Priority should be given to use up-to-date technology for transactions routing mechanisms, security systems and codes for inter bank clearing and settlement mechanisms. ii. Efficiency and risk control: Many developing countries, in general, and South Asia in particular, are characterized by a heavy use of cheques, which indicates that the retail sector is far from being optimal from the point of view of efficiency and risk control. Central banks and all stakeholders in the retail payments arena need to take early action to reduce the cheques and design a strategy to incentivise users to move towards other electronic payment instruments. It is also important to correct the wrong impression that cheque processing through Automated Clearing Houses (ACH) is cheaper than investment in electronic payment systems and on line processing. The view that outstation and rural customers are reluctant to use electronic cheques or credit and debit cards is no longer true. iii. Involve governments: Government involvement in the development of retail payment system is a key, although it has become one of the difficult tasks. Many government transactions are in cash or by cheque, and governments are not keen to acquire modern payment infrastructure or recognize the benefits of using newer payment instruments. One obvious reason for this is the ready access governments have to state banks’ cash items in process of collection, which enables immediate credit to governments.
Although the gradual move out of cash has made paper-based instruments such as money orders, postal orders, bank drafts etc., popular for several decades, their market sizes have continued to decline, largely due to inherited inefficiencies and cumbersome processes in effecting and settling payments. Some of these retail payment instruments and systems have now been replaced by electronic payment instruments and cards, and the tendency is to move towards electronic credit and debit transfers. According to the statistical reports of the Bank for International Settlements, some interesting movements in the use of retail payments in selected countries can be seen. In volume terms, France, Germany, Italy and the UK have reduced cheque use from a range of 3-38 percent of total non-cash payments, respectively, in 2000 to a range of 1-26 percent in 2006, while there are no cheques at all in the Netherlands. In Brazil too, cheques have decreased from 57 to 25 percent or less in the same period. Credit and debit transfers and cards, on the other hand, have risen significantly in these countries. This picture is different to that of India, where cheque use has reduced at a slow pace from 84% in 2004 to 73% in 2007 and in Sri Lanka from 75% to 65% in the same period, indicating the dominance of cheques. I believe the situation is the same for other countries in the SAARC region.