ROLE OF BANKING IN ELECTRONIC PAYMENT
The advent of Internet has initiated an electronic revolution in the global banking sector. The dynamic and flexible nature of this communication channel as well as its ubiquitous reach has helped in leveraging a variety of banking activities. New banking intermediaries offering entirely new types of banking services have emerged as a result of innovative e-business models. The Internet has emerged as one of the major distribution channels of banking products and services, for the banks in US and in the European countries.
Initially, banks promoted their core capabilities i.e., products, services and advice through Internet. Then, they entered the e-commerce market as providers/distributors of their own products and services. More recently, due to advances in Internet security and the advent of relevant protocols, banks are playing a significant role in designing, promoting and rendering e-payment system.
E-Payment has revolutionized today’s banking by making it very fast, easy and far reaching. The expectations are growing at very fast speed on the E-Payment services. With the result, it is demanding more attention for study from various people around the globe. E-Payment has over-performed all the obsolete banking practices and the threat of security measures has also been growing with it.
SOME STEPS BY BANKS IN E-PAYMENTS
1. Online Banking ePayments (OBeP)
It is a type of payments network, developed by the banking industry in conjunction with technology providers, specifically designed to address the unique requirements of payments made via the Internet.
Key aspects of OBeP which distinguish it from other online payments systems are:
- The consumer is authenticated in real-time by the consumer financial institution’s online banking infrastructure.
- The availability of funds is validated in real-time by the consumer’s financial institution.
- The consumer’s financial institution provides guarantee of payment to the merchant.
- Payment is made as a credit transfer (push payment) from the consumer’s financial institution to the merchant, as opposed to a debit transfer (pull payment).
- Payment is made directly from the consumer’s account rather than through a third-party account.
BENEFITS OF OBEP
For consumers
- use of cash-like payment encourages responsible consumerism
- does not require set-up or registration with a third-party payments entity
- presents familiar interface to facilitate online payment
- awareness of funds availability
For merchants
- improved sales conversion / reduced abandoned carts[
- real time authorization of guaranteed ACH payment (good funds)
- offering preferred payment methods may drive repeat transactions
For financial institutions
- recapture revenue being lost to alternative payment providers
- encourages consumers to move to online banking, replacing more costly branch and telephone alternatives
Potential downfalls
The idea of online payments and transactions has led numerous individuals, corporations and groups to be hesitant. Sharing of personal information to such a vast entity, such as the internet, can lead to potential problems. Remaining cautious and careful with what information is shared and to whom it is shared with is key in remaining safe and secure when using e Payments.
- Identity theft is prevalent with online transactions
- No face-to-face interaction for help, questions, issues
- Website issues can hinder the ability to make payments in a timely manner
- Passwords - sometimes remembering a password can be difficult and with something as important as an ePayment website, it is crucial this information is not lost or forgotten
2. RESERVE BANK OF INDIA (RBI) MEASURES
The Reserve Bank of India (RBI) has played a significant role in developing the payment and settlement systems in the nation from its establishment. The emergence of e-commerce has created new financial requirements that in many cases cannot be effectively fulfilled by the
traditional payment systems. To recognizing these needs the RBI has implemented bank computerisation project in India and providing ICT based networking facilities to the banks and financial institutions in India. Since 1991 the RBI has started 'BANKNET' it is network for banking institutes other than Banknet The 'INFINET' - Indian Financial Network is a satellite based wide area network using VSAT (Very Small Aperture Terminal) technology set up in June 1999.
Role of the RBI in Encouraging E-Payments
• As the apex financial and regulatory institution in the country it is compulsory for the RBI to ensure that the payments system in the country is as technologically advanced as possible and in view of this aim, the RBI has taken several initiatives to strengthen the e-payments system in India and encourage people to adopt it.
•The Payment and Settlement Systems Act, 2007 was a major step in this direction. It enables the RBI to “regulate, supervise and lay down policies involving payment and settlement space in India.” Apart from some basic instructions to banks as to the personal and confidential nature of customer payments, supervising the timely payment and
settlement of all transactions, the RBI has actively encouraged all banks and consumers to embrace e-payments.
In pursuit of the above-mentioned goal the RBI has granted NBFC’s (Non-Banking Financial Companies) the permission to issue co branded credit cards forming partnerships with commercial banks.
•The Kisan Credit Card Scheme was launched by NABARD in order to meet the credit needs of farmers, so that they can be free of paper money hassles and use only plastic money.
•A domestic card scheme known as Rupay has recently been started by the National Payments Corporation of India (NPCI),promoted by RBI and Indian Banks Association (IBA), inspired by Union pay in China, which will be promoting the use of cards i.e. “plastic money”. Initiallyfunctioning as an NPO, Rupay will focus on potential customers from rural and semi-urban areas of India. Rupay will have a much wider coverage than Visa, MasterCard or American Express cards which have always been used for card-based settlements.
•However, the Indian banking system suffers from some defects due to certain socio-cultural factors which hampers the spread of the e-ayments culture even though there are many effective electronic payment channels and systems in place. Despite the infrastructure being there nearly 63% of all payments are still made in cash. A relatively small percentage of the population pays their bills electronically and most of that population is from urban India-the metropolitans. Also in some cases the transaction is done partially online and partially “offline”. The main reason for this apathy switch to e-payments comes from lack of awareness of the customer despite various efforts by the Government.
•However, the Indian banking system suffers from some defects due to certain socio-cultural factors which hampers the spread of the e-ayments culture even though there are many effective electronic payment channels and systems in place. Despite the infrastructure being there nearly 63% of all payments are still made in cash. A relatively small percentage of the population pays their bills electronically and most of that population is from urban India-the metropolitans. Also in some cases the transaction is done partially online and partially “offline”. The main reason for this apathy switch to e-payments comes from lack of awareness of the customer despite various efforts by the Government.
3. MICR Clearing
Traditional cheque clearing process is time consuming and lengthy it affects value of transaction of settlement. To enhance speed of cheque clearing various banks around the world have started MICR cheque and MICR clearing system. Magnetic Ink Character Recognition (MICR) is a character recognition technology adopted mainly by the banking industry to facilitate the faster processing of cheque. It is called MICR clearing system. There are 64 MICR clearing centers are operated in India in 15 divisions in India. MICR technology transformed cheque processing systems by enabling the introduction of automated clearing houses.
4. Electronic Clearing System
Electronic Clearing System (ECS) is a retail payment system which facilitates bulk payments, that facilitate payments from one-to-many and receipts that are from many-to-one. ECS Scheme operated by the RBI since 1996-97, helps to make payment from a single account at a bank
branch to any number of accounts maintained with the branches of the same or other banks. ECS (Credit) also known as Credit Push facility facilitates the bulk payments whereby the account of the institution remitting the payment is debited and the payments remitted to beneficiaries' accounts. This facility is now available at 67 major centres in the country. ECS (Debit) also known as Debit Pull facility facilitates the collection of payments by utility companies.
5. On line Tax Accounting System (OLTAS)
A measure aimed at providing better facilities for the government tax collection and for tax payers was the introduction of the On line Tax Accounting System (OLTAS) with a network of various banks authorized for collection of tax receipts. The Reserve Bank and the Tax Information Repository at the National Securities Depository Ltd. (NSDL) are also part of the OLTAS. Data is captured from the channels submitted by tax payers tendered at the designated bank branches and transmitted electronically to the repository. The collection and transmission of data on tax collection have thus been made efficient on a T+1 cycle basis.
