Payment services no longer the monopoly of banks
Banks have been the traditional gateway to payment services. However, with the fast pace of technological changes, this domain is no longer the monopoly of banks. Non-bank entities are providing innovative payment products and services, forcing banks to reflect upon their strategy — to compete or to collaborate? Payments systems are the plumbing of the financial system; so long as there is no leakage or clogging, we are unaware of their functioning. But when they do back up, the situation becomes catastrophic quickly.
Various payment products and interfaces are now available — internet banking, cards, mobile banking, ATMs and micro ATMs, prepaid payment instruments including e-wallets and m-wallets.
These include remittance facilities through National Electronic Funds Transfer system, Real Time Gross Settlement system, Immediate Payment System, Instant Money Transfer, etc, most of which can be accessed through multiple channels including net banking, mobile banking, ATMs and business correspondents.
Leveraging on the high mobile density in the country, mobile banking services are being encouraged through interoperable USSD channel like *99# and the Unified Payments Interface (UPI) provided by National Payments Corporation of India. I am especially enthused by UPI, as smartphones become more widely available. Transfers from bank account to bank account will become easier in a few weeks via smartphone through the UPI. A villager needing to pay a shopkeeper only needs to know the latter’s alias — say Ram@xyzbank.psp. He feeds that into his mobile app, writes the payment amount, puts in his password, and presses “send” and the payment is made, with both getting messages to that effect. Neither needs to visit the bank to take out or deposit money, no point of sale machine is needed. With the price of smartphones falling sharply, we are on the verge of solving the last-mile problem.
Government direct benefit payments are being made through Aadhaar-linked payment systems like Aadhaar Payment Bridge System and Aadhaar Enabled Payment System.
Bulk and repetitive payments of corporates and governments can be processed through centralised system of National Automated Clearing House to which the decentralised system of Electronic Clearing Service is also being migrated.
In ensuring the safety and security of transactions to build confidence and trust in electronic payments some of the measures put in place include mandatory online alerts for card transactions, mandatory PIN entry for every transaction at ATM, additional factor of authentication for card transactions, need for entering PIN for even magstripe debit cards when used at POS (point of sale), migration from magstripe to chip and PIN cards in a phased manner, processing of ATM transactions on chip data when EMV chip and PIN cards are used, encouraging use of contactless cards using interoperable protocols, etc.
Bharat Bill Payments System has been put in place to address the needs of the large bill payments market, to provide the convenience of anytime, anywhere, any bill payment facility to the users. It is expected to roll out shortly.
Another significant area of development has been the Trade Receivables Discounting System which ought to be a game-changer for meeting the financing needs of micro, small and medium enterprises segment.
With these changes taking place and more yet to come, the roles and responsibilities of the banks need to be underscored. Some of the challenges that merit attention are:
Does the bank’s vision and strategy take into account payment services aspects? Are there adequate human resources to project requirements and implement them?
Adopting technology is more than automation. It calls for serious efforts at re-engineering business processes.
Despite the huge potential, activation rates and usage levels of various electronic payment services remain at low levels, though growth is picking up. No doubt the fear of taxation as payments move from cash to electronic plays a part in dampening activity. As information technology brings down the possible space to avoid or evade tax, and as the benefits, for example in access to credit, of building verifiable histories of transactions increase, I have no doubt that merchants will push more for electronic payments. Some tax benefits to those merchants who show increases in digital transactions, and perhaps innovative ways to encourage customer participation, may be beneficial. For example, service providers could enter every transaction into a high-payout monthly lottery, with a few lucky customers rewarded every month.
At the same time, we should not rule out the possibility that the reluctance to transact is because of the unknown security consequences and costs of using technology. While banks find it more profitable to cater to the requirements of privileged customers, the digital divide should not widen, with more and more digital payment options being designed to serve the requirements of those who already have access to digital, while a large segment of society is left dependent on cash as they are neither aware of the options nor is the infrastructure made accessible at low cost.
No technology-based or digital services can be offered without consideration for security of transactions. Recently, there have been a spate of frauds (through vishing and phishing) in some segments of payment services. Banks have a very high level of responsibility when adopting digital channels — to not only ensure security of the channel at infrastructure level, to protect data security and personal privacy at system level but also address the need to build customer awareness in security matters. RBI has set up an Information Technology (IT) subsidiary to support the IT requirements of the RBI and the sector. The IT subsidiary would focus on IT and cyber security (including related research) of the financial sector and assist in IT systems audit and assessment.
A related matter is the issue concerning customer liability and risk management for electronic payment transactions. The Reserve Bank will soon be laying down the framework for customer liability in electronic payments. Banks have to necessarily build this aspect into their customer education and grievance handling processes.