given that members in the
to help track and remediate prioritized basis. the scheme. scheme are under various
compliance gaps and follow The scheme, at its In addition to this, central banks in different local
a risk-based approach to discretion, may require participant need to ensure jurisdictions.
compliance frameworks. that members contract minimum compliance with The compliance rules from
The basis of most regulatory with a scheme- international standards, a scheme perspective are
frameworks is collaboration approved vendor to such as FATF requirements, formed in such a way that
with central banks, regulatory adhere to compliance sanctions screening, they represent a multilateral
bodies, and participants. frameworks. anti-money-laundering agreement between the
The various mandatory Members are supplied guidelines. scheme regulator and
compliance guidelines with a checklist within participants, and between
can be categorized under the scheme rules that peers in the scheme, and
integrity, operations, security, will help in participant need to be adhered to by
and eligibility guidelines. self-assessment. participants.

Noncompliance Payment schemes Payment schemes Payment schemes Payment schemes

framework communicate in writing to communicate in writing communicate in writing to communicate in writing to
the applicable participant to the applicable the applicable participant the applicable participant
intimating noncompliance. participant intimating intimating noncompliance. intimating noncompliance.
Payment schemes may levy noncompliance. Payment schemes levy the Payment schemes handle
a dispute-resolution fee processing fee for referring noncompliance-related
on participants on the day disputes to arbitration. disputes for addressing
a dispute is first referred disputes related to the
to the dispute-resolution admission process of
committee. applicant scheme participants
and cases of claimed
noncompliance by scheme
participants with the rules
of the schemes.
Industry In addition to mandatory Technical certifications Certifications are The scheme mandates the
certifications regulatory requirements, to ensure that mandated by the scheme, usage of certain certifications
fast payment schemes operational guidelines validating the participant's issued by third parties that
can require participants to are being met by ability to meet testing and would help the scheme
gain industry certifications scheme members. technical standards and validate the participant's
that will help in meeting Certification and operational guidelines set ability to meet the rules
scheme requirements. compliance with forth by the scheme. mandated in the scheme
Certifications are categorized various industry rule book.
as operational, technical, standards around data
security, business-continuity. security.
Schemes can mandate that Scheme-level validation
participants get certain to ensure that
processes ratified by either participants can avail
the scheme or an identified various services offered
third-party service provider. as part of the scheme.
Mandatory scheme
certifications are not
static, and participants
might be required to get
recertified based on certain
triggers, such as service
enhancements, maintenance,
standard operating
procedures, new service
additions.
Popular industry certification
required by the scheme are
application certification,
information security, network
service providers, compliance-
based certifications.

continued
40 | Scheme Rules in Fast Payments

TABLE B1, continued

COMPLIANCE AND GUIDELINES

Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Risk Internal controls The scheme undertakes a Based on the Based on the risk profile The scheme undertakes a
management comprehensive review of the risk profile of its of its participants, the comprehensive review of the
and mitigation risk posed to the integrity participants, the scheme places control risk posed to the integrity
and resilience of the overall scheme places control mechanisms on scheme and resilience of the overall
payment framework while mechanisms on participants related to the payment framework while
reviewing a new applicant scheme participants following: reviewing a new applicant
and during participation related to the following: • Anti-money-laundering/ and during participation
within the scheme. • Anti-money- know-your-customer within the scheme.
The two key functions that laundering/know- requirements for scheme The two key functions that
support the establishment your-customer members to comply support the establishment
and review of internal requirements for with while engaging in and review of internal
controls are the operations scheme members to customer interactions— controls are the operations
and the dedicated risk comply with while that is, card issuance. and the dedicated risk
function within the scheme engaging in customer • Ensure that sufficient function within the scheme
structure. interactions—that is, operational controls structure.
To ensure continued card issuance. are implemented by To ensure continued
adherence to the scheme’s • Ensure that sufficient participants. adherence to the scheme’s
risk-management framework, operational controls • Payment risk controls risk-management framework,
periodic assessments are are implemented by that would help provide periodic assessments are
carried out that may require participants. the first line of defense. carried out that may require
on-site visits to operational • Payment risk controls on-site visits to operational
• Scheme also undertakes
and data centers. that would help and data centers.
a periodic review of
From a scheme policy provide the first line internal controls to From a scheme policy
perspective, a periodic of defense. ensure its relevance perspective, a periodic
assessment of the framework • Scheme also to the scheme and its assessment of the framework
is carried out based on undertakes a periodic participants. is carried out based on
such indicative parameters review of internal such indicative parameters
as risk-tolerance policy, controls to ensure as risk-tolerance policy,
risk-management tools, risk- its relevance to the risk-management tools, risk-
reporting requirements. scheme and its reporting requirements.
Internal controls are erected participants. Internal controls are placed to
to ensure that areas within ensure that areas within the
the scheme take proactive schemes take proactive steps
steps to manage risks and to manage risks and take
take action to manage action to manage them to
them to an acceptable level an acceptable level based on
based on the scheme’s risk- the scheme’s risk-toleration
toleration policy. policy.
For the purposes of For the purposes of
compliance enforcement, compliance enforcement,
policy controls are put policy controls are in place
in place to ensure that to ensure that members
members are in line with the are in line with the various
various frameworks defined frameworks defined in the
in the scheme rules. scheme rules.
Member When joining the scheme, Based on the member The scheme can impose The scheme can modify
restrictions participants are required to restriction policy restrictions on the value value limits for originators
self-declare that any of the in the scheme rule limits to which participants and beneficiary institutions
internal controls implemented book, the scheme can need to adhere based on based on risk-assessment
on the participant’s end require participants communication from the and policies laid down in the
related to the scheme will to use various scheme scheme and predefined participation agreement.
not have any negative impact services for a period and mutually agreed rules.
on other participants based decided by the scheme
on a checklist provided by based on procedures
the scheme at the time of laid out in the member
member onboarding. agreement document
The scheme maintains a risk between the scheme
register related to its scheme and the participant.
participants and applies any Such restrictions
changes to the participant’s are placed until the
risk profile. Based on any scheme is happy
adverse changes in the risk with the remediation
profile, restrictions might procedures
be placed on the concerned implemented by the
participant, such as reducing participant.
the payment limits.
continued
 Scheme Rules in Fast Payments | 41

TABLE B1, continued

COMPLIANCE AND GUIDELINES

Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Risk manage- Fraud-risk- Objective: The scheme’s key Objective: Establish Objective: The scheme’s Communication: Create
ment and management objective from a fraud policy and assess liability key objective is to a common code for
mitigation, policy perspective is to establish guidelines for fraud implement a fraud- participants for promptly
continued institutional processes that management that management policy recalling transactions that
will supplement the broader will help in placing that will be a shared arise due to fraud.
scheme strategy on fraud accountability on the responsibility between Fraud risk profile: Enhance
policy and procedures. correct party. the scheme and its and regularly update fraud
Mitigation: Provide and Mitigation: Set participants. rules and communicate them
update specific rules around monitoring rules Fraud reporting: Prompt to the participants.
remediation procedures for participants for and clearly defined Fraud strategy: Entertain
arising from a fraud event, detecting fraud. reporting framework for change requests from
with an emphasis on placing Reporting: fraud occurrences. participants with respect
liability, responsibility, first Set a common Fraud mitigation: The to fraud policies and
points of contact, and communication scheme has clearly called procedures. The scheme
accountability between the standard for reporting out in the scheme rules will fully evaluate the impact
relevant parties in the value frauds. that all fraud-mitigation of such change requests
chain. frameworks sit with and engage in meaningful
Risk profile: Create and
Service rails: Establish new maintain risk registers the participants to dialogue with participants
service rails to complement for stakeholders to implement and maintain before deciding.
fraud events taking place provide an appropriate but governed by the
within the core payment rail. reflection of the risk broader scheme strategy
Fraud strategy: Formulate posed by scheme on fraud prevention and
consumer protection rules participants. remediation.
based on collaboration with Fraud strategy: Create Fraud strategy: The
the industry and seek buy-in strategic fraud- scheme has a wider fraud-
from scheme stakeholders. prevention programs management strategy to
for participants and identify, measure, and
create a strategy for mitigate frauds.
effective proliferation
among participants.
42 | Scheme Rules in Fast Payments

APPENDIX C: OPERATIONS

TABLE C1 Comparative Analysis of Operational Aspects across Global Payment Scheme

OPERATIONS
Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Reconciliation Settlement Payment schemes regulate Cards schemes the Debit-transfer schemes Obligation to perform clearing
and agency the settlement agency regulate the settlement regulate that settlement and settlement does not lie on
settlement that performs end-to-end agency that performs agency that performs payment scheme. Instead, the
settlement operations on end-to-end settlement end-to-end settlement payment scheme lays down
behalf of the fast payment operations on behalf of operations on behalf of rules for clearing and settlement
scheme. the card scheme. the direct debit scheme. mechanisms to operate. The
mechanisms are chosen by
individual participants as per
their requirements, resulting in
the promotion of cross-border
payments.
Settlement Payment schemes and par- To participate in Payment schemes and For transactions to settle
account ticipants maintain settlement settlement systems, participants maintain through the credit scheme,
accounts with the central member banks are settlement accounts with it is up to the specific credit
bank of the country. (The FPS required to open the central bank of the scheme either to open
implemented so far set-tle in an account with the country. settlement accounts within
central bank money.) bank specified by the the credit scheme or to
payment scheme. maintain a settlement account
In case the settlement with another clearing and
account is maintained settlement mechanism. For
with the central bank, example, the settlement
the participants of NACH credit takes place
would need to have in the current account of
an account with the participating banks maintained
central bank. with the Reserve Bank of India.

Settlement The following two approaches Transactions are Transactions are settled The settlement model is as per
model are followed for account settled in batches in batches after netting the scheme rule book—that is,
settlement: after netting with with the net adjustment it can be file based or real-time
• Deferred net settlement: the net adjustment amount. The approach gross settlement.
Transactions are settled in amount. The approach adopted is deferred net
batches, after netting with adopted is deferred net settlement.
the net adjustment amount. settlement.
• Individual settlement:
Individual transactions
are settled with finality by
simultaneously crediting
and debiting participants’
accounts.
Settlement Depending on the settlement Participants present a The payment system The settlement cycle is as per
cycle model, payment schemes successful transaction usu-ally undertakes one the scheme rule book. For
settle the transactions. In case to the payment presentation settlement example, for NACH based on
of deferred net settle-ment, schemes for settlement, session and one the input file, the settlement
payment schemes can opt for as per the defined corresponding return can take place on either a T+7
a multiple settlement cycle, settlement cycle, settlement session per or a T+0 basis.
based on the infrastructure usually one settle- day.
available. ment cycle per day.
Settlement The settlement model has The settlement As per the payment The obligation of defining a
turnaround a direct impact on the normally is on a T+1 scheme guidelines, the settlement turnaround time
time turna-round time. Payment basis—that is, after sponsor bank is to credit is out of the purview of the
schemes that adopt deferred successfully processing the beneficiary account payment scheme.
net settlement usually settle the transaction on T the same day it receives
funds on the transaction date. day, the settlement funds in its settlement
Payment schemes that adopt of funds between the account.
individual settlement settle participants is on the
funds almost instantly. subsequent day.
Settlement file The settlement model has Participants adopt Payment schemes adopt The selection of a pre-
presentment a direct impact on the the scheme- a traditional presentment sentment file type is out of
type way files are presented for specified present- method for debit man- the purview of the payment
settlement. The following are ment method for dates—that is, collating scheme.
the two methodologies for file presenting successful and presenting debit
presentment: transactions. Based on mandates in batches in
• Bulk/batch upload: the transaction type, the upcoming settlement
Transactions are collated and participants collate and cycle.
presented in batches in the present transactions to
upcoming settlement cycle. the payment schemes
in batches in the
• Individual upload: Individual
upcoming settlement
transactions are presented
cycle.
irrespective of the settlement
cycle.

continued
 Scheme Rules in Fast Payments | 43

TABLE C1, continued

OPERATIONS
Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Reconciliation Settlement Payment schemes support While domestic Payment schemes The choice of settlement
and currency local currency for settlement. transactions are settled support local currency for currency is out of the purview
settlement in local currency, settlement. of the payment scheme.
the overall payment
scheme supports
settlement in multiple
currencies.
Reporting Reports as may be relevant Reports as may be Reports as may be Reports as may be relevant
are generated by payment relevant are generated relevant are generated are generated by payment
schemes for the participants. by payment schemes by payment schemes for schemes for the participants.
for the participants. the participants.
Dispute Dispute- Payment schemes either form The payment scheme A panel for resolution The compliance function of
management resolution a separate dispute-resolution resolves disputes handles disputes related the schemes is the respon-
committee committee or resolve dispute between participants to transactions. sibility of the operator.
via the payment scheme's via an arbitration and
operating committee. compliance committee.
Dispute life If supported by the payment The dispute-resolution The dispute resolution Not applicable.
cycle scheme, the dispute resolution life cycle for a payment life cycle for a debit
life cycle is as follows: scheme is as follows: scheme is as follows:
• The end customer disputes a • The end customer • The end customer
transaction. disputes a disputes a transaction.
• The issuing participant transaction. • The destination
conducts an inquiry. • The issuing participant conducts an
• The card network extends participant conducts inquiry.
the inquiry to the merchant. an Inquiry. • A panel for resolution
• Charge-back stage. • The card network of disputes/arbitration.
extends the inquiry • Central bank of the
• Pre-arbitration.
to the merchant. country.
• Arbitration.
• Charge-back stage.
• Pre-arbitration.
• Arbitration.
Dispute- Participants utilize a settle- Participants utilize Participants utilize a set- Not applicable.
resolution ment portal, provided by the a settlement portal, tlement portal, provided
channels payment scheme, to raise provided by the by the payment scheme,
disputes. payment scheme, to to raise disputes.
raise disputes.
Dispute- Participants are bound to Participants are bound Participants are bound Not applicable.
resolution fee pay a fixed fee at the pre- to pay a fixed fee at to pay a fixed fee at
arbitration and arbitration the pre-arbitration and the pre-arbitration and
stages. arbitration stages. arbitration stages.
Provision for Payment schemes provide end End customers dispute On behalf of the end Payment schemes do not
end customers customers with an optional the transaction by customer, the participant provide dispute-raising
to raise functionality to raise disputes contacting the card raises the dispute to channels to end customers.
disputes on on transactions directly to the issuer. the dispute-resolution
transactions scheme. agency.
Customer Payment schemes might Payment schemes do Payment schemes might Payment schemes do not
support for provide a customer-support not provide customer- provide cardholder provide customer-support
end customers channel to end customers. support channels for inquiry services that channels for end customers.
end customers. connect with the end
customer's participants
for account-specific
inquiries, card block, and
support. Additionally,
the payment scheme
can arrange for cash to
be available to the end
customer in emergency
situations on the
participant's approval.

continued
44 | Scheme Rules in Fast Payments

TABLE C1, continued

OPERATIONS
Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Monitoring Transaction Payment schemes do real-time Payment schemes do Payment schemes do not Payment schemes do not
monitoring transaction monitoring to real-time transaction do real-time transaction do real-time transaction
detect any possible fraud and monitoring to detect monitoring. monitoring.
provide an early remedy. any possible fraud
and provide an early
remedy.
Fraud checks Payment schemes define Payment schemes Payment schemes Payment schemes define
and related high-level fraud checks to be define high-level fraud define high-level fraud high-level fraud checks to be
monitoring followed by participants for checks to be followed checks to be followed followed by participants for
end-customer and merchant by participants for by participants for end- end-customer and merchant
onboarding. end-customer and customer and merchant onboarding.
The payment scheme adopts merchant onboarding. onboarding. A request to cancel a credit
fraud-check mechanisms, such Payment schemes transfer transaction can be
as multiple authentications, adopt fraud-check initiated only by the bank
and additional confirmation mechanisms, in case of a fraudulently
steps designed to reduce such as multiple originated credit transfer
the likelihood of mistaken authentications, and instruction.
payments to minimize fraud. the latest technology,
such as EMV, to
minimize fraud.
 Scheme Rules in Fast Payments | 45

APPENDIX D: FEES AND CHARGES

TABLE D1 Comparative Analysis of Fees and Charges across Global Payment Scheme

FEES AND CHARGES

Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Scheme Onboarding A fee payable by the member Constitutes the fee Through this fee, the A fixed fee is set by the
participation fee to the scheme operator fixed by the network scheme operator will manager to recover costs
fee for participating in the fast providers that is validate the membership and manage the operations.
payment system. payable by the financial of the institution as The fees may be levied on an
This may be in the following institutions. Through a member and its individual or a group level.
forms: this fee, the network capability to process
binds the financial financial and non-
• Fixed amount specified by
institutions to: financial transactions.
the scheme operator payable
by individual members • Membership
• Shares of the scheme • Compliance and
adherence to the
card scheme rules
Support and Fees paid to the infrastructure The network operator Recertification fee, No fixed fee exists, decided by
maintenance provider for timely may charge this fee charges for support on the operator from time to time.
fee maintenance and assistance for the connectivity messaging standards,
provided. It can be a one-time provided or a service testing, and training
or recurring fee. fee, which may depend may be constituted as a
One-time: on the volume or value support fee.
of transactions.
• Migration support
Recurring:
• Telecommunication set-up
fee, recertification fees
• Helpdesk/service desk
assistance fee
Administration May include a fee for Administration fee may The operator charges The operator charges no
fee administrative components. be charged for overlay no specific fee for specific fee for administration.
services. administration.
Switching Paid by the participants to the The switching fee is Fixed fee per transaction No specific charges exist.
fee infrastructure provider (switch received whenever the paid by the participants
provider) on a pertransaction issuer bank receives to the switch creator.
basis. May be fixed or variable approval and clears the
or both, depending on the payment. It is levied
transaction volume and value. by the card-issuing
institution on the
issuing bank.
Interparty Mostly to recover costs In the form of a Interchange and Dependent on transaction
fee for each stakeholder and network-connectivity switching fee, which volume.
safeguard against risks. fee (transaction routing is dependent on
This fee is usually paid by the fee) or interchange- transaction volume.
participants of the scheme to reimbursement fee to
the other participants or the the network provider.
scheme operator. Acquirer banks charge
The following fees may be merchants a merchant
levied for transactions: discount rate and, in
turn, are charged an
• Interchange fee: Fees that
interchange fee. End
the issuing bank/institution
users may also be
levies on the acquiring bank/
charged a user fee/ATM
institution or vice versa.
withdrawal fee.
• PSP fee: Fee charged by
the PSP to the merchant to
process the payment.
• Merchant discount rate:
Rate the merchants are
charged by their banks
or service providers for
accepting payments.
May be retail or wholesale;
can vary by transaction value,
volume, or channel.

continued
46 | Scheme Rules in Fast Payments

TABLE D1, continued

FEES AND CHARGES

Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Miscel- Non- Members are levied a Noncompliance with Penalty for Interparticipant penalties
laneous fee compliance penalty as prescribed by scheme rules results noncompliance is as are liable in case of non-
fee the scheme rules in case of in penalties on the per severity of non- compliance with the rules.
nonadherence. participant or compliance.
participants.
Offboarding Lump-sum fee to be paid to No such fees No such fees exist for No specific offboarding
fee the scheme operator at the are charged for participants to offboard. fee exists, but members
time of offboarding. offboarding may voluntarily terminate
membership. However, they
will be bound by scheme rules
for the time when they were
members.
Other fee No such charges exist. In case of a dispute Taxes and statutory No specific charges exist for a
investigation, other payments. miscellaneous fee.
fees are payable.
 Scheme Rules in Fast Payments | 47

APPENDIX E: TECHNOLOGY

TABLE E1 Comparative Analysis of Technological Elements across Global Payment Scheme

TECHNOLOGY
Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Messaging Mode of Fast payment schemes use Transmission Control Participants and payment Participants and payment
mode and communi- APIs as the messaging proto- Pro-tocol and Internet schemes communicate via schemes communicate via an
communi- cation/ col, which either are defined Protocol are used in the following channels: electronic file in the for-mat
cation Messaging end to end by the schemes or transmitting transaction • File based: for bulk specified by the payment
standard protocol the API framework contains data between mandates scheme.
the key technical approach participants and
• UI based: for individual
and mandatory data attributes payment schemes.
mandates
for APIs.
Message The following are the three ISO 8583 is widely Functions on the The implementation guide-
standards approaches widely adopted by adopted and used as international messaging lines are based on the
schemes: the messaging protocol standard ISO 20022. ISO 20022 XML message
• ISO 20022 messaging in the card industry. standards.
standard Gradually, the card
• ISO 8583 standard mapping scheme is moving
to and from ISO 20022 toward ISO 20022
messages using the XML/
JSON format, which
• Proprietary messaging
is self-documented
and uses tags to
make the contents of
the message easily
decipherable and
accessible without
technical expertise.
Transaction Payment schemes could Payment schemes Maximum debit amount The maximum credit amount,
limit choose any of the following: define transaction limits via a single instruction if any, via a single instruction
• Payment schemes define against each payment is set by the debit is set by the credit transfer
the maximum transaction instrument handed over transfer schemes, which schemes, which are followed
limit for individual payments. to the end customer. are followed by the by the participants.
Participating organizations participants.
can set their own limits
depending on how the
payment is sent and the type
of account from which their
customer is sending.
• Define no transaction limits;
participating financial
institutions can set limits.
Technical Technical SLAs laid out by payment Payment schemes In terms of technical Participant's systems are
infra- infra- sys-tems are stricter, and define SLAs for infra-structure availability, available for presentment to
structure structure participants are required to participants to ensure participants’ systems are the payment schemes as per
availability adhere to the technology smooth, uninter- available for presentment the predefined turnaround
and
maintenance plan set out by rupted functioning to the payment schemes time.
contingency payment scheme. and services to end as per the predefined
standards customers. turnaround time.
Contingency Payment schemes set Payment schemes Payment schemes define Payment schemes set min-
plans minimum business-continuity define contingency contingency plans for the imum business-continuity
standards, including any plans for the participants under the standards, including any
upgrade from time to time, participants under larger ambit of regulatory upgrade from time to time,
with which the participants the larger ambit of guidelines of a business- with which the participants
must always comply. regulatory contingency continuity plan for the must always comply.
guidelines. participants.
Security Data Fast payment schemes man- Storage of encryption The scheme specifies the The credit scheme has
protocols encryption date the use of encryption keys in a secure data encryption methodology implemented an internationally
methodologies for protecting center, along with through the adoption of accepted encryption
payment information, along defining various levels international standards framework, such as the public
with specific technical of key encryption such as SHA 256. key infrastructure, ensuring
standards around data hierarchy for encryption secure data transmission along
encryption. Indicative key management. with end-to-end transmission.
technical standards around
data encryption include the
following:
• Encryption protocol must
remain intact during end-
user interaction
• Device/application
encryption
• Secure encryption algorithms
• Point-to-point encryption

continued
48 | Scheme Rules in Fast Payments

TABLE E1, continued

TECHNOLOGY
Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Security Identity and Separate rails have been built The scheme places The various directly Before sending and receiv-ing
protocols, account by fast payment schemes to specific responsibilities participating banks payments through the credit
validate identity and accounts on players in the are given the task of scheme, the participants in
continued validation of end users. value chain to validate identifying and validating the value chain are required
In addition to this, participant identity of the end user. the customers on their to validate the customer
in the value chain have For example, for card end. credentials before processing
their own authentication scheme token services, the payment.
mechanisms to validate and the issuer has the full
verify the user. responsibility to validate
the identity of the
Also, there are schemes that
cardholder.
use third-party validation
services that allow the
payment players to focus on
their core business.
Message Mandating digital signatures. Messages are Messages are transmitted With the help of a globally
security A unique identifier for a transmitted across across secure channels recognized network service
request-response set. secure channels bearing the digital signa- providers, a message is
between participants to ture to maintain the transmitted through secure
Message transmission over a
protect the sanctity of sanctity of the payload, channels with appropriate
secure channel, such as HTTPS.
the payload. along with a relevant identifiers, such digital
A unique identifier for a timestamp. signatures, timestamps.
request-response set.
 Scheme Rules in Fast Payments | 49

APPENDIX F: MARKETING AND BRANDING GUIDELINES

TABLE 4 Comparative Analysis of Marketing and Branding Elements across Global Payment Scheme

MARKETING AND BRANDING GUIDELINES

Scheme Rule Subarea Fast Payment Scheme Card Scheme Direct Debit Scheme Credit Scheme
Payment Brand • Payment schemes follow Payment schemes Participants follow Inference for the marketing
scheme guidelines the following approach for formulate the branding the payment scheme and branding guidelines
brand framework branding and marketing: and marketing guide-lines and payment comes from the regulation that
• Payment scheme logo guidelines for the scheme operator enabled the formation of the
guidelines
is visible on acceptance participants and the guidelines when using payment scheme. Payment
channels adhering to the merchant to promote the defined logo. schemes circulate marketing
overall marketing and the brand visibility for and branding guidelines under
branding guidelines. end customers. the larger ambit of guidelines
specified by the regulatory
• In case of overlay services,
body.
precedence is given to the
overlay service logo, instead
of the payment scheme logo.