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Electronic Bill Payment Transformation in Saudi Arabia

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Presentation on theme: "Electronic Bill Payment Transformation in Saudi Arabia"— Presentation transcript:

1 Electronic Bill Payment Transformation in Saudi Arabia
Presentation to the ECB – MNB Conference Budapest, November 2012

2 SADAD Payment System was incepted by SAMA to increase e-payment adoption in KSA
Executive Summary SADAD Payment System is an initiative launched by the Saudi Arabian Monetary Agency (SAMA), with the mandate of developing e-Payment products & services for individuals, businesses and government. In 2007, SADAD EBPP was officially launched to consolidate and centralize bill payments in KSA SADAD EBPP has generated several benefits for the Saudi macro-economy, including banks, billers, and consumers by increasing efficiency, reducing costs, and stimulating e-Payments adoption SADAD has captured 90% market share processing more than 120m transactions with a value exceeding SAR100bn in 2011, thereby encouraging e-Payments adoption in KSA. Going forward, SADAD is pursuing its ‘Next Horizon’ strategy, focusing on e-Commerce and SME e-Payment enablement through the launch of three new services: Online Payments e-Commerce (OLP), Biller Base Expansion (BBE), and e-Invoicing SADAD Payment System

3 Today, Electronic Bill Payment Benefits All Stakeholders in Saudi Arabia
The Impact of SADAD Consumers Billers Banks Government Macro-Economy Stakeholders One location for all payments Increased convenience through ‘one-click’ payment Freedom to pay through any bank via all bank channels Reduced late fees and charges paid Access to all customers through any bank Rapid collection cycle (1 day settlement time) Reduced cash management risk (fraud / errors) Lower bill payment processing costs Enhanced financial management Significant reduction in cost of bill payment processing No bill payment queues in branches More equitable value proposition (previously no revenues for bill payments) Maintain relationships with customers 90% of government bills collected electronically Increased transparency of collection Automated & centralized payment collection Elimination of physical cash management 100% of utility bills collected through SADAD Decreased dependency on cash in the economy Increased capital efficiency for the national economy Positive environmental impact due to reduced paper bill printing & delivery Benefits SADAD Payment System

4 SADAD Background SADAD EBPP SADAD Next Horizon Appendix
SADAD Background SADAD EBPP SADAD Next Horizon Appendix SADAD Payment System

5 In the 1980s, SAMA mandated banks to facilitate consumer bill payments which lead to several challenges Background In the early 1980s, SAMA mandated that all Saudi banks must accept bill payments on behalf of utilities (electricity, telecom, and water) at no charge and regardless of the customer’s banking relationship. Over the years, the process became operationally inefficient for several reasons. It placed an unduly large burden on banks resulting in: High operational costs for banks Late / missed payment processing Risky cash management Escalating complaints As the market tried to self-correct, the distributed point-to-point model emerged between banks and billers. This fragmented approach further divided the market, thus lacking centralization and common standards There was a clear need for a solution that satisfied and served consumers better, streamlined government collections, and increased cooperation between the government and the private sector SADAD Payment System

6 As a result, SAMA incepted SADAD, a centralized payments initiative, to develop payments products and services Mission and Principles of SADAD Payments Initiative SADAD Governing Principles SADAD Vision/Mission Efficiency Achieve goals and targets on time, in a productive fashion Vision One solution for all payments Collaboration Establish a collaborative environment with a collective focus on the end-result Transparency Share relevant information with all concerned stakeholders in an open and timely fashion Mission Develop new payment solutions to lead the financial services sector towards high level of services for individuals, businesses, and the government sector. Accountability Take accountability for own work, while maintaining a holistic view on the success of SADAD Excellence Maintain high standards to deliver high quality services SADAD Payment System

7 SADAD Background SADAD EBPP SADAD Next Horizon Appendix www.sadad.com
SADAD Payment System

8 Perceived Problems and Issues Initial Bill Payment Network
Traditionally, consumer bill processing and payment in KSA was inefficient and complex Perceived Problems and Issues ILLUSTRATIVE Long queues for bill payment at banks Potential disconnection of service due to long delays in bill processing Need to handle cash Initial Bill Payment Network Consumer Comments Majority of bills were paid by consumers with cash across bank counters Some billers (e.g. SEC and STC) were developing individual arrangements with banks for streamlining bill payment processes Bill presentment and payment volumes were anticipated to increase significantly in KSA over next few years Usage of electronic channels for making payments is low but expected to pick up in future Electricity Bank A Telecom Bank B Others (..??) Water Bank C Government Bank D Long collection cycles Inefficient processes High level of customer complaints and dissatisfaction Multiple separate linkages with different banks Higher costs at branches for handling bill payments (often from non-bank customers) Need to integrate separately with multiple billers No revenue streams from handling bill payments SADAD Payment System

9 Key Implementation Challenges Faced
The SADAD consolidator EBPP service was launched in 2004 to centralize point-to-point connectivity for payments SADAD EBPP Model ILLUSTRATIVE SADAD EBPP 1 2 3 Strong resistance to change: Historical reliance on largely manual and paper-based payment presentment and collection Multiple parties (banks and billers) with limited technical capabilities throughout bank and biller community Major banks and billers already had proprietary payment systems needing to be transformed Changed business model: Billers did not previously have to bear the cost burden of bill payment Untested revenue sharing model with banks Greenfield operation: Lacking in infrastructure, manpower, technology, etc. requiring multi-stream program Multiple 3rd parties supporting the overall effort Untested technology: Innovative technical platform developed for first time internationally Key Implementation Challenges Faced 4 Consumer Biller A Bank A SADAD Biller B Bank B Biller N Bank N Reduce the burden on banks due to the inherent inefficiencies of bill payment in KSA Rationalize connections between billers, banks and consumers through a single platform to enable the consumers to pay periodic/repetitive bills (e.g., utility bills, phone bills, etc.) at any bank SADAD Payment System

10 SADAD Operational Model Overview
As such, typical transactions accessed bill information held in SADAD through existing bank and biller channels SADAD Operational Model Overview ILLUSTRATIVE Customer authenticated by the bank prior to querying SADAD Banks would communicate with SADAD through existing infrastructure Billers would communicate with SADAD to upload new bills, exchange bill status and reconciliation reports Branch SADAD POS Customer Biller ATM SADAD would provide information, update bill status accordingly and initiate the settlement process Walk-in Customer(1) Collection Center Website Internet Banking Major Bank Channels Banks Biller Channel 1) Customers will still be able to settle their bills through Biller Channels SADAD Payment System

11 Principles & Guidelines Split For Stakeholders
To promote cooperation, fees earned from the EBPP service were split between SADAD and banks SADAD EBPP Fee Split 14 major banks are linked to SADAD and provide bill presentment and payment as a service to consumers and 120 biller Principles & Guidelines Represents a major shift in traditional bill payments, whereby an approach is taken to eliminate subsidies and fairly distribute costs and benefits Consumers are not charged, as SAMA sought for this System to be a catalyst for market adoption; Billers pay a transaction fee for each bill paid This ‘fee split’ structure ensures that costs are reduced at both macro and micro economic levels Overall value creation for billers and banks is at SAR per bill Average EBPP Fee Split For Stakeholders Banks provide bill presentment and payment capability to all consumers through all banking channels. Banks went from loss to making a small profit. SADAD provides infrastructure and operational support capabilities SADAD Payment System

12 Macro-Economic / Society
SADAD EBPP service has resulted in numerous macro-economic, biller, consumer and bank benefits SADAD EBPP Benefits 1 Macro-Economic / Society Lower dependency on cash in the economy due to increased penetration of e-Payments in KSA Increased capital efficiency for the national economy Increased transparency in government collection process Biller settlement time reduced from days to 1 day Significant reduction in the cost of bill payment processing 4 2 Banks Billers Reduced cost of bill payment processing Retention of relationship with billers and consumers Single point of linkage with multiple billers Increased revenues from bill payment revenue split SADAD EBPP Faster settlement time for bill payments Access for all customers through any bank Lower costs for paper, IT systems and staff as a result of service delivery through online channel Reduced working capital requirements due to faster collection of bill payments 3 Consumers Increased convenience due to ability to make e-commerce purchases possible through websites Increased access to greater variety of products and services online Availability of a number of different payment options SADAD Payment System

13 Demand for SADAD’s EBPP has come from billers across several sectors with government entities serving as a major customer Biller Sectors Total Payments Value Processed (2012) Biller Sectors Using SADAD EBPP Services Government Entities Airlines Financial Services Chamber of Commerce Customs Department of Zakat (Tax) Government Funds Insurance ISPs Ministries Municipalities Postal Services Press & Media Telecom Universities Utility Services Government created a fully fledged programme (jumped in) Non-Government Entities The majority of SADAD payment volumes are derived from payments to government entities Government intervened with a full fledged program to automate its billing processes and established a PMO to integrate its agencies with SADAD Government Entity Non-Government Entity SADAD Payment System

14 From a macro-economic perspective, KSA has significantly increased the use of non-cash retail payment instruments Uptake of Non-Cash Retail Payment Instruments SADAD Transaction Volume, m In 2011, SADAD processed over 120 million online transactions, up approximately 25% from the previous year’s 98 million, signaling market acceptance of non-cash retail payment instruments Volume of non-cash transactions, m 362 Cheque POS – SPAN Debit SARIE SADAD 289 229 In 2011, SADAD processed approximately 34% of all e-Channel transactions in KSA, surpassing the usage of cheques (1.7%), and SARIE (11.7%) 220 155 1 03 84

15 For banks and billers, payment flows continue to rise, reaching SAR 107Bn total Payments value made to 110 onboarded billers SADAD Growth Over 120m e-Payment Transactions in 2011 Number of Active Billers 2005 – 2011 Total Payments Value Processed SAR Bn, 2011 +47% +120% Total payments volume processed through SADAD is rising Government and major billers continue to integrate with SADAD for electronic bill payment capability Bill payments continue to rise through increased uptake, with 47% increased volume due to greater variety of billers and increased consumer usage Further efficiency gains are seen by the usage of electronic bill presentment functionality, which amounts to almost ~ 791m requests (Bill Queries) per year Includes all major government and utility billers in KSA, allowing for payment towards many items including traffic fines and telephone bills Over the period of 2008 – 2011, SADAD successfully onboarded 60 billers (~120%) Despite the ability for billers to collect bill payments directly through retail outlets, the efficiency of SADAD have pushed biller demand

16 Furthermore, consumer behavior has changed with increased usage of SADAD services through non-branch channels Impact on Consumer Behavior Branch initiated bill payments reduced by 96% Consumers have increasingly become accustomed to using alternative channels for SADAD bill payments Consumers have increasingly relied on SADAD for bill payments Since inception, biller payments made at branches using SADAD have decreased 96%, as customers have migrated towards the use of alternative channels (e.g., ATM, Phone, Web) 81% of all SADAD payments processed were completed through two channels - web with 41%, followed by ATM with 40% In 2011, 90% of all bill payments were processed through SADAD due to its ease of access and convenience, despite the continued availability of traditional bill payment channels (e.g., biller retail outlet, credit card, etc.)

17 SADAD received a number of awards and still continues to receive international recognition as a ‘market change catalyst’ UN Public Service Award GCC e-Government Award Injaz e-Government Achievement Award ISO Quality Mgmt ISO Information Security Mgmt.

18 SADAD Introduction SADAD EBPP SADAD Next Horizon Appendix
SADAD Introduction SADAD EBPP SADAD Next Horizon Appendix

19 Prioritized Services for Next Horizon
Going forward, SADAD has detailed its next horizon strategy that entails a near-term focus on e-Commerce and SME Payments Prioritized Services for Next Horizon ILLUSTRATIVE 1 SADAD Next Horizon Online Payment (OLP) e- Commerce Biller Base Expansion (BBE) for SMEs e-Invoicing C2C Direct Debit 2 Long-Term (~3-5 Years) Medium-Term (2 Years) Identification Services1 Near Term 1) Service is tentative as long-term-services are likely to be redefined and evolve as time progresses

20 Background on SADAD Next Horizon
Online Payments and Biller Base Expansion have been prioritized for immediate pursuit Background on SADAD Next Horizon Service Description Online Payments (OLP) e-Commerce Creation of a secure, non-card based payment option to online merchants and consumers Next Horizon services will be streamlined, highly-automated, self-serviced and will shift a major part of biller / merchant management responsibilities to banks Immediate Focus Biller Base Expansion (BBE) Expansion of existing EBPP service offering to include Small and Medium Enterprises (SMEs) e-Invoicing Development of an automated and integrated invoice presentment and payment option available to B2B players

21 Thank you. Questions & Comments


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