CASHLESS PAYMENTS IN THE RETAIL SECTOR OF THE ECONOMY

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Features of cashless payments in small amounts​

The rapid development of retail turnover, an increase in the number of participants in retail transactions, the active introduction of information technology in settlements in small amounts, the development of Internet technologies and e-commerce contributed to the formation of retail PS. Let us recall that in Chapter 1, those PSs that are designed to serve non-urgent consumer payments for small amounts were classified as retail payment systems. Retail PSs satisfy the needs of both individuals and firms in the implementation of simple economic transactions. If the systems for transferring large amounts of payments can be compared with the main arteries of the PS, then the systems of small money transfers can be viewed as a complex network of veins that permeates the entire economy [Payment system ..., p. 143].

As mentioned earlier, at the initiative of the ECB, a classification of retail PSs was introduced depending on the degree of their importance. Thus, it was decided to classify PSs as systemically significant retail PSs that are characterized by at least one of the following features:

• 1) the PS share in the retail payments market exceeds 75%;
• 2) The PS processes payments in the amount of more than 10% of the total amount passing through the relevant YTSB;
• 3) there is a risk of a "domino effect" in the event of bankruptcy of one of the settlement participants.

For the latter, the ECB uses the following domino risk indicators:

• 1) the concentration ratio of payments among the five largest participants exceeds 80% of the processed amount of payment orders;
• 2) netting coefficient in the system - no more than 10%;
• 3) the debit position of the net participant is not less than 1 billion euros.

In turn, retail systems of significant importance are those retail PSs whose market share exceeds 25%, but less than 75% of the corresponding retail payments market. The rest of retail PS make up the “other retail PS” group, since their impact on the financial system and the real sector of the economy is limited (see Appendix 2).

Retail payments are widespread in the consumer and business sectors of the economy and are not associated with settlements in money market transactions or in securities and foreign exchange transactions. Small payments act as a link between all business entities. Retail payments can be either regular or irregular. If payments are made continuously, i.e. are “everyday” in nature, and the amount of payment is quite often the same, then such retail payments are classified as recurring payments. For example, as regular transfers of payments from individuals can be contributions to life insurance, payments for utilities, and from the side of firms - a monthly transfer of wages or pensions.

Irregular payments service transactions that occur from time to time, while their volume is constantly changing. For example, payment for purchased goods and services at the point of sale by both individuals and firms in interaction with other enterprises in the process of carrying out current activities is an irregular retail payment.

The second feature of small money transfer systems is that they are extremely versatile, since they serve a wide variety of transactions. Unlike systems for transferring large amounts of payments, they are characterized by a huge number of daily payment transactions and interaction with a wide range of economic actors.

The third feature of payments for small amounts is that the main means of payment in retail payments is cash in those areas of payment circulation where the use of other types of means of payment (checks, payment cards) is inconvenient or economically impractical. Cash transactions attract users with their speed and anonymity, the finality of settlements, and the absence of credit risk. The deployment of a network of ATMs improved the possibility of replenishing cash reserves of the population and contributed to the preservation of these funds in circulation.

There are country differences in the extent to which cash is used. This is due to the prevailing payment customs and features of the economic development of countries. Thus, a number of countries traditionally maintain a high ratio of the amount of cash in circulation to the gross domestic product (GDP). In Japan, for example, this figure is 17.04%, in Switzerland - 9.56%. At the same time, in other countries this indicator is traditionally low - about 4% (Great Britain - 3.39%, Canada - 3.68%). In Japan, on average, there is an amount of cash equivalent to USD 7.4 thousand per inhabitant, while in Canada it is slightly more than USD 1.4 thousand [see: BIS, 2009].

These figures do not give an exhaustive picture and do not allow one to unambiguously judge the intensity of the use of cash in payments, since this does not take into account the velocity of circulation of monetary units, as well as what part of the issued money is actually used in the payment turnover of specific countries. However, they provide a known idea of the payment preferences of business entities.

In the non-cash segment of retail turnover, there is a tendency to use a wide range of payment instruments for settlements, especially when the amount of transactions increases. For retail settlements, bank payment cards, prepaid payment instruments, remote access systems, electronic money schemes, Internet banking, etc. can be used. These payment instruments are based on computer technologies and high-speed communication systems for transferring information and are designed to replace and reduce the use of cash, since they have higher efficiency, including price parameters, accelerate settlements, and are more convenient to use. This, in turn, leads to cost savings and increased customer loyalty, which depends on whether

However, the speed of distribution of retail payments using new technologies is negatively influenced by the inertia of trade and service enterprises, their lack of propensity to innovate. To invest in systems based on the use of new payment instruments, there must be sufficient demand for these instruments from customers (buyers). The state can promote the introduction of new, more reliable and efficient means of payment, for example, introduce “payroll” projects at state-owned enterprises, or develop national-scale electronic payment systems.

Retail payment systems, like gross systems, are exposed to systemic risks, when a failure to fulfill obligations by one of the participants in a transaction in the retail system can lead to negative consequences for other participants. For example, in systems where counter payments are offset, positions are settled at the end of the billing period. If one of the debtors is unable to make the final payment, i.e. cannot pay the debt arising at the end of the day on previous transactions, the rules of many payment systems of this kind provide for the withdrawal of the transactions of this participant and the revision of the entire chain of payments for the day, which may cause difficulties for other participants.

It is worth noting that in connection with the intensively proceeding process of economic integration of European countries, the compatibility of retail systems that operate on the territory of the EU countries and which were initially focused on national markets is becoming increasingly important. An important task is also to reduce the cost of settlements and increase their security. In June 2002, European commercial banks organized the European Payments Council, which aims to promote the creation of the Single Euro Payments Area (SEPA). The SEPA project covers all the most important payment instruments, with the exception of cash payments, i.e. credit transfers, debit cards and direct debit. Along with creating an automatic, efficient payment processing system, which is in line with pan-European standards, SEPA aims to reduce check turnover in Europe (since checks are expensive to process in international settlements). The European Central Bank assesses the implementation of the SEPA project annually.

Currently, for European countries, the following six main features of the development of retail payment systems can be distinguished:

• - payments in cash are being replaced by non-cash forms of payment;
• - electronic forms of payments are replacing paper-based payments;
• - the population pays bills without visiting the bank's office, using access to Internet banking;
• - payment by cards in terminals in retail outlets will interfere with payment for goods and services using ATMs;
• - Debit cards prevail in circulation, rather than credit cards;
• - the market share of direct debit is decreasing in comparison with other payment instruments [Liconen, 2007].

Thus, in the field of mass transactions for relatively small amounts, there have been major advances in the last half century. These changes reflect the general trends in the transformation of settlement technology and their forms, where three periods of PS restructuring can be distinguished:

• 1. The pre-electronic period (tentatively until the early 1960s), which is characterized by the widespread use of traditional paper-based payment instruments and a high proportion of manual labor in processing payment information.
• 2. The period of active automation of payment and settlement operations based on computer technology (conventionally - 1960s-1990s). The transition to electronic methods of processing, storing and transferring payment information was associated with the rapid growth of economic and, therefore, payment turnover and the inefficiency (low productivity and high cost) of the old payment methods.
• 3. Finally, the third period is the implementation of settlements using the Internet (since the late 1990s) [Banking Information Systems, 20061.

In the field of retail payments, these processes followed three directions for the introduction of non-cash funds:

• 1) creation of branched settlement networks based on payment cards;
• 2) creation of electronic clearing systems in various countries (in the form of automated clearing houses);
• 3) development of a system of remote banking services using the Internet and mobile phones.