Bank Payment Systems in India
The central bank of any country is usually the
driving force in the development of national payment systems. The
Reserve Bank of India as the central bank of India has been playing
this developmental role and has taken several initiatives for Safe,
Secure, Sound, Efficient, Accessible and Authorised payment systems in
the country.
The Board for Regulation
and Supervision of Payment and Settlement Systems (BPSS), a
sub-committee of the Central Board of the Reserve Bank of India is the
highest policy making body on payment systems in the country. The BPSS
is empowered for authorising, prescribing policies and setting
standards for regulating and supervising all the payment and settlement
systems in the country. The Department of Payment and Settlement
Systems of the Reserve Bank of India serves as the Secretariat to the
Board and executes its directions.
In India, the payment and
settlement systems are regulated by the Payment and Settlement Systems
Act, 2007 (PSS Act) which was legislated in December 2007. The PSS Act
as well as the Payment and Settlement System Regulations, 2008 framed
thereunder came into effect from August 12, 2008. In terms of Section 4
of the PSS Act, no person other than the Reserve Bank of India (RBI)
can commence or operate a payment system in India unless authorised by
RBI. Reserve Bank has since authorised payment system operators of
pre-paid payment instruments, card schemes, cross-border in-bound money
transfers, Automated Teller Machine (ATM) networks and centralised
clearing arrangements. (http://www.rbi.org.in/Scripts/PublicationsView.aspx?id=12043)
PAYMENT SYSTEMS
The Reserve Bank has
taken many initiatives towards introducing and upgrading safe and
efficient modes of payment systems in the country to meet the
requirements of the public at large. The dominant features of large
geographic spread of the country and the vast network of branches of
the Indian banking system require the logistics of collection and
delivery of paper instruments. These aspects of the banking structure
in the country have always been kept in mind while developing the
payment systems.
Paper-based Payments
Use of paper-based
instruments (like cheques, drafts, and the like) accounts for nearly 60%
of the volume of total non-cash transactions in the country. In value
terms, the share is presently around 11%. This share has been steadily
decreasing over a period of time and electronic mode gained popularity
due to the concerted efforts of Reserve Bank of India to popularize the
electronic payment products in preference to cash and cheques.
Since paper based payments
occupy an important place in the country, Reserve Bank had introduced
Magnetic Ink Character Recognition (MICR) technology for speeding up
and bringing in efficiency in processing of cheques.
Later, a separate High
Value Clearing was introduced for clearing cheques of value Rupees one
lakh and above. This clearing was available at select large centres in
the country (since discontinued). Recent developments in paper-based
instruments include launch of Speed Clearing (for local clearance of
outstation cheques drawn on core-banking enabled branches of banks),
introduction of cheque truncation system (to restrict physical movement
of cheques and enable use of images for payment processing), framing
CTS-2010 Standards (for enhancing the security features on cheque
forms) and the like.
While the overall thrust
is to reduce the use of paper for transactions, given the fact that it
would take some time to completely move to the electronic mode, the
intention is to reduce the movement of paper – both for local and
outstation clearance of cheques.
Electronic Payments
The initiatives taken by
RBI in the mid-eighties and early-nineties focused on technology-based
solutions for the improvement of the payment and settlement system
infrastructure, coupled with the introduction of new payment products
by taking advantage of the technological advancements in banks. The
continued increase in the volume of cheques added pressure on the
existing set-up, thus necessitating a cost-effective alternative
system.
Electronic Clearing Service (ECS) Credit
The Bank introduced the
ECS (Credit) scheme during the 1990s to handle bulk and repetitive
payment requirements (like salary, interest, dividend payments) of
corporates and other institutions. ECS (Credit) facilitates customer
accounts to be credited on the specified value date and is presently
available at all major cities in the country.
During September 2008, the
Bank launched a new service known as National Electronic Clearing
Service (NECS), at National Clearing Cell (NCC), Mumbai. NECS (Credit)
facilitates multiple credits to beneficiary accounts with destination
branches across the country against a single debit of the account of
the sponsor bank. The system has a pan-India characteristic and
leverages on Core Banking Solutions (CBS) of member banks,
facilitating all CBS bank branches to participate in the system,
irrespective of their location across the country.
Regional ECS (RECS)
Next to NECS, RECS has
been launched during the year 2009.RECS, a miniature of the NECS is
confined to the bank branches within the jurisdiction of a Regional
office of RBI. Under the system, the sponsor bank will upload the
validated data through the Secured Web Server of RBI containing
credit/debit instructions to the customers of CBS enabled bank branches
spread across the Jurisdiction of the Regional office of RBI. The RECS
centre will process the data, arrive at the settlement, generate
destination bank wise data/reports and make available the data/reports
through secured web-server to facilitate the destination bank branches
to afford credit/debit to the accounts of beneficiaries by leveraging
the CBS technology put in place by the bank. Presently RECS is available
in Ahmedabad, Bengaluru, Chennai and Kolkata.
Electronic Clearing Service (ECS) Debit
The ECS (Debit) Scheme was
introduced by RBI to provide a faster method of effecting periodic and
repetitive collections of utility companies. ECS (Debit) facilitates
consumers / subscribers of utility companies to make routine and
repetitive payments by ‘mandating’ bank branches to debit their accounts
and pass on the money to the companies. This tremendously minimises
use of paper instruments apart from improving process efficiency and
customer satisfaction. There is no limit as to the minimum or maximum
amount of payment. This is also available across major cities in the
country.
Electronic Funds Transfer (EFT)
This retail funds transfer
system introduced in the late 1990s enabled an account holder of a bank
to electronically transfer funds to another account holder with any
other participating bank. Available across 15 major centers in the
country, this system is no longer available for use by the general
public, for whose benefit a feature-rich and more efficient system is
now in place, which is the National Electronic Funds Transfer (NEFT)
system.
National Electronic Funds Transfer (NEFT) System
In November 2005, a more
secure system was introduced for facilitating one-to-one funds transfer
requirements of individuals / corporates. Available across a longer
time window, the NEFT system provides for batch settlements at hourly
intervals, thus enabling near real-time transfer of funds. Certain
other unique features viz. accepting cash for originating transactions,
initiating transfer requests without any minimum or maximum amount
limitations, facilitating one-way transfers to Nepal, receiving
confirmation of the date / time of credit to the account of the
beneficiaries, etc., are available in the system.
Real Time Gross Settlement (RTGS) System
RTGS is a funds transfer
systems where transfer of money takes place from one bank to another on a
"real time" and on "gross" basis. Settlement in "real time" means
payment transaction is not subjected to any waiting period. "Gross
settlement" means the transaction is settled on one to one basis
without bunching or netting with any other transaction. Once processed,
payments are final and irrevocable. This was introduced in in 2004 and
settles all inter-bank payments and customer transactions above ` 2 lakh.
Clearing Corporation of India Limited (CCIL)
CCIL was set up in April
2001 by banks, financial institutions and primary dealers, to function
as an industry service organisation for clearing and settlement of
trades in money market, government securities and foreign exchange
markets.
The Clearing Corporation
plays the crucial role of a Central Counter Party (CCP) in the
government securities, USD –INR forex exchange (both spot and forward
segments) and Collaterised Borrowing and Lending Obligation (CBLO)
markets. CCIL plays the role of a central counterparty whereby, the
contract between buyer and seller gets replaced by two new contracts -
between CCIL and each of the two parties. This process is known as
‘Novation’. Through novation, the counterparty credit risk between the
buyer and seller is eliminated with CCIL subsuming all counterparty and
credit risks. In order to minimize the these risks, that it exposes
itself to, CCIL follows specific risk management practices which are as
per international best practices.In addition to the guaranteed
settlement, CCIL also provides non guaranteed settlement services for
National Financial Switch (Inter bank ATM transactions) and for rupee
derivatives such as Interest Rate Swaps.
CCIL is also providing a reporting platform and acts as a repository for Over the Counter (OTC) products.
Other Payment Systems
Pre-paid Payment Systems
Pre-paid instruments are
payment instruments that facilitate purchase of
goods and services against the value stored
on these instruments. The value stored on
such instruments represents the value paid
for by the holders by cash, by debit to a bank
account, or by credit card. The pre-paid
payment instruments can be issued in the form of smart cards, magnetic
stripe cards, internet accounts, internet wallets, mobile accounts,
mobile wallets, paper vouchers, etc.
Subsequent to the
notification of the PSS Act, policy guidelines for issuance and
operation of prepaid instruments in India were issued in the public
interest to regulate the issue of prepaid payment instruments in the
country.
The use of pre-paid
payment instruments for cross border transactions has not been
permitted, except for the payment instruments approved under Foreign
Exchange Management Act,1999 (FEMA).
Mobile Banking System
Mobile phones as a medium
for providing banking services have been attaining
increased importance. Reserve Bank brought
out a set of operating guidelines on mobile banking for banks in October
2008, according to which only banks which are licensed and supervised
in India and have a physical presence in India are permitted to offier
mobile banking after obtaining necessary permission from Reserve Bank.
The guidelines focus on systems for security and inter-bank transfer
arrangements through Reserve Bank's authorized systems. On the
technology front the objective is to enable the development of
inter-operable standards so as to facilitate funds transfer from one
account to any other account in the same or any other bank on a real
time basis irrespective of the mobile network a customer has subscribed
to.
ATMs / Point of Sale (POS) Terminals / Online Transactions
Presently, there are over
61,000 ATMs in India. Savings Bank customers can withdraw cash from
any bank terminal up to 5 times in a month without being charged for
the same. To address the customer service issues arising out of failed
ATM transactions where the customer's account gets debited without
actual disbursal of cash, the Reserve Bank has mandated re-crediting of
such failed transactions within 12 working day and mandated
compensation for delays beyond the stipulated period. Furthermore, a
standardised template has been prescribed for displaying at all ATM
locations to facilitate lodging of complaints by customers.
There are over five lakh
POS terminals in the country, which enable customers to make payments
for purchases of goods and services by means of credit/debit cards. To
facilitate customer convenience the Bank has also permitted cash
withdrawal using debit cards issued by the banks at PoS terminals.
The PoS for accepting card
payments also include online payment gateways. This facility is used
for enabling online payments for goods and services. The online payment
are enabled through own payment gateways or third party service
providers clled intermediaries. In payment transactions involving
intermediaries, these intermediaries act as the initial recipient of
payments and distribute the payment to merchants. In such transactions,
the customers are exposed to the uncertainty of payment as most
merchants treat the payments as final on receipt from the
intermediaries. In this regard safeguard the interests of customers and
to ensure that the payments made by them using Electronic/Online
Payment modes are duly accounted for by intermediaries receiving such
payments, directions were issued in November 2009. Directions require
that the funds received from customers for such transactions need to be
maintained in an internal account of a bank and the intermediary
should not have access to the same.
Further, to reduce the
risks arising out of the use of credit/debit cards over internet/IVR
(technically referred to as card not present (CNP) transactions),
Reserve Bank mandated that all CNP transactions should be additionally
authenticated based on information not available on the card and an
online alert should be sent to the cardholders for such transactions.
National Payments Corporation of India
Oversight of Payment and Settlement Systems
Oversight of the payment
and settlement systems is a central bank function whereby the
objectives of safety and efficiency are promoted by monitoring existing
and planned systems, assessing them against these objectives and, where
necessary, inducing change. By overseeing payment and settlement
systems, central banks help to maintain systemic stability and reduce
systemic risk, and to maintain public confidence in payment and
settlement systems.
The Payment and Settlement
Systems Act, 2007 and the Payment and Settlement Systems Regulations,
2008 framed thereunder, provide the necessary statutory backing to the
Reserve Bank of India for undertaking the Oversight function over the
payment and settlement systems in the country.
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