E-Payment Products based on Centralised RBI Platforms By : Kaza Sudhakar General Manager Department of Payment and Settlement Systems Reserve Bank of India Bank Card & ePayment 2005

2 ConstraintsIssues » Geographical spread» Delays in receiving credits » Low levels of banking automation» Uncertainty of payments » Inadequate communication» Reconciliation issues » Gaps in postal infrastructure» High fraud potential » Administrative Burden Banking Infrastructure of India

3 Payments System’s Vision Objective : “To Provide A Safe, Secure, Sound and Efficient payment and settlement system for the country” Objective : “To Provide A Safe, Secure, Sound and Efficient payment and settlement system for the country” Increase Efficiency of the Payments systems Increase Efficiency of the Payments systems Customer Facilitation for each of the payment system products Customer Facilitation for each of the payment system products

4 Payment System Developments Initiatives driven by the Reserve Bank of India Initiatives driven by the Reserve Bank of India –Increase in the number of centers offering MICR clearing –Introduction of High Value Clearing at additional centers –Electronic Clearing Services - debits and credits –Electronic Funds Transfers and Special Electronics funds transfer –Real Time Gross Settlement System (RTGS) –Cheque Truncation –NEFT

5 Payment System..RBI Vision Banks to focus on: Senior Management Involvement Senior Management Involvement Creating awareness amongst customers Creating awareness amongst customers Create Inter-bank products Create Inter-bank products Electronic Delivery Channels- ATMs, Kiosks, Website, etc., Electronic Delivery Channels- ATMs, Kiosks, Website, etc., Reasonable Pricing Reasonable Pricing STP to drive down costs STP to drive down costs Solutions tailored to customers needs Solutions tailored to customers needs

6 The Road Blocks Attitude Attitude It is something new.. We are comfortable with the existing order. It is something new.. We are comfortable with the existing order. Failure to think ahead… Failure to think ahead… The difficulty in marketing new products. The difficulty in marketing new products. The resistance from vested interests and those interested in the existing order. The resistance from vested interests and those interested in the existing order.

7 Benefits of RTGS Real-time Payment Settlement: Payments settled in real time on a transaction-by-transaction basis, as soon as they are accepted by the system. Real-time Payment Settlement: Payments settled in real time on a transaction-by-transaction basis, as soon as they are accepted by the system. No Credit Risk :- There is no credit and settlement risk involved in RTGS system for receiving participant as each payment transaction is settled instantly. No Credit Risk :- There is no credit and settlement risk involved in RTGS system for receiving participant as each payment transaction is settled instantly. Predictability of Cash Flows:- RTGS facilitates predictability of cash flows as customers know when their accounts will be debited or credited. Predictability of Cash Flows:- RTGS facilitates predictability of cash flows as customers know when their accounts will be debited or credited. Benefits to Economy : The instant finality of payments ensures fast, secure and irrevocable settlement of major business and financial market transactions Benefits to Economy : The instant finality of payments ensures fast, secure and irrevocable settlement of major business and financial market transactions

8 Issues relating to growth in RTGS… Awareness.. Awareness.. -Create independent counter at branches.. -Create user friendly delivery channels and offer dedicated products through…. >a robust website >a kiosk >an ATM >or menu driven user friendly interface at the banks branches. Charges.. Charges.. -Some of the banks have reduced charges substantially..Rs.25 to Rs.50 per transaction

9 RTGS.. Coverage Branches of 95 Banks…covering 508 Clearing Centres. Nearly 800 cities/towns covered Branches of 95 Banks…covering 508 Clearing Centres. Nearly 800 cities/towns covered. 79 Banks offering Customer Transactions 79 Banks offering Customer Transactions Delivery Channels to reach the different categories… Delivery Channels to reach the different categories… -- Website -- ATMs -- Kiosks RTGS should be extended to all the CBS / AWB branches. RTGS should be extended to all the CBS / AWB branches. Customers desire RTGS facility at an affordable price. Customers desire RTGS facility at an affordable price.

10 EFT and SEFT …net settlement system Electronic Funds Transfer (EFT) and Special Electronic Funds Transfer (SEFT) facilitate paperless inter and intra-bank settlements; both inter and intra-city. Electronic Funds Transfer (EFT) and Special Electronic Funds Transfer (SEFT) facilitate paperless inter and intra-bank settlements; both inter and intra-city. There is no Maximum value limit for an individual SEFT/ EFT transaction. There is no Maximum value limit for an individual SEFT/ EFT transaction. EFT is available at 15 locations: Mumbai, Kolkata, New Delhi, Chennai, Bangalore, Hyderabad, Ahmedabad, Chandigarh, Trivandrum, Jaipur, Nagpur, Guwahati, Bhubhaneshwar, Patna and Kanpur. EFT is available at 15 locations: Mumbai, Kolkata, New Delhi, Chennai, Bangalore, Hyderabad, Ahmedabad, Chandigarh, Trivandrum, Jaipur, Nagpur, Guwahati, Bhubhaneshwar, Patna and Kanpur.

11 EFT and SEFT SEFT participation is voluntary and participating banks have discretion to define branches that can participate in SEFT SEFT participation is voluntary and participating banks have discretion to define branches that can participate in SEFT SEFT covers approximately 3200 networked branches of 35 banks in over 180 cities (currently). SEFT covers approximately 3200 networked branches of 35 banks in over 180 cities (currently). Two Settlements every day from November 2, 2005 Two Settlements every day from November 2, am – 3.00 pm 10.30am – 3.00 pm Working Group on EFT for Capital Markets Working Group on EFT for Capital Markets

12 Some EFT Products EFT for crediting Merchant Establishments of Credit Cards, Point of Sale, Smart Cards. EFT for crediting Merchant Establishments of Credit Cards, Point of Sale, Smart Cards. Corporates crediting Suppliers through EFT. Railways and Defense Suppliers credits. Corporates crediting Suppliers through EFT. Railways and Defense Suppliers credits. Routing Foreign credits to beneficiaries in India. Routing Foreign credits to beneficiaries in India. Cash Management Product Beneficiaries Credits. Cash Management Product Beneficiaries Credits. EFT interface on internet allows customers freedom to credit beneficiaries in other banks without visiting their bank EFT interface on internet allows customers freedom to credit beneficiaries in other banks without visiting their bank Banks having EDI interface with Govt. Departments say for example Customs, can credit payments like duty drawback etc., into accounts of other banks instead of giving pay orders. Banks having EDI interface with Govt. Departments say for example Customs, can credit payments like duty drawback etc., into accounts of other banks instead of giving pay orders.

13 Some EFT Products The Govt. Departments can also be credited through EFT from various banks. The Govt. Departments can also be credited through EFT from various banks. Some Government Bodies like DGFT receive license fees from lakhs of exporters, which can be done through EFT. Some Government Bodies like DGFT receive license fees from lakhs of exporters, which can be done through EFT. The analogy can be extended to pvt. Companies which receive payments from lakhs of dealers/franchisees. The analogy can be extended to pvt. Companies which receive payments from lakhs of dealers/franchisees.

14 Local ECS… Available at the 44 Clearing Centre. Available at the 44 Clearing Centre. (15 RBI Centres, 23 SBI Centres, 2 PNB, 1 Union Bank, 1 Corp Bank, 1 Andhra Bank and 1 SB of Indore) (15 RBI Centres, 23 SBI Centres, 2 PNB, 1 Union Bank, 1 Corp Bank, 1 Andhra Bank and 1 SB of Indore) Funds transfer on T+2 basis.. Funds transfer on T+2 basis.. Available for Credit as well as Debit. Available for Credit as well as Debit.

15 11 How ECS Works - Process flow User Institution Beneficiaries’ A/Cs Destination banks’ service branches Destination branches Clearing House Sponsor Bank Data on Day- 1 Reports on Day-1 Credit on Day-2 Encrypted Data on Day-1

16 ECS - Processing of Uncredited Payment Instructions contd... User Institution Destination banks’ service branches Destination branches Clearing House Sponsor Bank Encrypted Output Data on Post Settlement Day-1 Return Data submitted on Post Settlement Day-1 Return Advice on Post Settlement Day-1 Encrypted Output Data on Post Settlement Day-2

17 Centralised ECS… Available at 15 centres.. Available at 15 centres.. Submit data file at one location and get credit across 15 locations.. Submit data file at one location and get credit across 15 locations.. Funds transfer on T+2 basis.. Funds transfer on T+2 basis..

18 Banking Products based on ECS ECS Credit ECS Credit Corporate users credit Dividend, Interest and other types of warrants. Corporate users credit Dividend, Interest and other types of warrants. RBI uses ECS credit for crediting RBI bonds interest to the bond holders. RBI uses ECS credit for crediting RBI bonds interest to the bond holders. Most Corporates and Govt. Departments use ECS credit for Salary credit Most Corporates and Govt. Departments use ECS credit for Salary credit

19 Banking Products – ECS Credit.. Monthly payments to Suppliers etc., Monthly payments to Suppliers etc., Merchant Establishments for Credit Cards, Smart Cards and Point of Sale debit cards. Merchant Establishments for Credit Cards, Smart Cards and Point of Sale debit cards. Pension Payments of big Govt. Depts. like Defence, Railways etc., Pension Payments of big Govt. Depts. like Defence, Railways etc.,

20 Banking Products for ECS Debit Credit Card payments Credit Card payments Utilities payments.. Telephone, Cell phones, Electricity bills Utilities payments.. Telephone, Cell phones, Electricity bills Equated Monthly Instalment payments of personal loans Equated Monthly Instalment payments of personal loans School fees School fees

21 Banking Products for ECS Credibility issues in ECS debit solved by internet. The customer first validates the bill through Internet and thereafter the User releases the ECS Debit Credibility issues in ECS debit solved by internet. The customer first validates the bill through Internet and thereafter the User releases the ECS Debit

22 What Corporates Should Do…???? Analyse the payments and receipt stream Analyse the payments and receipt stream Identify the payments for each type of product. (RTGS, SEFT, ECS and EFT) Identify the payments for each type of product. (RTGS, SEFT, ECS and EFT) Put a mechanism in place for receipts and payments. Put a mechanism in place for receipts and payments. Demand the Required Products from your Bank !!! Demand the Required Products from your Bank !!!

23 Thank You..