BASIC PRINCIPLES OF PAYMENT SYSTEMS ORGANIZATION

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Payment system: basic concepts and functions​

The payment system (hereinafter - PS) as an element of the infrastructure of the market economy is a set of institutions, legal norms, procedures and technological means used to transfer money, make settlements and settle debt obligations between participants in economic turnover.

The main functions of the PS are:

• 1) timely settlement of payment obligations between the participants of the PS: thanks to the PS, payments between the participants are made in a timely manner and in full. This supports the reproduction process both nationally and internationally;
• 2) ensuring the continuity of payments and the continuity of the state's monetary circulation: the PS contributes to the timely fulfillment of obligations by participants in payment relations. Uncertainty about making a payment may be related to how quickly the payer takes measures to transfer the payment; what means of payment he chooses to ensure the timeliness and efficiency of his processing; how many intermediaries are involved in the payment transaction;
• 3) management and maintenance of liquidity of participants in the payment system: PS allows you to reduce and sometimes eliminate the likelihood of disrupting banks' liquidity during the day. PS provides fast and final settlement on the day of value, i.e. on the day of the actual delivery of the asset [Khomyakova, 2007, p. 33].

In modern economic literature, the concept of a national payment system (hereinafter - NPS) is distinguished , which includes all types of PS operating in the country, and is a complex and interrelated set of elements. According to the definition of the Committee on Payment and Settlement Systems of the Bank for International Settlements in Basel (hereinafter - CP PC), the concept of NPS includes:

• 1) a set of payment instruments for initiating and transferring funds from the payer's accounts to the recipients' accounts - the established forms of documents in paper or electronic form, through which the funds are transferred;
• 2) payment infrastructure for processing and transferring payment information from the payer to the recipient of money;
• 3) financial institutions that maintain cash accounts and provide payment instruments and services, as well as other enterprises that are operators of various operational and clearing networks;
• 4) a system of market agreements, such as agreements, binding instructions and contracts for the creation of various payment instruments and services, the formation of prices for them, as well as their provision and purchase;
• 5) laws, standards, rules and various procedures established by legislative and regulatory authorities for the settlement mechanism | BIS, 20061.

The proper and coordinated operation of all elements of the PS ensures the rational organization of cash flows in the payment turnover and helps to reduce the risks of systemic failures in the PS operation.

A modern PS can be represented as a pyramid [Payment system .., 1995, p. 43]. The base of the pyramid is an array of payment transactions of economic entities of the real sector of the economy - individuals, industrial enterprises, trade, services, etc. These transactions cover a wide range of transactions in which participants assume monetary obligations and use the payment services of commercial banks to complete settlements. This is the sphere of retail operations (retail payments), which is dominated by the massive payments to the relatively small amounts.

The next level of the pyramid is the operations of highly specialized intermediary firms (brokers, dealers) serving the turnover of the money market, capital markets and currency markets. These financial intermediaries also use the payment infrastructure of commercial banks to settle their monetary obligations arising from the trading of financial instruments. The amounts that pass through the bank accounts of these intermediaries tend to be significantly larger than the transactions in the retail sector. This reflects the specifics of the markets they serve.

The third "floor" of the payment pyramid is a system of interbank settlements that arise both on the basis of the fulfillment by commercial banks of payment orders of participants in the real sector of the economy, and the obligations of the banks themselves to each other. In this payment sector, large cash flows are generated, the settlement of which is carried out through the system of correspondent relations by means of non-cash transfers on the “Nostro” and “Loro” accounts. This sector, as well as the sector serving the financial and money markets (the second level of the pyramid), represents the sphere of wholesale payments.

At the top of the pyramid is the central bank, which acts as the ultimate paying agent and the main coordinator of the entire settlement system. The central bank maintains accounts for the vast majority of commercial banks, which reflect the final results of interbank settlements. Money in bank accounts with the central bank, as well as banknotes issued by it (the so-called "central bank money") are especially reliable means of payment, since the fulfillment of obligations under them is guaranteed by law. As for another means of non-cash payments - deposit money of commercial banks, their reliability depends on the financial condition and market status of a particular banking institution.