Mongolia : Payment System Modernization Project

Finance / Banking systems and nonbank financial institutions

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 This includes a General Ledger system that is now outdated and needs to be integrated with participating banks statutory accounts with BOM.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.

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.

National full-service payments system established that is efficient and affordable by poor individual

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