RuPay Strategy Document - Department of Financial Services

Government of India
Ministry of Finance
Department of Financial Services
Report of the Key Advisory Group
on the Payment Systems in India
(KAG on PSI)
31st May, 2012
F.No.7/7/2011-BO.II
Government of India
Ministry of Finance
Department of Financial Services
REPORT OF THE KEY ADVISORY GROUP
ON THE PAYMENT SYSTEMS IN INDIA
(KAG on PSI)
1. The Department of Financial Services, Government of India, constituted a Key
Advisory Group (KAG) on the Payment Systems in India (PSI) vide Order dated
16.11.2011. The Group had representation from all the stakeholders in this
sector including
Indian Banks' Association,
Institute for Development and
Research in Banking Technology (IDRBT), National Payment Corporation of
India (NPCI), some prominent consulting firms, such as, Ernst & Young, Boston
Consulting Group, Mckinsey & Company, some eminent academicians actively
involved in the field of Payment Systems -- Professor Ashok Jhunjhunwala of
IITMadras and Professor Ashish Das of IIT Mumbai. The terms of reference of
the Group was as under:
i.
Review of existing legal / regulatory / institutional framework for Payment
Systems and its efficacy;
ii.
Action plan including policy initiatives for orderly growth of the Sector;
iii.
To recommend the legal / institutional / regulatory initiatives related
measures required for orderly growth of the Sector.
iv.
To study various components of Payment Systems, such as, Electronic
Payment Systems, Clearing Houses, Currency Chests, ATMs, Credit and
Debit Cards, etc.; and make appropriate recommendations for suggesting
reforms in the Payments System in India.
The constitution and terms of reference of the Group is in ANNEX-I.
2.
RBI was also invited to be a member of the KAG. However, RBI expressed its
inability to be a part of the Group stating that it is the regulator of the Payment
Systems in India, and therefore, its association with the Group may not be desirable.
The Group held its meetings on 21.12.2011, 29.02.2012 and 03.04.2012 and had
extensive deliberations and consultation on a wide range of issues having a bearing
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on orderly growth of the Sector. The Report of the Group has been modified and
finalized taking into consideration the views of the Members.
3.
The Group expresses its sincere gratitude to the Department of Financial
Services, its officials and staff for putting in unstinting efforts in organizing the
meetings of the Group, facilitating consultation and deliberation on a wide spectrum
of issues concerning Payments System in India, and in finalizing its Report.
4.
I wish to place on record my sincere thanks to all the members of the Group
and their associates who have worked indefatigably to finalise this document. I also
appreciate the zeal and fervour of all the members in their contribution for bringing
reforms in the Payment Systems in India. I am also delighted to note the in-depth
understanding, a strong sense of responsibility and a high level of commitment of
the officers and employees of the Department of Financial Services associated with
this Group.
(D.K. Mittal)
Chairman
31st May, 2012
Page 3 of 72
Table of Contents
Chapter
No.
I.
II.
Reforms of the Payment Systems in India
Page
No.
6
Introduction
General Guidance for National Payment System Development
Payment system classification
Payment Systems in India: the present status
Reduction of paper-based payment instruments
Vision Document of RBI on Payment Systems in India
The Payment System Reform Initiative of the Government
6-7
7-8
8-9
9-10
10-11
12
12
Contents
Paper Based Payment Systems
Cheque processing life cycle
Charges and the cost of processing cheque vis-à-vis other payment instruments
III.
IV.
Currency Chest - Establishment and Efficient Management
Electronic Payment Systems
Challenges
Electronic transfer of Funds -- RTGS and NEFT
Spatial and temporal extension of centralised payment systems
Electronic Clearing Service
Challenges
V.
Cards
Card usage in India and other Countries
Penetration of POS terminals
Reasons for low penetration and usage of cards and POS terminals
POS
White Label POS
Cards Procurement and Issuance
Massive savings through Multi-application Contactless smart cards
Charge structure for debit and credit cards
ATMs /Kiosks
Switching for ATMs and POS
Payment Gateway
Action steps
VI.
VII.
VIII.
Online Payments and Internet Banking
13
13
14-15
16
17
17
17-19
20
20
21
22
23
24-25
25-26
27
28
28
29-30
30
31
31-33
33-34
34
35
Need for enhancing success rate for Online Transactions
Streamlined Approach to Security
Recommendations
Frequent Downtimes and Performance Fluctuations
Need for Standard Protocols and APIs
Need for standard Settlement Plans
Best Practices
Receipt depository
Transaction legend for bank transactions
Refunds and Reversals
Recommendations
Issues in Internet Banking
36
36-37
37
37-38
38
38
39
39
40
41
41-42
42
Mobile Payments
43-44
Inter-Bank Mobile Payment Service (IMPS)
USSD
Action steps
Recommendations
Role of Operator
44-45
45
45-47
47
47
Creating appropriate incentives and disincentives for the payment
systems
Current charges for payment instruments
Proposed Charges structure
Incentives for using electronic payments systems
ATMs
NEFT
Mobile
48
48-51
51
51
51-52
52
53
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RTGS
Charges for using payment channels across the counter at branches
Cash Withdrawal
Cheque Clearing
NEFT and RTGS - Action Steps and Recommendations
Tax incentives for electronic payments
Recommendation
Action steps
Recommendation
IX.
Executive Summary
Constitution of Key Advisory Group on Payment Systems in India (KAG on PSI)
Recommendations of the KAG on Payment Systems based on Core Principles
ATM/Kiosk and POS Network
Cards
Online Payments
Tax Incentives for online payments
Reduction of paper-based payment instruments
Mobile payments
NEFT and RTGS
National Electronic Clearing Service / Automated Clearing House (ACH)
Other issues critical for universalisation of e-transaction regime
X.
Conclusion
Figures and Tables
Figure 1: Volume and value of cheque processing ………………………………………………………..
Figure 2: Volume and value of cheques (percentage)……………………………………………………..
Figure 3: Number of debit cards ………………………………………………………………………………
Figure 4: Number of credit cards ……………………………………………………………………………..
Figure 5: Total debit card transactions ……………………………………………………………………….
Figure 6: Total credit card transactions ………………………………………………………………………
Figure 7: Number of POS terminals in India ………………………………………………………………..
Figure 8: Number of POS terminals per million inhabitants………..……………………………………..
Figure 9: Number of POS transactions per terminals….……………………………………………………
Figure 10: Payment system indicators……………………………………………………………………….
Figure 11: Clearing Cheques in India – Volume over the Years………………………………………….
Figure 12: Clearing Cheques in India – Value over the Years…………………………………………….
Figure 13: Volume and Value of various payment instruments and the charges to the customers….
Figure 14: Volume and value of cheque processing……………………………………………………….
Figure 15: Cost savings ………………………………………………………………………………………..
Figure 16: Charges – RTGS / NEFT…………………………………………………………………………..
Figure 17: Fragmented switching infrastructure…………………………………………………………….
Figure 18: IRCTC transactions using payment gateway……………………………………………………
Figure 19: Mobile banking transaction data…………………………………………………………………
Figure 20: Current charges for payment systems ………………………………………………………….
Figure 21: ATM charges………………………………………………………………………………………...
Figure 22: NEFT charges……………………………………………………………………………………….
Figure 23: Mobile charges………………………………………………………………………………………
Figure 24: RTGS charges………………………………………………………………………………………
Figure 25: Cash withdrawal charges…………………………………………………………………………
Figure 26: Transfer charges to third party within same bank across the country……………………….
Figure 27: Transfer charges to third party within same bank using Internet / ATM / Mobile…………..
Figure 28: Saving Accounts – Normal clearing charges…………………………………………………..
Figure 29: Saving Accounts – outstation clearing charges………………………………………………..
Figure 30: Current Accounts – Normal clearing charges…………………………………………………..
Figure 31: Current Accounts – outstation clearing charges………………………………………………..
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56-57
57-59
59-61
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65-66
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68-69
69-70
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72
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15
22
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25
9-10
11
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14
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32
33
43-44
48-50
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I.
Reforms of the Payment Systems in India
Introduction
Cash and cheques were the major payment instruments in the traditional payment
systems. Currency is an important mode of payment in India, with 14% of M3
represented by currency. Draft, Banker's cheque, Interest / Dividend warrant, Refund
Order are used to cater to specific payment needs. The statutory basis for these
instruments is provided by the Negotiable Instruments Act, 1881 (NI Act).
2.
The Indian payments systems have undergone a sea change in the last
decade with the introduction of card-based payments on POS, ATMS and Kiosks,
Electronic Funds Transfers (NEFT and RTGS), Electronic Clearing Service, Mobile
and Internet Banking, Online e-commerce /m-commerce using Payment Gateways.
But India has a long way to go in its march towards a “less-cash” and “less-cheque”
country as the following data published by Bank of International Settlements for 2010
reveals:
The value of bank currency as a percentage of GDP:
Sweden
3.16 %
Korea
3.68%
Brazil
4.01 %
South Africa
5.86%
India
12.04%.
Per cent of all transactions generated electronically
3.
Sweden
97%
Canada
84% (13% in 1990)
Korea
57%.
Brazil
23%.
India
3%
Migration to electronic payments will have a huge positive impact on the
overall economy. It will decrease the amount of cash with people and thus improve
Page 6 of 72
liquidity available with banks. In addition, electronic transactions leave an audit trail
and help in reducing black money in the country. Prof. Ashish Das and Rakhi
Agarwal in their Report “Cashless Payment System in India—A Roadmap” have
estimated that every additional 1% increase in the use of cards in retail sales, will
lead to a Rs. 28 crore savings in note printing cost (excluding the huge costs
incurred for secured transportation, counterfeit detection / prevention, etc.). A study
by The Payments Institute concluded: “A developed economy may spend 0.75% of
GDP and an emerging economy up to 2% of GDP for maintaining cash supplies.”
4.
Our cash-and-cheque dominant economy must transit to a digital economy
with transactions primarily in the electronic mode. Further, the payment system
should be simple, convenient, cost-effective for the common man and linked with
financial inclusion initiatives like “Swabhiman” and “Swavalamban”. Electronic
payment systems may be extended to Regional Rural Banks and Cooperative Banks
to widen the coverage of payment systems to all parts of the country. A national
campaign -- using all media channels including social media -- is necessary for
creating awareness and demand for electronic payment systems
General Guidance for National Payment System Development
5.
The Committee on Payment and Settlement Systems (CPSS) of the Bank for
International Settlements in its Report on “General guidance for national payment
system Development” underlines that payment system reforms depend on parallel
development of the banking system, institutional arrangements for payment services
and payment infrastructures, and should therefore be a cooperative effort among the
banking sector, regulatory agencies and other stakeholders. The guidelines cover
four key areas (a) the role of the banking sector (including the central bank); (b)
effective planning and project implementation; (c) developing the institutional
framework required to sustain payment system reform; and (d) designing a safe and
efficient payment infrastructure to meet the particular emerging needs of a country‟s
economy.
6.
The CPSS guidelines stress the following points: (a) the national payment
system should be viewed from a broad perspective; (b) development initiatives
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should be focused on the emerging payment needs and capabilities of the economy;
(c) development initiatives should be planned and prioritised strategically; (d)
standardisation of processes and use of technology are necessary for reforms of the
paper based payment infrastructure; (e) interoperability or consolidation of
transaction infrastructures can achieve scale and scope economies and reduce user
cost; and (f) implementation process for the development plan has to be well defined
and organised for the plan to succeed.
7.
It is felt that the guiding principles have been taken into account while
developing the payment system architecture in the country. The Payment and
Settlement System Act, 2007 provides a legal framework for payment and settlement
services in India. The payment system objectives of having a safe, sound, cost
effective and wide distribution network of the system infrastructure are being largely
met. However the challenges of electronification of transactions remain daunting and
require new strategies.
Payment system classification
8.
A useful classification of payment system could be based on firstly, large-
scale payments and small-scale payments and secondly, on paper-based and
electronic payment systems. Traditional instruments of the payments system have
been cheques and cash. Currency is an important means of payment in India, with
14% of M3 represented by currency, as against its share of lesser magnitude in
advanced countries. It is supplemented by cheques and drafts for payments in
commercial transactions. Various other paper instruments like a Banker's cheque,
Payment order, Payable 'At Par' cheques (Interest/Dividend warrants, refund orders,
gift cheques etc.), are also used to cater to the specific payment needs. The
statutory basis for these instruments was provided by the Negotiable Instruments
Act, 1881 (NI Act).
9.
The Indian payments systems have however undergone a change with
respect to methods of payments, there now being card-based payments, Electronic
Funds Transfers (NEFT and RTGS), Electronic Clearing Services and ways to pay
via the mobile and internet. Most large-scale payments relate to corporates or
Page 8 of 72
government payments and are settled by the RBI. Small-scale payments are mainly
retail
payments
concerning
individuals
which
are
generally
paper-based
transactions. Most large-value payments are handled electronically. However, even
the retail payments are showing a tendency of shifting to the e-payment mode,
mainly because of consumer awareness and regulations by the RBI. Although paperbased payments account for 59% of the transactions, in terms of value these
account for only 10% and the electronic payments account for almost 90% of the
transactions.
Out of this 90%, the RTGS (large-value payments) account for a
greater proportion of electronic transactions, whereas a small proportion comes from
retail payments. This means consumers have not yet accepted this as a regular
means of paying their bills and still prefer conventional methods. Retail payments if
made via electronic modes are done by ECS (debit and credit), EFT and card
payments. The total turnover under the various payment and settlement systems
both in value as well as volume terms, exhibited a steady growth of 10 per cent in
2010-11 (Table IX.1 of the RBI‟s Annual Report for 2011). The details are given in
the Table below.
Payment Systems in India: the present status
10.
India is gradually moving to e-payments. Most large-value payments are
presently in the electronic mode. Retail payments are slowly shifting to the epayment mode with increasing consumer awareness and regulatory mandates.
Retail payments are done through ECS (debit and credit), NEFT and card payments.
The various payment and settlement systems both in value as well as volume terms,
exhibited a steady growth of 10 per cent in 2010-11. The details are given in the
Table below:
Table IX.1 of the Annual Report of RBI for 2011: Payment System Indicators
Item
Volume (in million)
2008-09 2009-10 2010-11
1
2
3
4
Systemically Important Payment Systems (SIPS)
1. High Value Clearing
21.8
5.5
0
2. RTGS
13.4
33.2
49.3
Total SIPS (1+2)
35.2
38.8
49.3
Value (Rs. crore)
2008-09
2009-10
2010-11
5
6
7
45,50,667
18,61,560
0
3,22,79,881 3,94,53,359 4,84,87,234
3,68,30,548 4,13,14,919 4,84,87,234
Page 9 of 72
-6.6
Financial Markets Clearing
3. CBLO
4. Government
Securities Clearing
5. Forex Clearing
Total Financial
Markets Clearing (3-5)
-6.2
0.1
0.1
0.1
88,24,784 1,55,41,378 1,22,59,744
0.3
0.8
0.3
0.9
0.4
1.2
62,54,519
89,86,718
69,70,236
1,69,37,489 1,42,11,486 1,91,60,153
1.2
1.4
1.7
3,20,16,792 3,87,39,582 3,83,90,133
-5.7
-5.9
-4.9
Others
6. MICR Clearing
1,142.00 1,144.20 1,155.10
7. Non-MICR Clearing
233.6
230.6
232.3
Retail Electronic Clearing
8. ECS DR
160.1
149.3
156.7
9. ECS CR
88.4
98.1
117.3
10. EFT/NEFT
32.2
66.3
132.3
Total Retail Electronic
Clearing
280.6
313.8
406.4
Cards
11. Credit Cards
259.6
234.2
265.1
12. Debit Cards
127.7
170.2
237.1
Total Cards
387.2
404.4
502.2
Total Others (6 to 12) 2,043.40 2,092.90 2,296.00
Grand Total (1 to12)
-6.3
2,079.80 2,133.00 2,346.90
58,57,575
20,60,893
66,69,957
18,78,425
83,01,218
18,32,909
66,976
97,487
2,51,956
69,524
1,17,613
4,09,507
73,646
1,81,686
9,39,149
4,16,419
5,96,644
11,94,481
65,356
61,824
75,516
18,547
26,418
35,705
83,903
88,242
1,14,207
84,18,790
92,33,268 1,14,35,745
-1.5
-1.4
-1.5
7,72,66,130 8,92,87,769 9,83,13,112
-13.9
-13.6
-12.5
Note: 1. High value clearing has been discontinued w.e.f. April 1, 2010.
2. At the end of April 2011, the MICR clearing was available at 66 centres (65 centres during previous year).
3. The figures of cards are for transactions at POS terminals only.
4. Figures in parentheses are ratios to GDP at current market prices.
Reduction of paper-based payment instruments
11.
Many countries around the world have framed strategies for reducing paper
based instruments. In Finland a fee on the use of cheques was levied as far back as
1983 and now the use of cheques has been completely discontinued -- Banks do not
issue cheque books to personal or corporate clients. In Sweden too cheques are not
used. In Switzerland cheques are vanishing fast. In UK 3.1 million cheques were
issued each day in 2010, compared to 11 million in 1990. About 90 percent of the
clearing items in Canada are electronic. (It had earlier abandoned check truncation
due to declining check volumes). In the US cheque volumes decreased from 42
billion in 2001 to 22.8 billion in 2010.
Page 10 of 72
12.
In India the volume and value of cheques have registered a slight decline as
can be seen in the tables and graphs below.
Clearing Cheques in India:
Volume over the Years
Year
Volume
(in millions)
Volume
1600.00
1400.00
2001-02
901.50
2002-03
1013.90
2003-04
1022.80
1000.00
2004-05
1166.85
800.00
2005-06
1286.76
600.00
2006-07
1367.28
400.00
2007-08
1460.56
200.00
2008-09
1397.39
2009-10
1380.27
2010-11
1387.40
1200.00
0.00
Clearing Cheques in India:
Value over the Years
Year
Value in
Rs billion
Value
160000
2001-02
125752.54
2002-03
134243.13
120000
2003-04
115959.60
100000
2004-05
104588.95
80000
2005-06
113291.34
60000
2006-07
120424.26
2007-08
133960.66
2008-09
124691.35
2009-10
104099.42
2010-11
101341.28
140000
40000
20000
0
Page 11 of 72
Vision Document of RBI on Payment Systems in India
13.
To ensure that all the payment and settlement systems operating in the
country are safe, secure, sound, efficient, accessible and authorised, RBI issued a
vision document giving the principles and action plan for payment systems in India
for the period 2009-12. The action plan included reducing the risk in the paper based
payment systems and at the same time initiatives for encouraging electronic
payment systems and introducing new innovations in payment system.
The Payment System Reform Initiative of the Government
14.
A Key Advisory Group on Payment System Reforms (KAG) was constituted
under the Chairmanship of Secretary (Financial Services) to review the existing
framework and to suggest an action plan for orderly growth of the payment systems.
The KAG was mandated to review the existing structures of payment systems and
suggest measures at the level of policy formulation, infrastructure building and
advocacy so that while demand for greater use of electronic payments is generated,
the payment systems infrastructure should be able to meet these demands.
15.
The KAG deliberated on the existing payment systems, their structures and
key challenges and the existing system of incentives and disincentives including use
of charges and tax measures to suggest behavioural changes affecting the demand
of these payment systems. The KAG has been guided by the international
experience and best practices, the underlying economic logic and the imperatives of
national priorities including using the payment systems to achieve financial inclusion
to give its recommendations.
Page 12 of 72
II.
Paper Based Payment Systems
The efficiency of paper based payment systems has been brought about by way of
establishing currency chests and clearing houses in all the districts in a phased
manner, introduction of MICR processing, computerised settlement, truncating the
movement of physical cheques, etc. The most important component of paper based
payment system is cheque. There is very little awareness and consciousness in the
minds of the major stakeholders like banks to intuitively compare the relative cost of
a cheque vis-à-vis the electronic payment instruments with the result that there is
very little focus in the overall policies of banks creating the demand for such
instruments. While there is inadequate strategic focus by banks to move customers
from cheques to electronic payments and there is low motivation to switch amongst
end-customers also. The cost of processing of a cheque through its life cycle is given
below.
Cheque processing life cycle
2.
Cheque processing mainly consists of 4 different components –
(i)
Cheque issue process – Centralised. This includes issuance of new cheque
book to new as well as existing customers. The cost of issuing a cheque leaf
is ~INR 0.86.
(ii)
Transfer transaction through cheque at branches – Decentralized. This
includes cheque received from one customer for transferring the amount to
other customer of the same bank. Total cost of transaction is ~INR 24.
(iii) Inward cheque clearing process – Centralized. Payment of cheques drawn
on the bank and presented by other banks to RBI. Total cost of inward
clearing is ~INR 27.
(iv) Outward cheque clearing process – Centralized. Presenting the cheque
drawn on other banks through RBI. Total cost of outward clearing is ~INR
40.
Page 13 of 72
Charges and the cost of processing cheque vis-à-vis other payment
instruments
3.
The volume and value of various payment instruments and the charges to the
customer and the cost to the bank are given below.
Instrument
Value
(INR Cr)
Growth Volume
rate
(Lakh)
Charges (+ Service Tax)
N/A
Cheque
1,01,34,127
-2%
13,874
Processing cost – INR 25-40
(for large banks), INR 35-55
(for mid-sized banks)
NEFT
9,39,149
60%
1,323
RTGS
9,41,03,933
20%
492
ATM
Transactions
(Cash
and
INR 5-25
Processing cost – INR 6-7
INR 30-55
Processing cost – INR 9-12
INR 20-25 (after 5 free monthly
10,91,114
30%
41,520 transactions)
Non-Cash)
Processing cost – INR 8-16
: Source RBI Bulletin. Figures for 2010-11
Currently, cost of processing a cheque is ~INR 24-55. With an annual volume of
~138.7 Cr cheques processed, the cost to banks amounts to ~INR 3,470-6000 Cr.
Hence, there is a strong incentive for banks to discourage usage of cheques and
move towards electronic payment instruments.
4.
NEFT (National Electronic Fund Transfer) is a nation-wide system that
facilitates individuals, firms and corporate entities to electronically transfer funds to
any bank account. NEFT transactions are the nearest substitute for cheque-based
transactions. They are faster, less cumbersome and also cheaper for the banks to
process. The average value of a cheque-based transaction is ~INR 73k and that of
NEFT transactions is ~INR 71k, suggesting that NEFT transactions are indeed a
suitable substitute for cheques.
Page 14 of 72
Figure: Volume and value of cheque processing
Value of cheque
% of total volume
% of total value
< 10k
49.3%
2.3%
10k – 50k
32.5%
10.7%
50k – 1L
7.9%
8.1%
1L – 5L
8.3%
25.5%
5L – 10L
1.2%
12.0%
10L – 25L
0.5%
11.8%
> 25L
0.2%
29.6%
Figure: Volume and value of cheque processing
About 82% of cheque volume consists of cheques of value less than INR 0.5 Lakh.
Disincentivising the use of cheques would increase NEFT transactions.
Even with a conservative 10% of cheque usage transitioning to NEFT, the cost
savings to the banks and the industry will be ~INR 264-503 Cr.
Particulars
Current cheque volume (100%)
Transition to NEFT (10% in the
first year)
Cost savings
Volume
Cost
13,874 Lakhs
INR 3470-6000Cr
1,387 Lakhs
INR 83-97 Cr
INR 264-503 Cr
Figure: Cost savings
Page 15 of 72
III.
Currency Chest - Establishment and Efficient Management
The Government and RBI have been coordinating the efforts with banks and the
State Governments to establish currency chests in all districts which do not have the
facility of currency chests. Further, the Department of Financial Services, Ministry of
Finance constituted a Sub-Group on Reforms in Currency Chest Operations and
Management. The Sub-Group has given specific recommendations to improve the
efficiency of the currency chest management and make the Currency Chests as
independent profit centres. The Department of Financial Services has referred the
recommendations of the Sub-Group to the respective agencies for early
implementation of the recommendations of the Sub-Group.
Page 16 of 72
IV.
Electronic Payment Systems
Challenges
While e-transactions have grown in the country, there are issues related to low
success rates largely due to technology issues and lack of IT skills (no training or
self-learning tools provided to customer). The technology issues include inadequate
hardware capacity and bandwidth to support the transactions particularly during peak
loads, poor application performance, legacy architecture (without high availability /
redundancy).
2.
There are no incentives to switch to e-channels for the end customers (who are
comfortable with cash and cheques for which there are no disincentives); poor
awareness about alternate payment systems, lack of IT skills especially among retail
customers; preference for cheques due to ability to post-date / enjoy float, need for
physical reconciliation -- are some of the reasons for lack of demand push from
customers for e-payments.
Electronic transfer of Funds -- RTGS and NEFT
3.
Real Time Gross Settlement (RTGS) is primarily envisaged for processing and
settling large value payment orders. RBI allows RTGS transfers only for amounts
above INR 2 lakh. Over the last few years, RBI has made its National Electronic
Funds Transfer (NEFT) system more robust with 11 settlement cycles in a week day.
There are 103 banks with more than 86200 bank branches participating in NEFT and
more than 84550 branches participating in RTGS.
4.
For NEFT, the beneficiary can expect to get credit for the first nine batches on
week days (transactions from 9 am to 5 pm) and the first four batches on Saturdays
(transactions from 9 am to 12 noon) on the same day. For transactions settled in the
last two batches on week days (i.e., transactions settled in the 6 and 7 pm batches)
and the last batch on Saturdays (i.e., transactions handled in the 1 pm batch)
beneficiaries can expect to get credit on the next working day. The net settlement of
the NEFT batch run is routed through the RTGS system. For customers, the RTGS
Page 17 of 72
opens at 9 am while closes at 4.30 pm on week days and 1.30 pm on Saturdays. On
week days the RTGS closes at 6 pm for interbank transactions.
Currently, the average amount of NEFT transaction is INR 77902. The charges for
using NEFT are
i)
Upto INR 1 lakh – INR 5
ii)
Between INR 1 lakh to INR 2 lakhs – INR 15
iii)
Above INR 2 lakhs – INR 25.
The data on average amount of transaction suggests that NEFT is primarily being
used for small value transactions although it can be used for large value transaction.
5.
Effective November 15, 2010, RBI increased the threshold floor value for RTGS
transactions from INR 1 lakh to INR 2 lakhs. Earlier, for the transactions in the range
of INR 1-2 lakhs, it made more sense for the banks and remitters to prefer RTGS
over NEFT because it was faster with no additional cost (it used to uniformly cost
INR 25 for remittance of above INR 1 lakh to INR 5 lakhs). A snapshot of the RTGS
and NEFT charges pre- and post- November 2010 is given below.
Pre-Nov 10
Post-Nov 10
INR 1 lakh to INR 2 lakhs
25
-
Above INR 2 lakhs to INR 5 lakhs
25
25
Above INR 5 lakhs
50
50
Pre-Nov 10
Post-Nov 10
Upto INR 1 lakh
5
5
Above INR 1 lakh to INR 2 lakhs
25
15
Above INR 2 lakhs
25
25
RTGS (charges INR)
NEFT (charges INR)
Figure 22: Charges – RTGS / NEFT
6.
Effective July 1, 2011, for NEFT and NECS transactions, the Clearing Houses
/ processing centers / destination banks have been permitted to levy charges on the
originating banks. The participant banks are not permitted to pass on these charges
to customers. Later, effective October 1, 2011, RBI imposed on their RTGS
Page 18 of 72
members a time varying tariff. Banks have been given the freedom to pass on the
time varying tariff to its customers, subject to certain conditions.
7.
All banks (or at least banks with more than 2 lakh NEFT transactions per
annum) need to put in place a common standard, enabling straight through
processing (STP) for all its NEFT / RTGS transactions. Such a processing removes
avenues for human delays in parking funds at beneficiary account after every batch
run and ensures timely onward transition from remitter bank.
8.
With around 2000 lakh transactions through NEFT and more than 450 lakh
transactions through RTGS (customer remittance) annually, the banking sector,
based on prevailing NEFT/RTGS charges, generated revenue of the order of INR
330 crore (20 × 10 + 4.5 × 30 = 335) from bank customers. On the other hand for
handling 14000 lakh cheques, during 2010-11, that passes through the clearing
houses, the banking sector would spend about Rs. 280 crore just to pay the clearing
house charges (INR 2 per cheque). Considering the elaborate and tedious
processes involving printing/distribution of MICR cheque books and handing of
cheques at payee/drawee banks, the banking sector engages lots of its resources
leading to considerable additional expenses for the cheque based remittance system
of the country.
9.
Presently, in India, the banks require 3 co-ordinates i.e. the name of the
beneficiary, account number of the beneficiary and IFSC code of the recipient bank
branch, for RTGS / NEFT fund transfer. The IFSC code contains the name of the
bank and numerical code of the branch. Further, the account number provided by
various banks varies from 11 digits to 16 digits. This creates a psychological as well
as real hindrance in undertaking e-Payment by bank customers, particularly for
smaller amounts. Since the account number of the beneficiary is unique in a CBS
bank, the requirement of IFSC code should be done away with. Further, RBI may
also consider introducing / mandating a Uniform Account Numbering System to
facilitate the bank customers to undertake e-Payments more conveniently, besides
standardisation in software, resulting in seamless fund transfers. This will also
facilitate 'Account Portability' across banks with legal enablers in PMLA rules.
Page 19 of 72
Spatial and temporal extension of centralised payment systems
10.
There is a need to expand the coverage of centralised payment systems,
such as, NEFT and RTGS, to all banks having CBS platforms so that the clients of
such banks may also get the benefit of electronic payment instruments. Further, the
time period of operation of such centralised payment systems may be increased to
cater to varied client preferences and to provide greater flexibility. For example,
NEFT may function on a 24x7 basis. Or an alternative payment system may be
managed by NPCI.
11.
The extent of coverage of the centralised payments systems like NEFT and
RTGS has been extended to all licensed banks through the sub-membership route.
The sub-member/s have been permitted by RBI through a circular of 9 th April, 2012 to
participate in the centralised payment systems through their sponsor bank, which is a
direct member of the centralised payment system. Pursuant to this, the Department
of Financial Services has advised all the public sector banks to proactively offer submembership of the centralised payment systems to all the banks including the State
cooperative banks and the urban cooperative banks.
Further, the public sector
banks could also offer their systems to enable these cooperative banks and regional
rural banks to provide the remaining payment products such as ATMs, PoS, Credit
and Debit Cards to their customers.
Electronic Clearing Service
12.
The number of branches covered by National Electronic Clearing Service
(NECS) is more than 86200. The objective of the NECS system is to facilitate
centralized processing for repetitive and bulk payment instructions. Customers are
still wary of using electronic payment systems for doing banking transactions due to
lack of knowledge and trust. RBI can introduce the NECS debit (NECS credit was
launched in 2008).
Page 20 of 72
Challenges
(i)
Preference for paper payments (e.g. post dating of cheques, reconciliation,
better perceived control on cash outflows).
(ii)
Low confidence regarding prevention of misuse of NECS mandates
(especially amongst retail customers).
(iii) Low awareness of benefits of NECS.
(iv) Lack of national debit NECS infrastructure.
(v)
Mandate management systems inadequate (e.g. pre and post transaction
alerts, stop payment enforceability).
(vi) Government and Corporates are under-utilizing:
a.
Government subsidies not routed via NECS.
b.
Low adoption of ECS by corporates relative to other payment channels.
Page 21 of 72
V.
Cards
India‟s retail market is estimated at $ 450 billion (over Rs. 22 lakh crores), as per
A.T.Kearney Global Retail Development Index. The card transactions at POS are
estimated at Rs. 1.5 lakh crores in 2011-12 (Rs. 40000 crores in 2005-06)
accounting for about 6.5% of the retail sales.
2.
As of Feb. 2012, there were ~273Mn Debit cards (Source: RBI). Debit cards
issuance has increased at a CAGR of 22% over the last 5 years. Expected issuance
by 2014-15 is ~450 Mn cards. The volume and value of debit card transactions have
increased at CAGR of 30 and 34% respectively over the last 5 years. However the
total debit card spending is a meagre 0.5% of the GDP.
3.
As of Feb. 2012, there were ~17Mn Credit cards (Source: RBI). In the last 5
years, banks have withdrawn credit cards from the market to curb delinquencies.
Expected issuance by 2014-15 is ~23Mn cards. The volume and value of credit card
transactions have increased at CAGR of 7% and 11% respectively over the last 5
years. Total credit card spending is a barely 1% of the total GDP.
Page 22 of 72
4.
The number of pre-paid card issued by banks are barely a few million and the
market potential remains un-exploited. Non-banking entities have issued a large
number of cards for closed loop and semi-closed loop usage. The Pre-paid cards
can be issued as Pay-roll cards (for those who do not have bank accounts), travel
cards, gift cards, transit cards, remittance cards, government disbursement cards,
etc. According to Global Pre-paid Exchange, the market opportunity in India for prepaid cards was estimated at $ 9.3 billion in 2011.
Card usage in India and other Countries
Figure 6: Total debit card transactions
5.
Figure 7: Total credit card transactions
In India the average number of transactions per credit card is 18 per year and
for debit card 1.3 per year. India lags behind in terms of card usage. Russia‟s debit
card usage is ~27 times and USA‟s is ~55 times higher than India. Russia‟s credit
card usage is ~4 times and USA‟s is ~102 times higher than India.
Page 23 of 72
Penetration of POS terminals
Number of PoS terminals in
India (Mn)
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
-
0.43 0.48
0.35 0.39
0.58
0.65
Figure 3: Number of POS terminals in India
6.
Figure 4: Comparative market share
POS acceptance network in India as of March 2012 was estimated at
~650,000 terminals and is likely to increase to 1.5Mn+ terminals by 2015.-16. The
three major acquirers – Axis Bank, ICICI Merchant Services and HDFC Bank have
~84% of the total POS terminals in the country.
All Figures are for 2010
Page 24 of 72
All Figures are for 2010
India lags behind key developing and developed nations in terms of number of POS
terminals per million inhabitants. The value of payment transactions at POS
terminals in China is ~40X of the corresponding India value. The average
transactions per terminal located in the country stands at 793 while UK and China
stands at 6,668 and 1,538 respectively. China has ~4 times the number of POS
terminal density compared to India.
(Source: RBI Bulletin, Report on the Brazilian Retail Payment System Statistical update, PBOC annual
report, UK Payment facts, Federal Reserve Report on Retail Payments)
Reasons for low penetration and usage of cards and POS terminals
7.
Many developed countries have already enacted legislations to reduce the
interchange fee for debit cards. The US passed the Dodd-Frank Bill in July 2011 that
came into effect in October 2011 and has proposed to cap the transaction cost to 21
cents per transaction. In Australia, the Reserve Bank brought a legislation that
brought down interchange fee for debit cards to 24 cents. The European
Commission has mandated a 0.2% interchange fee for debit cards from July 2009.
8.
Low penetration and usage compared to global players – China has ~4 times
the number of POS terminal density compared to India. To achieve China‟s current
Page 25 of 72
levels of POS density, India would require ~2Mn additional POS terminals. There is a
need to bridge the existing gap of ~2Mn terminals. Also, currently, total cards are
~290Mn and expected to grow at CAGR of ~35%. ~225Mn cards are expected to be
issued over next 3 years.
9.
Lack of standards for authentication – Currently, there are signature-based
cards, PIN-based cards, offline authentication for smart cards, online authentication
for others. RBI has mandated that the banks be ready with acquiring infrastructure
to support PIN for POS transactions and POS infrastructure to be ready for
accepting EMV Chip cards by June 2013.
Biometric authentication will enable
increased usage among customers who are not literate but have good finger-prints.
10.
High Merchant acquiring costs – It involves merchant onboarding terminal
installation and maintenance, accounting and refund management, risk and fraud
management, query and complaint resolution. Large capex investment in POS
terminal installation is required. This leads to reluctance by member banks in
increasing the acceptance network due to low margins and high capex.
11.
High issuance costs – High cost of issuance of cards coupled with low
margins lead to discretional issue of cards to the bank customers.
12.
High cost of transactions – To enhance online usage in India, one key issue
that needs to be looked at is the high cost of transactions. In India, the commission
deducted from the merchants for an online transaction (also called MDR) is as high
as 1.8 percent or more. MDR is charged by the acquirer bank to the merchant and
includes the interchange fee on card transactions payable to the issuer bank, the
switching fee charged by the card network and the acquirer bank‟s commission. The
present level of interchange fee and MDR for transactions is disproportionate to the
cost of card operations.
13.
Technology – It is essential state-of-the-art technology is used; mobile POS,
contactless smart card readers and contactless smart cards for speed, convenience
and security.
Page 26 of 72
POS
14.
Banks should ensure standardisation of POS terminals. The features may
include the following:

Mag Stripe Reader

Contactless smart card reader

Biometric scanner

PSTN/GPRS/3G

Printer

Two SAMs
For Financial Inclusion, Voice guidance is required. The specifications finalised by
UIDAI and IBA for micro-ATMs may be followed by all Banks to ensure interoperability.
15.
The current cost of a terminal with above features integrated is around INR 15
K which is expected to come down to 12K by using centralized procurement by a
bank for the aggregated requirements of all banks.
16.
As the infrastructure for smart cards is being built, it will be better for the
country to leapfrog to contactless systems. It would be cost-effective to go in for POS
with contactless smart card reader. The POS already deployed can have a
contactless reader as an attachment.
17.
India can also work on the low cost mobile POS. The use of mobile POS with
card readers as attachments to mobile phones -- devices like Square and Intuit
GoPayment (in the United States), iZettle and Handpoint (in Europe), SAIL Verifone - is also growing fast in many countries of the world. The Mobile POS will find a
significant demand from merchants in India.
18.
In countries like the United States, Japan, South Korea and Singapore, the
NFC mobile phone has emerged as a secure and convenient mode for transactions.
An NFC phone can work in card emulation mode, reader mode and peer to peer
mode. The Banks can prepare for NFC based POS as NFC phones are beginning to
proliferate with the prices of NFC phones coming down.
Page 27 of 72
White Label POS
19.
Currently, procurement of POS terminals is done by individual banks based
on their strategy and business requirements. Hence, no bank is able to derive either
economies of scale or economies of scope in procurement.
20.
The urgent need to increase the acceptance network in India can be satisfied
if Ministry of Finance and RBI allow white-label POS in India. White-labeling of the
POS channel in India will facilitate private service providers to enter the fray and
enable banks to extend their reach to the remote corners of the country in a much
more efficient and cost-effective manner. With the white label service, banks will not
need to incur the cost of physical infrastructure, installation and maintenance.
Cards Procurement and Issuance
21.
Banks are issuing debit cards, credit cards, pre-paid cards, gift cards, Debit
cum transit card (for Bengaluru metro), Presently most of the cards issued by Banks
are mag stripe cards. Smart cards have been issued by banks primarily for Financial
Inclusion. EMV smart cards have been issued by some banks for international
travelers visiting countries where EMV is mandated.
22.
Centralized procurement of cards would help bring in economies of scale.
Most of the back office operations can also be centralized for banks which have
presently not undertaken card business or have outsourced the card business.
23.
The current cost of issuing a personalised mag stripe card is around INR 30-
40 (including collaterals and speed post / courier for card and PIN separately) which
is expected to come down to INR 25-30 with economies of scale and centralized
procurement. This would result in potential cost savings of INR 25-50 Cr per year.
24.
The current cost of issuing a smart card is around INR 80-110 (including
collaterals and speed post / courier for card and PIN separately) which is expected to
come down to INR 40-45 with economies of scale and centralised procurement. If
smart card is mandated for all cards and centralized procurement is done by one
lead bank for the aggregated requirements of all banks would result in huge cost
savings.
Page 28 of 72
Massive savings through Multi-application Contactless smart cards
25.
There would be massive savings if Banks and Government departments put
their applications on the citizen Id card being introduced by Registrar General Of
India under the National Population Register. The citizen Id card can have multiple
applications on the card. This will result in huge savings as at present a large
number of government departments and agencies are issuing a separate card for
each application.
26.
The citizen Id card should be standardised as a contactless smart card with
secure element for the following reasons:
i.
It has the highest level of security and cannot be cloned /skimmed. (One of
the major reasons why mag stripe usage is poor is the fear of card being
easily skimmed). If India does not migrate to smart cards, global fraud will
migrate to India (every country in the world including China is migrating or has
migrated to smart cards.)
ii.
It can have multiple applications – (presently we have one card for each
application). Besides ID (with biometrics and photographs), it can be used for
access control, government services like MGNREGA, PDS, RSBY, e-voting
(for Elections), Driving License, e-purse for transit applications (for metro, rail
and bus) and low value retail payments, Parking and Toll, debit card for
banking, KCC, digital signature, etc. Digital signature would ensure secure
authentication by every application. The German e-ID card is a multiapplication
contactless
smart
card
used
government
and
banking
applications.
iii.
It can be used for 10-15 years as it is rated for 500000 write cycles. (The
replacement costs of mag stripe card are huge as it has high wear and tear
and can get easily damaged in harsh rural conditions -- replacements are
normally required in 2-3 years).
iv.
High data rates according to ISO/IEC 14443- with low
transaction time.
(Touch and Go, Tap and Pay -- No queues anywhere).
Page 29 of 72
v.
Customer gains confidence in use as the card never leaves his hand or his
wallet.
vi.
The infrastructure created for contactless smart cards will be compatible with
Near Field Cummunication (NFC), which would be available in future as a
standard on all smartphones, PCs, Laptops, tablets, POS.
27.
Like China Union Pay the country can have its own standards for domestic
cards. For international cards required for foreign travel, the EMV standards can be
followed.
28.
The existing mag stripe cards -- VISA, MasterCard, -- should be migrated to
contactless smart cards. Rupay should also migrate from mag stripe to contactless
smart card.
Charge structure for debit and credit cards
29.
Given the absence of any credit risks associated with the use of debit cards,
the Advisory Group felt that there was no rationale for a common interchange fee
structure for debit cards and credit cards. The Advisory Group further observed that
there was no justification for a higher interchange fee based on the type of cards viz.
Premium, Gold etc. for debit cards. Hence, there was a case for reduction of the
interchange fee on card transactions, which should be much lower for debit card
transactions in general and possibly flat for small value transactions.
30.
The Reserve Bank of India, which regulates the payment and settlement
systems in the country, has so far not intervened in the interchange fee structure.
The Group, therefore, recommends that the RBI should be requested to exercise its
powers to mandate a much lower interchange fee / MDR structure for debit card
transactions. The suggested MDR is 1% for credit cards and 0.5% for debit cards -with a cap of Rs 15 for debit cards. The bank interchange could be 0.5% for credit
cards and 0.25% for debit cards. The merchant can be given the option to surcharge
the customer for credit cards.
Page 30 of 72
ATMs /Kiosks
31.
The total number of ATMs in India is ~98,000 (Source: NPCI). The numbers of
ATMs are growing at a CAGR of 30% (over past 3 years). In terms of the ATM
market share, SBI continues to have the largest market share (27%) with ~27k+
ATMs.
32.
With ATMs becoming more interactive, they are turning into mini-branches for
banks, with a range of non-cash products and services being provided beyond mere
cash dispensing. The number of ATMs as a proportion of the total number of
branches in India is ~110% and industry experts expect this ratio to increase to
~200%.
33.
Under the ATM deployment model in existence, banks individually are
responsible for procurement and installation of ATMs. Ministry of Finance has
suggested centralized procurement and installation of ATMs for 16 geographical
clusters of the country. A vendor is selected on the basis of a reverse auction for
each cluster that will install and manage ATMs and prepare and maintain sites. The
payment is made to the vendor by the bank on a per transaction payment model.
Different rates are for on-site and off-site ATMs. Rates reduce with increasing
transaction volumes. This is expected to lead to tremendous cost efficiencies and
economies of scale. In the next two years about 60000 ATMs are likely to be
installed largely in the rural and semi-urban areas under this per transaction payment
model.
Switching for ATMs and POS
34.
Banks have adopted different models for switch operations. Most banks,
especially larger banks, have implemented their own switch for processing
transactions. Own switch implementations are capital intensive with average
implementation cost ~INR 5-15Cr for small and mid-sized banks. Implementation
takes longer timeframe (18-24 -18 months) than outsourcing (6-12 months). Various
mid-sized and smaller banks have used third-party providers and outsourced switch
services. The outsourced model functions on per transaction cost basis. Currently
Page 31 of 72
banks pay INR 1.5-3 for every transaction on ATM and POS to Switch agencies like
FSS, FIS, AGS etc. 7 out of 21 large banks have outsourced switching services.
Sr.
No.
Bank
Switch name
Outsourced Agency
FIS, Euronet, TCBL, FSS,
Diebold
1.
State Bank of India
Opus/Base24 (O)
2.
Allahabad Bank
IST by FIS
FIS
3.
Andhra Bank
Base24 (O)
FSS/ACI
4.
Bank of Baroda
Base24 (O)
FSS/ACI
5.
Bank of India
IST by FIS
FIS
6.
Bank of Maharashtra
Base24
FSS/ACI
7.
Canara Bank
Base24 (O)
FSS/ACI
8.
Central Bank of India
Opus (O)
TCBIL
9.
Corporation Bank
Opus (O)
AGS , EURONET
10.
Dena Bank
Opus (O)
FIS / AGS
11.
Indian Bank
Base24 (O)
FSS/ACI
12.
Indian Overseas Bank
Narada (O)
YCS
Base24 (O)
FSS/ACI
13.
Oriental Bank of Commerce
14.
Punjab & Sind Bank
Base24
FSS/ACI
15.
Punjab National Bank
Base24 (O)
FSS/ACI
16.
Syndicate Bank
IST by FIS (O)
17.
UCO Bank
Base24
FSS/ACI
18.
Union Bank of India
Base24 (O)
Diebold
19.
United Bank of India
IST by FIS
FIS
20.
Vijaya Bank
Base24
21.
IDBI Bank Ltd.
IST by FIS (O)
FIS
FSS/ACI
FIS
Figure 8: Fragmented switching infrastructure. “O” stands for ownership.
Due to large capex / opex requirements, small SCBs and co-operative banks are
unable to deploy switches. RRBs depend on the parent bank for switching. Limited
access to a switch is impacting overall electronification of payments. Banks which do
not have their own Switch or are planning to acquire a new Switch because of sunset
of BASE24 or are moving from an outsourced Switch to an owned Switch could
consider a cloud based common switch for banks. One of the large banks will set up
the cloud based Switch for the banks that need Switch services. This will maximize
cost efficiencies and build economies of scale. Banks which have their own Switch
can route their inter-bank transactions to the NPCI switch. The respective ATM
Page 32 of 72
cluster vendor will connect to individual bank switches or the cloud based Switch
which are all connected to the National Financial Switch. The cloud based switch
infrastructure will facilitate easier addition of banks to electronic payments space.
This will also ensure wide acceptance of domestic card scheme – RuPay.
35.
Individual switch implementations are capital intensive with average
implementation cost ~INR 5-15Cr depending on the transaction volumes. The cost
for a central switch will be ~INR -90-100 Cr. This will eliminate the need for multiple
switches to be maintained by individual banks.
Payment Gateway
36.
A Payment Gateway enables e-commerce transactions over the internet using
debit or credit cards of any Bank. With over 100 million internet users and with 3G
being rolled out, internet users will grow at a fast pace and will give a fillip to ecommerce and m-commerce. e-Commerce is expected to grow from Rs. 47000
crores in 2011-12 to Rs 100000 crores in 2012-13 with almost every government
deptt, PSU, corporate, Medium and Small Business developing an e-commerce and
m-commerce website.
Payment Gateways in India: Citi, ICICI, HDFC, Axis and SBI. Payment Gateways
also supports IVR with OTP.
IRCTC is the largest e-commerce site in the country. The IRCTC transactions using
Payment Gateways for the month of March 2012 are given below:
Bank
ICICI
No of Successful Tranasctions
1212055
CITIBANK
539083
HDFC PG
1052972
SBI*
1145010
AXIS PG
418484
*Only debit cards
Page 33 of 72
37.
Except SBI no other PSB has a Payment Gateway. A Payment Gateway for
the PSBs can be set up by a bank on a cloud architecture and provide services to al
Banks. The Payment Gateway will also have an Aggregator module with interface to
the Internet Banking of all PSBs. The cost of a Payment Gateway with Aggregator
module will not exceed Rs 25 crore and can be set up along with the Common ATM
/POS Switch.
Action steps
I.
Banks to jointly assess their requirements for terminal procurement, card
issuance and switch services by July 30, 2012.
II.
For POS terminal procurement geographies to be split into 20 clusters, each
cluster led by lead bank, and RFPs for each cluster by Sep 30, 2012.
III.
RFP for cloud based switch procurement and Payment Gateway to be issued
by Sep, 2012.
Page 34 of 72
VI.
Online Payments and Internet Banking
Ministry of Finance, Government of India had constituted an Advisory Group on
Online Payments in September, 2011 under the Chairmanship of Mr. Kiran Karnik.
The recommendations of the Advisory Group have taken into consideration in this
report with a view to increase online payments in the country, understand specific
challenges faced by banks and more importantly improve the customer experience.
The Advisory Group discussed the subject in detail and recommended that the
following issues are critical for building a robust technology architecture that will
enable a better user experience and increase the success rate of payments.
a. Build a robust technology platform that can handle the quantum of online
transactions including automating the refund process.
b. Open more APIs to the functions that are carried out by merchants on a day
to day basis by logging onto their consoles. Reporting, detailed payment
status, failure reasons, etc. can be automated through APIs as well.
c. Need for a National Standards Body that drives creation of standardized
protocols, collates and disseminates best practices and encourages
compliance.
d. Build a national switch for the net banking based transactions to bring in the
standard message specifications and procedural guidelines. This will benefit
the customers as the user experience will become uniform across different
banks and payment methods.
e. Explore feasibility to design alternate architectures with simplified transaction
flow to be designed to reduce the complications in the existing 3D transaction
flows.
f. Standardized process (in terms of SLA) that will enable transactions to be
streamlined in a real-time environment. SLAs will need to be built to track and
lower the quantum of failed transactions, apart from providing real-time data to
the customer and the merchant.
g. Best practices on fraud detection and chargeback processes.
Page 35 of 72
Need for enhancing success rate for Online Transactions
2.
While e-commerce transactions have grown in the country, there are issues
related to low success rates for online transactions largely due to issues with the
technology platforms at banks. Online payment users who realize the benefits of
such transactions make the effort to retry. However, many first time users may
choose not to adopt this payment process going forward if the user experience is
poor.
I.
The success rate of transactions is inadequate mainly due to:

Inadequate capacity and not having enough hardware / servers and
bandwidth to support the transactions / messages.

Limited application performance and architecture (high availability /
redundancy etc.)

Lack of deployment of engineering best practices and development
lifecycle.
II.
Payment systems are not treated as mission critical like core banking system,
hence less focus by key stakeholders.
III.
The current architecture of authentication needs a revamp keeping the
customer in mind. The number of hops especially in the case Net banking is
just too many, with each possibly being a point of failure. There are browser
based redirects and customers on slow connections often face failures due to
unreliable and inadequate bandwidth at their end. The current process has
not been designed keeping these issues in mind.
IV.
The OTP on IVR has also a poor success rate due to too many hops and
challenge in retrieval of the SMS while on call.
Streamlined Approach to Security
3.
Security remains a prime concern for banks, customers and merchant alike.
Most of the major merchants and banks have in-house risk and fraud prevention
teams, merchants are required to be compliant with PCI DSS norms etc. Second
factor for authentication as a regulatory mandate for all card-not-present transactions
has also improved customer‟s perception about the e-commerce transactions.
Page 36 of 72
4.
Several banks have introduced security measures like transaction password,
one time password (OTP), security grid etc to safeguard internet banking
transactions. Since each bank has acted independently and implemented security in
a different way, a customer has to remember many passwords, authentication
methods etc. This is even bigger issue for customers having multiple accounts
5.
The Advisory Group discussed the issue in detail and suggested that, to
ensure security, a standardised architecture can be recommended across banks,
though implementation and characteristics would vary.
Recommendations
I.
It is recommended that some standardisation is implemented across banks for
internet transactions password (Net Banking or 3D Secure) that can include
the following:
a. Minimum of 8 characters
b. At least one special and one numeric character to be included
c. Alerts for periodic changes of passwords
II.
It is also recommended that arrangements for sharing information from Cert-in
about risk, fraud and malicious activity be made so that damage is contained
to maximum extent possible..
III.
Acquirer and Issuer banks are advised to implement centralized fraud
monitoring tools to monitor their customer activity in near-real or real time
basis.
6.
Frequent Downtimes and Performance Fluctuations - There are frequent
downtimes and fluctuations in performance which lead to transaction failures. As per
data from e-commerce providers, only 70 percent transactions are successful in the
first attempt, which implies that one out of every three customers may come across a
payment failure. Key reasons for performance fluctuation include:
Page 37 of 72
I.
Inadequate monitoring of infrastructure and lack of proactive approach
towards maintaining the overall health of the systems and key operating
parameters.
II.
Not enough investment in building redundant links etc for automatic failovers
III.
Process excellence is lacking. A lot of customers forget their VbV / 3D Secure
password. Random critical information asked during the payment cycle can
enable a transaction to go through.
IV.
New applications are released without adequate testing.
It is important to mention that this is not true for all banks. There are banks that have
invested in technology infrastructure and are leading the online payment movement.
However, the need is for standardization across the entire sector.
7.
Need for Standard Protocols and APIs - Net Banking as a mode of
payment is not bound by any standard protocols for integration (each bank can
create its own integration APIs).
8.
Need for standard Settlement Plans - Moreover, time taken to settle the
payments and send the transaction reports to merchants also vary across the banks
and hence a big back-office team is required to manage and track collections and
refunds. Different banks follow different processes, adhere to different timelines and
hence ecommerce sites and the customers have to try and keep up all the time. This
mainly applies to the net banking transactions.
9.
The Advisory Group discussed the subject in detail and recommended that
the following issues are critical for building a robust technology architecture that will
enable a better user experience and increase the success rate of payments:
I.
Build a robust technology platform that can handle the quantum of online
transactions including automating the refund process.
II.
Open more APIs to the functions that are carried out by merchants on a day
to day basis by logging onto their consoles. Reporting, detailed payment
status, failure reasons, etc can be automated through APIs as well.
Page 38 of 72
III.
Need for a National Standards Body that drives creation of standardized
protocols, collates and disseminates best practices and encourages
compliance.
IV.
Define Industry SLAs V.Frame Standards for APIs, messaging protocols,
security,
passwords (length, attributes) /
OTP (One time password)
Streamline Refund process from merchant to customer i.e. process,
turnaround time, SLAs, dispute process (also if TATs are not met).
Best Practices
Receipt depository
10.
Today, use of card (credit / debit) at a merchant point or ATM withdrawal
gives out paper receipts. These paper receipts have to be saved and submitted by
users to their accounts office. Keeping these flimsy paper-receipts is a problem as
often the printout fades away. Further the costs of printer and paper add to the costs
of transaction.
11.
It is important that there is a move to electronic receipts for all electronic
transactions (mobile banking, net banking, credit card, debit card, PoS etc.). Besides
delivering these receipts immediately on a customer‟s mobile, all receipts of all
electronic transactions, could be transmitted to the customer‟s account at what is
called “receipt depository.” The customer‟s account in depository is linked to all his /
her cards / bank accounts / mobile banking and all his / her electronic transactions
are stored in a data base here. A customer could then access receipts for all his / her
transaction at any time either through a mobile phone or through Internet access on
computers. In fact, one should be able to search any receipt, print it or transmit /
submit it to someone in an electronic form. Also, one should be able to allow access
to this depository to a staff / BPO to prepare accounts for all electronic transactions
carried out by the customer. Once depository becomes popular, one could eliminate
paper receipts completely, thereby saving on paper and printer.
Page 39 of 72
Transaction legend for bank transactions
12.
Today, when one transacts electronically through one of the following
channels- credit/ debit card, mobile banking, net banking etc., there is no legend that
keeps track of the details of the transaction. For example, if one purchases a phone
using their credit card across the counter, a paper receipt is generated and apart
from this the transaction is also reflected in their account statement (paper document
or in some cases electronic) which includes details such as transaction ref. ID/No.,
amount, date, product/ service purchased, etc.
13.
To simplify electronic payments and make it more user-friendly, a “transaction
legend” could be developed. This legend is defined by the banks giving a brief
description of the transaction using indicators such as:
When transaction involves receipt of funds:
I.
Sender‟s name
II.
Sender‟s Bank name and City
III.
Sender‟s Account number
IV.
Remarks/ Purpose (entered by the sender)
Or when transaction involves sending of funds
I.
Receiver‟s name
II.
Receiver‟s Bank name and City
III.
Receiver‟s Account number
IV.
Remarks/ Purpose
It is important to have the above mentioned information for all transactions for later
reference.
14.
This Advisory Group has recommended constitution of a Working Group
under the auspices of IBA for mapping uniform technological features, suggesting
standardized design architecture and undertaking awareness campaigns for online /
net-banking.
Page 40 of 72
Refunds and Reversals
15.
Refunds and reversals are largely handled manually in some banks with
transaction details shared over email and manual intervention needed for the
processing. There is no promised turnaround time or SLAs for refunds and reversals
from the bank‟s end. From a customer‟s viewpoint, the ecosystem already exists for
real time, electronic fund transfers which are not being fully utilized in such cases.
Some banks do not support multiple refunds against a single transaction which is
needed for businesses like travel where cancellations are more frequent. Moreover,
only a few banks support APIs to effect online refunds. For most it is a file based
(different formats) email transfer which is then manually processed by banks leading
to excessive delays in credits back to customers‟ accounts.
Recommendations
a. The current refund process needs to be reviewed and significant changes need
to be implemented in quick time by banks and other stake holders, keeping in
mind the customer inconvenience.
b. The transaction flow and architecture of online refund (with sufficient risk
management at the issuer side; e.g., matching the refund transaction with the
original debit transaction before crediting to the customer account) should be
examined by the working group.
c. In the refund process, the reason codes needs to be standardized (especially for
the travel industry) where in the cancellation is a quite a large need especially
from the consumer standpoint. A unique reference ID can be created and sent
by Issuer to Acquirer and in turn to the merchant so that customer queries can
be addressed by all parties involved in transaction processing with adequate
information.
d. The SLA needs to be defined for the customer to get the credit in the account,
after merchant has initiated the refund transactions. A penalty structure can be
introduced in the system by the regulator similar to failed ATM transactions for
the delays in customer getting its own funds back for debit cards or net banking
transactions.
Page 41 of 72
e. To bring in the standardization in the refund process for Net banking
transactions, standard operating guidelines need to be brought in as the lack of
this is causing major inconvenience to the customers.
f. The merchants need to create web based utilities for customers to login and
check the status of the complaint and status of refund transaction.
The working group formed under IBA should look into all above recommendations
and work out details.
Issues in Internet Banking
(i) All Banks have provided Internet Banking to their customers – individual and
Corporate. The number of Internet Banking customers who have enquiry
/transaction rights are estimated to be around 20 million though the country
has over 100 million Internet users.
(ii) A lot of improvement can be made in the internet banking offerings from
banks to make it easy to use for the customer. As large number of customers
have internet access only through their mobile phones, all banks need to
provide a mobile-friendly Internet Banking.
(iii) For Internet Banking, banks charge a transaction fee based on the volume
and value of transactions. This is not standardized and varies from bank to
bank.
(iv) For Internet Banking, as multiple intermediaries are not involved, there is
need for rationalisation of the charges by the banks for such transactions.
(v) The common man whose only means to transact on-line is Net Banking
and/or Debit Card (not everyone will be issued a credit card due to risk
profiling by the banks) will benefit from low charges and bring about their
inclusion in the online world. Lower charges will encourage more merchants
to start using these services (particularly for low value transactions). In
addition, competition will push merchants to pass on the lower cost of goods
and services on Debit Card / Internet Banking transactions to the customer.
Page 42 of 72
VII.
Mobile Payments
With possibly over 60 crores unique mobile users, the ecosystem is too large, and
too pervasive to ignore and the network provides a platform on which a payment
application can be layered. So far, countries without much institutional depth (Kenya,
Philippines, and Afghanistan) have gainfully used the mobile phone for evolving
secure payment systems. India has the capability to create a unique mobile
payments infrastructure that takes into account the fact that it is several
environments rolled into one. The role of the KAG is seen to be one shaping the
space for such an evolution.
2.
RBI has approved proposals of 52 banks to commence mobile banking
services.
Mobile applications have to be written for a diverse range of mobile
instruments and operating systems. Software applications need to be downloaded.
People find it difficult and time-consuming to install complex applications.
Most
successful mobile banking offers are from SBI, ICICI Bank, Citi Bank, HDFC Bank,
Union Bank and Axis Bank. It is estimated that there are no more than 10 lac active
users of mobile banking,
Mobile banking transaction data for March 2012 is given below:
Mobile Banking Transactions data for the month of March 2012
Volume in Actual and Value in Thousands
Bank Name
ALLAHABAD BANK
ANDHRA BANK
AXIS BANK LTD
BANK OF BARODA
BANK OF INDIA
BANK OF MAHARASHTRA
BARCLAYS BANK PLC
CANARA BANK
CENTRAL BANK OF INDIA
CITI BANK
CORPORATION BANK
DENA BANK
DEVELOPMENT CREDIT BANK LTD
DHANLAXMI BANK LIMITED
DOMBIVALI NAGRIK SAHAKARI LTD
FEDERAL BANK LTD.
HDFC BANK LTD.
ICICI BANK LTD
IDBI LTD.
INDIAN BANK
Volume
Value
181
3964
474.88
4000.02
25673
21731.58
19528
1766
117
23318.00
912.00
895.47
1046
3201.00
2650
8710.00
10
13.04
52446
3080
52
284
203
25
4426
30021
278980
849
1169
243703.00
1535.00
163.00
1266.62
739.40
6.00
5513.88
23406.00
811845.00
309.07
5216.13
Page 43 of 72
INDIAN OVERSEAS BANK
INDUSIND BANK LTD
KARNATAKA BANK LTD
KARUR VYSYA BANK LTD
KOTAK MAHINDRA BANK LTD
LAXMI VILAS BANK LTD
ORIENTAL BANK OF COMMERCE
PUNJAB NATIONAL BANK
SOUTH INDIAN BANK
ST.BANK OF BIKANER AND JAIPUR
STANDARD CHARTERED BANK
STATE BANK OF HYDERABAD
STATE BANK OF INDIA
STATE BANK OF MYSORE
STATE BANK OF PATIALA
STATE BANK OF TRAVANCORE
SYNDICATE BANK
UCO BANK
UNION BANK OF INDIA
VIJAYA BANK
YES BANK LTD
Total
1608
1592
3273
1152
261
820
649
532
17365
9347
6466
9456
2560751
4276.55
5953.76
298.99
3241.36
1478.19
1123.32
3050.00
1315.92
4249.24
4808.80
7382.61
4772.00
1074187.00
2910
976.29
9456
30885
502
3348
28789
4067
1707
3121406
4772.00
14100.07
1092.00
3270.00
18149.72
4591.69
123.70
2320172.30
Source RBI
Mobile banking transactions are presently only about 100000 per day – which is
minuscule for the huge mobile base of the country. They can grow exponentially if
the customer feels secure in using mobile banking. The use of mobile phones with a
hardware based secure element integrated on the mobile SIM, or Proxy SIM or as a
micro-SD card with digital signature and the mobile application can give a major
thrust to mobile banking. The mobile wallet with a secure element on the mobile
phone will ensure security of transaction and instil confidence in the customer.
Inter-Bank Mobile Payment Service (IMPS)
3.
RBI has also authorised NPCI to provide a seamless, instant, 24X7, mobile-
based inter-bank fund transfer system through mobile phones, called Inter-Bank
Mobile Payment Service (IMPS). Mobile banking customer of any Bank can use the
mobile instrument for remitting funds just with the mobile number and Mobile Money
Identifier (MMID) of the beneficiary. MMID can be issued to a customer who is
registered for mobile banking with a Bank. 43 banks are participating in IMPS with
over 3.45 crore MMIDs having been issued. The largest issuers of MMID are:
ICICI bank
162 lakhs
Axis
64 lakhs,
Page 44 of 72
SBI
37 lakhs
OBC
17 lakhs
Kotak
17 lakhs
Union Bank
16 lakhs
Andhra Bank
9 lakhs
USSD
4.
NPCI has developed a common USSD gateway for basic mobile banking
transactions. The Department of Financial Services has enabled the USSD code
*99# for the project and this number will be available from all Telcos.
The proposed transaction flow is as follows:
1.
Customer dials in a Common USSD number *99#
2.
Customer gets a welcome screen which asks the customer to enter the MMID
allotted by the issuer bank.
3.
After entering the MMID the transaction is sent to NPCI which sends the
request to the Issuer Bank.
4.
Bank provides the menu to the customer with the mobile banking options in
the USSD session.
5.
Customer completes the transaction in the USSD session; IMPS can be one
of the transactions carried out in the session.
Action steps
5.
POS machines are expensive, therefore, use of USSD channel from the
operator for use as a secure channel to receive card transactions originated from a
mobile-phone based POS device and use of a SIM-based POS acquisition capability
common to all operators may be attempted using a standardised user interface to
provide a uniform customer experience.
i.
Discover true cost of providing access for the telecom companies
a.
Traffic modeling to determine average session latency in live tests and
corresponding impact on radio usage and NE provisioning.
b.
ii.
User support infrastructure requirements.
Discover usability issues
a. Language support – critical to the concept. Device capabilities could
hinder native language support on USSD.
Page 45 of 72
b. NPCI Portal Support – customer care and bank-care issues.
iii.
Discover benefit potential
a. The reward from such use will drive commercials.
iv.
Enable Commercial Model
a. NPCI/RBI/IBA to act as honest brokers to enable banks and telcos to
reach agreement on investment horizon and costs.
v.
Banks to adopt a common application protocol interface for basic mobile
banking that will support balance inquiries and Funds transfer using IMPS and
NEFT. For Small value transactions, IMPS is a good enough mechanism for
sending money electronically, combined with SMS it is a powerful mechanism
to remove operator dependence.
vi.
A common SIM toolkit to be designed to support these two basic transactions
without having to download on the phone.
vii.
All SIMs in India required to support this toolkit. Or Proxy SIM, Micro SD card
options can be explored. One time agreement between bank and telecom
company on commercial terms of activation
viii.
SIM Agent Activation done over the air after KYC and signup is done
ix.
Security protocol – combination of mPIN and Account number
x.
Delay in Delivery through SMS of One Time Password and enabling payment
flow more effectively through IVR.
xi.
Online payments enabled through the IVR are critical for a county like India
with an installed base of over 900 million mobile phones. To enable the
second factor authentication for IVR, banks have introduced the one time
password (OTP) that is sent through SMS to the customer. While this meets
the security requirements of the second factor authentication, the process is
not seamless as password delivery through SMS is delayed or customers are
unable to juggle between the call and SMS, leading to transaction failure or
call drop.
xii.
The Advisory Group discussed the issue in detail and suggested that the
alternative of RSA grid or secure tokens may be more expensive for the user
and banks. The bank representatives shared the processes they were
following like usage of two telco networks to ensure delivery of the SMS.
xiii.
Use of secure element on the mobile with digital signature and banking
application will make all mobile banking and m-commerce transactions fraudPage 46 of 72
proof. The secure element can on an integrated SIM, Proxy SIM and micro
SD Card.
Recommendations
I.
OTP delivery and authentication parameters must be standardized.
II.
OTP needs to be 6 digits in length with a validity period for 2 hours once it has
been sent to the consumer. This will enable the user to connect back even if
the first call drops. This needs to be adopted across banks and needs to be
communicated to users effectively so that existing issues faced by the users
are reduced on immediate basis.
III.
Delivery of OTP is achieved by the SMS by the banks mainly by using the
SMSC gateways by third party providers who in turn have connectivity with all
the Telco‟s. These transactional SMS‟s needs to be classified as „Financial
Transactional SMS‟ and get priority clearance from the Telecom operators. It
is recommended that Ministry of Finance works with the Department of
Telecommunication to get appropriate classification for these SMS‟s and
make it available to the banking sector with priority (delivery with better
guarantee and minimum time delay) and at better commercial rates than
existing.
IV.
Devise a more standard and robust architecture for IVR transactions to
reduce
drops
and
improve
the
success
rate.
The
working
group
recommended to be formed under IBA should look into this aspect also.
Role of Operator
6.
Except for cash withdrawal, payments and fund transfer are possible from
semi-closed wallets.
As business correspondents, Telcos can open accounts for banks as their agents.
The practical issues which defy legislative actions are as follows–
I.
The compensation paid per account
II.
The velocity of money in such accounts
III.
The trust of the public in using these accounts as primary source of savings
IV.
Branding and customer ownership
Page 47 of 72
VIII. Creating appropriate incentives and disincentives for the
payment systems
The comparative charges of payment instruments to end-customer and the banks
are given in the Table hereunder.
Current charges for payment instruments
Instruments
Charges to Customer
Cheque
book
issuance
Cheque Normal
Clearing
MICR
Clearing
Cheque –
Out-station
Clearing
Up to and
including
5,000/Above
5,000/and up to
and
including
10,000/Above
10,000/and up to
and
including
1,00,000/Above
1,00,000/
Cheque
Truncation
System
25 cheque
leaves
free/quarter.
Above that;
cheques are
issued at INR
100/cheque
book of 50
leaves
NIL
INR 25
Clearing /
Settlement
charges
(RBI/NPCI)
Inter change
Fees
Switching
fees for
Issuer
bank
-
-
-
-
-
-
-
INR 1 for
presenting
bank and INR
1.50 for
drawee bank
-
INR 50
-
-
-
INR 100
-
-
-
Varies from
INR 150-250
-
-
-
-
-
-
INR 0.50 for
presenting
bank and INR
1 for drawee
bank
Page 48 of 72
ECS
ECS
(Credit)
-
INR 0.25 for
presenting
bank and NIL
for drawee
bank
ECS
(Debit)
-
INR 0.25 for
presenting
bank and NIL
for drawee
bank
On-us
Off-us
Free
Free for first 5
transactions.
Thereafter:
INR 12-15 /
financial and
INR 8-10 /
non-financial
transaction
Free for first 5
transactions.
Thereafter:
INR 12-15 /
financial and
INR 8-10 /
non-financial
transaction
Free for first 5
transactions.
Thereafter:
INR 12-15 /
financial and
INR 8-10 /
non-financial
transaction
-
-
Off-us
ATM
transactions
Off-us
Mobile
Banking
(IMPS P2P)
Internet
Banking
Fund
Free
Fund
transfer
within own
accounts
Fund
transfer to
different
accounts
within the
same
Bank
Originating
banks will pay
an interchange
fee of 25 paise
for every credit
transaction to
the destination
bank.
Originating
banks will pay
an interchange
fee of 50 paise
for every debit
transaction to
the destination
bank.
-
NFS (NPCI) "INR 15.00
(Financial
transaction)
INR 8.00 (NonFinancial
transaction)"
INR 0.50
(Fin & NonFinancial
transaction)
"INR 1.00
(Financial
transaction)
INR 3.00
(NonFinancial
transaction)
"
"INR 1.00
(Financial
transaction)
-
Cashnet
(Euronet) "INR 18.25
(Financial
transaction)
INR 5.00 (NonFinancial
transaction)"
Cashtree
(Bank of India)
- "INR 15.00
(Financial
transaction)
INR 0.00 (NonFinancial
transaction)
-
Free
-
-
-
Free
-
-
-
-
-
-
INR 1.00
(NonFinancial
transaction)
INR 0.10
Page 49 of 72
Transfer
Internet
Banking
Fund
Transfer
Fund
transfer to
accounts
in other
Banks(NE
FT)
For
transaction
s up to
INR 1
lakh
For
transaction
s above
INR 1 lakh
and up to
INR 2
lakhs
For
transaction
s above
INR 2
lakhs
Fund
transfer to
accounts
in other
Banks(RT
GS)
INR 2 lakh
to INR 5
lakh
NEFT Charges, as detailed
below, apply
-
-
Not exceeding INR 0.25/
INR 5
transaction
-
-
Not exceeding INR 0.25/
INR 15
transaction
-
-
Not exceeding INR 0.25/
INR 25
transaction
-
-
RTGS Charges, as detailed
below, apply
-
-
-
-
-
-
Not exceeding INR 0.10 - 0.50
INR. 30 per
(Transaction
transaction
Fees) plus
INR 0.00 10.00 (Time
Varying Tariff)
Above INR Not exceeding INR 0.10 - 0.50
5 lakh
INR 55 per
(Transaction
transaction
Fees) plus
INR 0.00 10.00 (Time
Varying Tariff)
* Above charges are exclusive of Service Taxes
The Core Recommendations of the Key Advisory Group on Payment Systems in
India are as follows:

The payment system should facilitate anytime/anywhere/any device payment
services through a common interface. The experience of the customer should
be enriched by simplification and standardisation of technology.
Page 50 of 72

Technology upgradation so as to ensure surety of transaction.

To encourage customers to move to electronic payment services, these may
be provided at zero cost to the customers. Common infrastructure (Switch for
debit/ATM cards), cross-subsidisation of capital costs, absorption of operating
costs by banks can make this possible. Banks may also explore options for
giving benefits to customers who use electronic payment systems.

Option of giving tax benefits can be explored.
 To encourage merchant establishments to set up PoS machines, their
transaction costs (especially in the case of debit cards) should be zero. This
can be achieved by White label PoS Machines, supplied through selected
vendors.
 Efficient refund system should be put in place.

Grievance redressal system and dispute redressal should be strengthened.

Massive awareness campaign for electronic payment services may be
launched to create demand.
2.
It has been discussed in the report that inadequate appreciation of real cost
of a cheque vis-a-vis the electronic payments is not conducive to enable banks to
focus on creating appropriate incentives for electronic payments and disincentives
for cheque usage by customers. It is, therefore, felt that the use of cheques and cash
withdrawals from Branches /ATMs (beyond a certain number of transactions) has to
be disincentivised. The proposed charges are given in the Table hereunder.
Proposed Charges structure
A.
Incentives for using electronic payments systems
1.
ATM – Transaction done by customers using ATM of banks. Charges to
customer are based on on-us and off-us transactions further classified into
Page 51 of 72
Financial and non-financial transactions
Transaction type
On
Us
transactions
Charges to
Inter
Switching fee to
Customer by the
change
Issuer Bank
Bank
fees
Free
Free
INR
0.50
per
(transactions are from
transaction (Financial
the same bank ATM
and
where the account is
transaction)
Non-Financial
in existence.)
Off
us
transactions First 4 transactions INR 10
in 1 month – Free
(Financial
transactions are from 5th
the other bank ATM).
Off
us
onwards – INR 15
transactions First 4 transactions INR 5
(Non-Financial
in 1 month – Free;
transactions are from 5th
the other bank ATM).
2.
transaction
transaction
onwards – INR 2
INR 1.00 per financial
transaction; INR 3.00
per
non-financial
transactions
INR 1.00 per financial
transaction; INR 3.00
per
non-financial
transactions
NEFT – Charges varies based on the mode used by customer for NEFT
transactions.
Mode
Charges to Customer by the Bank
Charges
to
Bank by RBI
Over-the-
Up to INR 20,000 – Free
INR 0.25 per
counter
Above INR 20,000 – INR 10 per transaction for
transaction
customers of the Bank
For non customers – INR 25 for all amounts
Internet
ATM
Up to INR 1 lakh – Free
INR 0.25 per
1 lakh to 2 lakhs – INR 5 per transaction
transaction
Based on transaction cost
INR 0.25 per
transaction
Mobile
Up to INR 1 lakh – Free
INR 0.25 per
1 lakh to 2 lakhs – INR 5 per transaction
transaction
Page 52 of 72
3.
Mobile
Mode
Charges to Customer
IMPS P2P
4.
Switching Fee to Issuer Bank
Free
INR 0.10 per transaction
RTGS – The charges of RTGS are the same for customers using any
modes for transactions.
Mode
Charges to Customer
Charges to Bank by RBI
by the Bank
Over-
Above INR 2 lakhs – INR 0.10 – 0.50 (transaction fees) plus INR
the-
INR 50 per transaction
0.00 – 10.00 (time varying tariff)
counter
Internet
Above INR 2 lakhs – INR 0.10 – 0.50 (transaction fees) plus INR
INR 10 per transaction
Above INR 2 lakhs – INR 0.10 – 0.50 (transaction fees) plus INR
ATM
INR 10 per transaction
Mobile
0.00 – 10.00 (time varying tariff)
Above INR 2 lakhs – INR 0.10 – 0.50 (transaction fees) plus INR
INR 10 per transaction
B.
0.00 – 10.00 (time varying tariff)
0.00 – 10.00 (time varying tariff)
Charges for using payment channels across the counter at
branches
5.
Cash Withdrawal
a)
Cash withdrawal over-the-counter through cheque / withdrawal slip –
The charges levied varies to customers depending on the type of entity if they
withdraw cash at branches using cheque or withdrawal slip
Type of entity
Charges to Customer by the Bank
Individual
INR 10 per transaction
Legal Entity (e.g. Corporate)
INR 100 per transaction
Senior Citizen
Free
Page 53 of 72
b)
Transfer to third party within same bank across over-the-counter
through cheque / written instructions except recurring standing instructions The charges levied varies to customers depending on the type of entity if they
withdraw cash at branches using cheque or written instruction
Type of entity
Individual
Charges to Customer by the Bank
INR 10 per transaction
Legal Entity (e.g. Corporate)
INR 100 per transaction
Senior Citizen
Free
c)
Transfer to third party within same bank using Internet / ATM / Mobile -
The charges levied varies to customers depending on the type of entity if they
withdraw cash at branches using cheque or withdrawal slip
Type of entity
Individual
Charges to Customer by the Bank
Free
Legal Entity (e.g. Corporate)
Free
Senior Citizen
Free
6.
Cheque Clearing
a)
Savings Account – Normal clearing
Charges to Customer
Cheque book issuance
Charges as per bank policy
First 25 cheque clearings
Free
Charges to Issuing
Bank by RBI
NA
Beyond 25 clearing instruments (based on value) –
Less than INR 10,000
INR 10 per cheque leaf
INR 10 per transaction
INR 10,000 – 50,000
INR 25 per cheque leaf
INR 10 per transaction
INR 50,001 – 1 lakh
INR 50 per cheque leaf
INR 10 per transaction
INR 1 lakh – 5 lakhs
INR 75 per cheque leaf
INR 10 per transaction
Above INR 5 lakhs
INR 100 per cheque leaf
INR 10 per transaction
Page 54 of 72
b)
Savings Account – Outstation clearing
Charges to Customer
Charges to Issuing
Bank by RBI
Cheque book issuance
Charges as per bank policy
First 25 cheque clearings
Free
NA
Beyond 25 clearing instruments (based on value) –
Less than INR 5,000
INR 35 per cheque leaf
INR 10 per transaction
INR 5,000 – 10,000
INR 60 per cheque leaf
INR 10 per transaction
INR 10,001 – 1 lakh
INR 110 per cheque leaf
INR 10 per transaction
Above INR 1 lakhs
INR 160 per cheque leaf
INR 10 per transaction
c)
Current Account – Normal clearing
Charges to Customer
Charges to Issuing
Bank by RBI
Cheque book issuance
Charges as per bank policy
First 25 cheque clearings
Free
NA
Beyond 25 clearing instruments (based on value) –
Less than INR 10,000
INR 10 per cheque leaf
INR 10 per transaction
INR 10,000 – 50,000
INR 25 per cheque leaf
INR 10 per transaction
INR 50,001 – 1 lakh
INR 50 per cheque leaf
INR 10 per transaction
INR 1 lakh – 5 lakhs
INR 75 per cheque leaf
INR 10 per transaction
Above INR 5 lakhs
INR 100 per cheque leaf
INR 10 per transaction
Page 55 of 72
Current Account – Outstation clearing
d)
Charges to Customer
Charges to Issuing
Bank by RBI
Cheque book issuance
Charges as per bank policy
First 25 cheque clearings
Free
NA
Beyond 25 clearing instruments (based on value) –
Less than INR 5,000
INR 35 per cheque leaf
INR 10 per transaction
INR 5,000 – 10,000
INR 60 per cheque leaf
INR 10 per transaction
INR 10,001 – 1 lakh
INR 110 per cheque leaf
INR 10 per transaction
Above INR 1 lakhs
INR 160 per cheque leaf
INR 10 per transaction
NEFT and RTGS - Action Steps and Recommendations
(i)
RBI may consider taking necessary steps for mandating RTGS for high
value transactions, say beyond Rs. 10 lakhs.
(ii)
Revision of NEFT charges - For instance, RBI should consider pricing the
NEFT value band in the Rs. 1 lakh to Rs. 2 lakhs segment at Rs. 10 per
transaction.
(iii) RBI should establish suitable benchmarks on charges for cash remittances
through NEFT. One option could be to price the cash NEFT at Rs. 10 and
25 (instead of the current Rs. 5).
(iv) RBI should disseminate knowledge among the public (more specifically,
unbanked migrant population) to exercise their right to enter any bank
branch (preferably any less crowded bank branch) to harness the facility of
cash NEFT.
(v)
Unless the bank can establish potential fraud beforehand, the information
filled in the application form (for cash NEFT) by the remitter should not call
for any documentary evidence, if the amount is within Rs. 20000.
(vi) RBI should consider relooking into the service charges for within bank and
between banks electronic fund transfers and establish sensible parity.
(vii) RBI should devise more focused means to incentivize electronic transfers
and disincentivize use of cheques.
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(viii) RBI should consider allowing 5 free electronic transfers (including deposits
and withdrawals) per month for each of the interoperable systems like
NEFT, Direct Debit, IMPS and debit card enabled payment transactions at
net-banking sites, ATM and Micro-ATM for the low savings account.
(ix) Coverage of electronic payments products like RTGS, NEFT and NECS
may be extended to cover all the branches of banks, including Regional
Rural Banks, Urban Co-operative Banks, Multi-State Co-operative Banks,
State Co-operative Banks, etc.
(x)
All large-value payments may be processed only through the electronic
payment systems.
(xi) All large payments, say, over Rs. 10 lakhs would be made through RTGS
and payments below this amount would be made through NEFT.
(xii) Scale up platforms for faster for faster and efficient cheque processing –
Expand speed clearing, CTS and related infrastructure to process more than
75 percent cheques in T+1 in 3 years.
(xiii) Continue to Roll-out of CTS to cover top 16 MICR locations (accounting for
80 percent of cheque volumes) by December 2013 – Ensure standard
cheque formats and compatible technology platform across banks (e.g. 17
digit a/c number).
(xiv) Success rate of electronic payments may be increased to over 99%.
(xv) A call centre approach may be adopted to redress grievances of customers.
(xvi) Procedures for RTGS and NEFT to be simplified.
Tax incentives for electronic payments
Global case studies - Some of tax incentives so as to promote electronification,
have been successfully implemented across the globe, especially in Latin America –
I.
In Argentina, since 2002, consumers who purchase goods and services using
credit and debit cards receive a monthly refund of three and five percentage
points, respectively, off the standard rate VAT tax of 21 percent
II.
In Colombia, since 2004 consumers who purchase goods and services using
credit and debit cards receive a refund of two percentage points off the VAT
tax of 10-16 percent
III.
In Mexico, since 2003, there has been a high profile lottery (El Boletazo) and
associated TV game show. Entry to both draw and game show is driven by
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use of credit and debit cards at the POS
IV.
In Uruguay, since early 2006, tax authorities have offered VAT rebates of up
to nine percentage points of a 23 percent VAT tax rate in the tourism sector
(including restaurants and car rentals)
In South Korea, many credit card related tax incentives implemented via income tax
rebates including rebates on card spend beyond 10% of total income, and the
mandated use of credit cards for T&E expenses, plus the use of credit card receipts
as a lottery input.
Indian scenario–
11.
Value Added Tax – The sale of movable goods in India is taxable at the
central and state level. All goods sold in the course of interstate trade are subject to
Central Sales Tax (CST) of 2%. CST is sought to be phased out before the
introduction of Goods and Services Tax (GST) in India, which is presently expected
to be introduced shortly.
12.
The Indian regulatory framework has granted power to state legislatures to
levy tax on goods sold within that state. Such sales are, therefore, chargeable to
VAT at the rates notified under the VAT laws of the relevant state. State VAT is
charged at varying rates of 1%, 4%, 5%, 20% and above. Goods other than those
notified to be covered under the above rates are charged at a general rate ranging
from 12.5% to 15%.
13.
Service Tax – Service tax is levied on specified taxable services. The existing
rate of service tax is 10%. In addition, 3% of the service tax is levied on taxable
services. Thus the effective rate of service tax is 10.30%.
14.
Point of view - A good menu of incentives can potentially drive consumer
behavior from cash usage to cards and can be very effective. An incentive can be
provided to the consumers in terms of VAT refund (on the usage of credit and debit
cards), thereby encourage card usage. These can be implemented via rebates on
card spend beyond 10% of total income, and push on use of credit cards for T&E
expenses. VAT based incentives are important as an enabler to reduce the informal
economy. In addition, many other factors are key drivers for cash displacement and
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for reducing unregistered activities, including the general expansion of economic
activity and efforts by card issuers and acquirers to increase the usage and
acceptance of cards.
Recommendation
15.
As transaction taxes apply at both Centre and State level, incentives can also
be provided by way of reduction or abatement of taxes at both levels.
Immediate term
16.
To begin with, service tax applicable for transactions by credit or debit cards
may be reduced. The incentive could be provided to the card user by way of an
upfront reduction mechanism (where lower service tax is collected by service
providers at source itself) or by way of a cash back scheme operated through the
card issuer (who would have to be funded by the Centre).
17.
For upfront reduction in rate to work, the card user would have to inform the
service provider upfront his intent to pay by card, which would enable him to charge
a lower rate. This may, however, not be possible in all cases. Also, this will entail the
service provider to alter his IT systems to accommodate a special rate of service tax;
which can delay or distort implementation and cause hardship. To mitigate this,
provisions under service tax regulations could be changed to the effect that service
provider should first charge full service tax, and then adjust the incentive portion not
paid by the card user given the tax concession allowed. Such incentive adjusted and
short collected would be treated as service tax payable by the service provider [and
not the full service tax originally charged].
This will entail inserting enabling
provisions in the existing regulations.
18.
In the cash back mechanism, the Centre would have to deal with all issuing
banks in examining their claims and funding the cash back to be provided. This
could be an administrative challenge for the Centre. Also, it may be impossible to
monitor millions of transactions a day and the computation of embedded service tax
claimed by the issuing bank.
In our view, the first option could be simpler to implement.
19.
From a total cost to the exchequer view point, based on information available,
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it is our estimate that the total card spends on taxable services currently potentially
ranges between INR 30-40k Cr. Accordingly, the service tax collections on these
transactions would range between INR3-4k Cr. A 25% reduction in service tax rate
would therefore cost the exchequer between INR 0.75-1k Cr at current levels of card
utilization. With increase in utilization this cost (of incentive) would also increase.
20.
In addition, a special incentive scheme could be rolled out for service
providers as well. This could be critical from the point of view that both the card user
and the service provider should be „keen‟ to swipe a card transaction.
For
incentivizing the service provider, similar incentive scheme could rolled out by
allowing him to retain a part of the service tax collected by him as a concession to
him for encouraging card transactions. This could be 5-10% of the tax amount. At
10%, the additional incentive to service providers could potentially cost the
exchequer INR0.3-0.4k Cr at current levels of card utilization.
Medium term
21.
Based on information available, it appears that a significant proportion of card
spend today relates to purchase of goods rather than purchase of services.
Moreover, it is possible that card transactions relating to purchase of services are
generally where the service provider is from the organized sector (example, telecom
companies, restaurants, hotels, etc).
However, it is possible that a bulk of the
transaction in goods is with the seller being in the SME sector.
If the overall
objective of the policy is to be achieved, it would be critical to extend the tax
incentive scheme to purchase of goods as well. This implies that incentives should
also be provided out of revenues accruing to State Governments.
22.
Similar models can be evaluated for implementing VAT related incentives, the
additional aspect would be the need for compensating states on loss of revenue.
23.
From a total cost to the exchequer view point, based on information available,
it is our estimate that the total card spends on taxable services currently potentially
ranges between INR 90-100k Cr. VAT has multiple rates; however, it can be
expected that the card spends on goods at the higher rate would be more than those
at the lower rate as the higher rate generally lists all consumer goods and the lower
rate covers industrial inputs or essentials. Accordingly, if an average rate of 10
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percent is estimated for the VAT on goods that are likely to be transacted using
cards, tax collections on these transactions would range between INR 9-10k Cr. A
25% reduction in service tax rate would therefore cost the exchequer between
INR2.25-2.5k Cr at current levels of card utilization. With increase in utilization this
cost (of incentive) would also increase.
24.
Similar to the additional incentive discussed in the above paragraphs, a
special incentive scheme could be rolled out for merchants as well. For incentivizing
the merchant, similar incentive scheme could rolled out by allowing him to retain a
part of the VAT collected by him as a concession to him for encouraging card
transactions.
This could be 5-10% of the tax amount.
At 10%, the additional
incentive to merchants could potentially cost the exchequer INR 0.9-1k Cr at current
levels of card utilization.
Long term
25.
From a long term perspective, once GST is implemented in India, the ability of
the Centre to provide the incentive across the board would significantly improve.
Post GST, Centre would get powers to levy tax on all goods and services.
Accordingly, a direct incentive from its own tax collections can be provided by the
Centre without the need of compensating states. With the widening of tax base and
broadening of coverage expected in GST, it would be possible to achieve the full
effectiveness of the incentive.
Action steps
26.
Ministry of Finance should discuss with concerned Revenue Department and
enforce the directive by February, 2013, for the next year budget, on the following
lines.
Since VAT percentage depends on the category of goods, it is recommended that
10-20% of the VAT charged can be granted as an incentive / refund for card usage,
depending on actual VAT. Also, 2-3% service tax refund for card usage can be
provided. Thus, 10-20% incentive on tax to be shared with the customer as an
incentive for transactions conducted on cards. Since GST implementation is
underway and will phase out the existing VAT, it is advisable to provide refund option
through GST.
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Recommendation
27.
Government may create a structured incentive like a 2 percent lower sales tax
/ service tax / GST if the product is procured and payment made online. This would
encourage the merchant and the end consumer also to look at small value
transactions being enabled online.
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IX.
Executive Summery
Constitution of Key Advisory Group on Payment Systems in India
(KAG on PSI)
To harness the potential of technology, to improve systems and processes and to
deploy resources for financial inclusion initiatives, the Government constituted a Key
Advisory Group (KAG) on the Payment Systems in India (PSI), with representation
from all the stakeholders in the sector including the Indian Banks' Association, the
Institute for Development and Research in Banking Technology (IDRBT), the
National Payment Corporation of India (NPCI), some prominent consulting firms,
such as, Ernst & Young, Boston Consulting Group, Mckinsey & Company, some
prominent academicians actively involved in the field of R&D in Payment Systems‟
Technology, such as, Professor Ashok Jhunjhunwala of IIT, Madras and Professor
Ashish Das of IIT Mumbai, etc. The Group was mandated to study and review the
entire gamut of payment infrastructure in the country and make suggestions /
recommendations, so that a vibrant and favourable payment eco-system is created
for the benefit of all the stakeholders.
2.
In its first meeting held on 21.12.2012, the Advisory Group formed sub-
Groups to study and make suggestions on various important components of the
payment infrastructure in the country, such as, (i) Physical payment instruments i.e.
cheques, drafts,; (ii) Electronic clearing system; (iii) Point of Sale (POS) and Cards;
(iv) Mobile payments; and (v) Centralised electronic payment infrastructure i.e.
NEFT, RTGS, CBS, etc. These sub-Groups were headed by the professionals of
very high caliber associated with the functioning and technicalities of the respective
component. A separate sub-Group of 4 senior officers of leading Public Sector
Banks was constituted to study the operation and management of Currency Chests
in India and make appropriate recommendations.
3.
The recommendations made by the sub-Groups of the Advisory Group were
discussed threadbare by all the members of the Group, modified, and appropriately
integrated in this document. To give a holistic view, the recommendations made by
the “Advisory Group on online payments” headed by Shri Kiran Karnik have also
been integrated with the recommendations of the KAG. The recommendations of the
sub-Group on Currency Chests have been taken up by the Department of Financial
Services, separately, for early implementation.
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Recommendations of the Key Advisory Group on Payment Systems
based on Core Principles
4.
The recommendations of the Key Advisory Group are based on the following
principles and they permeate the recommendations whether these relate to policy
matters like incentives or disincentives for payment systems, launching awareness
campaigns for creation of the demand for electronic payments or standardisation of
technology for availing the benefits of economies of scale and scope:.
I.
The payment system should facilitate anywhere, anytime, any device payment
services through a common interface. The experience of the customer should
be enriched by simplification and standardization of technology.
II.
Technology should be upgraded so as to ensure certainty and security of
transaction.
III.
Customers should be encouraged to migrate to electronic payment services
which may be provided at low cost to customers.
ATM / Kiosk and POS Network
I.
To encourage merchant establishments to use PoS machines, the Merchant
Discount Rate (MDR) should be low. The suggested MDR is 1% for credit
cards and 0.5% for debit cards -- with a cap of Rs. 15 for debit cards. The
bank interchange could be 0.5% for credit cards and 0.25% for debit cards.
The merchant can be given the option to surcharge the customer for credit
cards.
II.
Common shared infrastructure (switch for ATMs and POS, Payment Gateway
for debit/credit cards) built on cloud architecture by one bank for providing
service to other banks. The Payment Gateway will also have an Aggregator
module to interface with the internet banking of PSBs.
5.
The urgent need to increase the acceptance network in India – White Label
ATM and White Label POS. White-label ATM an d White Label POS in India will
facilitate service providers to enter the fray and enable banks to extend their reach to
the remote corners of the country in a much more efficient and cost-effective manner.
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Cards.
6.
Banks should begin issue of secure multi-application contactless smart cards
and gradually migrate mag stripe cards to contactless smart cards. This would
encourage customers to use electronic channels without fear of their cards being
skimmed. It will also provide a secure mode of authentication for multiple banking
channels with a single sign on. Massive savings would be possible if the Citizen ID
card being issued by NPR integrates e-governance, banking and transit applications
(This is being done in the German e-ID Card).
Contactless Smart card is proposed for the following reasons:
i)
It has the highest level of security and cannot be cloned /skimmed. (One of
the major reasons why mag stripe usage is poor is the fear of card being
easily skimmed). If India does not migrate to smart cards, global fraud will
migrate to India (every country in the world including China is migrating or has
migrated to smart cards.)
It can have multiple applications – (presently we have one card for each
ii)
application). Besides ID (with biometrics and photograph), it can be used for
access control, government services like MGNREGA, PDS, RSBY, e-voting
(for Elections), Driving License, e-purse for transit applications (for metro, rail
and bus) and low value retail payments, Parking and Toll, debit card for
banking, KCC, digital signature, etc. Digital signature would ensure secure
authentication by every application.
iii)
It can be used for 10-15 years as it is rated for 500000 write cycles. (The
replacement costs of mag stripe card are huge as it has high wear and tear
and can get easily damaged in harsh rural conditions -- replacements are
normally required in 2-3 years).
Online Payments
7.
To encourage higher levels of online payments in the country it is necessary
to enhance customer confidence by addressing the issues of security and
technology. The following are critical for building a robust technology architecture
that will enable a better user experience and increase the success rate of payments.
a.
Build a robust technology platform that can handle the quantum of online
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transactions including automating the refund process.
b.
Open more APIs to the functions that are carried out by merchants on a day
to day basis by logging onto their consoles. Reporting, detailed payment
status, failure reasons, etc. can be automated through APIs as well.
c.
Need for a National Standards Body that drives creation of standardized
protocols, collates and disseminates best practices and encourages
compliance.
d.
Explore
feasibility to
design
alternate architectures
with
simplified
transaction flow to be designed to reduce the complexities in the existing
3D Secure transaction flows.
e.
Standardized process (in terms of SLA) that will enable transactions to be
streamlined in a real-time environment. SLAs will need to be built to track
and lower the quantum of failed transactions, apart from providing real-time
data to the customer and the merchant.
g.
Best practices on fraud detection and chargeback processes.
h.
Banks may explore options for giving benefits like Loyalty rewards to
customers who use electronic payment systems.
Tax Incentives for online payments
8.
Some of tax incentives, so as to promote electronification, have been
successfully implemented across the globe, especially in Latin America. A good
menu of incentives can potentially drive consumer behavior from cash usage to
cards and can be very effective. Government may create a structured incentive like a
2 percent lower sales tax / service tax / GST if the product is procured and payment
made online. This would encourage the merchant and the end consumer also to look
at small value transactions being enabled online. An incentive can be provided to the
consumers in terms of VAT refund (on the usage of credit and debit cards), thereby
encourage card usage. These can be implemented via rebates on card spend
beyond 10% of total income, and push on use of credit cards for T&E expenses. VAT
based incentives are important as an enabler to reduce the informal economy. As
transaction taxes apply at both Centre and State level, incentives can also be
provided by way of reduction or abatement of taxes at both levels. To begin with, the
rate of tax applicable for service tax applicable for transactions by credit or debit
cards may be reduced.
Page 66 of 72
Reduction of paper-based payment instruments
9.
To reduce paper-based (cheque) usage, the Ministry together with RBI will
need to enforce directives by July, 2012 –
(i)
Provide cheques only to customers /firms/corporate who seek them. No free
cheques be issued.
(ii)
Drive focus in Banks towards electronic payments -- Banks need to
strategically focus on harnessing electronic payments by devising
comprehensive strategies for the portfolio of payment channels; Banks
should invest in customer education to promote electronic form factors over
paper-based instruments. The payments should be channeled towards
NEFT / RTGS / Cards. This would further drive electronification of the
payment industry
(iii) Only Senior citizens could be excluded from being charged for the cheques.
(iv) Scale up platforms for faster for faster and efficient cheque processing –
Expand speed clearing, CTS and related infrastructure to process more than
75 percent cheques in T+1 in 3 years.
(v)
Continue Roll-out of CTS to Kolkatta and Mumbai with cloud architecture by
December 2013 – Ensure standard cheque formats and compatible
technology platform across banks.
(vi) Create enabling policy framework - Policy to ensure physical instrument
processing charges are consistently greater than electronic processing
charges not only for banks but also for end customer. Design pricing policy
for cheques clearing such that it creates incentives for banks to migrate
customers away from cheques - e.g., increase price of using cheques for
banks and end customers @ 4x THE current levels.
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Mobile payments
10. Unstructured Supplementary Service Data (USSD) is a service which allows
access to a customer‟s bank account from any GSM handset and unlike SMS, USSD
is a session-oriented service that is menu driven and interactive. USSD channel from
the Telco operator can be used as a secure channel to receive card transactions
originated from a mobile-phone based POS device and the use of a SIM based POS
acquisition capability common to all operators can be implemented. The Department
of Financial Services has enabled the USSD code *99# for the project and this
number will be available from all Telcos.
(i)
Mobile POS is a low cost alternative to POS.
(ii)
Mobile (smart phone) based POS with a Card Reader for mag stripe and
contactless cards can also be a low cost POS option for merchants.
(iii) Mobiles with Secure element and digital signature can be used for ecommerce / m commerce.
NEFT and RTGS
(i)
RBI may consider taking necessary steps for making RTGS mandatory for
high value transactions, say beyond Rs. 10 lakhs.
(ii)
Revision of NEFT charges - For instance, RBI should consider pricing the
NEFT value band in the Rs. 1 lakh to Rs. 2 lakhs segment at Rs. 10 per
transaction.
(iii)
RBI should establish suitable benchmarks on charges for cash remittances
through NEFT. One option could be to price the cash NEFT at Rs. 10 and
25 (instead of the current Rs. 5).
(iv)
RBI should disseminate knowledge among the public (more specifically,
unbanked migrant population) to exercise their right to enter any bank
branch (preferably any less crowded bank branch) to harness the facility of
cash NEFT.
(v)
Unless the bank can establish potential fraud beforehand, the information
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filled in the application form (for cash NEFT) by the remitter should not call
for any documentary evidence, if the amount is within Rs. 20000.
(vi)
RBI should consider relooking into the service charges for within bank and
between banks electronic fund transfers and establish sensible parity.
(vii)
RBI should devise more focused means to incentivize electronic transfers
and disincentivize use of cheques.
(viii)
RBI should consider allowing 5 free electronic transfers (including deposits
and withdrawals) per month for each of the interoperable systems like
NEFT, Direct Debit, IMPS and debit card enabled payment transactions at
net-banking sites, ATM and Micro-ATM for the low savings account.
(ix)
For making NEFT / RTGS transactions convenient for the customers, RBI
should consider doing away with the requirement of IFSC code for
undertaking NEFT / RTGS transactions. This may be feasible because the
account number of the beneficiary is unique in a CBS bank.
(x)
For facilitating the banks‟ customers to undertake e-Payments more
conveniently, besides standardisation in software, resulting in seamless
fund transfers, RBI may consider introducing / mandating a Uniform
Account Numbering System. This will also facilitate 'Account Portability'
across banks.
National Electronic Clearing Service / Automated Clearing House (ACH)
i)
Run a focused education campaign among consumers and institutions to
explain benefits of NECS. NECS will be replaced by Automated Clearing
House (ACH) when it is implemented by NPCI with all security features and
a mandate management system.
ii)
Empower end-user to stop-payment, provide instant alert pre and posttransaction (e.g. warning in case of shortage of funds, confirmation on
transaction, transaction statement, etc.
iii)
Launch National ECS for debit as well and subsume local ECS within it.
iv)
Develop strong mandate management system in banks (e.g. to facilitate
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customer update, stop-payments, etc.).
v)
Corporates to give discount to customers for debit NECS (some Corporates
have proactively started acting on this – need to scale up).
vi)
Utility companies to provide 1% (say) incentive for NECS to end users.
vii) NECS to be made mandatory on Government sponsored programmes –
pension payments, welfare payments, PSU dividend payouts, subsidies and
to Corporate dividend payouts.
viii) Offer tax-rebates to Corporates for NECS usage (e.g. VAT exemption could
be considered).
Other issues critical for universalisation of e-transaction regime
(i)
Coverage of electronic payments products like RTGS, NEFT and NECS
may be extended to cover all the branches of banks, including Regional
Rural Banks, Urban Co-operative Banks, Multi-State Co-operative Banks,
State Co-operative Banks, etc.
(ii)
All large-value payments, say above Rs. 50000, may be processed only
through the electronic payment systems.
(iii) Policy to ensure that physical charges are consistently greater than
electronic charges not only internally for banks but also on the customer
side.
(iv) Pricing policy (cost + mark-up basis) to facilitate financial inclusion.
(v)
Customer Security and Awareness - As online payment increases in the
country, a proactive campaign is needed to educate the customers on how
to safely carry out online transactions, not to share passwords, prevention of
phishing attacks, registering for Verified by Visa, MasterCard Secure code,
etc.
(vi) Some banks are already undertaking this initiative through customer
focused campaigns on the TV, Radio, Internet and Email. Outline the liability
matrix for customers so that they are aware of their liability, in case of any
fraud.
(vii) IBA and NASSCOM in partnership of Ministry of Consumer Affairs and
Department of Financial Services to create an ongoing awareness program
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by means of advertisements for customers about on-line electronic banking
and payments.
14.
The Action Points on recommendations of the Group have been tabulated
indicating the concerned agencies responsible for implementation of these
recommendations and time-lines for such implementation, as in ANNEX-II.
15.
Keeping in view the stated objective of driving the banks‟ customers from use
of physical payment instruments towards increased use of electronic instruments
and delivery channels, the Group has also suggested charges for various payment
instruments, primarily by incentivizing the transactions undertaken through electronic
mode and levying charges that at least cover the actual cost of physical transactions
/ instruments. This will also hasten the process of reforms in the payment
infrastructure.
16.
The Group is of the firm view that implementation of these recommendations
will create a favourable eco-system and robust payment infrastructure in the country,
and will result in increase in efficiency and decrease in cost of transactions and
services.
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Conclusion
17.
The Group is of the opinion that the above recommendations are critical for
the orderly growth of payment system and its integration with the financial inclusion
initiatives. The Group appreciates the initiative of the Government and conveys its
gratitude for the opportunity given to study the Payment System in India and make
recommendations for the orderly and systematic development of the System
enabling them to contribute to the development of Indian economy. Finally it is
recommended that the Key Advisory Group on Payment Systems in India should
function as a standing committee and meet at regular intervals to review the
progress and developments on an ongoing basis.
(Eric Anklesaria)
Partner, Ernst &
Young
(M.R. Umarji)
Indian Banks‟
Association
Dr. A.M.
Pedgaonkar
Chief AdvisorTechnology, IBA
(A.P.Hota)
CEO, NPCI
(Ravi
Rajagopalan)
MD CEO ,
Empays
(Ashish Das)
Professor, IIT
Bombay
(Bharat Poddar)
Boston Consulting
Group
(Ranjit Tinaikar)
Partner Mckinsey &
Company
(G. Raghuraj)
DGM,
IDRBT,Hyderabad
(M. Balakrishnan)
Chief Operating
Officer, NPCI
(D.K. Mittal)
Secretary (FS) and Chairman
Page 72 of 72