The development of the payment system in Bulgaria and SEPA preparation bnb The development of the payment system in Bulgaria and SEPA preparation Dimitar Kostov Deputy Governor Bulgarian National Bank

Legal framework: - Law on the Bulgarian National Bank; - Law on Fund Transfers, Electronic Payment Instruments and Payment systems; - Regulations of the Bulgarian National Bank - Other related legislation (securities, bankruptcy, etc.)

Law on the Bulgarian National Bank Art.2(4) The Bulgarian National Bank shall assist in establishing and functioning of efficient payment systems and shall oversee them. Art.40(1) For the purpose of facilitating non-cash payments, the Bulgarian National Bank may organize and operate payment systems and clearing offices, as well as issue ordinances providing for the establishment and operation of such systems and offices.

LFTEPIPS (Law on payments) stipulates: - rights and obligations of providers and users of payment services and electronic payment instruments; - information requirements related to payments; - requirement for establishing and functioning of payment systems - payments oversight - payments related out-of-court dispute settlement

General overview of payment and securities settlement systems in Bulgaria: Large value (RTGS) payment system – RINGS; Low value (net settlement) system – BISERA; Card system – BORICA; Government securities settlement system – GSSS Corporate securities settlement system - CDAD

bnb Architecture

Large value (RTGS) payment system – RINGS In operation since 2 June 2003 Settles systemically important payments in BGN on gross basis in real time payments between CBs and between BNB and CBs payments on settlement requests received from the system operators payments on government securities transactions all clients' and budget payments equal or exceeding BGN 100 000 Provides settlement finality for: money transfers payments on securities transactions

RINGS Functional Characteristics RINGS accepts for settlement payment orders (credit transfers) and settlement requests by the ancillary systems’ operators All CBs (head quarters) are direct participants - payments executed in RINGS are processed by CBs within one hour No restriction imposed on the value of payment orders Queuing facilities (queue control, re-prioritization) Automatic gridlock resolution Pricing policy - full cost recovery principle and incentives to submit payments early in the day Communication platform - SWIFT (FIN Y-copy) SWIFT network is used for message transfer between CBs and RINGS ancillary systems settlement requests are in SWIFT format RINGS operating hours 08:00 – 17:30

Characteristics and Performance RINGS is a modern, safe and efficient payment system Adequate architecture & efficient organization Modern means of security & common technological standards Systemic risk reduction Real time monitoring & efficient pricing policy Effective risk management by the BNB Optimal liquidity management by CBs Adopted international payment systems standards Processing time: <10 sec. for 99% of payments, <15 min. for 1% Capacity: services up to 100 participants & up to 50 000 payments daily RINGS Availability Coefficient for 2006: 99.85% Since its launch, RINGS has been operating smoothly without any problems Emergency situations were managed in compliance with the adopted contingency rules and procedures

Statistics Processed payments in 2006: Total volume – 983 273 bnb Statistics Processed payments in 2006: Total volume – 983 273 Customer payments volume – 919 607 Maximum daily volume – 8 747 Total value – 230 003 million BGN Maximum daily value – 1 910 million BGN The total value of processed payments in 2006 exceeds 4.7 times the GDP. The daily average value increases from 420 mln in 2003 to BGN 913 mln in 2006, or 117 % increase. The daily average volume increases from 1 334 in 2003 to 3 902 in 2006, or 193 % increase. No cancelled payment at the end of the day because of insufficient funds on the account of a participant. RINGS statistical data is a good reason to consider that an efficient and reliable payment system is in place I shall narrow the focus a bit from the “new economy” to the contribution of information and communications technology (ICT) ICT contributes as an output and also as an input Countries may differ in the size of their ICT producing sector. But it is likely that all will find ICT making a larger and larger contribution on the input side The output share is easy to calculate since there is no need to measure prices. But the input share requires the estimation of asset stocks and hence price indices are required.

Low value payment system -BISERA Processes: Credit transfers and Direct debits All CBs participate Calculates the positions of the CBs, resulting from retail payments, using multilateral netting Sends 2 times per day settlement requests in RINGS No payment queues Statistics of processed payments in 2006: Volume: 51 301 175 Value: 75 505 mln. BGN

Card payment system BORICA Calculates the positions of the CBs, resulting from transactions with bank cards, using multilateral netting Sends 2 times per day settlement requests in RINGS No payment queues Statistics for 2006: Cards issued: 3 393 309 ATMs: 2 360 POS: 20 906 Volume of transactions: 90 523 854 Value of transactions: 7 355 mln. BGN

Government securities settlement BNB operates Government Securities Depository (GSD) and the settlement system – BNBGSSS On the primary market – settlement on the day of issue. On the secondary market – on the day of trade. Settlement executed on a trade by trade processing. Statistics for 2006: Volume: 6 355 Value: 12 312 mln. BGN

Central Depository Calculates the positions of the CBs, resulting from deals with corporate securities, using multilateral netting Uses DVP Model 2 /money on net basis, securities on gross basis/ Settlement cycle T + 2 Sends once a day settlement request in RINGS Statistics for 2006: Volume: 264 039 Value: 2 646 mln. BGN

Key developments in the payment system over the last several years national RTGS system for large value payments – 2003, Introduction of the Law on payments as a legal framework – 2004 – 2005, creation of a National Council on Payment Systems with the participation of the BNB, ACB as a representative of the banking community and the payment system operators - 2005, IBAN standard for all bank accounts – 2006, SWIFT standards for messages within the national retail payment system – BISERA – 2006, migration of card system to EMV standards

Challenges ahead Payment services directive – unified rules, more competition, consumer protection, transparency. TARGET 2, and T2S – further integration, enhanced services, liquidity management improvement. SEPA – integration, standardization, interoperability, new business opportunities.

Approach National Council on Payment Systems – overall responsibility for payment system development, incl. for national SEPA plan. Consultative groups in key topics (7) – instruments, infrastructures, legal framework, card payments, TARGET 2, securities settlement systems, budget payments.