MAS: Payment & Settlement Systems

MAS' role in the oversight of payment and settlement systems is to promote the safety and efficiency of these infrastructures. In this regard, MAS is empowered under the Payment System (Oversight) Act 2006 to supervise payment system operators such as the Automated Clearing House (ACH) and payment system participants.

1. Clearing and Settlement Systems

1a. New MAS Electronic Payment System (MEPS+)

MEPS+ is MAS’ 2^nd generation real-time gross and government securities settlement system that replaced the prior MEPS in 2006. MEPS first began operation in 1998. The main feature of MEPS+ is the real-time and irrevocable transfer of funds and scripless Singapore Government Securities (SGS) between MEPS+ participants, subject to the availability of funds and/or securities. The new system also provides several improved features over the MEPS system. These include:

All banks in Singapore are eligible to participate directly in MEPS+. Regulated non-banks of systemic importance may also seek approval from MAS to participate in MEPS+. MEPS+ is a designated payment system under the Payment Systems (Oversight) Act 2006.

1b. Continuous Linked Settlement (CLS) System

CLS is a global multi-currency settlement system that aims to eliminate foreign exchange (FX) settlement risk due to time-zone differences. The CLS settlement service, provided by CLS Bank, allows both legs of a FX trade submitted by members to be settled simultaneously across the books of CLS Bank and therefore guarantees finality and irrevocability of the settlements.

CLS went live in September 2002 and initially settled FX transactions in seven major currencies - the Australian Dollar, Canadian Dollar, Euro, Japanese Yen, Pound Sterling, Swiss Franc and US Dollar. The Singapore Dollar (SGD) was included in CLS in September 2003, together with the Danish Krone, Norwegian Krone and Swedish Krona. As a result, FX trades involving SGD and other CLS currencies can be settled in CLS without exposure to FX settlement risks.

Three local banks - DBS Bank Ltd, Oversea-Chinese Banking Corporation Ltd and United Overseas Bank Ltd, who are CLS shareholders - started settling their eligible FX trades through CLS Bank in December 2002. For efficiency, the three banks have established Clearing & Payment Services Pte Ltd (CAPS), a common clearing utility, to aggregate and share the processing of their CLS transactions.

CLS is overseen through a co-operative oversight arrangement led by the Federal Reserve Bank of New York. MAS is a member of this oversight arrangement. This oversight arrangement provides a mechanism for mutual assistance in carrying out individual central banks' responsibilities in pursuit of their shared public policy objectives for the safety and efficiency of payment and settlement systems.

1c. Singapore Automated Clearing House (SACH)

The Singapore Clearing House Association (SCHA), formed in December 1980, is an association to establish, manage and administer clearing services and facilities for cheques as well as debit and credit items of its members. It comprises MAS and the commercial banks in Singapore that wish to become members. As of 1 May 2008, the SCHA has 42 ordinary members and 51 associate members. The SCHA establishes the rules on the rights and responsibilities of participating banks, and provides SGD Cheque Clearing, USD Cheque Clearing and Interbank GIRO Clearing services, through the Automated Clearing House (ACH), which is operated by Banking Computer Services Pte Ltd (BCS) since 1981.

Section 59 of the Banking Act allows MAS, in conjunction with the banks and other financial institutions, to establish a Clearing House to facilitate the clearing of cheques and other credit instruments, and regulate its operation.

2. Payment Media

2a. Cheques

In July 2003, banks in Singapore migrated to a new cheque clearing system, known as the Cheque Truncation System (CTS). CTS originated as an initiative from the SCHA and the Association of Banks in Singapore (ABS) to enhance the operational efficiencies of the banking industry. CTS is the world's first nation-wide end-to-end cheque truncation system, leveraging on advanced imaging and internet technologies to capture cheque images at the point of deposit and transmitting the images over a secured communication network. Please refer to the ABS website for more information on CTS.

Both Singapore dollar (SGD) denominated cheques and United States dollar (USD) denominated cheques presented to, and drawn on banks in Singapore, are cleared through CTS. Note that for USD cheques to be cleared in ACH, both Presenting and Paying banks must be participants of ACH. In 2007, the ACH processed 84.9 million SGD-denominated cheques and 940,000 USD-denominated cheques, with total values of S$626.7 billion and US$32.7 billion respectively.

2b. Interbank GIRO

Interbank GIRO (IBG) system allows customers of a participating bank to transfer funds through direct debits and credits, to the accounts of other participating banks. Previously, it involves the exchange of magnetic media containing payment instructions from the participating banks via ACH. In July 2001, the SACH enhanced the IBG system to a browser-based eGIRO system, thus eliminating the manual delivery of magnetic tapes between participating banks and the ACH. Participants can now send and receive GIRO items, including returned and rejected items, electronically via a secured communication network. With eGIRO, clearing cycles for the direct credit and debit transactions are shortened significantly. In 2007 the number of eGIRO transactions processed was 81 million, and the value processed was S$186 billion.

2c. Credit and Charge Cards

A credit or charge card represents a granted line of credit that allows the holder to make purchases or obtain a cash advance up to an approved credit limit. For credit cards, the debt incurred can be settled in part; interest is charged on the amount of extended credit. For charge cards, the full amount of the debt must be settled by the end of each billing period.

2d. Debit cards

A debit card allows cardholders to make payments and cash withdrawals from their deposit accounts through an Automatic Teller Machine (ATM) or an Electronic Funds Transfers at Point of Sale terminal (EFTPOS). Debit cards can be broadly categorised into 2 groups: PIN-based debit cards and signature-based debit cards. NETS EFTPOS is an example of a PIN-based debit card while VISA Electron and MasterCard Debit are examples of signature-based debit cards in Singapore. As at 31 December 2006, there were about 69,000 EFTPOS terminals in Singapore. There were a total of 154 million debit card transactions worth $14.6 billion in 2006.

From March 2001, banks and retailers commenced offering cashback service using their EFTPOS system. Cashback allows consumers to withdraw a small amount of cash from their bank accounts at participating retail outlets. With cashback, consumers are able to enjoy the greater convenience of longer operating hours and the increased number of access points provided by the service.

2e. Stored Value Facilities (SVFs)

A Stored Value Facility (SVF) is a form of prepaid electronic cash or card that can be used within the system of the SVF issuer. The SVF issuer is known as the holder of the stored value. An SVF is also known as e-money. Usage of SVFs usually does not require Personal Identification Numbers (PINs) or signatures. The Payment Systems (Oversight) Act 2006 (“PS(O)A”) and its related regulations governs the issuance and management of SVFs. Please access these regulations here.

An SVF may be a single purpose scheme or a multi-purpose one. A single purpose SVF is an SVF that is, or is intended to be, used for payment only of goods or services, or of both goods and services, provided by the holder of that stored value facility. Note that single purpose SVFs are exempt from certain sections of the PS(O)A. Please see the exemptions here.

When the stored value outstanding in the SVF scheme exceeds a threshold limit set in the PS(O)A, the SVF is regarded as a widely accepted SVF (“WA SVFs”). Currently the threshold limit stands at $30 million. The approval of MAS is required for the continued operation of this type of SVF scheme. The PS(O)A defines WA SVFs as a stored value facility –

(a) in which the stored value is held by an approved holder; and
(b) in respect of which an approved bank has undertaken to be fully liable for the stored value.

As of June 2008, only two WA SVFs have been approved by MAS. They are the "CashCard", introduced by Network for Electronic Transfers (Singapore) Pte Ltd (NETS) in November 1996, and the "ez-link Card" introduced by EZ-Link Pte Ltd in April 2002.

The NETS CashCard is based on smart card technology, and is widely accepted at retail outlets, supermarkets, departmental stores, libraries and post offices for retail purchases. It is also used for payment of electronic road pricing and parking fees. The ez-link Card is based on contactless smart card technology and used primarily in the public transport system. However, since its introduction, the ez-link Card's use has been progressively extended to non-transit purposes such as retail payments.

Year	Number of transactions (millions)	Value of transactions ($ billions)	Number of stored value cards/accounts (thousands)
2000	100.10	0.17	4,697
2001	102.20	0.21	5,639
2002	702.11	0.66	9,776
2003	1,535.90	1.24	11,513
2004	1,598.15	1.33	10,673
2005	1,621.60	1.42	11,114
2006	1,691.02	1.52	12,042

Users, Operators and Issuers of SVF

Operators of SVFs and holders of stored value may wish to refer to MAS’ ‘Guidelines on Stored Value Facilities’. These guidelines share some best practices that a SVF scheme should have in place.

3. Publications and Papers

3a. Bank for International Settlements (“BIS”) Publications

MAS is a member of the BIS CPSS, which serves as a forum for central banks to monitor and analyse developments in domestic, cross-border, and multicurrency payment, settlement and clearing systems. The CPSS contributes to the strengthening the financial market infrastructure by promoting sound and efficient payment and settlement systems. It has undertaken several initiatives through working groups and specific studies in the field of payment and settlement systems.

CPSS publishes reference works on payment systems in the G10 countries as well as various other countries periodically. The objective of these reference works, widely known as Red Books, is to contribute to the better public understanding and awareness of the way payment systems work in different countries. MAS participates in several CPSS publications relating to payment systems. Some of these include:

MAS is also a member of the CPSS Sub-Group on Foreign Exchange Settlement Risk as well as a member of the Working Groups on Cross-Border Collateral Arrangements, Standards and System Interdependencies.

In 2006, the CPSS FX Settlement Risk Subgroup conducted a survey of how over 100 banks and other institutions active in the FX market manage the risks that can arise when settling foreign exchange transactions. A consultation report was published in July 2007 detailing the findings as well as containing specific recommendations for individual institutions, industry groups and central banks to reduce and control remaining exposures that may still present systemic risk and to guard against possible backsliding. The follow-up progress report on the FXSR survey was published in May 2008, “Progress in reducing foreign exchange settlement risk”. This report updates on the steps taken to reduce FXSR by the participant countries, including Singapore.

3b. Executive meeting of East Asia-Pacific Central Banks (“EMEAP”) Publications

Established in 1991, EMEAP is a co-operative organisation of central banks and monetary authorities in the East Asia and Pacific region. The primary objective of EMEAP is to strengthen the co-operative relationships among its members. MAS is an active member of the EMEAP Working Group on Payment and Settlement Systems.

The "Payment Systems in the EMEAP Economies" or EMEAP Red Book was released on 17 Jul 2002. The Singapore Chapter of the EMEAP Red Book is also separately available. The EMEAP Red Book is an accomplishment of collective study over the past years by the EMEAP Working Group on Payment and Settlement Systems and promotes further understanding of payment and settlement systems in the EMEAP region.

In addition, the Working Group has published a report, Foreign Exchange Settlement Risk in the East Asia-Pacific Region (December 2001)to analyse the scale of foreign exchange settlement risk in the EMEAP region, based on each EMEAP member's foreign exchange settlement risks survey results.

3c. Other Publications

In July 2001, MAS published a report, Foreign Exchange Settlement Risk Practices in Singapore, based on the results of a survey of 39 banks in the Singapore foreign exchange market whose foreign exchange activities in total accounted for more than 90% of Singapore's total foreign exchange transactions in 1999.

Payment & Settlement Systems in Singapore