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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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