State Treasury Payment System in Romania (STEPS)

The State Treasury Electronic Payment System (STEPS) was deployed on June 2005 to process electronically the Romanian Ministry of Economy and Finance (MEF) daily payments and collections. In the first year STEPS was automatically handling and processing a total volume of about 28,820,000 transactions, replacing the previous manually intensive clearing and settlement mechanism. STEPS represents the new MEF treasury and accounting system, based on the backoffice application 'TREZOR' and the payment management system 'qPayIntegrator'. In June 2007, STEPS was upgraded to ensure liquidity management, continuous accounting reconciliation and competitive transactions report. STEPS is using banking instruments and standards, a fact that creates an interoperability bridge with the business community. STEPS implementation dramatically improved the service provided by the Treasury and Public Debt Directorate (TPDD) to the public administration and to the business community, both by ensuring same day final settlement and reduced operational risk. STEPS is aligned to financial regulations by its full compliance with SWIFT registered standards, readiness for Target2 and SEPA. Since its implementation, STEPS uses EU identification codes such as BIC, IBAN and ISIN.

Policy Context

STEPS is compliant with the eGovernment policy of highlighting good practices and ensuring their dissemination and sharing, by providing a powerful tool for public institutions for funds transfers and management. Also, at a higher level, STEPS would ensure the free movement of capital and services, along with the single market and the single currency concepts, thus adding values to the general EU policies. Finnaly, STEPS, being compliant with international financial standards and practice, and being SEPA and TARGET2 ready (to the extent of the today’s available regulations), might be a replicable EU State Treasury solution ensuring interoperability among governmental bodies and the business community of the EU state members. In 2002 the National Bank of Romania (NBR) has launched the project of implementing a real-time electronic payment system (EPS). The participants to EPS are the commercial banks operating in Romania, MEF and the Romanian Stock Exchange. The gross settlement (RTGS) and the government securities trading (GSRS) are architected on SWIFTNet, while the net settlement (ACH) is performed on a NBR proprietary network. To achieve its participation to the Romanian EPS, in 2004-2005 MEF undertook the first phase of STEPS. In 2007 was launched and completed the second phase of STEPS, consisting of the improvement of the performance of the TPDD payment system, of adding new business functionalities and of reducing the operational risk. A third phase is planned for 2008 to implement multicurrency operations and to organize governmental funds management by means of a Closed User Group over SWIFTNet. STEPS is compliant with European banking and financial industry, as registered with SWIFT. A major requirement for the STEPS project was, since its inception, to ensure an early readiness and compliance with the regulations regarding the European payment area transformation (TARGET2, SEPA). (see also Glossary at 3.10)

Description of target users and groups

STEPS is operated by the Treasury and Public Debt Directorate (TPDD) within the Romanian Ministry of Economy and Finance (MEF); the target group beneficiaries in Romania are: - The National Agency for Fiscal Authority, comprising the Fiscal Control Unit and the Custom Administration - The other ministries (15), - Government agencies (26) - Other public sector entities - health, education, defense etc. - (about five thousands) - The local public administration (about two thousands) - Companies in business relationship with the public entities (few thousands) The extension of the target group envisaged at EU level is: - EU State Treasuries (26) - EU public institutions - EU local administration - EU business community The main activities performed by TPDD for this target group consists of ensuring: - funds transfer for public projects execution; - funds (structural funds from EU, etc.) management; - management of own resources account (Romanian contribution to the EU budget); - TPDD liquidity management for treasury single account (TSA) open to the National Bank of Romania; - management and optimization of public debt; - current operations (market operations, utilities payments, wages payments, etc.); - collections of taxes, duties, excises and levies. By ensuring real-time and resilient straight-through-processing (STP) of the funds transfer, STEPS provides not only a higher velocity of fund transfers and a diminished operational risk, but also competitive tools for public liquidity and debt successful administration.

Description of the way to implement the initiative

The main project sponsor was the Secretary of State within MEF in charge with the State Treasury. The execution level decision was delegated to a single point of contact – the project manager (PM) in charge, which is also responsible for running TPDD. The PM was thus the leader of a team comprising representatives of the treasury, accounting. and IT departments within MEF. Both the PM and the MEF execution team were closely working with the business partners’ PMs, business annalists and implementation & support teams: the National Bank of Romania (www.bnr.ro), Business Information Systems (www.bisnet.ro). (see also Glossary at 3.10) Multi-channel issues: Given the centralized architecture of STEPS payment system engine and the high level of STP, all transactions flow is performed online in real time. All treasury clients are directly placing their payment orders to the closer Treasury Unit, which captures it electronically, processes it and consolidates it (through the Treasury’s proprietary network) to the TPDD central payment engine. The Treasury collections are routed, according to their reference (IBAN account and fiscal number) to the client’s account. The TPDD funds transfers (payments and collections) are centralized, ensuring the TSA cash management and forecast. (see also Glossary at 3.10)

Main results, benefits and impacts

General settlement metrics: 1. MEF accounts for 21.94% of the Romania daily gross settlement volume and 24.15% of the daily net settlement value. 2. Value-wise, the gross settled collections account for 68.91% of total MEF settled collections. 3. Value-wise, the gross settled payments account for 87.61% of total MEF settled payments. 4. Volume-wise, the gross settled collections account for 0.84% of total MEF settled collections. 5. Volume-wise the gross settled payments account for 5.66% of total MEF settled payments. MEF settlement dynamics 1. The settled volume of MEF transactions increased between May 2005 and May 2006: Collections Dynamics [%] Payments Dynamics [%] RTGS ACH RTGS ACH May 2005 – May 2006 35.27 66.07 28.54 30.77 May 2006 – May 2007 30.27 4.23 28.03 9.98 2. The settled value of MEF transactions increased between May 2005 and May 2006: Collections Dynamics [%] Payments Dynamics [%] RTGS ACH RTGS ACH May 2005 – May 2006 11.10 75.97 19.44 59.52 May 2006 – May 2007 54.63 11.03 19.21 21.93 3. The present gross settlement transaction fee accounts for 26.77% of the level applicable in May 2005, resulting in a net fee reduction of 73.23%. 4. The present net settlement transaction fee accounts for 27.73% of the level applicable in May 2005, resulting in a net fee reduction of 72.27%. 5. Transactions velocity increased to same-day end-to-end final settlement. This represents a significant improvement – down from 3.65 days rough duration for final settlement (with a maximum of 5.25 days) prior to STEPS and EPS launch. STEPS ensures real-time monitoring of available funds, which enables the decision maker to take a more agile course of action - resulting in an optimization of the TPDD financial resources. Due to STEPS transactions database and detailed reports, TPDD has a powerful forecasting tool to improve the efficiency of its market actions, such as currency exchange, deposits handling, investments, Repo operations with T-bonds, etc. Risk management through continuous accounting reconciliation with the National Bank settlement accounts, allows early detection of accounted differences and corrective actions. Early alerts based on participants’ behavioral changes make STEPS an useful instrument for market trends analysis. STEPS is aligned to financial regulations by its full compliance with SWIFT registered standards, readiness for TARGET2 and SEPA. Since its implementation, STEPS uses EU identification codes such as BIC, IBAN and ISIN. Taking into account that MEF is providing a service to its target group in partnership with the financial community in the country and also detecting that the banking partners are frequently duplicating payment, TPDD implemented in STEPS phase 2 a transaction duplicate facility to allow for early detection of these exceptions. Thus, the ground is set for the reduction of the refunding duration. (see also Glossary at 3.10) Innovation: STEPS uses banking instruments and standards providing an interoperability bridge with the business community. Mainly this is achieved by using SWIFTNet standards, services and technology. Also, apart of the adoption and processing of the MTxxx messages (which in itself is the mutual exchange language in the banking and financial community) STEPS uses the largely recognized EU identification codes such as BIC, IBAN and ISIN. The technical solution of STEPS provides for STP, thus eliminating the manual processes, with direct impact in increasing efficiency, throughput and minimization of operational risk. By its scalability, STEPS provides further reforming of the relationship between MEF and its target group, allowing to organize business-to-business (B2B) infrastructures through a highly secure and standardized channel like SWIFTNet is. STEPS is using an embedded real-time transaction mirroring mechanism to ensure a high level of resilience and a short business relocation time. From a strict technical point of view, STEPS is using several innovative features like an adaptive routing mechanism, outstanding throughput (six times higher than general middleware solution non-optimized for financial transactions processing) for end-to-end non-volatile transactions, embedded technological reconciliation of financial messages. (see also Glossary at 3.10)

Return on investment

Return on investment: Not applicable / Not available

Track record of sharing

Following the STEPS implementation, TPDD may become an expertize ‘exporter’ in the field of payment systems, compliant with financial market regulations (i.e. TARGET2, SEPA, SWIFTNet, etc.) and banking practice, ensuring the transparency and interoperability between the public sector and the business community. After STEPS deployment, TPDD hosted a couple on exchange of experience with representatives from the French Ministry of Economy and Finance and from the Ministry of Finance of the Republic of Moldova, sharing and disseminating information on the its business practice. The real-time asynchronous view of the TSA account and cash management were among the most appreciated features of STEPS. It is our strong belief that STEPS might become the core of the EU state treasury model, and its implementation might be replicated in the European area - along with TPDD commitment to provide consultancy and technical support to other public administrations. (see also Glossary at 3.10)

Lessons learnt

1. The advantage of using standards, communication and business instruments, resulting in high interoperability with the business environment. 2. The management of exposure to external dependencies. Given the parallel implementation of STEPS phase1 and EPS which generated extremely volatile system specifications and testing schedule, TPDD and its partners had to develop and use special tools and procedures for tracking change requests and for tightly monitoring the changing project schedules imposed by the National Bank. 3. The crucial importance of managing the operational risk in payment system projects – by providing enough resilience and redundancy (production, backup, test and prototype platforms) and by ensuring a high level of STP. (see also Glossary at 3.10) Scope: Local (city or municipality), National, Regional (sub-national)