Asia’s Multilateralism

Date: 20 Apr 2015 Comments:0

AIIB - The Asian Infrastructure Investment BankWhy would anyone favor increased Chinese Communist Party control over financial institutions of any kind, much less a global development bank, other than an academic economist whose judgment is clouded by an ideology that favors centralized government control in general at the expense of the billions of freedom loving people who rely on free markets to maintain their individual liberties?

China’s own banking system is largely undeveloped and is largely controlled by the Chinese Communist Party. By incurring massive amounts of debt to fund highly visible infrastructure projects, they have showcased China’s engineering talent, but what many fail to see is that there is not enough revenue to cover even the interest on the debt, and this has resulted in questionable loans on a massive scale.
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The Cost of Global Remittances

Date: 3 Sep 2014 Comments:0

According to a recent report by The World Bank (“Migration and Remittance Flows: Recent Trends and Outlook, 2013-2016”, October 2 2013), officially recorded remittance flows solely to developing countries are expected to increase by 6.3 percent to reach $414 billion in 2013.

The report states that “Remittances are now nearly three times the size of official development assistance and larger than private debt and portfolio equity flows to developing countries. They exceed the foreign exchange reserves in at least 14 developing countries, and are equivalent to least half of the level of reserves in more than over 26 developing countries. As many emerging markets are facing a weakening balance of payments, the importance of remittances as a source of foreign currency earnings is increasing.”

The importance of overseas remittances has been recognized by the G20, who made a commitment at the Cannes Summit in November 2011 as follows: “We will work to reduce the average cost of transferring remittances from 10 per cent to 5 per cent by 2014, contributing to release an additional 15 billion USD per year for recipient families.”

And yet, at the same time increasing barriers are being encountered for sending and receiving remittances, with a consequent increase in costs. According to a report from the Global Remittances Working Group of the World Bank (“Barriers to Access to Payment Systems in Sending Countries and Proposed Solutions, Special-Purpose Note”. Global Remittances Working Group, The World Bank Group 2013), the current average cost for sending $200 by bank is 13.54%, compared to 6.92% for MTOs; but the withdrawal of banking services from MTOs in many countries, nominally due to concerns over risk of insufficient safeguards in the areas of Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT) has effectively reduced the options available for those seeking to provide person-to-person remittances, especially for the unbanked.

These conflicting factors are causing confusion and hardship in many developing countries, particularly in south-east Asia and sub-Saharan Africa.

At RTpay, we believe that it is both possible and desirable to ensure that a secure, reliable and safe global remittance system can be offered at zero cost to both the sender and the recipient. This would form part of the wider ZCP program in which governments, businesses and individuals in whatever country can use our electronic payments system to make and receive payments, purchase goods and transfer funds to an ‘electronic wallet’ with no transaction fees.

> See for more information.

Providing a zero-cost payments system using virtual gift cards

Date: 16 Mar 2014 Comments:0

RTgiftIn designing a global system to ensure instant, cost effective and fully auditable individual transfers of funds across national borders, RTpay – a non-profit transaction processing and tax advisory company – is proposing an innovative new approach to low denomination global transfers, particularly for the unbanked and under-banked.

In the ‘RTgift’ model, actual transfers of funds are minimized by using an offsetting process based on the transfer of ‘virtual gift card’ value. Under this model, transactions become purely domestic for the purposes of regulation.


It has become apparent that banks are not prepared to support most Money Transfer Businesses (MSBs) in facilitating international remittances due to the manner in which Anti Money Laundering (AML) and Counter Financing of Terrorism (CFT) regulations are applied to every transaction, no matter how small.  This situation has resulted in many banks withdrawing support from the market altogether or imposing unrealistic conditions, driving many international transactions into unlicensed or black market channels which encourage illegal activity and are impossible to monitor or control.

The remaining services typically impose very high fees – as much as 20% on some transactions when FX markups are also considered – and these costs are disproportionately felt by those least able to afford them.

While it is not desirable to ease the AML and CFT regulations on large-scale or very frequent transactions, there is a need for a simple and cost-effective service for those wishing to send money home, in particular for the unbanked who may not have sufficient formal identification to satisfy a bank’s KYC requirements.

Banks require clear guidance before they will commit to re-enter a market that has cost them dearly. To that end, we are looking for regulators to provide a clear ruling to approve the RTgift system processes outlined below, which are designed to enable low cost, auditable small value transfers using an electronic gift format, with tight controls against misuse.

RTgift system outline

The RTgift system is designed in such a way that the financial flows are domestic transactions in both the sender’s country and the recipient’s. Funds collected as gifts from the sender’s country are offset against purchases of goods and services from that country.

Higher net worth individuals in other countries who wish to purchase goods from the sender’s country can do so by purchasing an electronic gift. Funding from these buyers is used to settle to gift recipients in the same country in local currency. In this way the less wealthy pay no fees, while the buyers receive good value from the provision of convenient guaranteed-price transactions.


By moving to domestic transactions, the RTgift system operates in a manner which lies outside the scope of existing remittance regulations – while nevertheless offering an even greater level of security, checks and auditable information. Using the RTgift system, every transaction would be checked and verifiable in real-time, with credit-card style fraud alerts flagging potential problems and instantly blocking questionable transactions where necessary.

We recognize however that regulations are constantly updated and redefined, and there is a danger that new regulations or interpretations could easily be introduced at any time that would prevent the effective operation of such a system. Banks will be understandably reluctant to be involved in the system unless they receive positive confirmation on the regulatory treatment of electronic gift cards, from which they can positively identify a clear approval for such business.

Our view, based on meetings and communications with a number of stakeholders, is that aid agencies and NGOs in particular are keen to have available a process which is approved by regulators and which can open up financial corridors to the neediest in many countries.

The intention is not to bypass regulations which have been established to protect against criminal activity; on the contrary we are extremely supportive of this aim and will work to ensure that all possible precautions are in place to support this. However we do believe there is a need to facilitate the cost-effective sending of family gifts of small, regular amounts where there is only limited information on the participants.

The RTgift system will closely monitor and report on multiple low value transactions, with a fixed maximum of number of counter-parties and limits on the size and frequency of transactions where there may be little formal identification of the gift giver and recipient.

Business model

By managing the environment and minimizing risk, we are able to offset transfers from family members against purchases by high net worth individuals; this means that gift transfers of relatively small value and frequency can be made at zero cost for both sender and recipient; no commissions, fees of FX markup on either side of the transfer.

As a non-profit group, we believe that this offsetting will help to produce a genuine narrowing of the rich/poor divide. At the same time, by working with local commercial partners in each country, there is also the opportunity for substantial income generation.

Given the current size of the world market for remittances, estimated as over $500 billion, a reduction in costs to the user from an average of 10% down to zero can be seen to be a significant factor if applied successfully throughout the world.

The target of many international organizations, including the World Bank, G20, United Nations and many charities, is to reduce costs to less than 5%. We regard this target as fully obtainable, even when the recipients wish to convert funds to cash. However our aim, in concert with groups such as the Better Than Cash Alliance (BTCA), is to incentivize the continued use of an electronic payment flow throughout the entire economic process, minimizing the use of cash wherever possible. To this end, incentives are provided to make the transaction flow electronic from end to end – from initial loading to final purchase.

The RTgift system provides an opportunity for governments to be able to use a single clearing structure for all domestic payments to and from unbanked and under-banked citizens, at a zero cost to all. The system provides a vehicle for government benefits, aid agency support, payroll and gifts all linked into a single electronic account, from which the account holder can make direct electronic payments for rent, utilities etc., as well as make cashless purchases of goods or services from any supported merchant..

The ‘Zero Cost Payments’ approach

Date: 19 Aug 2013 Comments:0

Given the level of inventiveness and the number of new products coming on-stream in the area of new payment technology, particularly in payments involving mobile phones, it may be tempting to think that the move away from cash towards electronic payments is inevitable. But the developing world faces different challenges and has different opportunities provided by the smaller installed base of legacy technologies and rapidly expanding mobile phone usage.

Some merchants, especially small enterprises in remote locations who may operate in a mobile environment or in open-air markets etc., do not have reliable electricity supply and telephone landlines with which to operate traditional Point of Sale (POS) terminals – and are unwilling to pay substantial fees charged upfront and ongoing.

Those who receive funds often get paid in cash, or even when they do get paid electronically, immediately go to the ATM or the mobile phone agent to change the funds into cash.

The recent move by one African country to charge 10% tax on all transfers of funds made via mobile phone is surely in the wrong direction, encouraging people to revert to sending cash as a cheaper alternative. But perhaps this could be adjusted so that any transfers which stay electronic attract no fees, while any conversion to cash does have a government fee?

Banks, card associations, new technology providers and mobile phone operators all expect to make profits from the transactions. And given the relatively low spending habits of the average citizens who are receiving government benefits or receiving transfers from family members, there is little incentive for them to contribute marketing funds for any part of the process.

RTpay is a not-for-profit group with considerable experience in payment processing, including the development of central clearing, payroll and money transfer software which can be provided at no cost to governments. The aim is to develop a payments system that enables those citizens who do not have bank accounts and/or the availability of commercial debit cards to have access to a payment capability from a Government Central Accounts System (GCAS). This account can be managed via a stored value card or via a mobile phone payments application or both.

A critical benefit of this system would be that it would be operated at no cost to either side of a payment transaction; there would be no transaction fees or charges for merchants or individuals, effectively making every electronic transaction simpler and more attractive than cash payments. Furthermore, incentive schemes would be designed to sit alongside the electronic payments to provide even more reasons for consumers and businesses to move away from cash and onto the zero cost payments (ZCP) card.

For more information on Zero Cost Payments, see

New paper on the efficient collection of VAT

Date: 11 Feb 2013 Comments:0

In an article entitled ‘Are ‘reverse charging’ and the ‘one-stop-scheme’ – efficient ways to collect VAT on digital supplies?’, published in the World Journal of VAT/GST Law, Marie Lamensch, a doctoral researcher at the Institute for European Studies, Vrije Universiteit Brussel, Belgium, considered the efficiency of the collection of VAT, particularly with regard to electronically supplied services.

In her paper, Ms Lamensch referenced the RTvat proposals as follows:

The RTvat project, which is aimed at curbing missing trader types of fraud, suggests eliminating the possibility of suppliers receiving VAT from their customers (and eventually disappearingwith it, or claiming credit without first remitting the tax due), by organising the collectionof the tax at the level of banks.

Virtually all digital supplies are paid for by electronic means. Electronic payment is therefore an essential complement to e-commerce. Transposed to the digital supply sector, the collection of VAT at the level of the banks in charge of organising online payments, as suggested under the RTvat project, would remove unimplementable collection obligations from online suppliers’ shoulders, and at last take account of the specifics of the e-marketplace. For that purpose, the existing online payment schemes could be coupled with the appropriate software which would extract the relevant data collected by banks in accordance with KYC regulations,
as follows:

  • When the customer enters his credit card details in the ‘secure payment area’ in order to proceed to payment (often using a token or similar device), his bank identifies him (status and location) with certainty, based on the data provided upon opening the account, that were verified as is required under the KYC regulations.
  • The supplier enters the transaction price, exclusive of tax, in the payment system. A software program then calculates the related amount of VAT that is due, based on the status and location data that were collected by the bank upon the account being opened.
  • The customer makes one single payment (price including tax), and the bank transfers only the net price to the supplier, retains the VAT, and wires it to the competent VAT au thorities. Reverse charging becomes unnecessary. Importantly, payments to suppliers are coupled with payment of the VAT due to the tax authorities.

As long as the payment is made by electronic means, any kind of payment device or system may be used, including intermediary payments systems like Paypal, because suppliers do not need to check customers’ credit cards details as is the case under the current system. Intermediaries simply channel the information. Likewise, the use of foreign credit cards would not create distortions either, because a bank issuing a credit card knows when the customer is a non-resident, and only this information is relevant for applying the correct tax rate. The tax is paid at the moment of the transaction, and in a completely transparent way, which also has the advantage of reducing risks of fraud. Finally, tax authorities may proceed to VAT refunds on the same day as they receive the related VAT payment, which also results in an advantage in terms of cash flow for suppliers.”

Ms Lamensch’s paper makes many good points, particularly with regard to the EU Commission’s ongoing discussions on the future of VAT and how this compares with the 1998 OECD recommendations on e-commerce.

However, it should be noted that Ms Lamensch has not fully considered RTvat’s proposal for implementing a central server based ‘gateway’ through which all electronic payments, of whatever type would flow. The consequence is that while commercial banks would remain important partners in the collection process, they are not the primary point at which due taxes are extracted – this would instead occur at the central server level, overseen by a trusted third party – in most cases, the country’s Central Bank.

If you would like to download a pdf copy of the full article, please go to

We are grateful to Hart Publishing Ltd, publishers of the World Journal of VAT/GST Law, for making this article available.