Research Discussion Papers, Bank of Finland
No 23/2002:
Settlement in modern network-based payment infrastructures – description and prototype of the E-Settlement model
Harry Leinonen ()
, Veli-Matti Lumiala and Riku Sarlin
Abstract: Payment systems are undergoing rapid and fundamental
changes stimulated largely by technological progress especially distributed
network technology and real-time processing. Internet and e-commerce will
have a major impact on payment systems in the future. User demands and
competition will speed up developments. Payment systems will move from
conventions that were originally paper-based to truly network-based
solutions.
This paper presents a solution – E-Settlement – for
improving interbank settlement systems. It is based on a decentralised
approach to be fully integrated with the banks’ payment systems. The basic
idea is that central bank money, the settlement cover, is transferred as an
encrypted digital stamp as part of the interbank payment message. The
future payment systems would in this model operate close to the
Internet/e-mail concept by sending payment messages directly from the
sending bank’s account/payment server to the system of the receiving bank
with immediate final interbank settlement without intervening centralised
processing. Payment systems would become more efficient and faster and the
overall structure would be come straightforward. The E-Settlement and
network-based system concept could be applied with major benefits for
correspondent banking, ACH and RTGS processing environments.
In order
to assess this novel idea the Bank of Finland built a prototype of the
E-Settlement model. It consist of a group of emulated banks sending
payments to each other via a TCP/IP network under the control of a central
bank as the liquidity provider and an administration site monitoring the
system security.
This paper contains an introduction to network-based
payment systems and E-Settlement, the specifications of the E-Settlement
model and the description, results and experiences of the actual
E-Settlement prototype.
Keywords: network-based payment systems; settlement systems; interbank settlement; payment system integration; (follow links to similar papers)
JEL-Codes: F36; G29; (follow links to similar papers)
173 pages, September 19, 2002
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