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Russian Payment System

    Non-cash settlements in Russia are effected through the Bank of Russia payment system, private payment systems represented by intrabank payment systems designed to implement settlements between subdivisions of a credit institution, payment systems of credit institutions designed to implement settlements on correspondent accounts opened in other credit institutions, payment systems of non-bank settlement credit institutions and systems designed to implement settlements between clients of one subdivision of a credit institution (branch).

    The Bank of Russia occupies a special place in the Russian payment system. As an operator of its own payment system, it co-ordinates and regulates settlement relations in Russia, monitors the activities of private payment systems, setting guidelines for their functioning, and establishes non-cash settlement rules, forms, terms and standards, as well as organises cash circulation. In addition, it establishes the procedure for compiling and presenting statistical reports characterising the Russian payment system in order to make it more transparent.

    The Russian payment system is regulated by the Civil Code of the Russian Federation and several federal laws, the most important of them being the Federal Law on the Central Bank of the Russian Federation (Bank of Russia) and Federal Law on Banks and Banking Activities, and the Bank of Russia rules and regulations issued in pursuance of these laws. The relationship between the Bank of Russia and its clients and between credit institutions and their clients are regulated by correspondent account (subaccount) or bank account agreements. These documents provide a legal basis for the functioning and further development of the Russian payment system. The Bank of Russia informs the banking community and the public about the amendments and changes made to its rules and regulations and the decisions on technical modifications in the Russian payment system.

    The Bank of Russia constantly pays special attention to the upgrading of the regulatory framework ensuring the functioning of the Russian payment system. In 2002, it approved a new version of Provision No. 2-P "On Non-Cash Settlements in the Russian Federation," which specified the procedure for effecting settlements by payment orders paid with an acceptance and defined the finality and irrevocability of payments in order to safeguard settling participants against financial risk and make the payment system even more reliable and secure. The Bank of Russia in 2002 drafted jointly with the Ministry of Finance and Ministry of Taxes and Duties regulations designed to standardise settlement documents in order to expedite the transfer of tax and other payments to the federal budget, the budgets of all levels and government extrabudgetary funds and the financing of budget expenditures. To improve the organisation of cash circulation and the regulation of cash settlements, the Bank of Russia and the Ministry of Taxes and Duties in 2002 made clarifications regarding the Bank of Russia limit set on the amount of cash settlements between legal entities.

    The structure of the Russian payment system is shown in Chart 1.

    To effect settlements through the Bank of Russia payment system, each credit institution must have a correspondent account opened in a Bank of Russia division. A credit institution may open a correspondent subaccount for its branch in a Bank of Russia division unless the parent institution or another branch of the credit institution is serviced in the same Bank of Russia division. In that case, settlement operations are effected through the correspondent account of the parent institution or the correspondent subaccount of another branch of the credit institution opened in the Bank of Russia. Credit institutions and their branches that have correspondent accounts (subaccounts) in the Bank of Russia are its clients. Multi-branch credit institutions open special interaffiliate settlement accounts to effect settlements between branches. Interbank settlements between credit institutions are effected through correspondent accounts they open with one another. In non-bank settlement credit institutions both credit institutions and legal entities that are not credit institutions are settling participants. To effect non-cash settlements, corporate and individual clients must have accounts opened for them in credit institutions and in some cases stipulated by the law corporate customers may have accounts opened for them in Bank of Russia divisions.

    The participants in the Russian payment system were 1,172¹ Bank of Russia divisions, 1,331 operating credit institutions, including 41 non-bank settlement credit institutions, and 3,326 branches of credit institutions. In addition, settlement services were provided to clients by 6,387 additional offices of credit institutions.

    The participants in the Russian payment system opened 271.4 million bank accounts for their clients (both residents and non-residents) in the Russian currency, of which 4.2 million accounts (1.6%) were opened for legal entities that are not credit institutions and 267.2 million accounts (98.4%) were opened for private individuals; most of the individual accounts (90.1%) were opened in the Savings Bank (Sberbank). The number of bank accounts per resident of Russia stood at 1.9 on average.

    Russia had on average one participant in the payment system per 24,700 residents and 660 legal entities. At the same time, taking into account the additional offices opened by credit institutions and their branches, the respective ratios were one payment system participant per 11,800 residents and 315 legal entities.

    In 2002, the Russian payment system made 737.9 million payments to the amount of 130.1 trillion rubles, an increase of 22.0% year on year, a rate higher than inflation. That along with a 16.5% increase in the number of payments was the result of a rise in business activity of economic agents.

    The ratio between non-cash payments effected by the Bank of Russia payment system and private payment systems in the country’s payment system remained virtually unchanged in 2002 (Chart 2).

    Payments effected through the Bank of Russia payment system accounted for a large proportion of non-cash payments: 47.6% in number and 58.7% in volume. A constantly high level of payments effected through the Bank of Russia payment system is attributable to its efficient and uninterrupted functioning and the fact that the use of risk-free funds in Bank of Russia accounts in settlements between credit institutions minimises the latter’s financial risk.

    The dynamic development of the Bank of Russia payment system is accompanied by the rapid development of private payment systems, which allows credit institutions and their clients to optimise their payments, reducing payment periods and costs.

    The payment order remains the principal instrument of payment used in effecting non-cash settlements, accounting for 77.1% of the total number of payments and 90.6% of the total volume of payments.

    Payment orders are a predominant form of settlements because they are widely used as payment for goods and services and in non-commodity operations, such as the transfer of taxes, duties and other compulsory payments to the budgets of all levels and extrabudgetary funds. Their wide use is also connected with rapid growth in electronic payments, which help reduce settlement periods to a minimum.

    Instruments of payment such as payment requests, collection orders, letters of credit and cheques issued by credit institutions account for a small part of non-cash settlements: 1.9% in number and 0.7% in volume.

    Other instruments of payment, such as payment orders, which are used in partial payment of settlement documents when a client has not enough funds in his account and in a number of special cases when a bank’s details or a bank’s clients’ details have changed accounted for 21.0% in number and 8.7% in volume.

    Electronic payments accounted for 72.3% of the total number of payments and 84.0% of the total value of payments effected through the Russian payment system, while payments made using paper documents accounted for 27.7% and 16.0% respectively. Electronic payments predominate in interbank settlements, whereas paper documents still account for a large portion of settlements effected between clients of one subdivision of a credit institution, because the speed with which such payments are effected meets the clients’ requirements.

    Most of the payments effected through the Russian payment system are intraregional payments, which account for 91.0% of the total number and 84.1% of the total value of payments. Interregional payments account for 9.0% and 15.9% respectively.

    The overall amount of cash passing through the cash departments of the Bank of Russia and credit institutions in 2002 rose 32.5% year on year under the effect of growth in nominal money income and consumer prices. This represents a slowdown of 5.9 percentage points on 2001 growth. The average daily cash turnover expanded by 8 billion rubles to 32.2 billion rubles.

    The Bank of Russia and credit institutions supplied with their own cash resources 96.1% of their clients’ needs in cash.

    In all, Russia issued 8.3% more cash in 2002 than in 2001. Growth in the issue of cash resulted from a 29.4% increase in wage payments owing to a rise in the minimum wage, pension indexing and growth in cash payments from household accounts.

    The rate of growth in cash turnover in 2002 (32.5%) was faster than the rate of expansion in non-cash payment volumes (22%).

    The most important element of the Russian payment system is the Bank of Russia payment system.

    Decentralised on the whole, the Bank of Russia payment system ensures the effectuation of settlements on payments in rubles, using funds kept in accounts in the Bank of Russia. It is a gross system effectuating all payments on its participants’ accounts on an individual basis.

    The regional branches of the Bank of Russia are situated in the Russian regions which, by and large, coincide with the official territorial division of the Russian Federation and in some cases there is one Bank of Russia branch for several constituent entities of the Russian Federation.

    Each of the 78 Bank of Russia regional branches has the regional components of the payment system functioning within it.

    Payments in the Bank of Russia payment system are effected on two levels: there are intraregional payments, that is, payments effected within one regional component, which account for the largest portion of payments effected through the Bank of Russia payment system (almost 90% in number and 82% in volume), and interregional payments, that is, payments that originate in one regional component and end in another.

    The Bank of Russia payment system ensures:

    - crediting clients’ accounts on the day of funds receipt; in some regions, funds are written down from and entered to accounts in a regime approximating a real-time regime, allowing clients to use these funds forthwith;

    - the possibility of managing liquidity by extending collateralised intraday loans to credit institutions (in Moscow, St. Petersburg and Yekaterinburg);

    - the implementation of the Bank of Russia monetary policy by handling loan, deposit, currency and other transactions conducted by the Bank of Russia;

    - settlements on the securities and foreign exchange markets.

    To guarantee security and safety of information inside its payment system, the Bank of Russia identifies the users, controls the completeness and confirms the authenticity of payment documents, delimits the rights of access to and protects the payment processing systems from unsanctioned access, controls the implementation of settlement operations and confidentiality (cryptographic protection) of payment data and provides backup for software systems and information resources.

    Bank of Russia payment system participants comprised 1,172 Bank of Russia branches and divisions, 1,331 credit institutions and 1,773 branches of credit institutions, which, according to the BIC Directory, had correspondent accounts (subaccounts) opened for them in the Bank of Russia.

    The number of credit institutions that opened correspondent accounts in the Bank of Russia rose by eight in 2002, or 0.6%, and the number of branches of credit institutions that have correspondent subaccounts in the Bank of Russia fell by 44, or 2.5%, owing to the continued reorganisation of the branch network of credit institutions.

    Under the applicable legislation, the Bank of Russia provides settlement services to more than 66,000 clients that are not credit institutions: the bodies of the Finance Ministry’s Federal Treasury, government and local self-government bodies and their organisations, government extrabudgetary funds, military units and other clients that are not credit institutions in the regions where there are no credit institutions, and other persons in the cases stipulated by the federal laws. The number of the Bank of Russia’s client Federal Treasury bodies stood at 1,384.

    In 2002, the number of such clients of the Bank of Russia declined by 10.8%, mainly as a result of the transfer of budget-financed organisations and regional and local budgets to the servicing by Federal Treasury bodies and the establishment of treasuries in Russian regions and municipalities and similar structural changes carried out by them.

    The Bank of Russia payment system effected 350.7 million payments (1.4 million payments a day on average) with an annual volume of 76.3 trillion rubles. Compared with 2001, the number of payments increased 23.8%, the average daily number of payments rose 27.3% and the volume of payments expanded 20.5%. The increase resulted, above all, from growth in the number of payments made to the budgets of all levels and the need to make a detailed accounting of these payments for effective budget formation and allocation.

    The main participants in the Bank of Russia payment system are, as in the previous years, credit institutions and their branches, which accounted for 82.4% of the total number of payments and 79.5% of their total volume.

    Payments effected by Bank of Russia clients that are not credit institutions accounted for 16.4% and 19.8% of all payments respectively and payments by Bank of Russia branches and divisions on their own settlement operations for 1.2% and 0.7%.

    Credit institutions and their branches prefer to effect settlements through the Bank of Russia payment system because it is reliable and uses advanced technologies and information protection methods that ensure the effective and secure provision of services to all settling participants, allow them quickly to exchange information and do not involve credit risk. The processing of the constantly rising number of payments is ensured by the development of information and telecommunications systems.

    The turnover of average balances of funds of credit institutions and their branches in correspondent accounts and subaccounts in the Bank of Russia in 2002 stood at 0.32 days, or 3.14 turnovers a day, against 0.42 days, or 2.4 turnovers a day, in 2001.

    The acceleration of turnovers resulted from a rise in the activity of credit institutions and their clients, the consolidation of credit institutions’ accounts and more efficient management of liquidity, which is facilitated by the measures taken by the Bank of Russia to spread the use of electronic settlements and reduce payment periods.

    The Bank of Russia is taking steps to enhance the efficiency of its payment system, especially by making persistent efforts to spread the use of electronic settlements, which accounted for 92.7% of the total number of payments and 92.1% of the total volume of payments (Chart 3).

    The electronic payment system consists of interregional and intraregional electronic payments.

    There are uniform interregional electronic payment rules for all regions, set by a Bank of Russia regulation.

    There is a Bank of Russia institution in each region which is the main settling participant and which is assigned the function to make the accounting for and control interregional electronic settlements.

    Interregional electronic payments are made within one day or no later than the next day, depending on the distance between the time belts of the regions where the payer and payee are located.

    When interregional electronic payments are made, the exchange of messages is conducted between the main divisions of the Bank of Russia through the Bank of Russia Interregional Computer Centre, which does not effect settlements but fulfils the communication functions and serves as a centre for the transmission of messages. Interregional electronic payments are effected by the regional branches of the Bank of Russia on a bilateral basis, using the "each to each" scheme, on the accounts opened with one another (Chart 4).

    The procedure for effecting intraregional electronic payments, including electronic payment exchange and processing schedules, electronic message formats and cryptographic protection means are established by the rules drafted by Bank of Russia regional branches, taking into account the requirements of Bank of Russia rules and regulations. The only exception is the procedure for effecting electronic payments in the Moscow Region, which is established by a Bank of Russia regulation, because these payments account for a large portion (23% of the total number and 60% of the total volume) of payments effected through the Bank of Russia payment system. Settlements on intraregional electronic payments are effected within one day.

    Interregional and intraregional payments are recorded in credit institutions’ correspondent accounts in Bank of Russia institutions in conformity with the corresponding accounting records (Chart 5).

    In 59 out of the total 78 Bank of Russia regional branches settlements are effected by the centralised method and in 19 by the decentralised method. Of the 59 Bank of Russia regional branches indicated above, 55 conduct the continuous processing of payments within one day and in three on a discrete basis several times during the day. The Bank of Russia Moscow branch processes payments both discretely and continuously. The continuous processing of payments makes it possible to write down and enter funds on intraregional payments instantly, creating conditions for the acceleration of their turnover.

    The participants in intraregional electronic settlements were 1,138 Bank of Russia institutions, or 97.1% of their total number, while the participants in interregional electronic settlements were 1,083 Bank of Russia institutions, or 92.4%.

    The Bank of Russia is taking steps to engage its clients in the electronic document exchange. Seventy-six Bank of Russia regional branches exchanged electronic documents with 2,771 credit institutions and their branches, or 89.3% of the total number of credit institutions and their branches serviced by the Bank of Russia. Simultaneously, the Bank of Russia is making efforts to engage in the electronic document exchange its other clients that are not credit institutions, especially the Federal Treasury bodies. The latter’s share of the participants in the electronic document exchange with the Bank of Russia stood at 28.8% of the total.

    The Bank of Russia payment system employs the V-type structure of the message flow, in which all information about a payment, including information about the payee, the credit institution that provides services to him and the purpose of the payment, initially goes to the Bank of Russia, which processes it and makes a final settlement (Chart 6).

    Electronic settlements effected through the Bank of Russia payment system use both full-format electronic payment documents, which need not to be accompanied by settlement documents on paper, and abridged-format electronic payment documents, which must be followed by settlement documents on paper.

    Bank of Russia’s efforts are designed to increase the share of payments made by full-format electronic payment documents containing all information about the payment.

    Payments are effected by the Bank of Russia on paper (7.3% of the total number and 7.9% of the total volume of payments) if there is a client’s instruction to make them by mail or telegraph, if electronic payments are to be accompanied by settlement documents on paper, containing all information about the payment, and also in some regions where electronic payments are not effected in accordance with the decision of the Bank of Russia. The average actual settlement period for paper payments accounted for 1.1 days at intraregional level and 4.8 days at interregional level.

    The Bank of Russia introduced from January 1, 1998 a fee for provision of settlement services in order to demonopolise the system of settlements in Russia and create conditions for developing alternative services provided by the private sector.

    The Bank of Russia pricing policy is based on fixed rates, regardless of the amount of payment set for the processing of one settlement document. The fees charged by the Bank of Russia for the settlement services differ, depending on the method of payment (electronic payments, payments by mail and telegraphic payments), the method of passing settlement documents to the Bank of Russia by clients (by communications channels on magnetic or paper carriers) and the time of passing settlement documents to the Bank of Russia by clients through communications channels within the time period established for their receipt.

    To encourage its clients to use the advanced communications facilities and electronic payments, the Bank of Russia set low prices for them. Higher prices are charged for payments effected on paper. In addition, charging the highest prices for services provided at the end of the business day is designed to even out document turnover within one business day, accelerate money turnover and intensify the management of intraday liquidity of credit institutions. At the same time, the Bank of Russia provides free services to clients whose payments do not exceed a certain amount (700 rubles as of January 1, 2003).

    Table 1 shows the effective fees charged for the settlement services provided by the Bank of Russia.

    In addition, the Bank of Russia charges 2.40 rubles for making a paper copy of an electronic payment document.

    While charging fees for the settlement services it provides to its clients, the Bank of Russia, in pursuance of the applicable legislation, conducts some operations free of charge. These are mainly operations with federal, regional and local budget funds and government extrabudgetary funds, including tax transfers and Federal Treasury operations. Although the number of client payments processed by the Bank of Russia is rising, the ratio between payments effected for a fee and free of charge remains practically unchanged. Hence the structure of settlement services from the viewpoint of their provision for a fee or free of charge does not change much: the Bank of Russia conducted 39.9% of operations for a fee and 60.1% free of charge (Chart 7).

    Private payment systems demonstrate dynamic growth and focus their efforts on the introduction of advanced techniques of processing settlement documents and the provision of the fullest possible top-quality settlement services with the aim of attracting clients.

    Payments effected through settlement systems between clients of one division of a credit institution or a branch of a credit institution account for 65.0% of the total number of payments effected through private payment systems and 56.9% of the volume of such payments and payments between the divisions of one credit institution account for 29.9% and 22.6% respectively. These figures show that credit institutions have upgraded their own settlement systems, allowing the economic agents they service to make settlements more effectively.

    The share of payments conducted through credit institutions’ correspondent accounts opened in other credit institutions was 4.5% in number and 19.1% in volume. At the same time, these payments demonstrated the most rapid rates of growth (36.7% and 37.0% respectively), whereas payments effected through the Russian payment system increased 16.5% in number and 22.0% in volume.

    Payments made through non-bank settlement credit institutions accounted for 0.6% of the number of payments made through private payment systems and 1.4% of the volume of such payments (Chart 8).

    Payment cards, including cards issued by credit institutions (bank cards), are an instrument of payment in Russia used in effecting non-cash retail payments and receiving cash.

    Credit institutions issue and/or acquire bank and other payment cards of the Russian and international payment systems and their number amounted to 15.5 million. Russian cards accounted for 51.7% and international cards for 48.3%.

    The number of payment card operations conducted in Russia amounted to 281.2 million, an increase of 147.5% year on year, and their volume expanded 163.7% to 720.7 billion rubles. Such significant growth in bank card operations is the result of the dynamic development of the infrastructure designed for such operations. The number of ATMs rose 53.7% in 2002 to 9,000, cash dispensers 5.7% to 14,100 and trading and services cnetres accepting payment cards 52.2% to 49,100. At the same time, the share of card payments for goods and services expanded slightly in 2002, from 0.9% in 2001 to 1.3% of the total volume of paid services and public catering and retail trade turnover.

    Cash withdrawal operations accounted for 92.8% of the entire volume of card operations and the share of card payments for goods and services stood at 7.2%. Cash withdrawal operations made up such a large portion of card payments because many companies are using bank card schemes in paying wages and salaries to their workers and employees.

    The Bank of Russia publishes materials on the state and functioning of the Russian payment system in the press open for the general public (see Bank of Russia periodicals Dengi i kredit (Money and Credit) and Byulleten bankovskoi statistiki (Bulletin of Banking Statistics) and in publications for office use (the bulletin Obzor platezhnoi sistemy Rossiiskoi Federatsii (Review of the Russian Payment System).

    To continue upgrading the payment system, the Bank of Russia develops new methodologies and works out practical solutions designed to facilitate the introduction of a real-time gross settlement system.

¹ Data cited here and below stand as of January 1, 2003 or for 2002.