Electronic Payments

RBI has been playing an important role in the area of national payment system, which is the backbone of economic activity and has taken several initiatives for a safe, secure, sound and efficient payment system in India. Last one decade witnessed spurt in electronic payments due to increased adoption of technology and regulatory guidelines. The evolution of e-payment systems in India are:

i) Speed clearing: Banks as part of their normal banking operations undertake collection of cheques/drafts deposited by their customers drawn on other banks and the collection process is taking 7 to 14 days since cheques need to move physically from presentation centre to drawee centre. In order to reduce the collection time, RBI has introduced Speed Clearing where in cheques/drafts drawn on outstation are treated on par with local cheques and presented in the local clearing provided the presentment location is MICR/ECCS centre and the destination bank branch is under CBS platform. However, Government cheques are not eligible for collection under Speed Clearing. Drawee bank debits the account online without movement of cheque and sends the proceeds to the collecting bank. Under Speed Clearing, it would be working on T+1 or 2 basis. No charges for cheques up to  1 lakh. For above one lakh the maximum amount that can be levied is 150/-. In case of return of cheques, the charges ranges from  50 to  500 depending on the value of the instrument. The facility of immediate credit would not be applicable to cheques collected under speed clearing arrangements.

ii) Cheque Truncation System (CTS) is a new system of clearing implemented in the National Capital Region (NCR) New Delhi and Chennai. It is the process in which the physical movement of cheque within a bank or between banks and the clearing house is curtailed, being replaced in a whole or part, by electronic records (images) for further processing and transmission. It improves faster reconciliation of inter/intra bank accounts besides saving considerable man-hours and enables the banks to improve operational efficiency. However, domestic instruments, where both presenting and drawee banks are the same are not allowed in the CTS. All Government cheques and all instruments which fail in Image Quality Assessment (IQA) test will have to be physically handed over to the Paying Bank. To facilitate the transformation to an image based processing scenario, cheque leaves are required to be image friendly and uniform. RBI directed all banks to issue cheques confronting to CTS-2010 standard with uniform features in terms of size, paper quality and fields such as the MICR band, signature and date details w.e.f. 1st August 2013. Besides security features such as watermarks, and the bank’s logo are also standardized in the new cheque leaves. Now, CTS is being extended to all the MICR centres in a phased manner with the introduction of Grid Based Cheque Truncation clearing.

iii) Electronic Clearing System (ECS): The introduction of ECS – Credit i.e. Single Debit – Multiple credits, helped large corporate bodies to pay their dividend, interest and refunds electronically on the due date, which is very cost effective to Bank and its customers. Similarly, the utility bodies are now in a position to collect their bills through ECS Debit (Multiple Debits – Single Credit) right on the due date. The entire process including passing the credits to the beneficiaries’ accounts take only one day, which is convenient and cost effective to both banks and customers.

iv) Any Branch Banking (ABB): Under CBS, Branch customer has become Bank customer and they are allowed to approach any branch across the country for deposit of cheque or cash and withdrawal of cash or transfer of money. No cash payment will be made to third party (bearer). However, payment to third party up to 20000/- is allowed to NRE / NRO accounts and branch should ensure identity of the bearer while making payments. With regard to deposit of cash / transfer of funds among the bank branches is allowed at par for any amount.

v) Real Time Gross settlement (RTGS): RBI launched RTGS for instant transfer of funds across the banks ( 200000/- & above) across the banks within India. It offers a powerful mechanism for limiting settlement and systemic risks in the inter-bank settlement process. It enables in expediting the settlement, control and governance mechanism in the banking system. Funds will be transferred electronically and credited to the beneficiary accounts instantaneously. It saves lot of time and paper work and cost effective (Not exceeding  55/-). The timings for customer payments are 9 AM to 4.30 PM on Monday to Friday; and 9 AM to 2 PM on Saturday. Similarly, for interbank payments; the timings are 9 AM to 6 PM on Monday to Friday and 9 AM to 3 PM on Saturday. Transfer of funds below  200000/- are not allowed under RTGS.

vi) National Electronic Funds Transfer (NEFT): For the benefit of retail customers, RBI introduced NEFT scheme. Under this, funds can be transferred across the banks instantaneously. There is no cap on minimum and maximum amount for NEFT. RBI has given discretion to the banks to levy charges, however, the service charge should not exceed 25/- per transaction. The timings of NEFT are 8 AM to 7 PM (12 batches) from Monday to Friday and it is 8 AM to 1 PM (6 batches) on Saturday. Customer is required to furnish IFSC Code number of the Bank Branch and correct account number of the beneficiary for smooth transfer of funds under RTGS/NEFT.

vii) Applications Supported by Blocked Amount (ASBA): ASBA is an alternative payment method (optional) for IPO application where the IPO bidding amount remains in investors account, but blocked by the bank until allotment is done. It enables the listing process faster. It is made mandatory for non-retail investors also to apply only through ASBA. The investors have option to bid IPO either through designated branches or Internet Banking. Revision and cancellation of bids are permitted till the issue closure date and time. The investor continues to earn interest on the application money. Registrar transfers the allocated shares to investor’s Demat Accounts. No charges will be levied to the investors for this service. It is an opportunity to branches to improve low cost deposits and non-interest income since bank earns commission on each application received under ASBA.

viii) Credit cards: The concept of credit card was used in 1950 with the launch of charge cards in USA by Diners Club and American Express. Credit card became more popular with use of magnetic strip in 1970. The first Credit Card was issued in 1981 and Gold Card in 1986 by VISA. Credit cardholder need not carry cash and purchase goods and services at any approved Merchant Establishments/Point of sale Terminals by tendering the card duly signing the charge slip. Further, cardholders can make online purchases through internet using the card and PIN. Added to this, cardholder can withdraw cash at any ATM across the globe. However, cash advance attracts charge i.e. transaction fee as well as service fee/interest charge.

ix) Debit cards known as check cards. It operates like cash or a personal check. Debit cards are different from credit cards. Credit card is a way to “Pay Later” whereas debit card is a way to “Pay Now.” In case of debit card, bank account of the customer will be debited immediately on completion of transaction. Debit cards are accepted at many locations, including retail stores, petrol pumps, and restaurants. The liberalized norms coupled with ease of usage have led to increase debit card base over the years. Of late, banks are consciously driving the customers to alternate delivery channels by issuing debit cards on the day of opening of the account itself to reduce the work load and to enable them to pay focused attention on core banking activities. In order to make Credit/Debit Card transactions more secure, RBI mandated the card holders to enter PIN while transacting at POS terminals with effect from 1st December 2013.

x) Charge Card: Charge card is like any Credit or Debit Card. These cards neither offer revolving credit like the Credit Card nor debit the account instantaneously like Debit Card. However, the cardholder is required to settle the bill in full by the due date each month. Charge cards make a good option to develop financial discipline which likely to enable the cardholders to improve their credit history. Further, charge card offers a dynamic limit, while rewarding good payment 23ttest23e.

xi) Prepaid Card: A prepaid card looks like a credit card and works like a debit card. These cards resemble credit and debit cards in appearance and allow users to load any amount up to  50000/- and can be used at any ATM/Point of Sale Terminal. On use of card, funds are directly debited from the card. Cardholders preload the cards with funds via a cash deposit or wire transfer. There are no finance fees or interest payments as charges are deducted from the prepaid balance. It is an opportunity for people who have had little or no access to the mainstream financial system by loading funds onto a prepaid card. It is a secure and convenient alternative to cash. Various types of Prepaid Cards are – Re-loadable Cards (value is replenished once it is used), Disposable Cards (discarded once the value is used), Closed Cards can be used for a specific purpose (Phone Cards) and Open Cards (multi-purpose). Re-loadable cards are most popular among “under-banked” individuals, or those who tend not to possess conventional bank accounts.

xii) RuPay Cards: It is a domestic card payment network established by National Payment Corporation of India (NPCI) having more than 100 Banks in India as members with its ATM network spread across the country. These cards can be used in all the ATMs of NPCI network and POS terminals & e-com transactions (Internet) enabled for RuPay acquiring. The various types of RuPay cards are as under:

Card TypeMeant for
RuPay KisanFarmers availing Agriculture production loans (Crop Loans)
RuPay AadhaarBeneficiaries of Electronic Benefit Transfer (EBT) scheme
RuPay DebitBeneficiaries under Financial Inclusion schemes

The existing identification modes used in new delivery channels has a major drawback as it recognize the PIN but not the person. Sometimes, it leads to impersonation and may cause financial loss. To overcome the problem, biometric technologies such as Fingerprint Recognition, Face Recognition, Voice Authentication, Hand Geometry, Retinal Scanning, Iris Scanning and Signature Verification have come in to force. Whenever the user access to delivery channel, it verifies with the server and deliver the service if found correct.

Electronic Payments – Recent developments: Government of India urged the banks to take appropriate effective measures for promotion of transactions through electronic mode, such as:

  • Popularizing NEFT/RTGS platforms for transfer of funds among public and at par NEFT for transactions upto  1 lac.
  • Issuance of Debit cards to all eligible accounts.
  • Any Branch Banking is allowed without any charges.
  • Encouraging institutions and organizations to pay wages and salaries of their employees through banking channels preferably e-mode.
  • It is directed that all payments handled by banks to their customers, vendors, suppliers will be done electronically from 1st July 2012 onwards.
  • The validity period of cheques/demand drafts is reduced from 6 months to 3 months with effect from 1st April 2012 to discourage discounting of negotiable instruments.
  • NPCI initiated steps to popularize ‘RuPay’ where Debit/Credit card payments are being routed through Indian e-service intermediaries which bring down the costs and improve their acceptability.
  • Merchant Discount Rate (MDR) is the fee that merchant establishment pays to the terminal deploying bank (Acquiring Bank), which play vital role in Point of Sale (POS) transactions. Recently, RBI advised banks to cap MDR at 0.75 percent for transactions up to  2000/- and 1 percent for transactions above  2000/- to popularize POS transactions using Debit Cards.
  • Banks are advised to promote Credit/Debit cards to pave the way for cashless economy. Further, card based transactions leave adequate audit trails and hence disincentives black money generation.
  • The practice of taking Post-dated Cheques (PDCs) from the borrowers is stopped forthwith and advised banks to obtain ECS (Debit) mandate from borrowers.