Mongolia: Payment System Modernization Project

Sovereign Project | 46312-001

Summary

The current payments system is composed of an interbank payment infrastructure and a retail payment infrastructure. The former covers the real time gross settlement system (RTGS) for high-value transactions and the low-value payments system (LVPS) for low value transactions. It also covers the auctioning and trading of foreign exchange and securities, although the present system does not cover collateral management nor the pledging of securities/bonds. This includes a General Ledger system that is now outdated and needs to be integrated with participating banks statutory accounts with BOM. The retail payment infrastructure is based on the Electronic Transfer System (ETS) system acquired by BOM and covers electronic fund transport at point of sale / automatic teller machine (EFTPOS/ATM) switching but it can also support card and merchant management and EMV (Europay, Mastercard and Visa) and hybrid cards. To be able to accommodate these however, the ETS needs to be upgraded.

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Project Name Payment System Modernization Project
Project Number 46312-001
Country Mongolia
Project Status Approved
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 3072-MON: Payment System
Ordinary capital resources US$ 20.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector Finance - Finance sector development
Gender Equity and Mainstreaming No gender elements
Description

The current payments system is composed of an interbank payment infrastructure and a retail payment infrastructure. The former covers the real time gross settlement system (RTGS) for high-value transactions and the low-value payments system (LVPS) for low value transactions. It also covers the auctioning and trading of foreign exchange and securities, although the present system does not cover collateral management nor the pledging of securities/bonds. This includes a General Ledger system that is now outdated and needs to be integrated with participating banks statutory accounts with BOM. The retail payment infrastructure is based on the Electronic Transfer System (ETS) system acquired by BOM and covers electronic fund transport at point of sale / automatic teller machine (EFTPOS/ATM) switching but it can also support card and merchant management and EMV (Europay, Mastercard and Visa) and hybrid cards. To be able to accommodate these however, the ETS needs to be upgraded.

The current system was built with support from the World Bank under its Financial Capacity Development Project completed in 2009 and considered one of its successful interventions under the project. However, it was recognized even at the close of the project that the payments system needs to undergo further development as market requirements evolve and due to technical limitations of the system as well as to address policy issues that emerge. The issues that need to be addressed include:

(i) ability of the current software to accept future expansion of services and reliance of the current system on the current application provider for upgrade and maintenance;

(ii) design of an open, flexible, modular architecture that can accommodate the introduction of new electronic payment services, as well as money and capital market instruments that suit evolving market needs and provide transparency, reduction of cash circulation in a modern broadband connected environment;

(iii) development of an Eco System which ensures interoperability and competitiveness between service providers that may be implemented by competing institutions to avoid fragmented services and avail of scale economies;

(iv) develop local standards and authentication procedures that more appropriately meet local requirements aligned with prescribed international standards;

(v) set-up business continuity and disaster management plan to address system vulnerabilities such as network and system failure (computer crashes) and computer hacking, among others; and not the least; and

(vi) establish an appropriate legal/regulatory framework that provides for the use of digital signatures, conduct of electronic payments, etc. and required authorities for oversight and supervision, market discipline and transparent rules.

A Payments Law is currently under consideration. More importantly, the current system's processing cost has been calculated to reach about 20 times that of the Republic of Korea's on a per transaction basis and has been increasing at the rate of 10% per year.

Project Rationale and Linkage to Country/Regional Strategy
Impact Modern payment services are available throughout Mongolia and easily accessible even by citizens who live in distant rural areas or abroad or are not clients of a bank.
Project Outcome
Description of Outcome National full-service payments system established that is efficient and affordable by poor individual
Progress Toward Outcome
Implementation Progress
Description of Project Outputs

Interbank payment systems infrastructure strengthened

The retail payment systems infrastructure and support systems upgraded

External services and technical support provided

Legal and regulatory framework established

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects NA
Involuntary Resettlement NA
Indigenous Peoples NA
Stakeholder Communication, Participation, and Consultation
During Project Design Project is not yet effective, and continues to wait for parliament' ratification.
During Project Implementation NA
Responsible ADB Officer Giacomo Giannetto
Responsible ADB Department East Asia Department
Responsible ADB Division Public Mgt, Financial Sector and Regional Coop Division, EARD
Executing Agencies
Bank of Mongolia (Central Bank)Commerce Street 6
Ulaanbaatar - 11
Mongolia
Timetable
Concept Clearance 21 Dec 2012
Fact Finding 25 Oct 2012 to 26 Oct 2012
MRM 20 Dec 2012
Approval 26 Nov 2013
Last Review Mission -
Last PDS Update 27 Mar 2015

Loan 3072-MON

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
26 Nov 2013 14 Mar 2014 14 Aug 2015 30 Jun 2017 - -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 22.50 Cumulative Contract Awards
ADB 20.00 26 Nov 2013 0.00 0.00 0%
Counterpart 2.50 Cumulative Disbursements
Cofinancing 0.00 26 Nov 2013 0.00 0.00 0%

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