Bridging the tech mile for payment banking

|August 21, 2015 0
Image courtesy of Salvatore Vuono at FreeDigitalPhotos.net

Sonal Desai

The RBI’s decision to give an in-principle nod to 11 enterprises for setting up payment banks has perked up the technology industry.

The simple reason being, payment banks are not just normal functioning banks; their focus is to facilitate payments through channels like gateways, mobile, Internet, etc.

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A new research report endorses the fact. Research from management consulting firm Cornerstone Advisors has found that banks and credit unions struggle with an overload of technology projects, but the remedy is having more technology—not less.

Modus Operandi:

A payment banking service should have an operational network that connects with banks accounts to provide the service of depositing and withdrawing money.

While the payment banks will not be able to issue credit cards, they can issue ATM debit cards. Since many of the 11 new license holders already operate mobile wallets, the ability to issue an ATM card will enable them to easily convert virtual money into cash and vice versa.

The concept will only be accepted by the targeted people, if infrastructural elements such as cash recyclers, cash deposit machines, point of sale (PoS) terminals, automated teller machine (ATM), Micro ATM and Adhaar payment bridge (APB) are there, opines Thyagarajan Seshadri, Vice President, Bank Relationship, Electronic Payments and Services.

Therefore, while payment banks would still need the traditional brick and mortar infrastructure, but the day-to-day cash transactions (peer-to-peer) would essentially be handled by using mobile solutions, avers Ajit Gokhale, Founder & CEO of Pune-based Mobien Technologies.

What about the payment gateways?

Payment banks should meet statutory compliance by adhering to directives by AML, FERA (FEMA) and counterfeit currency as per RBI guidelines.

According to Kumar Karpe, CEO, TechProcess Payment Services, to enable fund transfers payment banks would have to partner with payment services companies who have the supporting infrastructure and a secured payment gateway that comply with the norms set up by RBI.

A unified payments interface (UPI) across various retail channels must be considered including interoperability through multichannel payment, strong gateway to international card network for smooth accessibility and sound RuPay acceptance mechanism to migrant workers, believes Seshadri.

However, Pramod Saxena, Founder and MD, Oxigen Services, is of the view that the mobile companies that form a large chunk of the 11 payment banks, will have to firm up their platforms for payment banking.

According to him, the backend of the mobile companies comprises large subscriber data and transaction history, but payment wallets comprise far more sensitive information like customer behaviour, velocity checks, and purchasing history.

Also since the data will be interfaced with UIDAI data which is private personal data, a stand-alone system will be of little help.

Also a Frankenstein named banking fraud:

Cheating and forgery have led to public and private sector banks losing Rs 27,000 crore cumulatively in the last five years, as per information obtained by DNA under the Right to Information (RTI) Act.

And even this is just a conservative estimate with the actual losses running into several thousand crore. More than 11,500 cases of cheating and forgery involving Rs. 1 lakh and above were reported by banks to RBI. “If the smaller amounts that were not reported are also considered, the fraud amount will increase by several thousand crore,” the newspaper quotes a RBI source on condition of anonymity.

Vijay Mani, Senior Director, Deloitte India, asserts that robust fraud management is central to building and sustaining consumer trust. Both from a system and operations viewpoint, payment banks will need to have a good balance of preventive and detective techniques and highly nimble case management operations.

Since payment banks are set to be new age, asset-light digital banks, Narendra Nagpal, Industry Consultant and Angel Investor believes that security, governance, risk, and compliance must become an integral part of their foundation to a large extent- and not a bolt-on.

Next page: CIOs’ viewpoints

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