This blog deals with the overview current regulatory framework in India.
Overview
Reserve Bank of India (RBI) is the Banking regulator, while IDRBT (Institute for Development & Research in Banking Technology ) is the research & development (R&D) arm of RBI.
Apart from conducting R&D activities, IDRBT was also managing the National Financial Transaction backbone.
Which constituted of:
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RTGS (Real Time Gross Settlement) for High Value (₹2L to ₹10L) transactions
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NEFT (national electronic funds transfer) for low value transfer, up to ₹2L.
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National Financial Switch (NFS) which is the all India ATM network backbone.
RTGS, NEFT is being modernized from Structured Financial Messaging System (SFMS), based on ISO15022 to UNIFI (ISO20022). While NFS runs on ISO8583 protocol, 1987 version.
SMFS/ISO15022 is more like a COBOL type fix ASCII file format, while ISO20022 is XML and all financial industry have committed to converge towards it, thus it’s referred as UNIFI.
ISO8583 is a binary protocol. I have written a simplified parser in Java which can convert the binary format to XML, thus you can use an XML transformer to convert it to ISO20022 format.
However, in 2005 released it’s Retail Payment Vision document, which envisaged a high velocity, affordable 24x7 national retail payment infrastructure. In this view it set-up the Board for Payment and Settlement Systems in 2005 and in 2008, RBI also promoted NPCI (National Payments Corporation of India) as a Section 25 company of companies Act 1956 (now it’s section 8 of Companies Act 2013, essentially a not-for-profit company). Members of the IBA (Indian Bankers' Association) are NPCI share holders. RBI transferred the existing retail payment from IDRBT to NPCI. Thus NPCI got NEFT and NFS.
NPCI, in accordance with RBI’s vision implemented the following innovative retail platforms:
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IMPS (Now re-branded as Immediate Payment Platform): 24x7 Mobile payments
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RUPAY : Indian Credit Card System to counter/complement Master, VISA platforms.
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AEPS (Aadhar Enabled Payment System) : National ID based direct subsidy transfer platform.
While NEFT presently uses ISO15022, the rest of the platforms use ISO8583 . The road ahead is to UNIFI all the channels.
Also RBI introduced Cheque Truncation System (CTS) in 2008 as a pilot at NCR (National Capital Region), and covered all India by 2013.
RBI in Financial Year 2014-2015 have unleashed a series of regulatory changes, with the vision of financially including the un-banked population on one hand, and speeding up the economy by helping Internet & Mobile Commerce by a series of forward looking regulatory innovations and technology enablements.
NPCI launched a National USSD (Unstructured Supplementary Service Data) Gateway, called National Unified USSD Platform (NUUP).
NUUP infrastructure enables any mobile phone user to transact, send and receive money by dialling *99#, no smart phone is needed. All Telecom operators will be supporting this gateway, and all banks will connect to it. However, it’s still at beta level, I tried and fail multiple times to use it from HDFC and ICICI banks, see my Tweets and Blogs on this subject. But, I am hopeful that NPCI will get this right eventually.
IDRBT issued Social Banking & Security guidance, in November 2014 described later; And NPCI, on 15-Feb 2015, issued an Universal Payment API. Though I am still digesting the material, but I am very excited about the implication and the vision.
Another important development involves new banking licenses and Payments Banks thus making the incumbent banks move faster and innovate to acquire and engage the socially mobile (pun intended) customers. Other developments include, allowing for profit BC (Business Correspondents), Mobile Wallets linked to IMPS and RUPAY, the indigenous card platform from NPCI. NPCI also plans a convergence in payment platforms, namely ATM network, IMPS, AEPS and NEFT.
There are currently about 130 Prepaid Payment Instrument (PPI) licensees and any corporate with INR 5 Crore of net-worth can apply for a PPI license and connect to the NPCI IMPS Switching backbone, and start innovating on Social and mobile wallets products. But, PPI holder cannot enjoy (earn interest) the float money and needs to deposit the daily float to a Scheduled bank. Also, such NBFC (Non Banking Financial Companies)can have 100% FDI (Foreign Direct Investment).
A corporate with 100 Crore can form their Payments Bank. However, the FDI is limited to 40%.
Social Media is Imperative for Banking
Social Media is dawning as an important channel in the old school banker’s horizon. RBI has issued Social Media guidelines for Banks to follow. ICICI Bank has already launched (early 2013) it’s Facebook (FB) Application as well as a social media enabled product iwish.
RBI on the other hand still retains the control of RTGS , but is in the process of modernizing the infrastructure by implementing UNIFI (ISO20022).
Still 6 out of 10 Indians do not have a Banking account, but 7 out of 10 Indians have mobile.
Smart Phones have become cheaper and a low cost Android phone can cost as low as INR 2400. Many lower middle class Indian, like taxi drivers and office peons have INR 40,000 phones, thanks to EMI and aspiration of upward mobile lifestyle. Mostly all Indians having a smart phone have a Facebook account.
Thus the next generation banking innovations cannot ignore Social Media and Smart Phones.
IDRBT Social Media Framework
Mr. Sambamurthy, Director, IDRBT lists a 10 point plan for Banks in the foreword of IDRBT whitepaper titled "Social Media Framework for Indian Banking Sector".
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Establish business goals
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Establish social media goals
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Align to business goals
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Draw up social media strategy
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Design and implement social media organisational structure
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Design and implement a plan to build social media operational capabilities
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Establish a mechanism to handle adverse events
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Place right skills, staff
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Place controls for customer engagement and dissemination of information
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Create new social media business unit and fund it.
While this paper, covers governance, security and Legal frameworks; this paper tows the popular pitch given by the Social Enterprise technology providers. It misses the vital transaction and commerce aspects of the Social Media.
Indian Payment Trends I Expect to Unfold in 2015
Indian Payments marketplace trends will be segment dependent. I have borrowed upon CK Prahalad’s Pyramid model, while thinking about market segments.
Top of the Pyramid
At the Top of the Pyramid segment, it will be social commerce, for example Oxicash and ICICI are already providing transactions support over the social networks, others like EKO will be launching their respective products.
The CX (Customer Experience) of Social Commerce will improve.
Middle of the Pyramid
NFC based smart card prepaid wallets will be more popular with the middle of the pyramid. Currently the prepaid smart cards are not inter-operable in India, even though the standards and regulations are in place, the B2B relationships are in search of a robust business model. Recently, I heard about a NFC enabled ICICI Debit cards being co-branded with Delhi Metro, so that it can be used for a seamless travel experience in Metro.
Bottom of the Pyramid
For bottom of the Pyramid it will be card less ATM cash withdrawal, and Aadhar linked no frills accounts that can be transacted using a feature phone using National USSD Payments Gateway.
Integration Options for Bank to Enterprise
With the retail banking advancing at a blazing speed, the corporate enterprises also need to keep the pace. They can leverage the Unified Payment API to streamline their Banking integration.
Before this, enterprise has the options to either directly connect to each of their banks or use the expensive SWIFT (Society for Worldwide Interbank Financial Telecommunication, all banks across the world are connected through it and it supports ISO20022 protocol) connectivity.
One CFO of a telecom company shared with me that they connect with about 60 banks and have to deal with 200 odd file formats for their banking messages. While SWIFT was an option, it’s transaction fees were at a higher side, so they were using direct banking one-to-one integration.
