Governance of Retail Payment Systems

Defined as the system by which an organisation operates and is controlled and the mechanisms by which it and its people are held to account[1], governance is arguably nothing short of a complex system. Put simply by Aristotle, the whole is more than the sum of its parts. A complex system is one where the overall observed behaviour of the system exhibits properties that can rarely be inferred from the properties of its constituent parts[2]. As such, governance is a complex system of policies, arrangements, processes, and measures that come together to form a functional body. Therefore, it is no wonder that governance can make (or break) a business. That said, governance of payment schemes is starkly different from mere corporate governance. The sensitive nature of payment schemes necessitates a multilateral, robust, and transparent governance framework.

The evolution of the payments ecosystem has in and of itself transformed the associated governance models for payment schemes. Previously, the ownership and operation of payment schemes and the development of the overall national payment system sat with the financial market regulator. However, nowadays, each of the owner(s), operator(s), and overseer(s) of a payment scheme could be a different entity. This has undoubtedly introduced complexities to the governance of said payment schemes. However, this complexity is as much of an opportunity as it is a challenge. It expands the realm of specialisation and concentration within the management of a scheme, its operation, and oversight.

The governance of a payment scheme is comprised of both internal and external elements. Internal governance describes the systems and processes in place, ensuring the scheme's internal safe and efficient operation and management. As for external governance, it encompasses the regulations, laws, and market structure within which the scheme exists[3]. Balancing the two is therefore of utmost importance and requires extensive internal and external coordination. This is where payment schemes differ in governance from other forms of governance, as the success or failure of a payment scheme can have implications on a macroeconomic and a national level.

The external components of payment scheme governance interact heavily with its internal governance. This puts payment schemes at a crossroads; where the elements of external governance could hinder a passive internal governance system, or an active internal governance system could capture and utilise elements of external governance. Achieving the latter requires a high degree of public-private partnership and stakeholder engagement. It works towards high-level public policy objectives and enables entities in the market. Therefore, private sector entities should analyse and understand the external governance environment and strategise on ways to utilise these arrangements to maximise their organisation's and society's benefit.

International standards for the risk management of payment systems, such as the Principles for Financial Market Infrastructure (PFMI)[4], have traditionally focused on high-risk wholesale payment systems (for example, the Real-Time Gross Settlement system). While some elements of such standards apply to retail payment schemes, efforts should be made by international standard-setting bodies to clarify the applicability of such standards to retail payment schemes. This could help both public and private sector entities evaluate the safety and efficiency of retail payment schemes to maximise their potential and reduce the overall potential risk to the ecosystem.

The role occupied by public bodies should be dynamic in nature. This is especially important in evolving markets, where public institutions (such as the central bank) could be required to act as a market catalyst or a public-policy enforcer. In assessing the role of public bodies within a certain jurisdiction, special attention needs to be paid to the capacity of the private sector. In jurisdictions where structural change is required, public entities could take on a leading role. However, if incremental commercial and service level demands are required, the private sector should take the lead[5].

As a payment scheme manager, JoPACC prioritises good governance towards achieving its high-level goals. Safety, efficiency, financial inclusion, interoperability, and proactive compliance are all achievable outcomes under good governance. This prompts us to strive towards effective communication and consultation with market players and the regulator, dynamic policies and procedures that factor in international standards and best practices, and transparency in our governance arrangements. Therefore, we view our governance as a network of interdependent and efficient entities and systems, all coordinated in an effort to promote an inclusive and reliable digital financial infrastructure for all those who call Jordan home.

Ultimately, the governance of payment schemes is not the same as corporate governance. This is because a payment scheme represents a piece of essential infrastructure for any economy. As a result, regardless of its ownership and operation structure, payment schemes governance must incorporate within it the overall wellbeing of society and the economy. This is where central banks come in. Through their oversight capacity, they can ensure that public policy objectives are met through the operation of retail payment schemes while also enabling and strengthening the capacity of the private sector to enrich the economy.