Electronic clearing system should cover other cities

JAKARTA (JP): The electronic interbank clearing system planned for the capital should eventually cover other cities in the country to improve the efficiency of the national payment system, bank analyst I Nyoman Moena said over the weekend.

Moena stressed that a quicker settlement of interbank transactions through the clearing system would eventually reduce the cost of money.

"When the flow of interbank funds gets smoother, it will bring down the cost of funds, which is currently very high," Moena told The Jakarta Post Saturday.

Moena, chairman of the supervisory board of the Indonesian Private Commercial Bank Association, said that at present the intercity flow of funds was not that smooth because every city had its own payment system and its own clearing system.

Currently, there are more than 100 cities and towns using their own interbank clearing systems, of which 43 are organized by Bank Indonesia and its branches and the rest by state banks' branches appointed by the central bank.

Such a clearing system becomes complicated whenever a local branch loses in a clearing it has to order liquidity funds from its headquarters in Jakarta. The head office then transfers the money through a clearing process in Jakarta.

"It needs two to four days to process such transfers of funds... When you need the funds today but you receive them four days later, it means you have to bear the interest cost," Moena said.

All interbank clearing is still done manually, and there is no single system which can electronically connect local clearing centers with the one used by the central bank in Jakarta.

For large cities like Jakarta, such a clearing system causes inefficiencies in the payments system because it depends on traffic and other factors.

Moreover, the amount of funds cleared daily by the central bank in Jakarta has increased tremendously from Rp 4.5 trillion in 1991 to more than Rp 25 trillion (US$10.5 billion) today.

Bank Indonesia Governor J. Soedradjad Djiwandono announced at the annual bankers dinner last week that his institution would soon introduce an electronic clearing system in Jakarta.

The introduction of the electronic clearing system for Jakarta is part of the central bank's efforts to develop an efficient, secure and reliable national payment system.

Besides, the central bank is also preparing a system for retail payments and electronic fund transfers as part of a high- value payment system.

The planned electronic clearing system, however, will still involve hard copy documents.

Soedradjad said the central bank had no plan for the time being to entrust the interbank clearing system to an independent private institution.

Moena agreed the central bank still operated clearing systems in Jakarta and other cities because it was its duty to develop, stimulate and regulate the payment system and organize an interbank clearing system.

He suggested that the central bank and participating banks in the clearing system improve human resources to anticipate the planned electronic clearing system and the connection between clearing centers in other cities.

"As for the software and hardware, I think both the central bank and the participating banks will be able to afford them. It will be the human resources that will play the pivotal role," he said.

He warned that the implementation of high-tech products in the clearing system would open loopholes for possible fraud by hikers. Moreover, many previous bank fraud cases always involved insiders.

Although the planned electronic interbank clearing system for Jakarta will be equipped with test keys, it does not mean that it will be safe from potential fraud.

In the middle of last year, for instance, the central bank was rocked by a US$3 million transaction fraud which involved three of the bank's treasury officials.

Another major bank fraud last year was the one at HongKongBank, which involved fake transfers of US$44 million from an overseas branch to three local banks.

In addition, Moena said, fraud also happened in many automated teller machines as indicated by people's increasing complaints over miscalculations by the automated teller machines.

"Therefore, the introduction of high-tech products must be preceded by the improvement of human resources so that technology advancement in the banking industry will not open loopholes for hikers," Moena said.

He stressed that technology advancements in the banking industry, supported by reliable human resources, would improve the efficiency of the national payment system.

"An efficient national payment system would eventually encourage robust economic activity, not only in Jakarta but also in cities and towns outside Java," Moena said. (rid)