Description
It explains on popularizing electronic payments using NEFT and RTGS.
Popularizing Electronic Payment Systems
NEFT and RTGS
Contents
Major Issues.......................................................................................................................... 3 Making it foolproof ........................................................................................................... 5 Straight Through Processing (STP) ................................................................................... 6 Technical Standards .......................................................................................................... 6 Automation has helped ...................................................................................................... 7 Clearing Bodies................................................................................................................. 7 ATM Interoperability ........................................................................................................ 9 Challenges....................................................................................................................... 10
Popularizing
Electronic Payment Systems in Banks
The RBI has taken a number of steps during the last few years to build an efficient payment and settlement infrastructure and a strong institutional framework. These included automation of cheque clearing operations through the introduction of MICR–based clearing in major cities and introduction of Electronic Clearing Service (ECS) and Electronic Funds Transfer system. Again, thanks to the efforts of the central bank, there are two automated funds settlement systems: RTGS and the NEFT. One important initiative by the RBI has been the establishment of INFINET , which is similar to the SWIFT and is a platform for domestic transmission of inter–bank messages in electronic mode. The system had been using PKI adopted the technology. The facility for inter–bank funds settlement through RTGS is today available across more than 55,000 bank branches, in more than 2,500 regional centres across the country – a coverage span perhaps not seen anywhere else in the world.
2 1
based security in electronic
transactions since 1999 – many years before the international systems like SWIFT
Major Issues
In such a scenario, the common issues that banks confront in implementing an effective payments and settlement system are • • • • • • Testing and proper training Product knowledge Requirement gaps Last mile connectivity To ensure availability of electronic payment systems in remote / rural areas Inter-operability of different protocols
1
The INdian Financial NETwork [INFINET] is the communication backbone for the Indian Banking and Financial Sector. All Banks, Public Sector, Private Sector, Cooperative, etc., and the premier financial institutions in the country are eligible to become members of the INFINET. 2 The Public Key Infrastructure is a set of hardware, software, people, policies, and procedures needed to create, manage, store, distribute, and revoke digital certificates.
• • • • • • • • • • • • • • •
Backward compatibility with legacy systems Multiple vendors involved Robust / uniform settlement system End user?s (employees and customers) education/awareness. promptness in settlement of payments, clear rules, regulations and procedures for payers and beneficiaries Safety and security Cost effectiveness and prompt redressal of issues. Absence of standardization of interfaces / hardware / software across the system legal and structural framework – different regulations by the RBI for public and private sector banks and its modalities Transaction Costs Information and Communication Infrastructure Social acceptability Level of economic activity Increasing the coverage to all economic sectors
Core banking is the backbone to provide an effective payment and settlement system but several branches of many banks are yet to be covered under the CBS network and this poses a major problem. The payment and settlement system in India can be considered to be the best in the world. However, there are issues, mainly because all the banks are not actually participating in the system. Take for example RTGS or NEFT. These are the best payment and settlement platforms, but some of the banks, especially the cooperative banks, are not making use of these systems. As a result, the RBI is forced to maintain parallel systems of settlement. Thus, the objective of having unique and efficient payment and settlement system is not met. This also causes customer inconvenience and actually deprives the customer of the benefits offered by systems like RTGS and NEFT. In the realm of reconciliation system, the issue relating to the stipulation by RBI that electronic transactions must be given effect within two hours. This will mean that credit should be shown in a recipient?s account within two hours of receipt of the payment
instruction. If the credit is not given, RBI stipulates that the money should be credited back to the remitter?s account. Many banks do not adhere to this stipulation, leading to communication gaps and causing inconvenience to the customers. Secondly, it also leads to creation of suspense accounts. While the RBI specifies that the bank concerned should pay interest to the concerned customer/bank in case the credit does not happen within the stipulated time, banks, however, are not serious about this. Some industry veterans believe that this issue can be addressed by automating the process. Others have a different perspective. They believe that it?s all about people. In any project for automating settlement and reconciliation process, there is a tendency to ignore or undermine the importance of people and to assign proper responsibilities. This often results in a free– for–all situation where each person tends to do things in the way he feels fit. Secondly, the training aspect too is ignored. Good training to the people who would be involved in the settlement and reconciliation process is a must and important. Training should be both academic as well as on–the–job. Thirdly, it is crucial that when user acceptance testing of the system is happening, people with adequate knowledge of settlement and reconciliation system are involved in order to provide ease of use and efficiency for the system. There can be chances of inputs going wrong and the bank ending up with a weak system.
Making foolproof
it
CBS has given a major thrust for faster and safer fund transfers among financial institutions. Almost all public and private sector banks have either implemented CBS or are in the process of doing so. As of now, the technology being used by many public/private sector banks in the country for RTGS and NEFT is PKI–based and is fool–proof, which also eliminates the settlement risk. Some of the shortcomings are: lack of a roadmap for centralization of settlements and standardization of settlement procedures. All banks/ institutions are not at the same level of maturity with respect to adoption of technology and this is a hindrance for encompassing the total bank accounts in the country to the fold of the new age payment systems. Technology to comprehensively cover the diversity prevalent in the Indian banking system is yet evolving. There are private banks, public sector banks, cooperative banks and regional rural banks, which constitute the system but each of them plans to have a system that is unique to its own need. A uniform system is currently not present and it will take some time to evolve one. For a payment and settlement system to be effective, especially the
reconciliation part, it is necessary for all the participants to be on the same page. The unique example is the cheque truncation system that has been pioneered by RBI. Even after three years, it continues to be in pilot stage, mainly because some of the participating banks are still not ready with a corresponding system at their end. Uniform trading platform is very much necessary for systems like RTGS to be successful. All the banks are not participants in the e– payments initiative. I feel RBI must make it mandatory for all banks irrespective of the category to be the participants in the e–payments initiative because it has very distinct advantages.
Straight Processing (STP)
Through
It is possible for a corporate to advise a bank to effect multiple payments to their customers electronically and the entire transaction can take place in real time through straight through process. This has eliminated instances of cheque bouncing and consequent legal hassles. A transparent, safe and secure transaction system is in place and this facilitates speed and quality of service. The e–payment system, besides ensuring better funds position, also offers MIS to the customers. Corporates can, with the help of this information, take informed decisions. A point to be noted is that it is all done by technology and there is no manual intervention at any point of time. STP can be beneficial and make the settlement system efficient. However, not all banks truly follow complete STP in the real sense of the term. There are instances where the transactions need not take place in real time and people devise their own modalities. Sharma of IDBI Intech says treasurers today are starting to apply STP to the reconciliation, rejects and returns processes. They are embracing Straight through Reconciliation (STR) to reduce manpower costs and further improve throughput and efficiency. STR eliminates the manual handling of the reconciliation of statements confirming payments made, and the manual handling of payment rejects and returns. To achieve the tangible cost saves from STP and STR, you must embrace and re–engineer key processes, end–to–end, and bring together the expertise required to reorganize work–flow across banks, vendors and the corporate shared centres.
Technical Standards
RBI has been laying down operational and technical standards for various payment systems, prescribing the duties of system providers and carrying out inspections of the systems. The RBI has been the main driver payment systems (SIPS) or the behind the design, development and functioning of payment systems. Whether it is the high value systemically important
retail payment systems, all are promoted and run by either the RBI directly or through designated banks. The RBI has laid down clear guidelines and standards for system participants for all payments systems. The system has multiplicity of layers where several levels of intermediation occur in transfer of funds from one institution to another. At the base of „Payments Pyramid? are the non–banks (all non–v depository corporations), at intermediate level are banks and at the apex of pyramid are the central banks. The management of change in payment and settlement systems is thus critical to the central bank not only from the point of view of operational efficiency but also from the view of monetary policy operations and supervision.
Automation helped
has
Automation has indeed helped banks in the reconciliation process. reconciliation of entries is now very simple and total automation has helped the banks in reconciliation of entries very fast because every entry has unique number. However, reconciling RTGS and NEFT transactions is posing difficulty as the formats generated by RBI and individual systems of banks are different. If uniformity can be brought in, reconciliation can be on– line/ system driven, without manual intervention and human effort which is costly and error–prone. One drawback is that banks take to technology and evolve systems in isolation making integration a tough task. There is this question of net/gross settlements since RBI has evolved its own system and some banks seem not to be in sync with this. This results in a lot of manual interventions. Then individual banks must keep pace with the changes that are coming in the system, especially at the instance of the RBI. If this does not happen, banks will be forced to have their own ways of reconciliation thereby sacrificing uniformity. Such a situation also slows down automation. Banks often give least priority to reconciliation system as operations, credit and channels seem to gain most attention. Even core banking systems do not provide for fully automated reconciliation system. As a result, banks are forced to evolve their own systems depending on user preferences and users? own definitions, leading to loss of uniformity. It is critical, for banks to evolve their systems that are easily integrated with the settlement and reconciliation system followed by RBI.
Clearing Bodies
The clearing bodies play a crucial role in implementing an efficient settlement system. It is imperative that these entities have technology platforms that are effective today and
scalable to meet the needs of the future.
The RBI is the settlement agency for the electronic payment and settlement systems such as RTGS and NEFT. The present technology infrastructure of these payment systems is robust and is able to support the growing volume of electronic transactions. Similarly, the MICR based cheque clearing systems have been implemented in major clearing centers across the country. This has helped to automate the cheque clearing process. In places where the clearing volumes are small Magnetic Media Based Clearing System (MMBCS) has been implemented. There are very few centres today with lesser volume where the cheque clearing is conducted manually. RBI has also implemented image based cheque truncation system in Delhi as a pilot project and based on the experience gained, the system is likely to extend to other centres in due course of time. As of now, the clearing bodies are not equipped to serve some of the new delivery channels, but this would not be a handicap in the long term. There should be participation of more players in the system. In such case, products and services offered by clearing bodies and their pricing would be market driven. Some, however, insist that more technologically equipped manpower would be needed for meeting future requirements and providing training to existing staff. This is a real challenge to the banks for increased competency. Others beg to differ. They say clearing bodies have a role as far as paper–based transactions are concerned. With more and more electronic transactions taking place, the role of these entities is becoming less critical. Even most of the paper–based transactions are now getting cleared in metros and as such clearing houses in non–metros and other clearing house areas are becoming less important. However, currently the operations of clearing houses are automated and banks can transfer the surplus balances to their central offices in metros. The automated systems are still evolving and lack of infrastructure is contributing to the slow pace of automation. Lack of infrastructure, can be power and/or communication channels. While a major chunk of clearing operations happen in metros, several tier 2 and tier 3 towns also see volume settlements. Unfortunately, clearing houses in these cities have to largely resort to manual modes. There are more than 1,000 clearing houses across the country and several among these are handling non–MICR cheques. This slows down the pace of migrating to systems like CTS, RTGS and NEFT. The diversity of systems followed by various banks adds to this state of affairs.
ATM Interoperability
With widespread use of ATMs and credit/debit cards, settlement systems tend to become complex. Have there been major issues in this realm? While ATM interoperability has been a win–win situation for all the stakeholders – customers, issuing banks and acquiring banks, it has indeed created an additional burden for banks in their payment settlement system. A PNB spokesman feels that the RBI directive has led to an exponential increase in the number of small ticket transaction. With this, number of declined transactions has also increased substantially which has posed challenges for the banks in reconciliation and resolution of customers? complaints. “We are of the view that inter– bank acquiring fee in the different network may also be rationalized keeping in view of card base and number of ATMs of the respective bank,” says the spokesperson. There is indeed a major issue in the realm of settlement of claims for failed transactions. Lodging claims and settlement of claims take more time than fixed by the RBI which increases customer dissatisfaction. Online lodging of claims has started but it will take some time to educate large number of customers and staff to make use of this method instead of physical claims. In addition, there are issues like different cash withdrawal limits for different banks and differentiation of customers. India has very strong payment gateways, which have bank–wise, branch–wise and customer– wise data available. There should not be any settlement or reconciliation issues as far as ATM based transactions are concerned. The problems that get reported, are machine specific and not technology or operations specific. India is also planning to have its own gateway, IndiaPay, and once this becomes operational, the gateways managed by VISA and MasterCard could see lesser activity as far as India is concerned. According to an industry insider, most of the problems that get reported in the wake of inter– operability involve networks and the ATM machines. In case of a network failure, transactions take place on the basis of FIS files resident in the individual ATM and these do not get reflected in the central system. Secondly, there could be problems with the machine. However, glitches are less in this realm.
Challeng es
The primary challenges are to: • • • • continuously devise strategies to meet the evolving requirements of new delivery channels keep infrastructure and operational cost low incorporate risk management system to reduce and prevent frauds create awareness and education of both employees as well as customers for taking preventive steps in using various payment options available through internet or any other channels • • • • • • • • Core banking solution/centralization to cover all branches. Effective technology for funds transfer 24x7 online inter–bank fund transfer standardization of interfaces / systems centralization of settlements popularizing the advantages of using of electronic medium for funds transfer migration from paper–based transactions to electronic mode risk mitigation
It is necessary for all the banks to be on the same page in order to make the settlement and reconciliation system efficient and effective. Forex business is one segment which is automated to a great extent and the transactions are carried out efficiently. This may be mainly because of the care being given to such transactions since they involve substantial amounts and any delay may lead to the bank losing substantial sums. Adoption of technology is not very easy because it needs lot of training of the users. The problems which come to any user should be recorded and it should be rectified and FAQ should be released by the central agency. Once robust and uniformly accepted standardized technology is adopted by all the players, there will be exponential growth in terms of both volume and value of the transactions. Management of multiple payment channels is a major issue. There are cheques, DDs, RTGS, NEFT, ECS, NECS etc, today. So, a corporate making dividend payment will make use of
one or all of these channels. It is a major botheration for the corporate and also for the banks. The corporate has to upload multiple files if the payment has to be made electronically, or write cheques or make demand drafts. The bank has to ensure that all the payments are effected and effected correctly. There could be settlement and reconciliation problems caused as a result of say wrong names or account numbers or wrong branch codes. The ideal situation, according to an industry expert, will be to have one single electronic–payment channel. However, this is a major challenge. The RBI can make it mandatory for all banks, including cooperative banks, to be part of e–payment initiative. The infrastructure needs to be improved, especially in rural areas, so that the single payment channel can become a reality.
doc_459861327.doc
It explains on popularizing electronic payments using NEFT and RTGS.
Popularizing Electronic Payment Systems
NEFT and RTGS
Contents
Major Issues.......................................................................................................................... 3 Making it foolproof ........................................................................................................... 5 Straight Through Processing (STP) ................................................................................... 6 Technical Standards .......................................................................................................... 6 Automation has helped ...................................................................................................... 7 Clearing Bodies................................................................................................................. 7 ATM Interoperability ........................................................................................................ 9 Challenges....................................................................................................................... 10
Popularizing
Electronic Payment Systems in Banks
The RBI has taken a number of steps during the last few years to build an efficient payment and settlement infrastructure and a strong institutional framework. These included automation of cheque clearing operations through the introduction of MICR–based clearing in major cities and introduction of Electronic Clearing Service (ECS) and Electronic Funds Transfer system. Again, thanks to the efforts of the central bank, there are two automated funds settlement systems: RTGS and the NEFT. One important initiative by the RBI has been the establishment of INFINET , which is similar to the SWIFT and is a platform for domestic transmission of inter–bank messages in electronic mode. The system had been using PKI adopted the technology. The facility for inter–bank funds settlement through RTGS is today available across more than 55,000 bank branches, in more than 2,500 regional centres across the country – a coverage span perhaps not seen anywhere else in the world.
2 1
based security in electronic
transactions since 1999 – many years before the international systems like SWIFT
Major Issues
In such a scenario, the common issues that banks confront in implementing an effective payments and settlement system are • • • • • • Testing and proper training Product knowledge Requirement gaps Last mile connectivity To ensure availability of electronic payment systems in remote / rural areas Inter-operability of different protocols
1
The INdian Financial NETwork [INFINET] is the communication backbone for the Indian Banking and Financial Sector. All Banks, Public Sector, Private Sector, Cooperative, etc., and the premier financial institutions in the country are eligible to become members of the INFINET. 2 The Public Key Infrastructure is a set of hardware, software, people, policies, and procedures needed to create, manage, store, distribute, and revoke digital certificates.
• • • • • • • • • • • • • • •
Backward compatibility with legacy systems Multiple vendors involved Robust / uniform settlement system End user?s (employees and customers) education/awareness. promptness in settlement of payments, clear rules, regulations and procedures for payers and beneficiaries Safety and security Cost effectiveness and prompt redressal of issues. Absence of standardization of interfaces / hardware / software across the system legal and structural framework – different regulations by the RBI for public and private sector banks and its modalities Transaction Costs Information and Communication Infrastructure Social acceptability Level of economic activity Increasing the coverage to all economic sectors
Core banking is the backbone to provide an effective payment and settlement system but several branches of many banks are yet to be covered under the CBS network and this poses a major problem. The payment and settlement system in India can be considered to be the best in the world. However, there are issues, mainly because all the banks are not actually participating in the system. Take for example RTGS or NEFT. These are the best payment and settlement platforms, but some of the banks, especially the cooperative banks, are not making use of these systems. As a result, the RBI is forced to maintain parallel systems of settlement. Thus, the objective of having unique and efficient payment and settlement system is not met. This also causes customer inconvenience and actually deprives the customer of the benefits offered by systems like RTGS and NEFT. In the realm of reconciliation system, the issue relating to the stipulation by RBI that electronic transactions must be given effect within two hours. This will mean that credit should be shown in a recipient?s account within two hours of receipt of the payment
instruction. If the credit is not given, RBI stipulates that the money should be credited back to the remitter?s account. Many banks do not adhere to this stipulation, leading to communication gaps and causing inconvenience to the customers. Secondly, it also leads to creation of suspense accounts. While the RBI specifies that the bank concerned should pay interest to the concerned customer/bank in case the credit does not happen within the stipulated time, banks, however, are not serious about this. Some industry veterans believe that this issue can be addressed by automating the process. Others have a different perspective. They believe that it?s all about people. In any project for automating settlement and reconciliation process, there is a tendency to ignore or undermine the importance of people and to assign proper responsibilities. This often results in a free– for–all situation where each person tends to do things in the way he feels fit. Secondly, the training aspect too is ignored. Good training to the people who would be involved in the settlement and reconciliation process is a must and important. Training should be both academic as well as on–the–job. Thirdly, it is crucial that when user acceptance testing of the system is happening, people with adequate knowledge of settlement and reconciliation system are involved in order to provide ease of use and efficiency for the system. There can be chances of inputs going wrong and the bank ending up with a weak system.
Making foolproof
it
CBS has given a major thrust for faster and safer fund transfers among financial institutions. Almost all public and private sector banks have either implemented CBS or are in the process of doing so. As of now, the technology being used by many public/private sector banks in the country for RTGS and NEFT is PKI–based and is fool–proof, which also eliminates the settlement risk. Some of the shortcomings are: lack of a roadmap for centralization of settlements and standardization of settlement procedures. All banks/ institutions are not at the same level of maturity with respect to adoption of technology and this is a hindrance for encompassing the total bank accounts in the country to the fold of the new age payment systems. Technology to comprehensively cover the diversity prevalent in the Indian banking system is yet evolving. There are private banks, public sector banks, cooperative banks and regional rural banks, which constitute the system but each of them plans to have a system that is unique to its own need. A uniform system is currently not present and it will take some time to evolve one. For a payment and settlement system to be effective, especially the
reconciliation part, it is necessary for all the participants to be on the same page. The unique example is the cheque truncation system that has been pioneered by RBI. Even after three years, it continues to be in pilot stage, mainly because some of the participating banks are still not ready with a corresponding system at their end. Uniform trading platform is very much necessary for systems like RTGS to be successful. All the banks are not participants in the e– payments initiative. I feel RBI must make it mandatory for all banks irrespective of the category to be the participants in the e–payments initiative because it has very distinct advantages.
Straight Processing (STP)
Through
It is possible for a corporate to advise a bank to effect multiple payments to their customers electronically and the entire transaction can take place in real time through straight through process. This has eliminated instances of cheque bouncing and consequent legal hassles. A transparent, safe and secure transaction system is in place and this facilitates speed and quality of service. The e–payment system, besides ensuring better funds position, also offers MIS to the customers. Corporates can, with the help of this information, take informed decisions. A point to be noted is that it is all done by technology and there is no manual intervention at any point of time. STP can be beneficial and make the settlement system efficient. However, not all banks truly follow complete STP in the real sense of the term. There are instances where the transactions need not take place in real time and people devise their own modalities. Sharma of IDBI Intech says treasurers today are starting to apply STP to the reconciliation, rejects and returns processes. They are embracing Straight through Reconciliation (STR) to reduce manpower costs and further improve throughput and efficiency. STR eliminates the manual handling of the reconciliation of statements confirming payments made, and the manual handling of payment rejects and returns. To achieve the tangible cost saves from STP and STR, you must embrace and re–engineer key processes, end–to–end, and bring together the expertise required to reorganize work–flow across banks, vendors and the corporate shared centres.
Technical Standards
RBI has been laying down operational and technical standards for various payment systems, prescribing the duties of system providers and carrying out inspections of the systems. The RBI has been the main driver payment systems (SIPS) or the behind the design, development and functioning of payment systems. Whether it is the high value systemically important
retail payment systems, all are promoted and run by either the RBI directly or through designated banks. The RBI has laid down clear guidelines and standards for system participants for all payments systems. The system has multiplicity of layers where several levels of intermediation occur in transfer of funds from one institution to another. At the base of „Payments Pyramid? are the non–banks (all non–v depository corporations), at intermediate level are banks and at the apex of pyramid are the central banks. The management of change in payment and settlement systems is thus critical to the central bank not only from the point of view of operational efficiency but also from the view of monetary policy operations and supervision.
Automation helped
has
Automation has indeed helped banks in the reconciliation process. reconciliation of entries is now very simple and total automation has helped the banks in reconciliation of entries very fast because every entry has unique number. However, reconciling RTGS and NEFT transactions is posing difficulty as the formats generated by RBI and individual systems of banks are different. If uniformity can be brought in, reconciliation can be on– line/ system driven, without manual intervention and human effort which is costly and error–prone. One drawback is that banks take to technology and evolve systems in isolation making integration a tough task. There is this question of net/gross settlements since RBI has evolved its own system and some banks seem not to be in sync with this. This results in a lot of manual interventions. Then individual banks must keep pace with the changes that are coming in the system, especially at the instance of the RBI. If this does not happen, banks will be forced to have their own ways of reconciliation thereby sacrificing uniformity. Such a situation also slows down automation. Banks often give least priority to reconciliation system as operations, credit and channels seem to gain most attention. Even core banking systems do not provide for fully automated reconciliation system. As a result, banks are forced to evolve their own systems depending on user preferences and users? own definitions, leading to loss of uniformity. It is critical, for banks to evolve their systems that are easily integrated with the settlement and reconciliation system followed by RBI.
Clearing Bodies
The clearing bodies play a crucial role in implementing an efficient settlement system. It is imperative that these entities have technology platforms that are effective today and
scalable to meet the needs of the future.
The RBI is the settlement agency for the electronic payment and settlement systems such as RTGS and NEFT. The present technology infrastructure of these payment systems is robust and is able to support the growing volume of electronic transactions. Similarly, the MICR based cheque clearing systems have been implemented in major clearing centers across the country. This has helped to automate the cheque clearing process. In places where the clearing volumes are small Magnetic Media Based Clearing System (MMBCS) has been implemented. There are very few centres today with lesser volume where the cheque clearing is conducted manually. RBI has also implemented image based cheque truncation system in Delhi as a pilot project and based on the experience gained, the system is likely to extend to other centres in due course of time. As of now, the clearing bodies are not equipped to serve some of the new delivery channels, but this would not be a handicap in the long term. There should be participation of more players in the system. In such case, products and services offered by clearing bodies and their pricing would be market driven. Some, however, insist that more technologically equipped manpower would be needed for meeting future requirements and providing training to existing staff. This is a real challenge to the banks for increased competency. Others beg to differ. They say clearing bodies have a role as far as paper–based transactions are concerned. With more and more electronic transactions taking place, the role of these entities is becoming less critical. Even most of the paper–based transactions are now getting cleared in metros and as such clearing houses in non–metros and other clearing house areas are becoming less important. However, currently the operations of clearing houses are automated and banks can transfer the surplus balances to their central offices in metros. The automated systems are still evolving and lack of infrastructure is contributing to the slow pace of automation. Lack of infrastructure, can be power and/or communication channels. While a major chunk of clearing operations happen in metros, several tier 2 and tier 3 towns also see volume settlements. Unfortunately, clearing houses in these cities have to largely resort to manual modes. There are more than 1,000 clearing houses across the country and several among these are handling non–MICR cheques. This slows down the pace of migrating to systems like CTS, RTGS and NEFT. The diversity of systems followed by various banks adds to this state of affairs.
ATM Interoperability
With widespread use of ATMs and credit/debit cards, settlement systems tend to become complex. Have there been major issues in this realm? While ATM interoperability has been a win–win situation for all the stakeholders – customers, issuing banks and acquiring banks, it has indeed created an additional burden for banks in their payment settlement system. A PNB spokesman feels that the RBI directive has led to an exponential increase in the number of small ticket transaction. With this, number of declined transactions has also increased substantially which has posed challenges for the banks in reconciliation and resolution of customers? complaints. “We are of the view that inter– bank acquiring fee in the different network may also be rationalized keeping in view of card base and number of ATMs of the respective bank,” says the spokesperson. There is indeed a major issue in the realm of settlement of claims for failed transactions. Lodging claims and settlement of claims take more time than fixed by the RBI which increases customer dissatisfaction. Online lodging of claims has started but it will take some time to educate large number of customers and staff to make use of this method instead of physical claims. In addition, there are issues like different cash withdrawal limits for different banks and differentiation of customers. India has very strong payment gateways, which have bank–wise, branch–wise and customer– wise data available. There should not be any settlement or reconciliation issues as far as ATM based transactions are concerned. The problems that get reported, are machine specific and not technology or operations specific. India is also planning to have its own gateway, IndiaPay, and once this becomes operational, the gateways managed by VISA and MasterCard could see lesser activity as far as India is concerned. According to an industry insider, most of the problems that get reported in the wake of inter– operability involve networks and the ATM machines. In case of a network failure, transactions take place on the basis of FIS files resident in the individual ATM and these do not get reflected in the central system. Secondly, there could be problems with the machine. However, glitches are less in this realm.
Challeng es
The primary challenges are to: • • • • continuously devise strategies to meet the evolving requirements of new delivery channels keep infrastructure and operational cost low incorporate risk management system to reduce and prevent frauds create awareness and education of both employees as well as customers for taking preventive steps in using various payment options available through internet or any other channels • • • • • • • • Core banking solution/centralization to cover all branches. Effective technology for funds transfer 24x7 online inter–bank fund transfer standardization of interfaces / systems centralization of settlements popularizing the advantages of using of electronic medium for funds transfer migration from paper–based transactions to electronic mode risk mitigation
It is necessary for all the banks to be on the same page in order to make the settlement and reconciliation system efficient and effective. Forex business is one segment which is automated to a great extent and the transactions are carried out efficiently. This may be mainly because of the care being given to such transactions since they involve substantial amounts and any delay may lead to the bank losing substantial sums. Adoption of technology is not very easy because it needs lot of training of the users. The problems which come to any user should be recorded and it should be rectified and FAQ should be released by the central agency. Once robust and uniformly accepted standardized technology is adopted by all the players, there will be exponential growth in terms of both volume and value of the transactions. Management of multiple payment channels is a major issue. There are cheques, DDs, RTGS, NEFT, ECS, NECS etc, today. So, a corporate making dividend payment will make use of
one or all of these channels. It is a major botheration for the corporate and also for the banks. The corporate has to upload multiple files if the payment has to be made electronically, or write cheques or make demand drafts. The bank has to ensure that all the payments are effected and effected correctly. There could be settlement and reconciliation problems caused as a result of say wrong names or account numbers or wrong branch codes. The ideal situation, according to an industry expert, will be to have one single electronic–payment channel. However, this is a major challenge. The RBI can make it mandatory for all banks, including cooperative banks, to be part of e–payment initiative. The infrastructure needs to be improved, especially in rural areas, so that the single payment channel can become a reality.
doc_459861327.doc