payment systems in india – an overview

Payment systems in India - An overview

PrefacePayment systems in India are undergoing rapid changes. Person-to-Person (P2P) money transfer, payments by Corporates and Government collection by utility companies, tax payments to Government have become dramatically easier than what used to be 10 years back. Card payment system and mobile payment system have matured with variety of products and services including the development of a domestic card payment network called RuPay. Aadhaar enabled payment services are unique and have proved to be an effective instrument for electronic benefit transfers.

While regulator has been pushing the reforms agenda at breathless speed and creating conditions for building a “less cash” society, the National Payments Corporation of India (NPCI) – the umbrella organisation for all retail payment systems in the country has also embarked on a journey to ‘touch every Indian with one or other electronic payment product by 2020.’

The recent regulation of Reserve Bank of India on EMV based contactless payments and single factor authentication for low value transactions will be a big step forward to make bulk of the micro-payments electronic in due course. NPCI has taken up a project titled ‘Unified Payments Interface’ which will facilitate ‘real time collect’ through mobile phones in a pervasive way.

If all the initiatives taken by the Regulator, Government, Banks and NPCI fructify, it is believed that by 2020, the payment system landscape in India would be radically different from what it is today.

A P HotaManaging Director & CEO

Payments system iin India - An overview1

ForewordPayments systems, both globally and in India, have undergone significant transformation in the last few decades. Initially viewed as utility products to conduct commerce-related transactions, payments has now evolved to usage across channels, form factors and devices. Access to technology, evolving consumer expectations, increasing urbanisation, financial inclusion and domestic considerations have brought about a revolution in the global payments landscape.

Once considered the domain of banks and international card schemes, the payments industry has since witnessed immense disruption by non-bank competitors and domestic card schemes. These innovative players have targeted the mobile and internet as both the storage and delivery platform to harness transactions. Telecommunication firms, large technology companies and social media platforms are leveraging their wide network and large consumer base to enter the payments market.

While India has traditionally been a cash-dominant society with cheque being the preferred mode of payments, electronic transaction have been steadily gaining ground. Over the past decade, Reserve Bank of India’s intervention and proactive regulation and policies have led to a more modern electronic payment system in the country. The launch of National Electronic Funds Transfer in 2005 and increasing issuance and acceptance of other forms such as cards, Immediate Payment Service (IMPS) and e-wallets has led to the share of electronic payments in non-cash retail payments reach 65 per cent in value terms.

While the issuance landscape has shown exemplary growth, the acceptance infrastructure in India needs to grow at a much faster pace. With less than 200,000 ATMs and ~1.1 mn POS terminals, the acceptance network needs to expand for electronic payments to proliferate further.

Financial Inclusion is a major initiative for both the Government of India and the RBI. The announcement of

‘Pradhan Mantri Jan Dhan Yojana’ by the Honorable Prime Minister of India on 15 August 2014 and the operational launch on 28 August 2014 has given a thrust to the financial inclusion program in India. All stakeholders in the payments domain in India will need to work together to ensure the success of the ambitious program.

National Payments Corporation of India (NPCI) plays a pivotal role in the payments industry in India. It is the umbrella organisation for all retail payment systems in India and manages the products and platforms that are critical for the success of financial inclusion as well as innovative payments solutions. NPCI’s portfolio of products and services ranges from RuPay, India’s first domestic card scheme, to National Financial Switch, which allows full interoperability within ATMs. It also includes various ‘Aadhaar’ linked platforms to facilitate financial inclusion programs in India.

Going forward, ubiquity, interoperability, ease of use and cost will be key elements that will determine the success of payment systems and form factors.

KPMG in India is proud to be working with some key participants in the payments industry. We hope that our views in this thought leadership will help all participants in understanding the payments systems in India, the role of NPCI and key innovations.

Richard RekhyChief Executive Officer, KPMG in India

Payments system iin India - An overview 2

Overview of global payments landscapeThe global payments landscape has been undergoing constant transformation ever since the first revolving credit card was launched by Bank of America in September 1958 and the first ATM was installed in the US in September 19691. While the pace of change was consistent in the latter half of the 20th century, there has been exponential growth in payments systems globally since the turn of the century.

Payments products have been traditionally viewed as utility products that were transactional in nature. Payments systems and products were developed and managed by Central Banks, Commercial Banks and a few global card schemes and networks.

However, access to technology, evolving consumer expectations, increasing urbanisation, financial inclusion and domestic considerations have brought about a revolution in the global payments landscape.

The last few decades have seen the advent and growth of domestic card schemes that are challenging the dominance of global card schemes in their domestic market. UnionPay, China’s domestic cards scheme founded in 2002, is already the world’s largest card issuer and is accepted in more than 150 countries and regions outside China2. Other card schemes like ELO in Brazil and RuPay in India are also showing impressive growth with focus on financial inclusion and lower-cost. A large number of the estimated 7.7 bn bank cards by 2017 will be issued by domestic players.

Globally, payments have rapidly shifted away from paper to electronic forms of payment. The advent of ecommerce and growth in the Point-of-Sale (POS) ecosystem will further increase the use of no-cash instruments.

The global payments ecosystem is being shaped by new form factors and players which include non-bank competitors. These players are targeting form factors like the internet and mobile to harness transactions that include funds transfer & remittance, offline merchant payments, e-commerce utility payments among others.

Technology companies and telecom companies are taking the lead in disrupting the global payments industry.

e-wallets and stored-value cards have been a favored instrument for the newer payment service providers. While mPesa is an accepted success story of payments intermediation by a telecom company, players like Paytm in India have shown the tremendous opportunity by issuing more m-wallets in the last few years than the total number of credit cards. Paytm currently has more than 30 mn active users as compared to the ~20.3 mn (as on December 2014) credit cards issued by 31 cards issuers in India.3

Technology and social-media companies like Facebook, Google, Apple and Amazon among others are seeking entry into the payments market. The launch of Google wallets, Apple Pay (NFC enabled payments) and Facebook’s entry into payments is testament to

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1. KPMG Research2. UnionPay (http://en.unionpay.com/comInstr/aboutUs/file_4912292.html)3. Reserve Bank of India

Payments system iin India - An overview

the strategic nature of payments services for these companies. Payment services provide an opportunity for these companies to monetise their large consumer base.

While regulations ensure that payments systems and players are adequately monitored, the adoption and success of virtual currencies like Bitcoin is a pointer towards greater disruption in the payments landscape.

For regulators, there is a need to standardise both domestic and global payment standards. Adoption of common standards will reduce payment complexity and increase straight through processing.

Ubiquity, interoperability, ease of use and cost will be key elements that will determine the success of payment systems and form factors. All participants in the payments landscape should concentrate their efforts on providing these key features to the consumers.

Data mining and analytics will soon become a key aspect in the payments industry. Payment service providers have huge amounts of data related to the payments need and requirements of their customers and the ability to personalise and customise services and offerings will result in greater customer-retention and increased revenues.

Payments present a dynamic and fast-changing landscape which provides ample opportunities for disruptors to innovate and create. Banks and regulators will do well to consider payments as a strategic initiative rather than a utility service that needs to be offered as complementary to other banking services. Investment in technology, identification of key markets and customers, identifying the relevant use-cases, and exploring new avenues of partnerships will be key to emerge as leaders in the payments market.

4Payments system iin India - An overview

Overview of Indian payments landscapeReserve Bank of India, after setting-up of the Board for Payment and Settlement Systems in 2005, released a vision document incorporating a proposal to set up an umbrella institution for all the RETAIL PAYMENT SYSTEMS in the country. NPCI became functional in 2009.

The Vision Statement of RBI’s Payment Systems in

India: Vision 2012-2015 states ‘To proactively encourage electronic payment systems for ushering in a less-cash society in India and to ensure payment and settlement systems in the country are safe, efficient, interoperable, authorised, accessible, inclusive and compliant with international standards.’4

India has traditionally been a cash-based economy with only paper-based instruments like cheque being the alternative payment form factor. Over the past decade, RBI’s intervention and proactive regulation and policies have led to a more modern electronic payment system in the country. While cheque retains its dominance, its share in all retail payments has reduced to 35 per cent in volume terms. The share of electronic payments in non-cash retail payments has shown an upward trend. In value terms, electronic payments now constitute 65 per cent of total non-cash retail payments.

Break-up of non-cash retail payments

Cash, however, remains the predominant payment mode in the country. India has among the highest currency to GDP ratio, i.e. 12 per cent compared to other developing and developed nations. The number of non-cash transactions per capital is much lower in comparison to other emerging economies.

The number of debit, credit and prepaid instruments has grown tremendously over the last few years.

While the issuance and cardholder base has grown exponentially, the electronic payments acceptance infrastructure has not kept pace. India has only 1,94,000 ATMs5 which translate to ~15 ATMs per 100,000 adults. This compares poorly with China, Brazil, South Africa and Russia at approx. 50, 130, 62 and 150 respectively as per the World Bank.6

The Point of Sale (POS) infrastructure in India is also insufficient to facilitate movement to a cashless society. The 1.1 million POS terminals are predominantly in metros and Tier 1 cities with concentration around large stores selling products and services availed by a small segment of society. Less than 10 per cent of the ~14 mn merchants in India offer POS based transactions. New solutions such as micro ATMs and mobile POS offer innovative ways to increase the acceptance network in India and will need support from all stakeholders.

E-commerce and m-commerce platforms have been growing exponentially and are attracting a significant amount of interest both from consumers as well as institutional finance and venture capitalists. The e-commerce market in India is estimated to reach ~137 bn by 2020. Bill presentment and payments involving insurance, utility bills etc. also present a huge opportunity.

Financial inclusion is an initiative backed by the Government of India and the Reserve Bank of India (RBI). The Pradhan Mantri Jan Dhan Yojana (PMJDY) envisages comprehensive financial coverage for each household in India. Financial benefits proliferation through Direct Benefits Transfer will seed the accounts opened with an Aadhaar and keep them live for transactions.

Electronic payments in India is poised to witness exponential growth in the coming years and NPCI is committed to play a pivotal role both as a stakeholder and a service provider.

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4. RBI - Vision Statement of RBI’s Payment Systems in India: Vision 2012-2015 (https://rbi.org.in/Scripts/PublicationVisionDocuments.aspx?Id=678)

5. As per latest NPCI data6. Data for China, Brazil, South Africa and Russia based on World Bank data dated 2012-2013

Source: RBI Annual Reports for FY 2010, FY 2011, FY 2012, FY 2013, FY 2014


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RuPayInternationally, the last couple of decades have seen the emergence of domestic card schemes to challenge the hegemony that the large global schemes have enjoyed since the first plastic, payment card was issued. A few reasons for the emergence of domestic card schemes and networks has been the ambition of the local banking regulator to build a scheme that is most aligned to address the needs, concerns and challenges specific to their countries. It was felt that domestic schemes and payment networks are best suited to bring about rapid changes in behavior towards electronic payments.

RuPay, India’s first domestic card scheme and network, was conceived to fulfill RBIs vision of offering a domestic, open-loop, multilateral payment system to all banks and financial institutions in India. RuPay was launched in March 2012 and is instrumental in creating less cash economy and increasing financial inclusion.

During the year 2014-15, Government of India had initiated massive drive for FInancialINclusion under Prime Minister Jan Dhan Yojana (PMJDY). RuPay Debit Card was made the default payment instrument.

RuPay currently offers a Magstripe and Chip & PIN debit card, Prepaid cards and facilitates payments across different channels such as ATM/POS/e-Commerce/Aadhaar-based transactions at micro ATMs.

RuPay – Key benefits

RuPay – Key advantages

Performance highlights

RuPay – Key performance highlights (FY ’14-’15)

Criteria Number

Banks issuing RuPay cards (Total) 407

Commercial Banks issuing RuPay cards 40

RRBs & cooperative banks issuing RuPay cards 367

RuPay cards in circulation (mn) 153

# POS accepting RuPay cards (mn) >1

% POS accepting RuPay cards 99%

Online merchants accepting RuPay cards (‘000) 20

Source: Proprietary NPCI Data



RuPay PaySecuree-Commerce has emerged as one of the fastest growing industries in India. India is also on route to becoming the world’s fastest growing e-commerce market. According to a leading investment banking firm, the size of the Indian e-commerce market is estimated to rise from USD11 bn in 2013 to USD137 bn in 2020. India ranks third only after China and USA in terms of internet penetration. The potential for online payments is huge.

Recognising the need of customers to conduct online transactions using RuPay cards, NPCI launched the RuPay PaySecure service. PaySecure allows RuPay cardholders to make online payments for various services like shopping, utility bill payments, ticketing, booking among others. RuPay cardholders can use the PaySecure solution to conduct transactions at more than 26000 websites across India.

RuPay PaySecure conforms to RBI mandated two-factor authentication. RuPay PaySecure uses ‘image selection’ to provide additional security to each transaction. This innovative authentication methodology simplifies and improves the existing e-commerce experience of the cardholder as they do not need to remember complicated passwords.

RuPay PaySecure– Key highlights

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Immediate Payment Service (IMPS)Paper-based and electronic systems like cheque, NEFT and RTGS have traditionally had a processing time between 1-2 days, rendering them inconvenient for a lot of retail payment requirements.

Immediate Payment Service (IMPS), an innovative real-time payments service was launched by NPCI as an instant mobile remittance solution in November 2010. Since then, IMPS has evolved into a 24 X 7, real-time, channel independent, retail payments service that empowers customers to transfer money instantly within banks and RBI authorised Prepaid Issuers (PPIs) across India. This enables non-banking PPI customers to access the IMPS facility.

Types of transactions offered on the IMPS platform

IMPS is a multi-channel facility that facilitates and processing of various types of payments. Transactions on IMPS can be accessed and initiated across different channels such as mobile, internet, National Unified USSD Platform (NUUP), ATM and at bank branches.

The vision behind IMPS is to provide ‘any-time, any-place’ real-time funds transfer facility to customers for varied needs. IMPS is also emerging as a preferred mode for receiving inward domestic remittances by the banks after the launch of the eagerly awaited facility of ‘Processing domestic credit leg of foreign inward remittances.’

IMPS offers a flexible and easy-to-use platform to customers, thereby appealing to the financially & technologically savvy customer, an under-banked customer or an unbanked customer through a PPI/

Business Correspondent. IMPS has an in-built flexibility that allows users to initiate a funds transfer using varied information:

• Mobile number and Mobile Money Identifier (MMID)

• Account Number and IFSC Code

• Aadhaar Number


IMPS – Key performance highlights (FY ’14-’15)

Criteria Number

Banks live on IMPS 81

Prepaid Issuers live on IMPS 10

# of approved IMPS transactions (mn) – FY ‘14-‘15 78.33

Avg. IMPS transactions per day 0.39



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National Unified USSD Platform (NUUP)The proliferation of mobile telephony services has far exceeded the financial services in India. As per the Census 2011, more than 40 per cent of the Indian population did not have access to banking facilities while the number of mobile phones in India has crossed 800 mn. Hence, it becomes critical for a country like India to harness mobile technology to offer banking and other non-financial services.

NUUP is a USSD based mobile banking platform that makes banking services accessible to all bank account holders on their mobile phones. It is an interoperable platform that brings banks and telecoms together. Since it uses the mobile handset as the transaction initiator, NUUP has unparalleled reach and potential.

NUUP currently offers 3 sets of services across multiple languages – financial, non-financial and value-added services. Key financial and non-financial services offered by NUUP include:

• Balance Enquiry

• Mini Statement

• Funds Transfer

• MPIN Management

A key value-added service offered on NUUP is QSAM (Query Service on Aadhaar Mapper). Using QSAM, customers can know their Aadhaar seeding status with the bank by dialing *99*99#. QSAM is a critical tool to facilitate the subsidy transfer initiatives of the Government of India.

Benefits of NUUP


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National Automated Clearing House (NACH)Since the payment industry has evolved over a period of time, there are varied operational payments systems which offer different sets of services and benefits. A mature payments ecosystem recognises the need for a centralised system to consolidate the multi-platform, multi-channel, multi-process systems.

National Automated Clearing House (NACH), launched in December 2012, is a centralised payment system that has been developed to consolidate multiple ECS (Electronic Clearing Service) systems operating across the country and to provide a framework to remove local barriers and inhibitors.

The vision behind NPCI’s NACH platform is to provide a single set of operating and business rules, open standards and best industry practices for electronic transactions which are common across all the participants, service providers and users.

NACH provides a national footprint that is aimed to cover all core banking-enabled bank branches. It provides a robust, secure and scalable platform to the banking and corporate participants. It has best-in-class security features, cost efficiency & payment performance coupled with multi-level data validation facility that is accessible to all the participants. It has been designed to meet specific needs of banks and corporates.

NACH framework

A key differentiator of the NACH system is an online Dispute Management System (DMS). DMS provides a common platform to all the participating banks to resolve transaction related disputes within specified timelines and rules, with provisions of Initial Dispute, Pre-arbitration, Arbitration and Good Faith.

NACH also supports Financial Inclusion initiatives of the Government, State Agencies and Banks by providing support to Aadhaar based transactions.

The NACH platform has the potential to disrupt the Business-to-Business (B2B) ecosystem in India. B2B transactions in India are heavily reliant on paper-based instruments. NACH provides an opportunity for the industry to adopt electronic payments, especially for low-value payments, thereby reducing operational expenses and augment cash-flows.

NACH system supports credit, debit as well as Aadhaar based transactions.

• NACH Credit: NACH Credit allows bulk electronic payments that are repetitive in nature such as distribution of dividends, salary and pension payments among others.

• NACH Debit: NACH Debit is a collection mechanism which allows recovery of Equated Monthly Instalments (EMI), utility bill payments, rent, insurance premiums, and investments in mutual funds.

• Aadhaar Payment Bridge (APB): APB has been especially designed for routing the benefits of various social welfare schemes directly into the bank account of the beneficiary using the Aadhaar number. The ABP is an attempt towards financial re-engineering of the subsidy/welfare management program. ABP has been recognised and awarded with two prestigious awards in the category of financial inclusion for the current and potential impact.

Corporate payments are an integral part of any payment infrastructure. However, direct access and integration with banks and payment systems has always been lacking. Direct Corporate Access (DCA) facility provides corporates direct access to the NACH leading to ease of operations for both corporates and participating banks. DCA empowers the corporates to keep a track of their transactions, reports and MIS directly without being dependent on the sponsor bank.

Within a short period of its launch, the number of participating banks in NACH has grown leaps and bounds, making it one of the largest payment systems. The wide coverage of banks has enabled this system to play a crucial role in the payments industry.


NACH – Key performance highlights (FY ’14-’15)

Criteria Number

Participating Banks 576

Participating Corporates 1,600+

# of approved NACH transactions (mn) – FY ‘14-‘15 340

Avg. NACH transactions per day 0.5

# of Direct Benefits Transfer transactions (mn) – FY ’14-‘15 170



Aadhaar Enabled Payment System (AEPS)Aadhaar Enabled Payment System (AEPS) is an innovative solution that leverages the Aadhaar infrastructure for greater financial inclusion.

AEPS is an interoperable, bank-led model that allows Banks to offer banking & financial inclusion transactions by providing micro-ATMs to their Business Correspondents (BCs). The system provides an authentication gateway that enables a seamless interaction between the originating channel and the Aadhaar linked account. AEPS has the ability to manage both On-Us and Off-Us transaction requests.

AEPS has provided banks with the most suitable model to proliferate benefits of Financial Inclusion and Direct Benefits Transfer (DBT) payments. Banks have deployed micro-ATMs in various and far-flung places in India which have made Aadhaar-based payments available and accessible to a larger population.

Services offered on AEPS platform

To utilise the existing ATM network, banks have started to offer Aadhaar-based payments at ATMs using biometric authentication. Biometrics is considered a safer, more secure and convenient authentication method as compare to PIN authentication as it mitigates risks such as repudiation, shoulder-surfing, etc.


AEPS – Key performance highlights (as of March 2015)

Criteria Number

Banks live on AEPS 47

Banks offering inter-bank AEPS 25

Banks issuing Aadhaar linked RuPay cards 9

# of Aadhaar-linked RuPay cards issued (mn) 2.4

Non-banking entities using authentication services 10

# of AEPS approved transactions processed (mn) – FY‘14-‘15

9.7

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Payments India 2015

12Payments India 2015

eKYCBanks in India have traditionally conducted paper-based KYC process which resulted in high Turn Around Time (TAT), high operating costs, loss of confidentiality, data thefts and data mismatch. eKYC, an electronic and real-time authentication of a customer using Aadhaar details, is a far more effective method and removes or reduces the key drawbacks in the traditional process.

eKYC enables the banks to access, with the customer’s consent, the customer’s identity and address details as available in the UIDAI database.

Banks provide the eKYC solution on the customer onboarding device which also facilitates capturing biometric data. Customers provide their Aadhaar number and biometric information which is sent to the NPCI-UIDAI, as per NPCI specifications, for processing & authentication. UIDAI provides the photograph and demographic details of the customer which can be treated as KYC, along with both the Proof of Identity (PoI) and Proof of Address (PoA) as notified by the RBI.

Regulators like the RBI and SEBI have mandated eKYC as a proof of PoI and PoA. eKYC usage has seen a huge

surge since the inception of the Prime Minister Jan Dhan Yojana (PMJDY). eKYC and Aadhaar are expected to have a significant impact in proliferating financial services to the financially excluded citizens of India.


eKYC – Key performance highlights (FY ’14-’15)

Criteria Number

Banks live on eKYC (as of December 2014) 34

Non-banking entities live on eKYC (as of December 2014)

4

# of approved eKYC transactions (mn) – FY ‘14-‘15 6.4

Banks live of demographic authentication 30

# of approved demographic authentication transactions (mn)

8.4


Cheque Truncation System (CTS)The traditional process for cheque processing involved the physical movement of the paper instrument from the presenting bank location to the nearest clearing house and further to the drawee bank for processing. This introduced a significant delay in the payment process along with various with high costs and high loss ratio.

Cheque Truncation System (CTS), introduced in India in 2008, allows an electronic image of the cheque to be transmitted to the drawee bank by the clearing house including relevant information such as data on the MICR band (cheque number, MICR code, Short Account Number, Transaction Code), date of presentation, presenting bank among others. The image and the data are transmitted over a secured network that allows the funds-transfer and settlement processes to conclude without the need to wait for the physical instrument, which can be retained at the presenting bank itself.

Thus, CTS empowers banks to settle interbank cheques basis the electronic image of the cheque and other relevant data, thereby removing various issues & bottlenecks associated with the traditional process. In addition, ‘CTS 2010 Standards’ – the security standards for physical cheques make the clearing process more safe and secure.

Advantages of Cheque Truncation System (CTS)

RBI has entrusted NPCI to implement CTS on a pan-India basis. NPCI manages CTS system at all the 66 MICR clearing centers spread across three grids – Southern Grid (9 states & 25 MICR centers), Western Grid (5 states & 20

MICR centers) and Northern Grid (10 states & 21 MICR centers) with their operating centers at Chennai, Mumbai and New Delhi respectively.

NPCI also operates Paper to Follow (P2F) sessions at each MICR location for exchange of IQA (Image Quality Assessment) failed and Government Cheques wherein the participating banks exchange the physical cheques.


Grid-wise performance

CTS – Grid-wise performance highlights (FY ’14-’15)

Criteria Volume (Mn) Value (INR bn)

Western Grid 434 28,462

Southern Grid 305 22,759

Northern Grid 225 18,293

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National Financial Switch (NFS)The electronic payments industry in India received its first major growth engine through the proliferation of Automated Teller Machines (ATMs). Earlier restricted to tiresome, time and cost consuming visits to the bank branch for any financial transaction, citizens of India adopted ATMs quickly and the growth in ATM-based transactions bear witness to its contribution of payments electronification in India.

Recognising the need to connect all ATMs in India to facilitate convenient banking, the Institute for Development and Research in Banking Technology (IDRBT) conceptualised and operationalised a multi-lateral domestic ATM network. This network is referred to as National Financial Switch (NFS).

NFS provides interconnectivity between the ATMs of all participating member institutions and facilitates routing of transactions between these institutions. This allows users to conduct a transaction at any ATM of a connected member.

Realising the pivotal role that the ATM network can play in the provision of financial services and electronification of payments, the IDRBT handed over management and operations of the NFS to NPCI in October 2009. NPCI has since improvised and upgraded the technology and network which now also forms the backbone of other innovative platform such as IMPS and AEPS.

NFS is currently the largest ATM network in the country with members that include Scheduled Commercial Banks, Foreign Banks, Cooperative Banks, Rural & Regional Banks (RRBs) and White-label ATM operators. NPCI has introduced the Sub-membership model that enables the smaller and regional banks to participate in the ATM network.

Services offered

The NFS provides a long & varied list of services which includes both basic financial & non-financial services as well as value-added services (VAS).

NFS – Services offered

NFS provides best-in-class Dispute Management System (DMS) application which offers easy-to-raise online chargebacks, representations etc. to enhance process efficiencies.

NFS processed more than 3 bn transactions in FY 2014-2015 . Any fraud encountered in the system had the potential to cause significant financial and reputational risk to both NPCI and the member banks. NPCI has initiated a robust Fraud Risk Management (FRM) System to constantly monitor transactions in the NFS system. NPCI intends to enable this service to all banks in a phased manner.

NPCI is actively engaged with its member banks and has instituted a formal process of regular interaction. It conducts User Group meetings to discuss the new developments, challenges and members’ concerns with regards the ATM industry and NFS operations. The User Group meetings regularly include domestic and international speakers of repute to create awareness of international best practices on improving operational & cost efficiencies, reducing fraud and risk among other relevant issues.

The NPCI NFS team has deep understanding of the ATM industry and regularly provides insights and recommendations on operational and business-related issues to its member banks. NFS also shares the individual member banks’ performance and also the best practices to increase overall performance.

NPCI recognises that the ATM network infrastructure is critical to increase the reach of financial services in India. It is committed to maintain high standards of application and network uptime to ensure the highest levels of access. The overall network uptime of 99.99 per cent on a month-to-month basis is a testament to NPCI’s commitment and operational excellence.


NFS – Key performance highlights (FY ’14-’15)

Criteria Number

Members Bank/Sub-member banks/WLAOs 416

Connected ATMs (mn) 0.19

# of cards issued by member banks (mn) 600

Transactions processed (mn) 3,068

Daily average volume (mn) 10

Current transactions capacity/day (mn) 40




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Real-time Gross Settlement System (RTGS)Real-time Gross Settlement System (RTGS), is a real-time settlement of funds transfer individually on an order by order basis. The transfer is done without netting at the point of receiving the funds transfer request. Since the funds settlement is done on the RBI’s books, RTGS transactions are considered final and irrevocable.

Though both NEFT and RTGS are funds transfer settlement systems, RTGS offers a real-time settlement while NEFT functions on a deferred settlement mechanism. The speed of RTGS transactions can be gauged from the fact that the bank branches are expected to receive the funds in real-time and the beneficiary bank is supposed to credit the beneficiary account within 30 minutes of received the funds.

RTGS is primarily designed for large value transactions and RBI has mandated a minimum amount of INR 0.2 mn to be remitted using RTGS.

For receiving funds through RTGS, a bank-branch has to be RTGS enabled. Currently more than 100,000 bank branches at more than 30,000 cities/town/talukas in India are RTGS enabled.

RTGS value (INR bn)

RTGS value (mn)

Value of transactions using RTGS has reached a mammoth INR 754,000 bn in FY 2015, which has shown a tremendous growth of ~91 per cent over the value transacted in FY 2011. The volume of transactions is currently 93 mn transactions, representing a 7 per cent growth in the last 5 years.

RTGS has displayed aggressive growth and its positioning as a real-time tool for large value transactions has resulted in corresponding decline in paper-based payments by corporates and firms.

RTGS will continue to play a critical role in helping achieving cashless and paperless transactions in India.

Source: Reserve Bank of India (https://rbi.org.in/Scripts/NEFTView.aspx)



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National Electronic Funds Transfer (NEFT)Established in November 2005, Reserve Bank of India stated that the ‘objective of NEFT system is to establish an Electronic Funds Transfer system to facilitate an efficient, secure, economical, reliable and expeditious system of funds transfer between banks in the banking sector using Structured Financial Messaging Solution (SFMS) backbone.’7

NEFT, launched in 2005 with 8 participating banks, has currently more than 160 banks live on the system. As per the RBI, close to 130,000 bank branches are enabled for NEFT payments.

NEFT is a country-wide payment system that facilitates one-to-one transfer between two banking accounts. It allows individuals, firms and corporates to electronically transfer money from any bank branch to another individual, firm or corporate having a banking account with any NEFT-enabled bank branch in India.

NEFT has grown tremendously from its inception in 2005. The growing popularity of NEFT is reflected in the value and volumes of business during the last few years.

NEFT value (INR bn)

NEFT volume (mn)

The value of transactions conducted using NEFT has reached almost INR 60,000 bn and the total number of transactions is close to 928 mn. While the volumes have grown at a CAGR of ~60 per cent over the last five years, the value has shown a growth of ~59 per cent in the corresponding period.

NEFT’s increasing popularity is due to the various benefits that it offers over other modes of funds transfer.

Benefits of NEFT

NEFT has emerged as a preferred method for conducting account-to-account transfer and local remittances. NEFT is now used for a variety of purposes which include payment of credit card dues, payment of bank EMIs and utility bill payment among others.

7. Reserve Bank of India




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Forex settlementsAll Foreign Exchange Transactions are cleared and settled by The Clearing Corporation of India Ltd. (CCIL). CCIL commenced settlement of forex transactions from November 2002 covering inter-bank USD/INR spot and forward rates. From February 2004, cash and Tom trades were also included for guaranteed settlement.

CCIL follows the netting by novation method. This means that the bilateral agreement between the two participants/members is substituted with bilateral contracts between each participant and CCIL. Deal confirmation files are transmitted to CCIL and the multilateral netting is applied. The INR leg is settled through the members’ current accounts with RBI while the USD leg of the transaction is settled through CCIL’s account with the Settlement Bank at New York.8

The participants benefit in various ways by settling their trades through CCIL.

Benefits of CCIL forex settlement

The large value and volume of transactions settled by CCIL is testament to the value of the benefits provided.

Forex settlement - value (INR bn)

Forex settlement - No. of deals settled

The gross value of deals settled by CCIL in FY 2014-2015 amounts to INR 325,437 bn, while the total number of deals settled in the same period was 3.46 mn. This represents a healthy increase of ~14 per cent in both value and number of deals settled.

Source: Clearing Corporation of India Ltd. (https://www.ccilindia.com/ForexSettlement/Pages/Statistics.aspx)

Source: Clearing Corporation of India Ltd. (https://www.ccilindia.com/ForexSettlement/Pages/Statistics.aspx)

8. Clearing Corporation of India Ltd.


18

Securities settlementAll the secondary market transactions in Government Securities are settled through the Clearing Corporation of India Ltd. (CCIL).

Conducted under the DVP III mode, multilateral netting is achieved for each settlement date. A single funds settlement obligation for each member for a particular settlement date is determined by netting the members’ secondary market Government securities transactions for that settlement date. The settlement is achieved in the RTGS Settlement / Current Account maintained by the member in RBI and for those members who are either not allowed to maintain or operate a Current Account with RBI for settlement of their secondary market transaction in Government securities, at the Designated Settlement Bank.9

The key benefits for participants in the Securities Settlement process at CCIL include:

Benefits of CCIL securities settlement

The volumes and value of securities settlement done by CCIL has shown a decline in 2014-2015 after high growth in the preceding years.

CCIL – Securities settlements (value)

CCIL – Securities settlement trades

Source: Clearing Corporation of India Ltd. (https://www.ccilindia.com/SecuritiesSettlement/Pages/Statistics.aspx)

Source: Clearing Corporation of India Ltd. (https://www.ccilindia.com/SecuritiesSettlement/Pages/Statistics.aspx)

9. Clearing Corporation of India Ltd.


Innovative banking & payments solutionsInnovative digital payments solutions are the latest offerings in the Indian banking and payments landscape. In March 2015, value of mobile banking transactions touched a high of INR 170 bn across 66 Indian banks. Thus, mobile banking application has become a hygiene distribution channel for banks due to penetration of smartphones and high usage of apps. Large private and public sector banks in India, despite having large network of branches and ATMs, are foraying into digital solutions for banking and creating a multi-channel customer interaction format which is evolving as per latest social communication trends.

Banks are designing product offerings over social media platforms such as Twitter and Facebook.

Indian banks are launching innovative payment and banking solutions across a wide range of platforms ranging from mobile apps to internet banking to ATMs etc. They are packed with multiple banking services, customer services, payment options. Payment services are also being designed around social networking sites which facilitate splitting the bill over the networking site. Aligning products and technology closely to consumer behavior is one of the key trends emerging in digital payments.

Opening an account with self-invite via Facebook or Email and Banking over Twitter has been introduced in India. Bank accounts offered over Twitter provide banking services such as check book requisition, checking last few transactions, net banking, etc. along with loyalty based reward points.

#Hashtag banking offered by banks in India indicates a shift from digital banking on social media platforms to a core capability.

Another similar innovation launched by an Indian Bank lets customers transact, check balances, make payments using Twitter.

Personalisation options, offers and deals, creating deposits for goal based banking, sending money to mobile numbers, email-ids, social media contacts (Google+, Facebook among others) and customer service over live chat has virtually brought the bank in your wallet.

Peer to peer lending is another offering that though in its infancy, can disrupt the payments market. Algorithm-backed lending that rely on big data and include social media interactions and profile are slowly gaining ground in India.

India is on the threshold of a digital payments revolution that will be led by both banking and non-banking entities. Innovative offerings that provide solutions to real-life problems will be a key to success in the payments market in India.

19 Payments system iin India - An overview

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

The NPCI, Rupay and IMPS logo are registered trademarks of National Payments Corporation of India.

Copyright © 2015 by National Payments Corporation of India. All rights reserved.

NPCI Contact

National Payments Corporation of IndiaC-9, 8th Floor, RBI Premises,Bandra-Kurla Complex, Bandra (East),Mumbai 400051, IndiaPhone: +91 22 26573150Fax: +91 22 26571001

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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