External Factors & Business Continuity Planning in Payments

Keeping Payments Flowing

Understanding External Risks and Ensuring Resilience

Part 1: Why Payments Can Fail

System & Participant Issues

Breakdowns in technology or connectivity can halt the payment process at various stages.

• Individual/Company Connectivity Failure: A user can't connect to their payment provider (e.g., internet outage, hardware failure).
• Bank-to-System Connectivity Failure: A bank is unable to send payment messages to a clearing system.
• Clearing System Failure: The central system is unable to settle payments, potentially due to technology failure or a participant default.

Economic & Political Factors

Instability in the wider world can have a direct and severe impact on financial systems.

• Economic Instability: Currency devaluation, stock market crashes, or financial crises can prevent clearing systems from settling.
• Political Instability: Civil unrest or government instability can disrupt business operations, preventing staff from working and even leading to bank holidays.

Part 2: The Solution: Business Continuity Planning

BCP ensures that everyone in the payment chain has a backup plan to maintain operational resilience during a crisis.

For Individuals

If your primary payment method (e.g., laptop) fails, use alternatives like your bank's mobile app or telephone banking.

For Corporations

If a direct connection (host-to-host) fails, switch to uploading payment files via an online banking portal or even re-keying critical payments manually.

For Payment Providers

Maintain multiple payment gateways and have backup processing sites (Hot, Warm, Cold) on separate power grids to take over instantly if the primary site fails.

For Clearing Systems

Operate contingency sites and have procedures to "unwind" a settlement if a participant fails, ensuring the system doesn't collapse.

Part 3: The Watchdogs: Ensuring Operational Resilience

Global and national regulators set standards for business continuity to protect the entire financial system. They mandate that financial market infrastructures (FMIs) are robust and prepared.

Key Regulatory Bodies:

• Bank for International Settlements (BIS): Fosters cooperation between central banks via its Committee on Payments and Market Infrastructures (CPMI).
• National Regulators (e.g., Bank of England, US FFIEC): Enforce operational and cyber resilience (like the CBEST framework in the UK) for financial institutions.

This infographic is based on "Topic 12: External factors and business continuity planning".

Always be prepared. Robust planning is the key to financial stability.