Technology in Banking-Insight and Foresight for BTA_2011 ... - IDRBT

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Technology in Banking – Insight & Foresight 26 For mobile payments to even remotely become a substitute for liquidity (cash), the key is a wide acceptance network. This is the real anchor of the value proposition for mobile banking customers. To derive maximum value from remote transactions, using the cell phone just like an internet terminal, begins with getting people to leave more cash in their accounts. This may happen when people see that there are many ways in which they can cash out. Once that network is established, the value of transacting remotely may become more apparent. Banks that want to use mobile banking to reach unbanked customers need access to marketing channels and brand credibility with precisely those customers who have been excluded from banking. Unlike most banks, mobile operators traditionally use a mass-market approach and aim to get into the pocket of every citizen in the form of mobiles. Mobile applications-based banking is poised to emerge as a significant m-commerce feature, and if South Africa’s foray into mass mobile banking is any indication, mobile banking could well be the driving factor to increase the sales of high-end mobile phones. Nevertheless, banks need to take a hard and deep look into the mobile usage patterns among their target customers and enable the requisite technology on their mobile services to reach out to the majority of their customers. Mobile banking is slated to get big in terms of volumes and value; it is projected to drive the financial revolution at the bottom of the pyramid. However, the times ahead will indicate whether the banks will ascend toward financial strength over mobiles or a new ecosystem would emerge comprising various stakeholders to tap the hidden potential of mobile banking. 3.3. Electronic Payments Payments are an age old phenomena that have been with human beings since ages. We have certainly evolved, having come a long way from the barter system to written promises such as notes to quite recently adopted electronic payments. 3.3.1. Evolution of Electronic Payments in India The electronic payments in India have evolved steadily over the past few years. The first big leap came in the late 1990s with the growth of the ECS debit and credit transaction, then came the rise of internet banking in the early 2000s and the introduction of RTGS in 2004 and NEFT in 2005. Recent years have seen the rise of newer channels such as prepaid instruments and mobile phones. While the traditional cash-based and paper-based channels continue in the retail space, electronification has demonstrated significant progress in these years. 3.3.2. Overview of Electronic Payments Markets globally and in India The total turnover of various payment and settlement systems in India grew by 16% in value terms in 2009–10. The annual turnover in payment systems has been increasing as a ratio of GDP, consistent with the financial deepening of the economy. In 2010, India’s electronic payments were US$17 trillion (INR786trillion). In 2009, McKinsey estimated India’s payments industry revenues at US$14 billion. Payment flows (both electronic and paper) are 7.8 times the GDP, comparable to many Western countries and emerging economies such as Brazil (7.3), Italy (7.2) and the US. (7.0). Institute for Development & Research in Banking Technology
Technology in Banking – Insight & Foresight 27 There has been significant growth in the electronic payments from below 5% of the total value in 2005 to 88% in FY10, largely due to the electronification of business-to-business payments. Electronification is a relatively new concept in consumer transactions and the transactions are mostly cash and paper-based. In this segment, less than 3% of the consumer-to-business flow value is electronic. Subject to variance between banks, payments contributed about 30% of bank revenues. Most of this was from transaction banking (including cash management plus trade and supply-chain financing), credit cards and cash and paper transactions. The majority of payment flows occur to and within the business sector. With over US$133 billion payments from bank accounts via ECS and NEFT, electronic fund transfers have emerged as the much-preferred option for transactions, with an increasing orientation toward cashless and even cheque-less payments in India. 3.3.3. Vision of the Regulator The Indian retail payments space has witnessed several key events in the recent past. These developments are expected to potentially influence and catalyze the electronic payments landscape in this decade. The Reserve Bank of India, after setting up the Board for Payment and Settlement Systems in 2005, released a vision document, which outlined the vision for moving from a predominantly cash-based payment system to an electronic system, which is more efficient. It was meant to establish a framework and emerge as a handbook of regulations to develop efficient payment systems. The vision also proposed the formation of an umbrella institution, which would consolidate and integrate multiple systems with varying service levels into nation-wide uniform and standard business process for all retail payment systems. The other objective was to facilitate an affordable payment mechanism to benefit the common populace across the country and help financial inclusion. To enable the finalization of a framework for the delivery of basic financial services using mobile phones, the Cabinet Secretariat constituted an inter-ministerial group (IMG) in 2009. The framework envisages the creation of “mobile-linked no frills accounts,” enabling a basic set of transactions via a mobile PIN-based system. The government plans the implementation of a UID (unique identifier), a 12-digit number for every citizen of India, to enable a national identifier for all citizens. MasterCard is developing a payment solution for “Aadhar” (UID), which should pave the road ahead for integrated electronic payments. The payment system in India has gone through significant transition over the past decade. Based in the Payment and Settlement Systems Act 2009, RBI has regulated the charges being imposed by banks to their customers. Some of the examples of these regulations are: RBI, effective 8 October 2008, rationalized the charges levied by banks for outstation cheque collections as well as electronic products such as RTGS/NEFT/ECS. RBI had set a ceiling on cheque collection charges as INR50, INR100 and INR150 for cheque amounts, respectively, up to INR10,000, INR10,001 to INR1,00,000 and more than INR1,00,000. Institute for Development & Research in Banking Technology
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