The year 1997 was fundamental for designing the future of the Estonian payment and settlement system. Eesti Pank decided to design a new Inter-Bank Payment System (IBPS) complying with the EU requirements based on two sub-systems: a Real Time Gross Settlement System (RTGS) for processing high value and urgent inter-bank payments and a Designated Time Net Settlement System (DNS) for processing retail payments. The objective of the new payment and settlement system is to accelerate settlement and build confidence to enhance financial intermediation in Estonia's banking sector and reduce the significance of cash in high value transactions. The cost per payment decreases for credit institutions as well. Implementation of two parallel systems provides an element of choice to the final consumer: designated net settlement is cheaper for retail payments. Two physically separate systems create also the opportunity for each system to provide mutual disaster contingency capability.

In order to design and implement the new payment and settlement system Terms of Reference were prepared and a competitive tendering exercise was conducted together with the European Union Phare programme to find a suitable contractor to undertake the detailed design of the system. The winner started designing of the payment and settlement system in January 1998. According to the Terms of Reference the Designated Time Net Settlement System should be launched in September 1999 and the Real Time Gross Settlement System in September 2000.

The current inter-bank payment and settlement system as described in the Annual Report of Eesti Pank for 1996 has not changed and neither will prior to the introduction of the Designated Time Net Settlement System. Nevertheless the development of the financial sector and better management of settlement risks necessitate the continuous upgrading of the current payment and settlement system. In 1997, the main change introduced for reducing financial risks consisted in measures aimed at increasing the liquidity buffers (see Monetary Policy, Operational Framework of Monetary Policy).

Technical solutions of payment and settlement systems were continuously aligned. Unified account statement requirements for credit institutions were introduced, this statement being the only document confirming the crediting of beneficiaries' account. The practice of sending payment order copies on paper was replaced by electronic copy. The introduction of an all-Estonian standard for the unified account number continued, the process will be completed in 1998.

SETTLING OF PAYMENTS

About one third of inter-bank payments are settled through Eesti Pank. The rest are either intra-bank payments or payments settled any other way. Although the amount of settlements through Eesti Pank increased by 24% in 1997, the growth rate of payments has decreased from year to year (see Table 6.1 Amount of electronic payments settled through Eesti Pank, between 1994 and 1997). The majority of payments settled is under EEK 50,000. The volume of payments settled through Eesti Pank increased by 53% in 1997. The growth rate of turnover has increased over the years.

Table 6.1 Amount of electronic payments settled through Eesti Pank, between 1994 and 1997

 

Total

Change
compared to
the previous
year (%)

Daily
average

Share by the amount of credit and debit orders (%)

0-50,000
EEK

51,000 -
200,000 EEK

201,000 -
1,000,000 EEK

over
1,000,000 EEK

1994  

Amount of credit and debit orders
(in thousands)

3,903.3

-

15.3

94.5

4.0

1.1

0.3

Volume of settlements (EEK mn)

105,814.3

-

415.0

18.7

14.3

17.9

49.2

Average amount of payment
(thousand EEK)

27.1

-

-

-

-

-

-

1995

Amount of credit and debit orders
(in thousands)

6,215.6

59.2

24.5

95.2

3.6

1.0

0.3

Volume of settlements (EEK mn)

149,325.7

41.1

587.9

18.9

14.2

16.7

50.3

Average amount of payment
(thousand EEK)

24.0

-

-

-

-

-

-

1996

Amount of credit and debit orders
(in thousands)

8,748.8

40.8

34.2

96.1

2.9

0.8

0.2

Volume of settlements (EEK mn)

212,249.4

42.1

829.1

19.5

11.7

14.2

54.7

Average amount of payment
(thousand EEK)

24.3

-

-

-

-

-

-

1997

Amount of credit and debit orders
(in thousands)

10,891.1

24.5

43.0

95.9

3.1

0.8

0.2

Volume of settlements (EEK mn)

323,830.6

52.6

1,280.0

14.0

9.9

11.2

65.0

Average amount of payment
(thousand EEK)

29.7

-

-

-

-

-

-

PAYMENT INSTRUMENTS

Cash

According to estimates cash payments comprise about 80% of all the transactions. 2.5% of payments settled through the credit institutions had been initiated in cash in 1997.

Non-cash Payment Instruments

The most extensively used payment instrument is continuously a credit order comprising about 90% of the total non-cash settlements and 95% of their turnover. The customary paper-based credit order is ever more replaced by various telebanking products. Although Estonian credit institutions have been offering these products for several years, they were accessible mostly to companies due to the high prices. Telephone and Internet banking services as well as payments through ATMs (Automated Teller Machines) marketed in 1997 made telebanking products available to private individuals as well.

As to debit instruments, both cheques and direct debits are equally in use. Although payment cheques have never played an important role in the Estonian market of payment instruments, their number has remained stable over the years. The share of direct debits has increased and is comparable to the cheques, marking, thus, a breakthrough for this payment instrument.

Bank cards are the most widespread payment instruments. Credit institutions had issued 607,400 cards by the end of 1997 (see Table 6.2 Total amount of bank cards issued in Estonia, between 1994 and 1997). 27.9% of the bank cards were passive, not used during a month. Among new trademarks, Cirrus/Maestro debit card came into use. It should replace local debit cards issued by some credit institutions. Due to Cirrus/Maestro the number of international bank cards tripled in 1997.

Table 6.2 Total amount of bank cards issued in Estonia, between 1994 and 1997 (thousand pieces)

 

1994

1995

1996

1997

Domestic debit cards

5.0

108.2

381.3

406.1

   o/w cash cards

5.0

86.2

116.3

56.5

         debit cards

-

22.0

265.0

349.6

International debit cards

-

9.0

42.7

186.3

Debit cards total

5.0

117.2

424.0

592.4

Domestic credit cards

-

-

-

0.1

International credit cards

-

2.3

9.6

14.9

   o/w VISA

-

1.0

3.3

5.8

         Eurocard/MasterCard

-

1.3

6.3

9.2

         Other

-

0.0

0.0

0.0

Credit cards total

-

2.3

9.6

15.0

Debit and credit cards total

5.0

119.5

433.6

607.4

The number of ATMs doubled and their use widened in 1997. About three quarters of them permit cross-usage of local cards issued by different credit institutions as well as the use of VISA and Eurocard/MasterCard, international bank cards issued in any country of the world (see Table 6.3 Number of Automated Teller Machines (ATMs) and points of sale accepting bank cards, between 1994 and 1997). Apart from regular cash and payment dispensers, the ATMs accepting cash payments were introduced. By the end of 1997 there were 12 such ATMs.

Table 6.3 Number of Automated Teller Machines (ATMs) and points of sale accepting bank cards, between 1994 and 1997

 

1994

1995

1996

1997

Automated Teller Machines (ATMs) total

5

140

230

427

   o/w cross-usage ATMs

-

-

*

331

         ATMs accepting cash payments

-

-

-

12

Cash dispensers

5

140

230

279

Cash and payment dispensers

-

*

*

110

Payment dispensers

-

-

*

38

Points of sale accepting bank cards

20

250

1,200

2,153

* No data available.

In 1997, the number of points of sale (POS) accepting bank cards increased about 80%.