Annual Report on Payment Systems and Means of Payment and Their Supervision

BURUNDI ANNUAL REPORT ON PAYMENT SYSTEMS AND MEANS OF PAYMENT AND THEIR SUPERVISION

Annual Report on Payment Systems and Means of Payment and Their Supervision, Fiscal Year 2024 i TABLE OF CONTENTS TABLE OF CONTENTS ..........................................................................................................i LIST OF CHARTS/GRAPHS ............................................................................. v GOVERNOR'S MESSAGE....................................................................................................... vi EXECUTIVE SUMMARY.................................................................................................viii CHAPTER I: GLOBAL AND REGIONAL EVOLUTION OF THE PAYMENT ECOSYSTEM................................................................ 1 I.1. Introduction.......................................................................................................................... 1 I.2. Global Evolution of the Payment Landscape ................................................................... 2 I.2.1. Cash ...................................................................................................................... 2 I.2.2. Cheques ..................................................................................................................... 2 I.2.3. Credit Cards .......................................................................................................... 2 I.2.4. Debit Cards .......................................................................................................... 2 I.2.5. Prepaid Cards....................................................................................................... 3 I.2.6. Digital and Mobile Payments............................................................................. 3 I.2.7. Bitcoin ...................................................................................................................... 3 I.2.8. Open Banking ........................................................................................................... 3 I.2.9. Central Bank Digital Currencies (CBDCs) ......................................... 3 I.3. Regional Evolution of Payment Systems and Means .................................................................. 4 I.3.1. At the African Level .............................................................................................. 4 I.3.2. At the East African Community Level ............................................................. 5 CHAPTER II: PAYMENT SYSTEMS AND MEANS IN BURUNDI........................ 1 II.1. Financial Market Infrastructures................................................................................. 1 II.1.1. Retail Interbank Payment System ........................................................... 1 II.1.1.1. Participants ........................................................................................................ 2 II.1.1.2. Payment Order Settlement at the ACH System Level ....................... 2 II.1.1.3. Retail Interbank Transfers..................................................................... 3 II.1.1.4. Cheques ............................................................................................................. 4 II.1.2. High-Value Interbank Payment System ............................................... 5 II.1.2.1. Participants ........................................................................................................ 6 II.1.2.2. Payment Order Settlement at the RTGS System Level...................... 6 II.1.2.3. High-Value Interbank Transfers ........................................................... 6 II.1.2.4. High-Value Interbank Transfers for Client Accounts.......... 8 II.1.2.5. Settlement of Exogenous System Balances................................... 9 II.1.3. Central Securities Depository (CSD) System ........................................ 10 II.1.3.1. Securities Operations Processing at the CSD System..................... 11 II.1.3.2. Securities Auction Sales............................................................................ 11 II.1.3.3. Marginal Lending Facility .................................................................. 11 II.1.3.4. Interbank Repurchase Agreements....................................................................... 12 II.1.3.5. Liquidity Provision........................................................................................... 12 II.2. Means of Payment......................................................................................................... 12 II.2.1. Fiduciary Money ................................................................................................. 12 II.2.1.1. Banknotes in Circulation........................................................................................ 12 II.2.1.2. Coins in Circulation ........................................................................................ 13 II.2.2. Book Money...................................................................................................... 13 II.2.2.1. Cheques ........................................................................................................... 13 II.2.2.2. Transfers .......................................................................................................... 14 II.2.2.3. Bank Cards .................................................................................................. 14 II.2.2.4. Electronic Money ...................................................................................... 14 CHAPTER III: SUPERVISION OF PAYMENT SYSTEMS AND MEANS....... 16 III.1. Legal and Regulatory Framework............................................................................................ 17 III.2. Brief Overview of Supervised Systems ......................................................... 19 II.3. Brief Overview of Licensed Payment Institutions........................................................ 19 III.4. Practical Supervision Modalities for Payment Systems and Means..................... 20 III.4.1. Ongoing or Documentary Supervision................................................................. 21 III.4.2. On-site Supervision ........................................................................................... 22 III.5. Evolution of Electronic Money Issuing Institutions' Activity ........... 24 CHAPTER IV: INTEGRATION INTO REGIONAL PAYMENT SYSTEMS ....... 26 IV.1. Integration with Other Payment Systems................................................................. 26 IV.1.1. EAPS..................................................................................................................... 26 IV.1.2. REPSS................................................................................................................... 27 IV.1.3. PAPSS................................................................................................................... 27 CHAPTER V: NATIONAL PAYMENT SYSTEM MODERNIZATION PROJECTS ....... 28 V.1. ATS System Upgrade Project ............................................................................. 28 V.2. Instant Payment System (IPS) Implementation Project ....................................... 28 V.3. Financial Sector Digitalization Project ..................................................................... 29 CHAPTER VI: PERSPECTIVES.......................................................................................... 30 VI.1. Establishment of a Payment Incident Central (CPI) ............................................... 30 VI.2. Establishment and Revision of the Regulatory Framework ........................................................... 30 APPENDICES ............................................................................................................................... 32

Annual Report on Payment Systems and Means of Payment and Their Supervision, Fiscal Year 2024 iv LIST OF CHARTS/GRAPHS Chart 1: Annual Evolution in Volume and Value of Retail Transfers over the Last Three Years.................................................................... 4 Chart 2: Monthly Evolution in Volume and Value of Retail Transfers for the Year 2024....................................................................................... 4 Chart 3: Annual Evolution in Volume and Value of Cheques over the Last Three Years.................................................................................... 5 Chart 4: Monthly Evolution in Volume and Value of Cheques for the Year 2024.... 5 Chart 5: Annual Evolution in Volume and Value of High-Value Transfers over the Last Three Years................................................................ 7 Chart 6: Monthly Evolution in Volume and Value of High-Value Transfers in 2024 .................................................................................... 7 Chart 7: Annual Evolution in Volume and Value for High-Value Transfers on Behalf of Clients over the Last Three Years............................. 8 Chart 8: Monthly Evolution in Volume and Value for High-Value Interbank Transfers on Behalf of Clients in 2024..................................... 9 Chart 9: Monthly Evolution in Volume and Value for High-Value Interbank Transfers on Behalf of Clients in 2024................................... 10 Chart 10: Evolution in Volume and Value of Payment Institutions' Transactions over the Last Three Years ............................................................ 24 Chart 11: Evolution of Payment Institutions' Client Accounts ..................... 25 Chart 12: Evolution in the Number of Commercial Agents for Payment Institutions over the Last Three Years.......................................................................... 25

Annual Report on Payment Systems and Means of Payment and Their Supervision, Fiscal Year 2024 v LIST OF ACRONYMS AND ABBREVIATIONS ACH : Automated Clearing House AML : Anti Money Laundering ATS : Automated Transfer System BIF : Burundi Francs BRB : Bank of the Republic of Burundi CFT : Combating the Financing of Terrorism COMESA : Common Market for Eastern and Southern Africa CPI : Central Payment Incident CSD : Central Securities Depository EAC : East African Community EAC-PSSIP : East African Community Payments and Settlement Systems Integration Project EAPS : East African Payment System IMF : International Monetary Fund FSAP : Financial Sector Assessment Program World Bank Group : World Bank Group IPS : Instant Payment System ISO : International Organization for Standardization Billions (MDS) : Billions Foreign Exchange Market (MED) : Foreign Exchange Market Payment Systems Modernization (MSP) : Payment Systems Modernization Message Type (MT) : Message Type Digital Economy Foundations Support Project (PAFEN) : Digital Economy Foundations Support Project PAPSS : Pan-African Payment and Settlement System REPSS : Regional Payment and Settlement System RTGS : Real Time Gross Settlement Joint Venture (SM) : Joint Venture Burundi Integrated Payment and Settlement System (SIPREBU) : Burundi Integrated Payment and Settlement System SWIFT : Society Worldwide Interbank Financial Telecommunication

Annual Report on Payment Systems and Means of Payment and Their Supervision, Fiscal Year 2024 vi GOVERNOR'S MESSAGE At the beginning of 2024, the global transition toward digital payments has become a reality, and the sector shows no signs of slowing down. It is likely that digital payments will become the norm in many countries, transforming how consumers interact with goods and services. This evolution will also have significant implications for how businesses manage their financial operations and interact with their clients. In Burundi, there has been an evolution in the use of high-value and retail payment systems, both in volume and value, as well as an adaptation of the regulatory framework to international standards and developments in payment systems and means. Furthermore, in order to align with this global evolution, the Bank of the Republic of Burundi (BRB) has committed to modernizing the national payment ecosystem in Burundi. The objective is to make innovative financial products and services, as well as modern payment and settlement systems, available to consumers, with the aim of strengthening financial inclusion. Thus, during 2024, the Bank of the Republic of Burundi launched three major projects: the ATS system upgrade project to ISO 20022 standards, the Instant Payment System (IPS) implementation project, and the complete digitalization of Burundi's financial sector. Globally, various regions have experienced significant advances in their payment ecosystems, demonstrating the rise of digital economies worldwide. Innovations such as real-time retail payment systems, electronic transactions, and other digital retail sales channels are progressively revolutionizing the payment ecosystem as well as the overall customer experience.

Annual Report on Payment Systems and Means of Payment and Their Supervision, Fiscal Year 2024 vii The Bank of the Republic of Burundi has also strengthened the regulatory framework governing payment systems and means to adapt it to technological developments at the regional and international levels. The Bank of the Republic of Burundi intends to continue promoting a reliable, efficient, and robust national payment system. Sincerely, Edouard Normand BIGENDAKO Governor

Annual Report on Payment Systems and Means of Payment and Their Supervision, Fiscal Year 2024 viii EXECUTIVE SUMMARY During 2024, the Bank of the Republic of Burundi continued to ensure the organization and operational and technical management of Payment and Settlement Systems, in compliance with the legal and regulatory framework, international standards and norms, as well as best practices in this field. At the regulatory level, two regulations were revised: Regulation No. 001/2017 on payment services and the activities of payment institutions, and Regulation No. 002/2017 on the activities of commercial agents in banking and payment services. In addition to the revision of these two regulations, seven (7) implementing circulars under Regulation No. 002/2024 revising Regulation No. 001/2017 on payment services and the activities of payment institutions were issued. These are the following circulars:

1. Circular No. 001/SP/2024 on the activities of electronic money issuing payment institutions;
2. Circular No. 002/SP/2024 on aggregated payment institutions;
3. Circular No. 003/SP/2024 on the approval of administrators and executives of payment institutions;
4. Circular No. 004/SP/2024 on the approval and exercise of the statutory audit function for payment institutions;
5. Circular No. 005/SP/2024 on the pricing of services provided by the Central Bank to payment institutions and any institution subject to providing services related to electronic money issuance;
6. Circular No. 006/SP/2024 revising Circular No. 01/EP/19 on the matrix of sanctions applicable to payment institutions or any other payment service provider;
7. Circular No. 007/SP/2024 on the activities of fund transmission payment institutions internationally. In 2024, the operational exploitation of BRB's payment systems was marked by an evolution in operations processed by the ACH system, recording a growth of 25.36% in volume and 52.26% in value. Unlike the ACH system, operations processed by the RTGS system experienced a decline, with a decrease of 21.63% in volume and 27.80% in value, to the detriment of the evolution of digital payment means.

Annual Report on Payment Systems and Means of Payment and Their Supervision, Fiscal Year 2024 ix The activity of payment institutions experienced positive growth in terms of volume and value. Indeed, transactions carried out by payment institutions increased by 69.4% in volume and 47.7% in value, rising respectively from 6,124.5 billion Burundi Francs to 9,046.1 billion Burundi Francs from 2023 to 2024. To conform to global developments in payment systems and means, the Bank of the Republic of Burundi launched, during 2024, the modernization process of the national payment system by initiating three projects: the ATS (ACH and RTGS) system upgrade project to ISO 20022 standards, the Instant Payment System (IPS) implementation project, and the complete digitalization of Burundi's financial sector. Looking ahead, the Bank of the Republic of Burundi plans to establish a Payment Incident Central (CPI) and continue strengthening the regulatory framework governing payment systems and means.

Annual Report on Payment Systems and Means of Payment and Their Supervision, Fiscal Year 2024 1 CHAPTER I: GLOBAL AND REGIONAL EVOLUTION OF THE PAYMENT ECOSYSTEM I.1. Introduction Globally, various regions have experienced advances within their payment ecosystems, indicating the growing prevalence of digital economies worldwide. Innovations such as real-time retail payment systems, electronic transactions, and other digital retail sales channels are progressively revolutionizing the payment ecosystem and overall customer experience. In 2024, the global shift to digital payments is undeniable, with the sector showing no signs of slowing down. The total value of transactions in the digital payments sector is expected to reach 16.59 trillion US dollars by 2028. This increase is due to various factors, both on the consumer side and the market side. Indeed, today's consumers expect fast, easy, and secure transactions. According to a 2023 GSMA annual report "State of Mobile Internet Connectivity Report 2023 (SOMIC)1, more than half of the world's population (54%) now owns a smartphone, and mobile payments have become a natural extension of using this device. Moreover, the COVID-19 pandemic accelerated this change, with many consumers opting for contactless and online payments to minimize physical contact. As a result, cash usage has considerably decreased, with only 14% of payments made in cash in 2022 in the United Kingdom, compared to 61% a little over ten years ago 2according to the "UK Finance Payment Markets Report 2024 summary". From a market perspective, the growing adoption of mobile technology, faster internet penetration, and investment in fintech infrastructure have been essential factors for digital payments. Collaboration between traditional financial institutions and fintechs has stimulated innovation, making digital payments faster and more accessible.

1 https://www.gsma.com/newsroom/press-release/smartphone-owners-are-now-the-global-majority-new-gsma-report-reveals 2 https://www.ukfinance.org.uk/system/files/2023-09/UK%20Finance%20Payment%20Markets%20Report%202023%20Summary.pdf

Annual Report on Payment Systems and Means of Payment and Their Supervision, Fiscal Year 2024 2 I.2. Global Evolution of the Payment Landscape The global payment landscape has evolved considerably over the centuries. It began as a barter system and subsequently transformed into a sophisticated network of digital transactions. Cash has been the primary medium of exchange for centuries, but it was only in the 19th and 20th centuries that the most significant changes occurred. This evolution was largely driven by the rise of technology, which plays an essential role in improving the speed, convenience, and accessibility of payments. I.2.1. Cash Cash has long been the primary means of payment throughout history. However, it presents certain limitations, including the need to physically handle banknotes and coins, as well as its vulnerability to theft or loss. I.2.2. Cheques The use of cheques revolutionized payments in the 17th century by providing increased security and convenience. This means allowed individuals to request their bank to transfer money without having to handle cash. However, despite these advantages, cheques presented a certain slowness in processing, which was particularly problematic as commercial exchanges became faster and more globalized. I.2.3. Credit Cards The appearance of modern credit cards in the 1950s marked a major turning point in the evolution of payment means. Credit cards not only increased consumers' purchasing power but also allowed companies to conquer broader markets by offering a safe and efficient means of payment. I.2.4. Debit Cards While credit cards flourished in the 1950s, the introduction of debit cards in the 1970s brought a new level of convenience and security to payments, allowing consumers to pay directly from their bank accounts without relying on credit. Debit cards quickly became indispensable, offering a simple way to access funds.

Annual Report on Payment Systems and Means of Payment and Their Supervision, Fiscal Year 2024 3 I.2.5. Prepaid Cards They gained popularity later as a flexible payment tool for those who did not have access to traditional banking services or credit. They offered a practical solution for digital payments and budgeting, giving consumers financial independence without needing credit checks or bank accounts. I.2.6. Digital and Mobile Payments