Bulgaria's Evolving National Payment System
In 1968, following the creation of its Main Computer Center, the Bulgarian National Bank (BNB) was the only bank offering commercial banking services in Bulgaria. Early projects included the reconciliation of issued and received payments between BNB branches. As computer systems developed, by 1984 a system for automation of inter-branch bank transfers in BNB could be implemented.
Things started to change in 1987, when several public and private commercial banks were founded. After the fall of the socialist regime in 1989, this process continued and the banking sector was entirely reformed. BNB became a ‘normal’ national bank and removed its commercial bank functions. In the same year, the Main Computer Center of BNB was transformed into a joint stock company for the banks in Bulgaria, called Bankservice, and was given the task of developing banking IT projects, introducing new banking technologies and servicing the automation of bank transfers and banking activities.
In 1991, the approach of having a unified management of the payment schemes in the country was adopted and a Committee for Unification of Banking Standards (CUBS) was established for the purpose of defining the rules, practices and standards for the execution of bank transfers and transactions. The chairman of CUBS was a deputy governor of BNB and its members were representatives of BNB, the banking community and Bankservice. The CUBS determined the rules and technical standards for the execution of credit transfers and direct debits, and developed national payment message standards called Bank Unified Standards (BUSes).
In 1992, Bankservice developed, implemented and began operating the national interbank payment system BISERA (Banking Integrated System for Electronic Payments), which is a definite time gross settlement system, with settlement performed next day. In 1994, BORICA Company was established as the operator of the national card payments system. Settlement of bank card transactions was performed in the BISERA system. Originally, settlement of bank card payments was executed on a gross settlement basis and then after one year, when the transaction volume increased, settlement was performed on a bilateral basis.
In 1996 BISERA system version 3 was developed, using the most up-to-date payment and IT technologies. Additional functionality was developed for servicing interbank transfers initiated by transactions of the Central Depository through the use of direct debit. Special algorithms, payment queue management and real-time liquidity management tools were developed, as at that time BISERA was the only settlement system for transfers in Bulgarian levs.
On 1 July 1997, with the adoption of the new Law on the Bulgarian National Bank, a specific money regime was introduced, known as the Currency Board. In accordance with the Currency Board requirements, the total amount of monetary liabilities of BNB (including all banknotes and coins in circulation) may not surpass the lev equivalent of the gross currency reserves. The reserve currency of the Bulgarian lev is the euro at a fixed exchange rate of 1,95583 for €1, and this regime is still valid today.
Following the overall trend in European payment systems development, in 2001 preparations began for a change in the payment infrastructure in Bulgaria. To help realise this change, development of a real-time gross settlement (RTGS) system in BNB, called RINGS, began in 2002. The payment infrastructure was successfully updated a year later. The introduction of RINGS brought about changes to BISERA, BORICA and the Central Depository systems, which became auxiliary systems to RINGS. BISERA system version 5 was implemented as a definite time retail interbank payment system, executing transfers in settlement sessions twice a day. The same mode of operation was adopted in the systems of BORICA, the Central Depository and the Government Securities.
In line with Bulgaria’s accession to the EU and its harmonization with the legislation in EU countries, a new law on money transfers, electronic payment instruments and payment systems was passed in 2005. With this law, the payment system legal framework was harmonized with the most up-to-date European practices in this field.
An important recent step in the development of Bulgaria’s payment system was the introduction of BIC and IBAN in transfer executions. In 2005, an ordinance on the IBAN application for both domestic and cross-border transfers was developed. In the same year, a project was started for the implementation of IBAN and BIC in the execution of transfers. The scope of this project included a change from a domestic standard to the SWIFT message standard for credit transfer and direct debit. This led to entire unification of the messages used in the execution of domestic transfers for all systems participating in the national payment system.
The project started in 2005 with the definition of its scope – the introduction of BIC and IBAN both for trans-border and local transfers, with the use of SWIFT message standard for credit transfers and direct debits, as well as a change in the service scheme for payments to and from the budget. The project’s implementation brought about a huge change in the national payment system infrastructure.
In the project’s realization a ‘big bang’ approach was used, i.e. on 6 June 2006 all bank account numbers were changed and payments were executed only with the use of BIC and IBAN. Thus the Bulgarian payment system made the first step in its preparation to join the common European payment infrastructure.
Since its creation, the payment infrastructure in Bulgaria has been managed according to the principle of separation of the schemes from the infrastructure. This principle proved its efficiency, with respect to current management and updating schemes. A substantial role in this process was played by BNB, CUBS and subsequently NPSC, with the active expert assistance of the Commercial Banks Association and the payment system operators.
In banking practice, BUSes were used for the execution of all basic bank transactions for a long time. These BUSes were transformed in 2005 into Instructions to the Ordinances of the BNB, in correspondence with the adoption of the new law on money transfers, electronic payment instruments and payment systems.
In Bulgaria, the ground is being prepared for SEPA. Seven working teams from the NPSC have been formed and are actively working on defining the principal elements of the migration to SEPA. The basic trends are the introduction of SEPA payment instruments, inclusion in TARGET 2, the servicing of budget payments and the necessary legislative framework changes.
In Bulgaria, we have already experienced and successfully realized changes to the national payment system. The NPSC is ready for the realization of the big projects at hand and there is a readiness to also meet the challenges arising from the country’s accession to the eurozone and SEPA.