Ram lives in Mumbai and wants to send money to Shyam who lives in Kanyakumari. Ram is worried as to which could be the quickest means of sending money, to reach Shyam in the shortest time?
With Technological advancement, Indian Banks have introduced several payment modes through which money can be transmitted quickly and efficiently and effectively (in a more secured way). Payment and settlement systems in India are regulated by the Payment and Settlement Systems Act 2007 (PSS Act) legislated in December 2007.
Payments can be made through various electronic modes and settlement systems, which are both Gross and Net settlement systems.
Gross System is:
- Real Time Gross Settlement System (RTGS) and
The Net Settlement systems are:
- ECS – Credit
- ECS – Debit
- Credit Cards and Debit Cards
- National Electronic Fund Transfer (NEFT)
- Inter Bank Mobile Payment System
- Indo-Nepal Remittance facility Scheme
Under Inward and Outward Clearing, Cheques are issued by one person with his account in a particular bank which is deposited by B in his account with another bank. All Banks, assemble at RBI for exchange of cheques and thus, both inward and outward clearing is a form of conventional Net Settlement system. With the introduction of CTS (Cheque Truncation System) the process time is drastically reduced and the credits are given the same day in real terms.
Automated Clearing House – ACH:
This is an electronic funds-transfer system run by the National Automated Clearing House Association. This payment system deals with payroll, Deposits, tax refunds, consumer bills, tax payments and many more payment services.
ECS Credit is for crediting a large number of beneficiaries (for instance, employees, investors etc.) having accounts with different bank branches at various locations within the jurisdiction of a ECS Centre wherein a single debit is raised to the bank account of the user institution. Also, ECS Credit is used for payment of amounts towards distribution of dividend, interest, salary, pension, etc., of the user institution.
ECS Debit is used by an institution for raising debits to a large number of accounts (for instance, consumers of utility services, borrowers, investors in mutual funds etc.) maintained with different bank branches at different locations within the jurisdiction of a ECS Centre for single credit to the bank account of the user institution. ECS Debit is useful for payment of telephone / electricity / water bills, Cess / tax collections, loan installment repayments, periodic investments in mutual funds, insurance premium etc., These are period payments in nature and amount is payable to the user institution by large number of customers.
Automated Teller Machines:
In their effort to enable customers to make payments the electronic way banks have developed many channels of payments viz. the internet, mobiles, ATM’s (Automated Teller Machines) and drop boxes. Money can be obtained or transferred instantly through an ATM which is available 24×7.
Payments can be received through ATM/Debit/Credit cards through out the day ie., 24×7. Another notable innovation in the plastic money area is co branded credit cards. Here many services are combined in to one card wherein banks and other retail outlets viz Stores, Airlines, Telecom Companies go for a tie up which obviously increases the utilization of these cards, thus making the usage of cards, at a Point of Sale (POS) terminals, and also during the time of making payment through internet.
This is also known as online banking, and is an outgrowth of PC banking. Internet banking uses the Internet as the delivery channel to conduct banking activity, for example, transferring funds, paying bills, viewing checking and savings account balances, paying mortgages, and purchasing financial instruments and certificates of deposit. An Internet banking customer accesses his or her accounts from a browser— software that runs Internet banking programs residing in the bank’s World Wide Web server, not on the user’s PC.
Core Banking System:
With a unique ID / Account Number the accounts of the customers can be viewed centrally by the bank. As such, customer profile, details of products and services availed by therein and customer behavior about business of the bank can be well understood. Customers can operate their account from any of the bank’s branches. More service channels are made available to the customer. Customer gets immediate credit if the transaction is between the branches of the bank and if both the customers have their account with the same bank. Here amount is transferred immediately and the time gap is only the transmitting time.
SWIFT Message Transmission System:
The acronym stands for Society for Worldwide Interbank Financial Telecommunications. SWIFT is a co-operative society. SWIFT also acts as a United Nations sanctioned International Standards Body (ISO) for the creation and maintenance of financial messaging standards. SWIFT provides a number of services which attract charges over and above the normal fees. A few of these are:
- IFT (Interbank File Transfer) -For bulk file transfer of messages including transfer of money, for example low net value, high volume retail payments.
- ACCORD – A centralized confirmation matching bureau service.
- Directory Services – An automated and centralized Standard Settlement Instruction service for message enrichment that at present is limited to Treasury and Payment information.
- RTGS (Y-copy) – Mostly used for sending a copy of a message or parts thereof to a third party, for example a Central Bank.
- Country Specific (e.g. CREST, CHAPSEuro) – Where SWIFTs are either the carrier of the messages or the supplier of additional network services.
Real Time Gross Settlement System(RTGS):
RTGS system is a funds transfer mechanism where transfer of money takes place from one bank branch to another bank branch on a “real time” and on “gross” basis. This is the fastest possible money transfer system through the banking channel. Settlement takes place in “real time” which means payment transaction is not queued or staggered subjecting the transaction for any waiting period. The transactions are settled as soon as they are processed. “Gross Settlement” means the transaction is settled on one to one basis without bunching with any other transaction. Considering that the money transfer actually takes place in the Books/System of Reserve Bank of India, the payment is taken as final and irrevocable.
National Electronic Funds Transfer (NEFT):
NEFT is an electronic payment system to transfer funds from any part of the country to any other corner of the country and works on Deferred Net Settlement (DNS), unlike RTGS that works on Gross Settlement. EFT is also a Deferred Net Settlement system but is restricted to the 15 RBI Centres. Like RTGS, here also amount gets credited to the beneficiary’s account through STP (Straight Through Process) without any manual intervention. The detailed list of branches of various banks participating in NEFT system is available on the RBI website. The NEFT System, like RTGS, also uses the State-of-the-Art technology for the communication, security etc. and thereby offers means of providing better customer service.
Indo Nepal Remittance Facility:
Indo-Nepal Remittance Facility is a cross-border remittance scheme to transfer funds from India to Nepal, enabled under the NEFT Scheme. The scheme was launched in order to provide a safe and cost-efficient avenue to migrant Nepalese workers in India to remit money back to their families in Nepal. A remitter can transfer funds up to INR 50,000 (maximum permissible amount) from any of the NEFT-enabled branches in India. The beneficiary would receive funds in Nepalese Rupees.
Inter Bank Mobile Payment System:
Immediate Payment Service (IMPS) is an initiative of National Payments Corporation of India (NPCI). Here, money is transferred immediately from one account to the other account, within the same bank or accounts across other banks. On registering for the service, both the individuals are issued an MMID(Mobile Money Identifier) Code from their respective banks. This is a 7 digit numeric code. To initiate the transaction, the sender in his mobile banking application need to enter the registered mobile number of the receiver, MMID of the receiver and amount to be transferred. Upon successful transaction, the money gets credited in the account of the receiver instantly. This facility is available 24X7 and can be used through mobile banking application. Many banks also provide this service through internet banking profile of their customers and offer this facility free of cost to encourage paperless payment system. However, some banks charge for this service.
- Banks also provide telephone and mobile banking facilities. With the assistance of call agents payments can be made conveniently. Since the number of telephone and mobile subscribers are expected to rise, this channel of payment is expected to gain popularity.
- Drop boxes provide a solution to those who have no access to the internet or to a telephone or mobile. These drop-boxes are kept in the premises of banks and the customers can drop their bills along with the bill payment slips in these boxes to be collected by third party agents.
The Technology however is paving way for more improvised Payment Systems across.