National Financial Switch
A number of financial services providers owned internal switches to cater for their customers or were connected to some switching arrangement to cater for customers of banks belonging to that particular switch. The implications were that customers of some of the financial institutions that do not belong to such arrangements were excluded from enjoying such facilities. Additionally, when it came to payment for goods or services by customers using electronic payment channels such as debit cards, similar limitations would apply forcing some to open several accounts in order to meet these financial obligations or travel distances to transact where particular devices were deployed. This state of affairs compelled customers to have several electronic cards which they could use to meet each financial settlement need; which is inconveniencing.
While tremendous progress was being made by various actors in improving the retail payment system arena by provision of electronic financial services through ATM, POS, mobile banking and Payments and internet banking services by individual banks, as well as other non-bank financial institutions, these efforts remained disjointed and had a minimal impact in increasing financial inclusion in Zambia. Despite these initiatives by the financial sector, cash remained the predominant medium of exchange among transacting parties in the country notwithstanding the associated risks and the cost to the national economy.
The Zambia Electronic Clearing House (ZECHL) in conjunction with the Bank of Zambia (BOZ) and the Bankers Association of Zambia (BAZ) identified the need to implement a National Financial Switch (NFS). The switch would integrate financial services offered via ATM, POS Mobile banking and any other financial service that needed to be switched, which would result in enhanced efficiency and convenience to the public. In addition, the project, once implemented would enable various players concentrate on product research and market development to reach the un-banked and under-banked population of Zambia in a cost-effective manner.
The National Switch Project was in direct support of the Bank of Zambia 2013 to 2017 National Payment System Vision and Strategy, to modernize the national payment system by among other ways, promoting interoperability among various providers of payment services to allow sharing of platforms.
It was also in line with ZECHL’s strategic plan and mission statement of providing an efficient, reliable, secure and cost-effective inter-bank clearing service to the Zambian banking industry. By directly supporting these strategic plans, this project would greatly improve the payment system in the country and be of great benefit to transacting parties and to the national economy as a whole.
The project further positioned the country in for regional initiatives
A national switch is a payment gateway that facilitates efficient payment processing and interconnectivity between different payment institutions and payment systems. A national switch is based on agreements and technical solutions that connect all the payment providers together in a way that all customers may make payments from their bank account to an account holder at another bank, independent of whether the two have the same banking connection. Hence, a national switch allows for authentication and routing of payment information between the initiator of the payment to the recipient independent of the banks or other payment service provider that actually provided the payment service.
The national switch is used as a hub for interconnecting various retail payment systems, including electronic transfers initiated from internet banking, Automated Teller Machines (ATM) and point-of-sale (POS) terminals, and even mobile phone payments. Establishing of a national switch encourages the use of payment systems and facilitates the distribution of financial services to the un-banked population, and reduces the use of cash in the economy. In the long term it is expected that the implementation of the switch will culminate in the reduction of the cost of the financial services and underground economy. The competition between banks will also increase as businesses and consumers can chose bank completely independently without loss of efficiency.
Efficient, Reliable, Secure & Cost Effective Inter-Banking
The goal of the project was to deliver cost effective financial switching services that are efficient, reliable and secure in order to promote financial inclusion through innovative solutions in Zambia.
The objectives of the project were as follows:
- Reduce infrastructure acquisition and transaction costs through shared centralized infrastructure among financial institutions and customers in Zambia;
- Provide/Promote a multifaceted inter-bank switching platform for all delivery channels that will easily be interoperable with other payment and settlement systems;
- Promote the development of electronic products (e-products) and delivery channels that would extend the coverage of financial services in Zambia;
- To reduce the usage of cash and paper based financial instruments in Zambia through the introduction of secure and reliable electronic payment methods.
- Promote real-time payment of transactions through Straight Through Processing (STP) in order to enhance efficiency.
The project involved the development and installation of a multifaceted open standard based solution with interfaces to:
- existing local switches,
- financial services providers’
- mobile banking and payments,
- any other financial service that needs to be switched and
Zambia Electronic Clearing House Limited
Electronic Funds Transfer, Cheque Image Clearing, National Financial Switch
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