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When your monthly salary lands in your bank account, little do you realise that there is huge virtual machinery at work to make sure that the payment is handled smoothly, and with speed. The RBI, along with a host of banks, is working behind the scenes to move the economy to electronic payments. In this interview Praveena Rai, Senior Vice President, Product Management Head, Global Payments and Cash Management, HSBC, talks about the evolving electronic payment systems.
What will be the key movers of the electronic payment system in the coming years?
The three key movers that are likely to drive the next wave are:
- Mobile payment infrastructure that facilitates payment using the phone, for example Interbank Mobile Payment Service (IMPS)
- Low value electronic payment channel for bulk payments, which is the National Automated Clearing House (NACH)
- Cheque clearing using scanned images through the Cheque Truncation System (CTS)
These infrastructure developments combined with the RBI’s move to disincentivise paper (cheques, drafts, cash) are the game changers.
What are the benefits of using IMPS?
IMPS enables funds transfer between people using the mobile phone on a 24x7 basis.
Right now, IMPS can be used in a manner very similar to how you make NEFT payments, using the bank account number and the bank code – only that with IMPS it is done using the phone.
What makes it even more scalable is the fact that transactions can be made using a simple Rs 2,000 phone, making this extremely accessible.
With mobile penetration as high as it is in India, the reach provided by this system is unprecedented.
IMPS is also very convenient for the end consumer for making payments. Recently, HSBC provided Reliance Capital Asset Management a solution to collect mutual fund investments through IMPS. With IMPS, you can invest on-the-go.
IMPS is a completely safe channel. For transactions above Rs 5,000, there are certain security parameters that have been put in place to ensure safety. Moreover, each time you make a transaction, you instantly receive an SMS alert.
What about the ACH system?
NEFT and RTGS are ‘transaction-by-transaction’ whereas ACH is a low value, bulk payment system. Very often, when you join a new company, you are required to open your salary accounts in a specific bank – with ACH, it will not matter which bank your account is held with.
As a customer of an NBFC or a bank, when you take a loan, you are usually asked to sign an ECS mandate, to debit your account.
With an ACH mandate, the registration, which previously took 15-20 days, will take just about 2-3 days. This means that for a loan payment, you will possibly not need to give the cheque for the first instalment – the NBFC or bank will be able to debit your account using ACH right from the first instalment.
Will the CTS also make payments more efficient?
With CTS, cheques will no longer need to physically move as the clearing will be done using an image of the cheque. This means that the cheques will clear much faster.
For CTS to take place smoothly all bank cheques have been standardised. The flip side of CTS is that due to cheques being cleared quickly, you will see your payments also going out faster – you will no longer be able to enjoy the few days of funds in your account due to the time taken for cheque clearing.
How is the RBI disincentivising cheques?
The RBI recently released a white paper on ‘Disincentivising Issuance and Usage of Cheques’ which suggests various ways to discourage customers from using cheques.
Today cheques are free, no corporate or retail customer pays anything and that’s the industry’s practice. Interestingly, RBI has never told the banks not to charge. But RBI is now saying ‘why don’t you charge for cheques?’. Another thing being suggested is total stoppage of cheques above a threshold limit which is common practice in various countries across the world. The paper also talks about stopping instalment wise post-dated cheques taken for loans issued to customers – instead the EMI payments should be through electronic payments.
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