IBA-SCAFI Jt.seminar on "ePayments in Retail Banking" held on June 18, 2004 at Mumbai
Indian Banks' Association (IBA) and Smart Card Forum of India (SCAFI) jointly organized a One Day Seminar on "ePayments in Retail Banking" on Friday, June 18, 2004 at Hotel Taj President,Mumbai
The seminar commenced with a Welcome Address by Shri Piyush Khaitan,Chairman,ePayment Focus group, SCAFI. Shri Khaitan set the tone of the Seminar by mentioning that how the Industry and Banks have come together to promote the use of Smart Cards in Banking, specially in
ePayments area. He also gave an idea of the dismal share the e payments has in the Indian spending and hoped that the seminar will come up with good ideas as to how this will be upped in the days to come.
Delivering Opening Remarks, Shri Vijay Parthasarthy, President,SCAFI and proposing Vote of Thanks,Shri S.Swarn,Secretary,SCAFI dwelt upon the roles SCAFI has played in this area and wished the seminar a great success.
Dr.R B Barman, ED,RBI, in his Key-Note Address(available on this website) very clearly stated that RBI will support all e Payment initiatives and mentioned that the cost of currency can significantly come down if e payments are popularized. He also opined that regulations with reference to e cash needs to be observed and explained the different initiatives RBI has taken in this area, including RTGS etc.
Dr. Dalbir Singh, CMD, Central Bank of India, delivering his message as the Guest of Honour at the seminar, gave the status of the industry and observed that while the Indian software industry has made great strides, our hardware industry is lacking and we do not have any POS terminals indigenously and low priced which can be deployed so that e payments can be more popular. He mentioned various initiatives Banks such as the Kisan Cards which are deployed in large numbers but cannot be used effectively for lack of Infrastructure.
The inaugural session gave a sense of optimism. It gave a very clear message that e payments have matured, and we should see a shift in the way payments are made in future.
The next session, namely the business session was very revealing as it showed the status of various banks and technology companies in this area. The successes and concerns of the users, like ICICI and UTI and the technology companies came into limelight. There was a general consensus that while e payments are the way to go, various technologies are now available as an option, viz CDMA from Reliance instead of multiple NACs, which could result in cheaper deployments. The advantages of outsourcing were clearly outlined by Venture Infotek.
The most exciting part was the statement made by Shri Goyal of RGI that the National ID project will be on Smart Cards and that a sizable Pilot is already underway. The card, with its ramifications of how various agencies will be able to use the same for their purposes, was very revealing and promises great opportunities for the Smart Card Industry and the Banking Sector. Social welfare schemes disbursements and controls, with adequate results monitoring in a nearly on line fashion are the key advantages one sees in this project, in addition to the more obvious Banking and Secure ID.
The second and third sessions gave a good view of where the technology stands today. EMV and its business and technical implications were discussed at great lengths by various companies, such as Gemplus, CMS, and Venture Infotek. We also saw POS manufacturers, like Ingenico, and their commitment to the market place speaks volumes of the untapped potential the Indian market offers. Security concerns over the unsecure media like Internet were also discussed. ALW disclosed its Pilot implementation of micro payments on BEST buses in Mumbai. This will definitely set a new trend in the way we make payments. Ms Anupam Prakash of RBI explained the regulatory role RBI will need to play. There was very interesting discussions regarding any role RBI can play in controlling frauds in the e payments area.
The Panel discussion was very interesting and discussed the various initiatives different banks and the industries have taken to promote e payments. The enthusiasm of the Indian Banks to take position of strength in the ATM and cards deployment was very evident. Euronet's Shri Antony explained that the ATM market should see consolidation as the market matures and the need to use ATM as a differentiator disappears. It was clear that Banks will have to see beyond the ATM as their offerings differentiator in future and service will be the key. Mr, Wolfgang of eracom commented on the stage Indian market is at and said that we definitely have an advantage of leapfrogging in the EMV era as there is no or very small legacy to handle. Everyone also felt that the number of POS deployed is low and hence most of the debit cards are actually being used as ATM cards only.
Shri Varun Prasad, SVP,SCAFI felt that Mobile Commerce using cell phones will create a paradigm shift in the way we transact, and we need to be aware of the same. The proliferation is already high and a good, secure application may change the epayment scenario very quickly and easily.
Shri Prasad also made an interesting observation that if the Banks decided to invest 50% of their ATM investment into POS terminals, we could see additional population of 500,000 POS terminals in the next year itself. Considering that the current population is only 100,000 POS terminals, this new addition could make significant change to the e payment industry.
Key-Note address delivered by Dr. R B Barman, Executive Director,RBI
I feel greatly honored and thank you for the privilege of presenting the keynote address at this conference on "ePayments in Retail Banking" organized by Indian Banks'Association and SCAFI. The last few years have seen the Indian banking industry embrace the rapid use of Internet and Information Technology to reach closer to its customers, provide an increasing variety of delivery channels and service alternatives. The Reserve Bank of India has also taken a number of major initiatives in fostering the increasing use of information technology in banking and financial services in the last decade or so. The theme of this conference "ePayments in Retail banking" is very topical and it is my pleasure to be a part of this conference.
Economic entities transact to buy/sell real goods/services, financial products, and lend/borrow moneys. They settle transactions by payments in terms of Goods/Services (barter) or Money. Such settlement of transactions is termed a payment - a term more commonly used where money is used to complete a transaction.
Payments can be in terms of
- Cash
- Transfer of bank credit
Cash is perhaps the most popular means of payment especially for small value consumer payments in India. However, an overwhelming majority of large value, commercial payments and, in recent times, an increasing number of consumer payments are being made through transfer of bank credit.
Traditionally, transfer of bank credit took place through debit instruments like cheques, demand drafts, payment orders, etc. The recent past has, however, seen an increasing plethora of choices for making such payments of which -
- Internet/ Phone /mobile banking
- Credit/Debit cards
- ECS/EFT
- Customer payments through RTGS,
are just a few. Information Technology based retail financial services being proffered by the banking industry to its clientele has contributed to broadening of product lines for retail banking as well as delivery channels.
Technological advancement has facilitated to create multiple channels for e-commerce such as
- Dial-up connectivity to Internet
- WAP based mobile network
- ATM network
- SMS and FAX messaging
- Multipurpose information Kiosk
These e-channels allow financial transactions from anywhere and anytime. On Internet banking, RBI has come out with a report in December 2000, based on the recommendations outlined by an expert Working Group, which have now become the base for banks to adopt when they migrate towards offering Internet based Banking. The Reserve Bank of India is actively involved and took a lead role to create e-payment infrastructure for smooth and efficient functioning of payment and settlement system. Some of the e-payments infrastructures are :
- Electronic Clearing Service (ECS) - Credit and Debit
- Electronic Funds Transfer (EFT), and Special EFT
- Centralised Funds Management System (CFMS)
- Negotiated Dealing System (NDS) for screen based trading in Government securities
- Real Time Gross Settlement System (RTGS)
All these systems have a positive impact on quick, safe and electronic movement of money for various sectors of the economy.
Future plan
Many new initiatives are also in the offing, which would enhance the e-payments scenario of the country. I shall now enlist some of these.
- Expansion of MICR technology . It is a widely recognised fact that the usage of paper based cheques would continue for many more years to come. In order to hasten the clearing process, the Reserve Bank has taken upon itself the developmental role of expansion of the coverage of the MICR based clearing system to many more cities from the earlier implementation at the four major metropolitan centres. While today there are 39 MICR based cheque processing centres, the plans for the immediate future would see the opening of 10 more MICR processing centres, thereby brining almost more than 70% of the country's cheque volumes to be cleared through the MICR process.
- Imaging and Cheque truncation . While MICR based processing would benefit the banks in terms of better control over the clearing process and in better reconciliation, the benefits to customers would accrue only if the cheques deposited by payees are credited quickly. The demand for quick cheque collections has been for long a requirement, especially for outstation cheques. To take care of this requirement using the latest advancements in technology, cheque truncation based on imaging is being implemented by the Reserve Bank. The project would be a pilot project in the initial stage covering the National Capital Region of Delhi and would be extended to other cities after stabilization.
- National EFT : In order to expand the coverage of EFT, a National EFT using SFMS as a standard message interfacing system is to be introduced by the Reserve Bank.
- E-Cheque : The electronic cheque is a new payment instrument combining the security, speed and processing efficiencies of all electronic transactions with the familiar and well developed legal infrastructure and business processes associated with paper cheques. ECheque leverages the cheque payment system, a core competency of banking industry. It fits within current business practices, eliminating the need for expensive reengineering. It works like a paper cheque, but it does so in a purely electronic form, requiring less manual process. IDRBT has taken up a pilot project on e-Cheques.
- Point of Sale transactions : Today there are many online POS terminals for credit authorisation. A point of sale system can eliminate float, reduce credit risk, and require the merchant to keep less cash on hand. The POS system enables merchant to verify the availability of funds in a customer's account or his access to credit before completing the sale.
All these would ensure that a wide array of products and services are available for the common man to use electronic based payments. The major impact of e-payments would, however, be felt for small value, retail payments. While Automated Teller Machines (ATMs) have provided relief to customers for cash withdrawals on an 'anytime, anywhere' basis, thanks to sharing of ATMs by banks, the future however, lies on low cost but large penetration oriented technologies. Smart cards hold the key to the future in this area.
The usage of smart cards for financial transactions is a safe, secure and efficient method to perform transfer of value for small value transactions. It was with this objective that the Reserve Bank partnered a pioneering effort towards use of smart cards for financial transactions, way back in 1998 in the form of a pilot project at the IIT, Mumbai, which resulted in the development of standards. With technological advances in the area of smart cards, a new Multi Application Smart Card project has been launched. This time too, the project is being conducted at the IIT Mumbai, and is jointly conducted by the IDRBT, banks, industry players and by associating the Ministry of Communications and Information Technology of the Government of India. The multi application smart card project aims at the usage of smart cards for multiple applications such as for national id, driving licence, health card, insurance, e-cash transactions and as an e-purse for storage and transfer of value. The initial reports on the progress of this project have been very encouraging and I am sure that this would be the future for the country, where paper based transfer of money would be replaced by transfer of funds using low cost yet secure smart cards across the length and breadth of the country. This I feel, would be a path breaking innovation which would change the very way of transfer of value by consumers.
In all the initiatives for e-payments, standardization is the key to the long-term benefits of efficient electronic payment systems. The goal should be to allow products and services from different vendors to work together, by means of inter-operable and seamless interfaces. This will allow for competition and reduce uncertainty in the market place and enhance easy acceptability. There is also the need to define privacy rules since transaction trails could pose other risks to consumer.
Banks are increasingly developing Internet banking applications for better customer service and to cut operation cost. No queue, no holidays, any time/any where banking operation. Pay electricity bill, telephone bill, credit card bill, and insurance premium. Check account status, transfer of funds etc. However, there is a critical concern on security when Internet is used for business communication/transaction. The security feature need to be built into the system, application level as well as network level with effective use of secure socket layer protocol (SSL), encryption/decryption, digital signature, data integrity etc.
Banks in India started to take full advantage of IT in the early nineties. In the last 15 years or so there have been systematic improvement and up-gradation of IT infrastructure for modernizing business operations. It is the high-speed real time processing, high volume processing and analytical capabilities that have helped in operational efficiency.
Reserve Bank of India has taken up an important role as facilitator of payment system developments. Also RBI is the catalysts for e- and m-commerce (through e-government: e- and m-payment), stimulating further migration of cash (bank notes and coins) to digital payment instruments, increasing the efficiency of payment systems, Governance of e-commerce - customer protection, security of transactions, privacy of records and oversight of payment systems.
The advantage of electronic payments system is that the transactions can be processed quickly, more cheaply and they also offer a much more convenient method of effecting settlement of transactions. In the past few years, Indian banks and generally the financial service industry, have embraced ePayments in a large way. Given the competitive financial environment of this 21st century, I do not think banks have any choice but to join the bandwagon. Indeed, technologically advanced banks enjoy competitive advantage over others, through cost effective delivery systems.
The introduction of e-payment products in India has brought a number of issues of regulatory and supervisory concern viz.
- Impact on the conduct of monetary policy
- The need for adequate transaction clearing and settlement agreements
- Technical security of the products
- Money laundering and other financial crimes
- Consumer protection
- Potential risk to the issuer such as operational, reputation, security, legal and liquidity etc.
I strongly believe that banks have much to contribute to the evolving world of e-banking including e-payments in the country. I hope some of these issues will be discussed during this conference.
In concluding, I wish to assure you that as the new capabilities and technologies are incorporated into our financial services environment, the RBI will continue to develop/upgrade e-Payment infrastructures, encourage and extend support for such innovations that are both value adding and profitable. However, keeping in mind the safety and soundness of the payment and banking systems, Reserve Bank of India, will continue to monitor applications and development in the field of both e-payments and e-banking in the country.
IT revolution is poised to creatively destroy the physical value chains of banks through a chain of digital products. This process of digitalization will accelerate the pace of modernization of the financial services. The economy should derive benefit through lower cost, broader access to information and new business models. Financial sector has to be more efficient and responsive to the needs of the economy as catalyst in the well dispersed and efficient income generation process. The alliance between banks and IT service providers should help in accelerating the pace of change and efficiency in ePayment services.
I thank you for your kind attention and wish you fruitful deliberations during this workshop.
Presentations on IBA-SCAFI Jt.Seminar on ePayments in Retail Banking
