Payment intermediation and payment systems are fundamental to the functioning of the economy. Payment intermediation involves transferring money from purchaser to seller when goods and services are purchased and sold. Payment intermediation and payment systems serve individuals, companies, and institutions. Payment intermediation takes place through various payment systems, depending on the payment instrument used. The most common payment instruments in Iceland are electronic instruments, notes, coins, and cheques.
Structure of payment intermediation and payment and settlement systems in Iceland
Electronic payments promote transparency and efficiency. A large proportion of Icelandic payment intermediation takes place by electronic means. It is based on diverse payment systems, many of which are linked to one another. Monetary transactions from various payment instruments are routed through the payment and settlement systems that collectively handle the intermediation, settlement, and registration of the transactions. Monetary transactions accumulate in smaller systems and are transferred to larger systems. Many financial institutions offer payment intermediation and provide related financial services. The core payment infrastructure in Iceland is highly centralised and is linked to the activities of the Icelandic Banks' Data Centre (RB). The largest payment and settlement systems are based on RB's infrastructure. This long-established arrangement is founded on decades of cooperation between commercial banks and savings banks. Its advantages include increased coordination, overview and operating efficiency. However, the arrangement may entail an operating risk of contagion between systems if a problem arises.
The three most important payment and settlement systems are the real-time gross settlement (RTGS) system, the netting system and the securities settlement system. The Central Bank administers the RTGS system, Greidsluveitan hf. administers the netting system, and the Icelandic Securities Depository administers the securities settlement system. The technical operation of these systems is carried out by RB. Oversight of payment intermediation and these three payment and settlement systems lies with the Central Bank of Iceland because of their importance for financial stability and for the economy as a whole.
Systems that transmit high volume valuables between financial institutions are usually considered most significant and therefore systemically important. If the payer and payee are not customers of the same credit institution, payment is generally made between their respective institutions in accordance with the payment instructions. All interinstitutional payments in Icelandic krónur are finally settled through their accounts with the Central Bank of Iceland.
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