Central bank oversees move away from cash, cheques

The systems involve people, institutions, technologies, rules and regulations.

Although cash and cheques have served the economy perfectly well as the predominant means for making retail and commercial payments for several decades, the process of providing these paper instruments requires a very complex and large support infrastructure.

In addition, both the public and private sectors have to bear high processing costs.

Cash has also long been globally recognised as the costliest means of making payments. Several studies indicate that handling costs can vary from 4 per cent to 9 per cent of the value of a purchase - or around 5 per cent of GDP.

In the case of cheque payments, this requires not only offices, equipment and staff, but also entails a cumbersome process, including the transportation and presentation of paper cheques. Cheques also involve a number of parties, ranging from payers, payees, sending banks, paying banks and the cheque clearing house.

According to the Thailand Development Research Institute, in 2004 the average cost of processing one cheque was Bt40. In modern payment systems, most large value transactions made by commercial banks, businesses and government agencies are generally settled in real time gross amount, rather than at the end of a business day on a net basis.

The modernisation of Thailand's payment systems began in the mid-1990s, when the Bank of Thailand (BOT) took the lead in establishing three core electronic payment systems.

First, was BAHTNET, which is based on a real time gross settlement system (RTGS), was put in place to process large-value fund transfers to better control settlement risk in the system.

The system provides instant settlement with finality as soon as the payment order arrives, given the availability of sufficient funds in the account of the sender bank. BAHTNET also provides commercial banks with a better mechanism to manage their account held at the BOT more efficiently, as transactions are processed in real time.

Second is the Electronic Cheque Clearing System (ECS), introduced to accelerate the processing time to a one-day clearing cycle, by separating electronic data and physical cheque processing.

Third, the Automated Clearing House System (ACH) processes retail fund transfers involving large volumes and regular recurring payment periods, such as payrolls, dividends, loans, mortgages, business-to-business payments and so on.

The move to modernise payment systems in the mid-1990s was the BOT's first major step forward and has changed the way we make and receive payments, as well as providing better mechanisms to connect Thailand to the rest of the world.

To have the right policy direction on this important issue is one of the Bank of Thailand's top priorities. Recognising this, the new Bank of Thailand Act makes it a legal responsibility of the central bank to oversee the stability and development of the country's payment systems. This is an area about which the public can expect to hear more developments in the coming months.

Nuttawut Atiratana is a senior analyst at the Payment Systems Department of the Bank of Thailand. Views expressed are the author's own.