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treasury and cash management Electronic Revolution Check volumes in many Latin American countries declined over the past five years due to the availability of new electronic payment systems, but checks remain a predominant payment instrument for companies and consumers. However, most Latin American countries have moved from manual to electronic check clearinghouses. In these newer systems, check clearing totals are electronically transmitted to the check clearinghouse so that clearing totals can be netted and settled among participating banks much sooner than in the past. The physical exchange of checks between banks takes place daily after the electronic clearing. Electronic check clearing means that clearing times in many countries have fallen from three or more days to just one or two days. Consequently, companies and consumers can now utilize funds faster. Mexico and Argentina have also adopted the electronic capture and exchange of check images, allowing physical checks to be truncated or retained at the bank of deposit. Check imaging also creates an opportunity for banks to offer companies new cash management products. Besides checks, other low-value payment systems typically include a clearinghouse for interbank electronic credit transfers and direct debits. In Latin America, these are commonly referred to as ACH credits and ACH debits, named after the Automated Clearing House (ACH) launched in the U.S. by the National Automated Clearinghouse Association in the 1970s. In contrast to RTGS systems, low-value payment systems typically operate on a deferred net settlement basis and process large numbers of transactions in batches. Positions are settled daily via participants’ accounts maintained at central banks using each country’s respective RTGS system. In most countries in the region, these automated clearinghouses are authorized and regulated by central banks but are privately owned and operated. The exceptions are Costa Rica, Colombia, Ecuador and Venezuela, where central banks own and operate ACH systems. In Colombia, there is a second system, ACH Colombia, owned and operated by the Colombian banks. Use of ACH systems for interbank electronic transfers got off to a slow start in Latin America. However, during the past five years several countries — including Chile, Costa Rica, Ecuador and Mexico — are seeing significant growth in the number and value of ACH transactions, indicating a more positive trend and acceptance among governments and companies to migrate from checks to electronic payments. For example, in 2003 and 2004 the Ecuadorian government established a policy requiring that all public sector vendor and salary payments be made electronically, using its ACH system. In 2007, the government of Panama undertook a similar initiative to move all of its public sector employees to electronic payments, using the privately-operated ACH Directo system. Use of electronic payments not only reduces costs but can expand the number of individuals participating in the banking system when previously unbanked employees open checking or savings accounts to receive salary payments. Driving Growth Electronic payments are not only more efficient, but the cost to process such transactions is lower than that associated with issuing, clearing or collecting checks. The region’s public and private sectors must continue to play a major role in increasing the use of electronic payments: • Federal, state or provincial governments should be major drivers and users of new ACH systems. They can require companies to make tax payments electronically and can pay public sector employees, retirees and vendors electronically. • Public and private sector companies should pay vendors and employees electronically. When employees do not maintain bank accounts, banks offer payroll cards for employees to withdraw wages at automated teller machines. • Entities such as insurance, telephone, electric and water companies, which serve thousands or millions of consumers, should utilize electronic collections methods including pre-authorized debits whenever possible. The new ACH interbank direct debit systems make it more efficient for companies to collect from consumers, regardless of which bank a consumer uses. • Banks should offer enhanced cash management services for companies to transition smoothly from checks to electronic payments. Banks need to consider how they will capture and transmit remittance details with each electronic payment, and provide timely and automated information on return items – features important to companies. Pricing schemes for electronic payments need to be designed to stimulate the migration from checks to electronic methods. Conclusion The past decade has seen great progress and many positive changes in the modernization of payment systems and the adoption of international standards for payment system operation, regulation and governance in Latin America. Now it is up to the banks, companies and the public sector to identify and implement more programs that increase the usage of these new electronic payment systems. I NLRussell Associates Nancy L. Russell, Principal Phone: +(1) 617 247-2664 Email: NRussell@nlrussellassociates.com Website: www.nlrussellassociates.com 2008 LATINFINANCE 55 guide
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Latin Finance - June 2008

Table of Contents for the Digital Edition of Latin Finance - June 2008
