Status Report on the

“SARIE” EFT System

In Saudi Arabia
Ali Al Homidan
Manager, “SARIE” Payment System
Saudi Arabian Monetary Agency
Riyadh, Kingdom of Saudi Arabia

T he last 20 years have seen significant changes in terms of banking technology in the
Kingdom of Saudi Arabia. Starting with the introduction of a few ATMs in the mid-1980s,
Saudi Arabia has steadily introduced the most up to date banking technology systems and
services, and is now acknowledged regionally and internationally for its progressive approach
in this area.

The Saudi Arabian Monetary Agency (SAMA), with the cooperation and support of the
commercial banks, has taken, and continues to take, the lead in the development and
day-to-day management of a modern national payments infrastructure to support the
economic development of the Kingdom. This cooperative approach to developing an efficient
and shared payments infrastructure drawing upon the best available practices and
technologies from advanced banking systems has brought considerable benefits to the banks
and their customers. The banks have avoided costly competing investments, while their
customers have benefited from the ease of access and connectivity offered by the new
payment services.

Properly functioning payment systems enhance the stability of the financial system, reduce
transaction costs in the economy, promote the efficient use of financial resources, improve
market liquidity and facilitate the conduct of monetary policy.

The payments infrastructure in Saudi Arabia consists of the following main components:
• ACH – automated cheque clearing houses
• SPAN – a national network for all payment card and credit card transactions at ATMs
and points of sale
• SARIE – a single electronic funds transfer system for high and low value payments
both same-day and forward-dated as well as direct debits
• SADAD – an electronic bill presentment and payment (EBPP) system
• TADAWUL – the stock exchange system
• eTrust centre – providing PKI services to and through the banking sector.
• S.W.I.F.T. – all Saudi banks are members
• B2B – guidelines and message formats for business-to-business e-payments were
issued by SAMA in 2004

1
 SAMA is currently engaged in a number of initiatives that will build on the existing
electronic funds transfer infrastructure and provide the government, banks and citizens of the
Kingdom with a comprehensive range of options to meet all their payment needs. SAMA’s
stated objective is to utilise various technologies to provide a sound, expandable and efficient
payments system infrastructure for the Kingdom in line with international standards and
complying with the rules and guidelines issued by international bodies such as the World
Bank, IMF and the BIS.

2
 Brief History of Banking Technology in Saudi Arabia
1952 SAMA established as the Central Bank
Mid-1980s First ATMs installed in Saudi banks
1985-86 SAMA introduced standards for Saudi cheques and reformed procedures
for interbank clearing
1986 SAMA automated cheque clearing houses in three major cities along with
manual clearings in seven other centres
April 1990 SAMA launches SPAN supporting ATM reciprocity between all Saudi
banks
August 1990 Electronic Securities Information System (ESIS) launched to support share
trading and settlement
1993 SPAN enhanced to support point-of-sale terminals
May 1997 SARIE system commences operation
February 2001 SPAN enhanced to support GCC regional ATM reciprocity
October 2001 ESIS replaced by TADAWUL supporting Internet-based share trading
July 2004 SAMA launches eTrust Center supporting X.509 PKI for the finance
sector, an enabler for future digital certificate based banking technology
services
July 2004 B2B ePayments guidelines and message formats published by SAMA
October 2004 SADAD was launched providing an Electronic Bill Presentment &
Payment (EBPP) service whereby registered billers can be paid via ATM
and Internet banking services
Current projects Cheque Imaging and Truncation

The Payment System

In this article we will concentrate on the SARIE system; but first a brief look at some of the
other elements of our payments infrastructure in Saudi Arabia.

Cheques
Cheques are cleared at local clearing houses in each of the SAMA regional branches. All
cheques are MICR-encoded. Clearing computers in the three largest centres of Riyadh,
Jeddah and Dammam handle the bulk of cheques cleared. The remaining cheques are cleared
through manual clearings at the other seven SAMA regional branches.

While cheques are decreasing in importance they continue to play an important role in the
payments infrastructure. A Cheque Imaging and Truncation project is currently underway
aimed at streamlining the cheque clearing process. The value of bank clearings of
commercial and personal cheques was SAR184.6 billion (USD49.2 billion) during the first
half of 2005 compared to SAR463 billion (USD123.5 billion) for the full year 2000.

Payment Cards
Payment cards have increased significantly in importance as a retail payment medium in
Saudi Arabia. The Saudi Payments Network (SPAN) was implemented in 1990 to provide
ATM reciprocity among all the Saudi banks. It was enhanced in 1993 to support point-of-sale
(EFTPOS) transactions and further enhanced in 2001 to support GCC (Gulf Cooperation
Council) ATM reciprocity. SPAN cards function as both ATM and EFTPOS cards. In
addition to various account services, most banks have enhanced their ATM services to
include Bill Payment options for the major national billers.

Work is currently underway to upgrade SPAN. This will enhance the infrastructure,
implement and support EMV Smart cards, broaden the range of services, introduce e-
commerce and m-commerce, and facilitate further consumer and business services. Figure 1
provides data on the volume and value of payment cards.

3
Figure 1. Card Statistics
2005 2001
First 6 months Full year

Number of Transactions 246.6 million 219.4 million

ATM
Value SAR 114.37 billion SAR 137 billion
(USD30.5 billion) (USD 36.5 billion)

Number of Transactions 32 million 24 million

POS
Value SAR 13.8 billion SAR 10.2 billion
(USD 3.68 billion) (USD 2.7 billion)

Exchange Rate US$1 = SAR 3.75

At 30th Jun. 2005 At 31st Dec. 2001

Number of ATM terminals 4,333 2,577

Number of POS terminals 37,575 21,631

Number of cards in use 7.32 million 5.56 million

Stock Market
TADAWUL (www.tadawul.com.sa) was launched in 2001 replacing the ESIS system. The
main features of TADAWUL are:
1) It provides a continuous, order-driven market, with up-to-the-minute price, volume
and company information.
2) It concentrates all local equity trading into one single market.
3) It provides an efficient and short trading cycle. Transfer of ownership occurs
immediately after matching of buy and sell orders.
4) It provides accurate and speedy settlement; 100% of all trades settle on the day of
execution.
5) It supports straight-through-processing. Buy and sell orders are processed from order
entry to transfer of ownership, thus providing support for order delivery mechanisms
such as the Internet. Figure 2 provides data on the volume of the Stock Exchange.

Figure 2. Stock Exchange Indicators and Volumes

General Share Index at 30th June 2005 13,455.24 28.2% increase in 2nd Qtr. 2005

Value of shares traded 1st half of 2005 SAR 1,997 billion Annual growth of 118.5%
(USD 532.5 billion)

Market Capitalisation at 30th June 2005 SAR 1,943 billion

(USD 518.1 billion)

Transactions during 2nd Qtr. 2005 11.5 million 149% increase from 1st Qtr. 2005

Total assets of Investment Funds SAR 97.8 billion As at 30th June 2005
managed by commercial banks (USD 26.1 billion)

Total Assets & Liabilities of commercial SAR 703.5 billion 19.1% growth from 1 year before
banks as at 31st March 2005 (USD 187.6 billion)

4
SADAD
In response to market demand for a more efficient bill payment system, a project was
initiated by SAMA to develop a national EBPP solution. SADAD was launched in October
2004 integrating banks and billers to the service. The range of payment options, the number
of billers involved and the number of customers using the service continues to expand.

e-Trust Centre
The eTrust Centre is a specifically designed secure computing facility created to provide
the Saudi Arabian financial community with a Public Key Infrastructure (PKI) to support
e-commerce and Internet banking initiatives. The eTrust Centre provides the ability to issue
and manage digital certificates to the financial sector. This includes generating certificates to
provide application-level security features, such as data encryption, user authentication,
digitally signing messages, as well as the associated Certificate validation services. More
detailed information and statistical data is available on the SAMA web-site at
www.sama-ksa.org

The SARIE Payment System

The Saudi Arabian Riyal Interbank Express (SARIE) system commenced live operation in
May 1997. It provides the mechanism for all Saudi commercial banks to make and settle
payments in Saudi Riyals (SAR). It is a fully integrated RTGS system handling customer and
interbank payments and Direct Debits. It has revolutionised electronic banking in the
Kingdom and is a major and essential component of the banking infrastructure. Interbank
positions from all of the other components of the payments infrastructure mentioned above
are settled over SARIE on a daily basis.

Objectives of SARIE
The overall desire of SAMA when developing the SARIE system was that the system
would contribute to the efficiency of the banking system in the Kingdom by facilitating
payments and by mitigating systemic risks. SARIE provides the commercial bank
participants with a sound basis for delivering value-added services to their customers while
providing a safe mechanism for settlements between banks.

SAMA’s key objectives for SARIE are to:

ƒ Lay the foundation for improved banking products
ƒ Ensure greater efficiency and liquidity in the banking system
ƒ Reduce risk and establish a sound and effective risk management system
ƒ Provide a vehicle for secure message transmission between commercial banks and
SAMA ensuring authenticity and confidentiality of all data
ƒ Be a real-time settlement system providing for payment finality and rapid delivery of
settled payments to the destination bank and the beneficiary customer
ƒ Reduce the time taken to complete funds transfer from end-to-end
ƒ Provide a system with high availability and with robust fallback and recovery features
ƒ Facilitate the development of local financial markets through secure and efficient
settlement
ƒ Lay the technical and procedural foundation for future developments

Key Features of SARIE

SARIE combines the functionalities of both a high-value and high-volume clearing system
and handles both credit transfers and direct debits. It has its own private communications

5
network with the central system located at SAMA and Gateways at each of the commercial
banks. Most banks have automated payment-processing systems linked to these gateways.
The SARIE payments flow is described in Figure 3.

SARIE Payments flow

SAMA
Bank A Bank B

Debit

Credit
Bank Bank
Workstation Banks Account at SAMA Workstation
SARIE SARIE
Gateway Gateway

Payment Payment
request notice
Host
Host

SARIE Central System

Bank branches Bank branches

Clearings

TADAWUL SPAN Clearing Houses GCC - Net SADAD

The system provides payment finality and rapid delivery of settled payments to the
destination bank. It has very high availability that allows for the transmission of payment
messages close to 24 hours per day.

Operating hours are as follows: Saturday to Wednesday 08:30 to 15:00, and Thursday
09:30 to 13:30; closed Friday. A single business cycle per day is the normal operation.
However, a second business cycle for the same day can be set up if required.

SARIE is a Real-Time Gross Settlement (RTGS) system. RTGS is defined as the process
of settling individual payments on a continuous (real time) basis – debiting the sending bank
for the gross value of each and every payment and crediting the receiving bank in cleared
Central Bank funds. RTGS provides more legal certainty than end-of-day settlement and
creates a sound basis for payment finality.

Technical Environment
The hardware and network architecture of the system is based on IBM pSeries P5 570
platform connected via SAMA Joint Network (WAN). The system is designed using Object
Oriented and Open Client / Open Server techniques. It supports a GUI interface on
workstations with an on-the-fly toggle between English and Arabic. The topology of the
network is a star topology with the Central System at SAMA acting as the hub connecting to
SARIE Gateways and other systems. All transactions must pass through the Central System.

Data mirroring is a feature of the system. For each disk that the system uses there are in
fact two physical disks, the primary and a shadow. Any data that is written to the first disk is
also written to the shadow. This means that should the first disk fail, and data on it becomes

6
un-readable or un-writeable, there is still a copy of the data on the second disk. This level of
contingency is totally transparent to either the users or the application programs. Failure of a
disk is, of course, logged at the AIX operating level and flagged to the system controller.

To provide for a contingency mode of operation in the event of a major or total failure at
the Central System (CS), a Contingency Central System (CCS) is also maintained. The CCS
has a similar hardware configuration to the CS. The database at the CCS is kept up-to-date
with the CS database, but with a small time lag.

Both the Central System (CS) and the Contingency Central System (CCS) have dedicated
archive server machines with connection to the archiving database. Archiving is required for
two main reasons. Firstly to provide a mechanism for removing old data stored in databases
to an alternative storage area and, secondly, to fulfil legal obligations for long-term safe
storage of financial transactions. Both SAMA and Participants have on-line access to archive
data right back to 1997 when SARIE started live operations.

The SARIE system has performed well over the past eight years with no failures for any
more than very short periods. The typical SARIE configuration is shown in Figure 4.

Security and Contingency Plans

Security protection is provided through a combination of hardware, software and

procedural security measures. The system has a number of security features ensuring that it
operates smoothly and in a fully controlled environment. These features include:

• Digital signatures
• Encrypted communication lines
• Secure access through use of Smart cards
• Physical security at all SARIE sites, SAMA and Participants, with access to the
system being provided only to authorised personnel

SAMA can monitor all activity and users anywhere on the network. The security features
are continuously reviewed in order to ensure that the system remains safe, secure and reliable.
The use of PKI in the SARIE system is currently at an advanced design stage.

The SARIE system uses many different techniques to give the entire system the level of
contingency that it needs. There are enough safeguards built into both the hardware and
software that, should a single item fail, the operation of SARIE will be unaffected. In the
event of the failure of more than one item at the same time a switch to the relevant
contingency site can be achieved in a very short period of time.

Hardware redundancy of all the critical system parts along with the following design
features will assure availability:

At the Primary locations: Primary system, secondary system (standby), shared database
with mirrored discs, using real-time mirroring, periodic backups and offline file transfer in
case of total communication failure.

At the Contingency locations: Primary system, secondary system (standby), shared

database with mirrored discs, using real-time mirroring, periodic backups and offline file
transfer in case of total communication failure.

7
 Real-time replication of data occurs between the Primary and Contingency site databases.
This configuration also applies in the Gateway sites (at Participants). Some banks have their
own private Contingency site while others use shared Contingency sites provided by SAMA.
The contingency systems, covering all aspects of the system, are tested on a regular basis.

Figure 4. Typical SARIE System Configuration:

HSM 1 HSM 2 P hysica lly S e cu re

A re a

e the rn e t

e the rn e t

P rim a ry S e c o n d a ry

S A R IE
W o rksta tion

e th e rn e t

e th e rn e t

S A R IE
W o rksta tion

R o u te r R o u te r

C e n tra l S ystem
or
S A M A J o in t G ate w a y
or
N e tw o rk (S J N ) C o n tin g e n cy C S
or
C on tin ge n cy G W

Message Types

Payment messages may be either single payments or bulk files. Message types, based on
S.W.I.F.T. standards, may be either Interbank (all parties involved in the transaction are
Financial Institutions) or Customer Payments (where at least one party involved in the
transaction is a non-bank). The system also provides support for both Arabic and Latin
characters. T y p e s o f P a y m e n ts

PP aa yy m
m ee nn ttss

IInn ttee rrbb aa nn kk C

C uu ss ttoo m
m ee rr
D
D iirree cc tt
DD ee bb iitt

SS iinn gg llee B
B uu llkk SS iinn gg llee B
B uu llkk

SS aa m
m ee DD aa yy FF oo rrw
w aa rr dd SS aa m
m ee DD aa yy FF oo rrw
w aa rrdd SS aa m
m ee DD aa yy FF oo rrw
w aa rrdd SS aa m
m ee DD aa yy FF oo rrw
w aa rrdd

8
 Same day value payments are settled immediately upon receipt at the central system
throughout the business day. They are normally processed and cleared within seconds. The
occurrence of queuing, due to liquidity problems, has been very rare since the system went
live in 1997. The receiving Participant receives the payment message only after settlement
has been irrevocably confirmed by SAMA. Same day payments are received throughout the
operating day with the majority being received in the early part of the day.

Forward value payments are settled at the start of the daily business cycle on their value
date. Payments may be up to 14 days forward. These are queued in the central system and
are settled at start-of-day on their value date, subject to the availability of liquidity. Direct
Debits are also processed and settled over SARIE.

9
 Figure 5. Payment Statistics for Saudi Arabia
SEE NEW ART FOR THIS FIGURE E-MAILED SEPARATELY

TOTAL VALU E OF PAYM ENTS

1997 – *2005
9

7
SAR (Trillions)

0
E2xcha
003nge Ra2te004
US$1 = SAR 3.75
1997 19 98 1999 200 0 2001 2002 *20 05
As of Oct 2005

TO TAL NO S. O F TRANSACTIO NS
1997 – *2005
18

16

14

12
(Millions)

10

0
1997 1998 1999 2 00 0 2001 2002 2003 2004 *2 0 0 5
As of O ct. 2005

10
Liquidity & Collateral
It is the responsibility of each Participant to ensure that they have sufficient “available
funds” in their account at SAMA to meet all their payment obligations.

Centralized queuing is used with transactions processed on a FIFO (first-in, first-out) basis.
Participants have real-time access to all their queued outgoing payments. They cannot view
incoming payments until these have been irrevocably settled and confirmed by SAMA.

Banks can schedule and prioritize their outgoing payments; re-prioritization or cancellation
of held payments within a bank’s queue is also possible. The system has an automated
gridlock resolution feature that enables SAMA to resolve any gridlock.

Liquidity is provided by way of a) intra-day overdraft limits sanctioned by SAMA, b)

overnight and longer term repos. and c) the purchase and sale of foreign currency balances.
All intra-day overdraft limits are fully collateralised with Saudi Government Securities.

Sufficient liquidity is available to enable payments to be processed without queuing except

on very rare occasions. The SAMA Charging Policy provides an incentive to banks to send
their payments ahead of the value date through lower pricing for forward value payments.

Bank Products & Services Based on SARIE

The commercial banks offer a wide range of payment services to their customers through
personal, corporate and government departments. The SARIE system provides the basis for
the following products that are available from the commercial banks:

• Interbank Payments – settlement of FX, money market, securities trading and other
bank-to-bank transactions.
• Customer Payments – movement of funds between accounts of both corporate and
personal customers for a wide range of transactions arising from Internet banking,
electronic links (generally used by larger corporates), telephone banking and other
over-the-counter services.

Payroll
Salary payments are distributed between the commercial banks through SARIE, normally
as bulk messages. Almost all Government sector employees and a large number of private
sector employees have their salaries paid directly to their designated bank.

The “banked” population has increased significantly over recent years, primarily due to an
initiative introduced by SAMA to have all Government payroll paid into bank accounts using
the SARIE system. In promoting efficient and convenient means of payment SAMA is
explicitly encouraging the spread of the “banking habit” in support of social and economic
development of the Kingdom. This has resulted in more than 2 million payroll transactions
being processed electronically each month, replacing the use of cheques and mostly cash for
such transactions (see Figure 6).

11
 SARIE Payroll Solution
Agency’s Bank
Payment
credit
local
account
Payroll details
Government Agency

Credit accounts Bulk

at different banks Payments

Forward credits

SARIE

12
Direct Debits
A Direct Debit is an instruction from a customer to the bank authorizing specific
organizations to collect varying amounts from the customer's account in settlement of
outstanding bills for goods or services provided. The Direct Debit Scheme, which has
operated in the Kingdom since 1997, was revised and updated in 2004 (see Figures 7 and 8).
Detailed information about the Direct Debit Scheme in Saudi Arabia can be found on the
SAMA website at http://www.sama.gov.sa/en/payment/sarie.htm

SARIE Direct Debit Solution

4 Agency’s Bank
Payment credit
local
account
Direct Debit details
Originator
1

2
Debit Bill Payers Bulk
accounts Requests

3
Forward debits

SARIE

Rules & Regulations

The operation of the system is governed by a set of Operating Rules and Regulations
(SARIE ORR). These were drawn up by SAMA in consultation with the member banks. The
SARIE ORR can be found on the SAMA web-site (www.sama-ksa.org).

Charging Policy
SAMA sets the pricing policy, under which three types of fees are currently levied:
• Transaction fees - variable costs according to message type
• Service fees - covering the other SARIE support services provided by SAMA
• Exceptional and penalty fees - aimed at encouraging best practices for the benefit of
the smooth operation of the overall system.

The level of the fees is set with the following aims in mind: 1) Encouraging both
participants and their customers to switch from manual to automated procedures. 2)
Responding to and encouraging new developments in various electronic payment systems and
methods. 3) Encouraging participants to provide the fullest possible range of electronic
services to their customers, including same day and forward value payments. 4) Encouraging
the early transmission of payments so as to minimise the impact of any contingency situation.

13
Ownership and Operation
The SARIE system, which was commissioned by SAMA, is a fully integrated payments
processing and message transmission system. It is fully owned by SAMA, including
ownership of the source code. It is operated and maintained by SAMA’s own personnel with
teams providing technical, business and help desk support to the banking community.

Conclusion

SARIE has, and continues to have, a major impact on the provision of payments services in
the Kingdom. Indeed, it has already had a dramatic effect on the development of our banking
industry. This has been achieved primarily through encouraging the development and
increasing use of electronic banking products.

While SARIE is already seen as an advanced and highly sophisticated payments system,
we expect that it will continue to grow and develop over the coming years. In this way it will
keep abreast of changes in the Saudi banking industry, ever changing customer requirements
and improvements in international standards.

The Customer payment message types used in the SARIE system are based on the SWIFT
MT100 and MT102 message formats. We are currently investigating the addition of the
SWIFT MT103 format. Delivery-versus-Payment (DvP) for securities trades is also at the
detailed planning stage.

There are many more features of the system that we have not been able to describe here but
I hope that I have managed to give readers a reasonable flavour of the payments systems in
the Kingdom.

ƒ This article was published in “ Payment Systems World Wide Magazine” - (Winter
2006)

14