Oman makes net gains

Banks in the Middle East are finding that their competition is no longer just regional, but international. As a result, many Central Banks are taking measures to ensure their financial institutions have the infrastructure in place to be able to deliver world-class services, with IT playing a key role.

The Central Bank of Oman recently implemented a new network to link it to the Sultanate's banks and thereby help modernise banking processes.

Igbal Khamis, vice president, Central Bank of Oman (CBO), says: "We wanted to bring the payment systems in Oman in line with best practice across the world, and particularly to ensure that we keep up with worldwide standards in terms of Basel recommendations."

The Basel II accord states that countries should maintain their own payment networks as part of best practice, something that Oman can now do.

Previously, fund transfers between Omani banks had been carried out through manual cash transfers, or using the SWIFT network, which is reliable and secure but slow. Now, using a network created by Omantel, the national telecoms provider, banks are able to use realtime clearing to cut down the time it takes to clear funds. The new network, called RTGS (Real Time Gross Settlement) also has benefits as far as transparency is concerned. Marc de Marcillac, sales director, Omantel, says: "It doesn't net [transactions] off. What used to happen is that if bank ‘A’ had 1,000 transactions for bank ‘B’ totalling US$3 million and bank ‘B’ had 50 transactions worth $2 million for bank ‘A’, they would set those off against each other with bank ‘A’ simply paying bank ‘B’ $1 million.

That causes audit issues and makes following through the chain of transactions difficult.

"This real time gross settlement will do all of the transactions so you can actually follow the money as it goes through the banking system from end to end. And it does all that in real time, straight away.

"That's clearly useful for banking customers. They can have their payments done straight away; they don't have to do this business of waiting till the next banking day." RTGS runs on MPLS (Multi- Protocol Label Switching) a Virtual Private Network (VPN) constructed by Omantel. "It's an IP-based network," explains de Marcillac.

they get there first. CBO has taken precautions to ensure that its new network can offer the resilience and security needed for financial transactions.We had to install gateways and networks because these are time sensitive systems," says Khamis.

"So we had to install proper redundancies and back up arrangements, hot back ups, so there was a lot of infrastructure build up that went into it. The banks just had to put in their gateway to work with our RTGS.

“I can confidently tell you that we've had approaching zero downtime, and it's been now operational for almost a year now, and the volumes have been more than we expected," he says.

The CBO is constantly looking at the security aspects to make sure that the network remains state of the art and continues to give CBO the protection needed, he adds.

 

Omantel's de Marcillac explains the security measures involved in the network: "In a normal IP environment, the internet packet has got the ultimate address of the receiver in the packet, so if you tap the network you could listen to and recreate the messages.

"What MPLS does is decides before the message is sent what route it will take. The network is intelligently managing the routing of the packets, so each packet only contains the address of the next node or the next router in the network, it doesn't contain the address of the end receiver of the message,” he says.

“So physically if you tapped the MPLS network you would just get garbage. You wouldn't be able to read the content of the message, you'd just see bits and bytes."

Omantel has also built in physical security: its exchanges and routers, including those on the premises of the banks using the service, are all kept in secure locations. It cannot afford any vulnerabilities' the network also carries Oman's egovernment services, as well as VPNs for the individual banks.

The MPLS network was built and tested over two years, and went live in November last year. “That is an important leap forward because it also becomes the hub for all other settlements, and indeed we are working on those systems even as we speak,” says Khamis. "We are very proud of the fact that we brought the project in on time and within the specified budget.”

Although return on investment is hard to quantify on a project intended to benefit an entire economy, he is convinced that the investment has been worth it.

"These banks will definitely feel the benefit in terms of reduced costs of processing these transactions because if you look at any international statistics they will tell you that the cost of processing an electronic transaction is peanuts when compared to manually processing the same transaction," says Khamis. "It opened up so many gateways for offering different products and offering a wider range of services to their customers."

Following the success of RTGS, CBO is now looking ahead to other technologies to improve the banking process in Oman. ACH (Automated Clearing House), a system to speed up the clearing process for trades of shares and foreign currencies, is expected to go live in the third quarter of this year.

Also in the pipeline is an imagebased cheque processing system and an improved ATM switch that will incorporate POS (Point of Sale) transactions. All of these systems are part of a roadmap set out by CBO, under the heading of the National Payments System.