Future of Payment Solution and Messaging Standards

When we talk about payment solution and messaging standards only one International Organization meets all the requirements and that is SWIFT – The Society for Worldwide Interbank Financial Telecommunication. It has taken the onerous responsibility of standardizing all the various types of messages originating between two financial Institutions engaged in international trade. They are the authority for giving Bank Identifier codes (BIC) to Financial Institutions and Business Entity Identifier (BEI) to non Financial Institutions/Corporates under ISO 9362. They have put an end to the earlier Telex and Telegraph system of communication and introduced the benefits of the technical advancement in Telecommunication and Computer Technology in the way banks communicate with each other. One of the major areas covered is the Payment Solution and over a period of time it has been fine tuned to take care of the latest requirement of Know Your Customer (KYC) and Anti Money Laundering (AML) norms.

RTGS or Real Time Gross Settlement payment systems of various countries are integrated with SWIFT, e.g. SEPA, TARGET 1 and 2 etc. In our country the RTGS payment solution used for settling funds is similar to SWIFT called The Structured Financial Messaging System (SFMS). This system is controlled by the Reserve Bank of India (RBI) and all banks have to subscribe to the same. RBI has made two Payment Solution systems for India – National Electronic Fund Transfer (NEFT) and RTGS. Payments below Rupees One lakh are sent by NEFT and above One lakh are sent by RTGS. The reason behind it is not to overload the payment network as there is a heavy load of small value payments.

The hardware and software infrastructure required to run SWIFT is very simple. The Swift system can work in Unix and Windows operating systems and a suitable server may be configured as required by the bank looking into the volumes and load.

The softwares available in India for the SWIFT Solution are:

1. Swift Alliance Gateway (SAG) & Swift Alliance Access (SAA) – Product of SWIFT Scrl, Belgium.
2. Turbo SWIFT – A product of Bank Serv, London.

Though there are many other vendors of SWIFT software approved by SWIFT but they do not provide service in India. For RTGS transfers the software prescribed by RBI is to be purchased.
The Telex service in India has been discontinued and there is no other system to communicate between banks apart from SFMS provided by RBI, which is still not used by all the banks. Only the payment solution of FMS i.e. payment messages are used by banks to make payments between them. Other types of SFMS messages are not used by the banks.

If Payment Solution is taken we have to consider the various methods used for payments.

1. National Payments Corporation of India (NCPI) – a Company which operates retail payments.
2. Centralized Funds Management System (CFMS) – Facilitating own account funds transfer across offices of the bank. CFMS is used as a mode of funds transfer to achieve National Settlement System (NSS).
3. RTGS – available at more than 55,000 branches across the country.
4. NEFT – available at more than 55,000 branches across the country (NEFT is extended to NEPAL under the Indo Nepal remittance Facility Scheme).
5. National ECS (NECS) – NECS leverages on the core banking enabled network of bank branches with access from a centralized location, thus providing pan-India coverage.
6. Local ECS extended to 76 major locations in the country.
7. Cheque Truncation System (CTS) successfully implemented in New Delhi and MICR clearing discontinued.
8. MICR Cheque Processing centres (MICR-CPCs) at 71 places.
9. Speed clearing was made operational to provide a facility for realization of outstation cheques at the local centre of deposit. It is available in 64 MICR-CPC locations across the country.
10. Mobile Payments using mobile phones – as per the guidelines issued in October 2008.
11. Automated Teller Machines (ATM) Payments – Now any customer of any bank can withdraw money from any ATM free of cost for a limited number of times every month. Further other operations like making a payment for credit card or paying or recharging your mobile or making payment of bills are all possible through ATM’s.
12. Payment through Credit Cards or Debt Cards.
13. Clearing Corporation of India Limited (CCIL) is used by banks to settle interbank deals and payment done by single settlement at the end of day.
14. Multicity Cheques issued for the use of local payment in different cities.

RBI has planned to improve the payment system further by 2012 and some of the steps in that direction are:

1. Implementing a feature rich new RTGS System: RBI is planning to move to a new version of RTGS where technological advancements are leveraged to provide better features and scalability. It will be similar to RTGS available in other countries which will enhance the flexibility in operations and liquidity saving features.
2. India Moneyline – a 24 x 7 system for one to one fund transfer: At present the NEFT system operates from 9 am to 5 pm and up to 12 noon on Saturdays. RBI is considering extending NEFT operations on 24x7 basis which is similar to United Kingdom.
3. India Card – A domestic card initiative: At present the Indian Banks are using Visa and Master Card affiliations where in the domestic payments amounting almost 90% of the total volume are being routed and processed through a switch located outside the country. Due to the absence of a domestic price setter the Indian Banks are paying a high cost for this facility. Therefore the apex bank is considering a similar domestic payment card – INDIA CARD, and PoS switch network for issuance and acceptance of payment cards.
4. Redesigning ECS to function as a true Automated Clearing House (ACH) for bulk transactions: At present 76 centres have the local ECS for bulk transactions like ‘one to many’ and ‘many to one’ functions. These processes are being centralized by launching NECS at Mumbai. The indigenously developed ECS/NECS is being redesigned to make it a feature rich, hi-tech ACH network to provide end to end STP.
5. Mobile payment settlement network: Mobile Phones are emerging as an important tool for transmission of payment instructions. The key to make mobile payments efficient is adequate security and Real Time transfer. At present the banks are using the existing payment systems for settling interbank mobile transfers. RBI is planning to build a national infrastructure for facilitating Real Time Mobile Payments.

Contributed By:
Mr. K.R.S. Mani