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China National Advanced Payment System (CNAPS)

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by

Gina Toh

on 14 July 2014

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Transcript of China National Advanced Payment System (CNAPS)

Background
Main driver of economy and social development

Innovated based on nation’s needs and experiences from developed countries

Common platform for banks and money-market
Analysis of Payment System
Operation of Payment System
BA2312 Investment Operation CA 2 - China CNAPS
China National Advanced Payment System (CNAPS)
Relevant Findings
Cross Border Interbank Payment System
Financial agreements across national borders
From one country to another
E.g. Fund transfers and loans

Relationships with local banks in other countries
Real Time Gross Settlement
Online fund transfer mechanism

Types of transactions
Low in volume
Huge amount
Urgent circumstances

Real time basis=NO waiting time

Gross basis=NO collating or bunching

Payment is final & irreversible
Netting
Payments are consolidated and finalized at single figure for settlement

Common practice for Foreign Exchange, Futures & Options

2 types of netting
Bilateral:
Consolidation of transaction amount between 2 parties only
Multilateral:
Allow transactions among multi parties to be summed
For your information
Advantage
Reduces settlement risk as it is guaranteed by the Central Bank
Eliminates credit risk as amount is processed instantaneously

Disadvantage
Require a higher level for liquidity to maintain sufficient balance
Advantage
Reduce workload
Saves bank charges for processing

Disadvantage
Parties might be involved in legal issues as jurisdiction do not recognize the enforceability
Core functions of the system:
High Value Payment System(HVPS)
Bulk Electronic Payment System(BEPS)
High Value Payment System
Established in June 2005

Provide same day settlement for interbank funds transfer

Real Time Gross Settlement (RTGS)

For transaction above RMB 50,000

Common transactions processed
Credit Transfer
Third-Party transfer
Local Netting

1747 direct and 107,850 indirect participant
Bulk Electronic Payment System
Established in June 2006

Deals with payment below RMB 50,000

Involves batching and netting which takes place 24/7

Settlement takes place 6 times at NPC and 3 times at CCPCs

1754 direct and 107,755 indirect participants

Reduces cost for bank

Type of transactions
Monthly salary payment
Utility charge collection
Regulator
People’s Bank of China (PBC)

Maintain normal operation of payment and clearing system

Control monetary policy and regulate financial institutions

Collaborate with State Council banking regulator to implement payment and settlement rules

Established financial supervision coordination mechanism with CBRC, CSRC and CIRC

Strengthen monetary regulatory policy
Opportunities
Non-cash payments
Credit cards
Debit cards
Cheques

Main rising trend
E-payments
M-payments

Improvements
China National Advanced Payment System (CNAPS2)
Promote developments
Broader functionality
Clearance of large amounts of RMB across borders
Removes operational risk
Greater connectivity
Case Study
Increasing growth rate of non-cash payment

Payment Management Information System (PMIS)
Collecting data information of PBC systems
Allowing PBC to oversee the liquidity of the financial industry in real time manner

Cheque Image System (CIS)
Allowed clearance of cheque all over China
Promote and satisfy non cash payment demands
China Domestic Foreign Currency Payment System (CDFCPS)
Eight currencies: USD, HKD, GBP, EUR, JPY, CAD, CHF and AUD
Payments due to foreign exchange transactions are not handled by CDFCPS

1 Currency, 2 Markets
Hong Kong : CHATS
CNAPS is not SWIFT based
China International Payment System (CIPS)
4 main features
Enables cross-border RMB clearing among both onshore and offshore participants
CIPS is running on SWIFT standard
CIPS is in operation for 23 hours a day
CIPS will be multilingual
CNAPS
Strength
Financial institutions’ deposit accounts are managed by host centre

Provide intraday overdrafts and automatic repo facilities

Efficiency

CNAPS connects the government bond entry and payment system at China
DvP payment of government bonds may become possible

Weakness
Commercial banks cannot access the host centre directly

Commercial banks will also not adopt CNAPS
not cost-effective

CNAPS and the China onshore FX market closes at 4pm daily

CNAPS does not follow the SWIFT guidelines

Risk
HVPS
Liquidity risk
Credit risk
Legal risk
Operational risk

BEPS
Liquidity risk
Credit risk
Operational risk
Legal risk
EIS
Strength
Network linkages between PBC branches and financial institution’s branches

The fee

Weakness
Deposit accounts of financial institutions with PBC are spread among regional branches

Financial institutions need to deposit excess reserves

Unsuitable for small-value settlements between distant places

Risk
Similar to CNAPS
High Value Payment System (HVPS)
Bulk Electronic Payment System (BEPS)
HVPS
BEPS
Participation
3 main groups of participants
Direct participant
Indirect participants
Chartered participants
Type of Transaction
Ordinary credit transfer
Payer’s Bank --> NPC --> Buyer’s Bank

Intermediary credit transfer
Chartered participants
No direct connection to the system

Local netting transactions
Operation
Provide payment channel for transactions > RMB 500,000

Urgently needed low value transactions

Debiting and crediting in conjunction

Operation hour: 8am to 5pm

Uncompleted Transactions
Priority payment
Ordinary payment
Netting & Settlement
Check the balance available
Insufficient balance --> Subsequent payment processing will be queued

Forward the statement of clearing account to respective commercial bank

Downloads balances of the clearing account to the ABS
Improve efficiency
Strengthen liquidity management

Pricing
Fee Charged to cover operating and maintenance cost

CNY 5.5 is applicable for every payment transaction

CNY 1 for inquiries
Participation
3 main groups of participants
Direct participant
Indirect participants
Chartered participants
Type of Transaction
Seven types of basic transaction
Ordinary credit
Periodic credit
Real-time credit
Ordinary debit
Direct debit
Real-time debit
Information service

Maximum amount : CNY 50,000
Ordinary credit
Standing order transactions
Operation
Processing net payment of RMB 500,000 or less

3 types of settlement performed
Credit collection
One-sided entry
T+1
Pre-authorized collection
T+1
Dated debit
T+2

Operates from 8am to 5pm

Net position
Processed within the same day

Payment data
Transmitted by night time processing

Located within the jurisdiction of another PBC branch
Transmit payment instructions to the host
Transmitted via night batch processing
T+1
Netting & Settlement
Periodic basis

Real-time bilateral netting
Within the debit limit

Irrevocable
Pricing
Processing fee to cover operating and maintenance cost
1.5 times more for inter-province settlements
Rate according to time frame
CNY 0.03 to 1.25 for every payment transaction via BEPS
Non-payment messages by data flow, ranging from CNY 0.01/kb to CNY 1/kb
Full transcript