Impacting Affairs

Digitalization of Indian Banks and Its way of Banking

We will be discussing Indian Digitalization Banking Reforms in this article. India being pushed towards adopting digitalization of financial transactions for past 10 years. Government of India aims to be less dependent upon printed currency. Demonetization has been a key driver to the digitalization push. Citizen use digital ways of transactions with no option left over since demonetization.

Reserve Bank of India has taken a major initiative to develop Indigenous IMPS – Immediate Payment Service System, UPI – Unified Payment Interface and RuPay Card Payment Processing System through NPCL – National Payment Corporation Limited.

Previous options to transact financial transactions digitally: 

• Credit Card 
• Debit Card 
• RTGS – Real Time Gross Settlement
• NEFT – National Electronic Fund Transfer 

Options to transact financial transactions digitally post digitalization push by Government of India: 

• IMPS – Immediate Payment Service 
• UPI – Unified Payment Interface 
• RuPay Card Payment Processing System 

Credit Card 

Credit Cards got major transaction boost in past 15 years only. Bank or NBFCs issue Credit Cards as a consumer loan or debt with certain monthly transaction limit based on customer credit score. Credit Card comes with extended payment due date from 30 days up-to 45 days based on the transaction date. Credit limit gets replenished upon the payment of credit card dues every month. Issuer Bank can recover interest on pending dues subject to the issuing terms if, customer fails to pay the due amount.  

Debit-cum-ATM Card 

Banks issue Debit-cum-ATM Card to facilitate cash withdraw from the linked bank account through ATM (Any Time Money) Machine and facilitate online payments through it. Debit Cards and credit cards works differently. Transaction amount gets deducted from bank account linked in real time with debit cards. 

RTGS – Real Time Gross Settlement 

RTGS transfers from one bank account to another bank account across the banks. It provides settlement across the bank on a gross basis and applicable to high value transactions generally, 2 lacs and above. It uses IFSC (Indian Financial System Code) Code assigned to bank branches and bank account number. The bank charges amount to compensate the cost of operation for the RTGS facility. Reserve Bank of India announced on 11 Jun 2019 that RTGS bank charges will be waived from 1 July 2019. It also asked bank to pass on benefit to its customers. Earlier, RTGS system works on slot basis, but RBI announces  that RTGS facility is now operational 24×7 excluding bank holidays. 

NEFT – National Electronic Fund Transfer 

NEFT helps transfer from one bank account to another bank account across the banks, introduced in November 2005 without any transaction limit. It does not provide real-time settlement. Batches run half an hourly in order to speed up the transaction for NEFT. It requires IFSC (Indian Financial System Code) Code assigned to bank branches and bank account number.

IMPS – Immediate Payment Service 

IMPS is a payment system developed by NPCI, National Payment Corporation of India to transfer money instantly. It transfers money instantly from one bank account to another bank account within bank and across banks. It is available 24×7 including bank holidays. It uses MMID (Mobile Money Identifier) Code, 7 Digit numeric code issued upon registration. It additionally uses IFSC Code and bank account number without any registration. It is different from RTGS and NEFT because of its availability. 

UPI – Unified Payment Interface 

UPI is an interface over IMPS. It provides UPI ID with pin facility just like email id to secure bank account number. It also provides security masking feature over IMPS facility.  

RuPay 

National Payment Corporation of India developed the Indian Multinational Financial and Payment Services System, Rupay, launched in 2014. Rupay has product types such as Credit Card, Debit Card, Contactless smart card, store value card, prepaid card etc. All Merchant Discount Rate eliminated for RuPay transactions to push for digitalization and promote Rupay Card from 01 January 2020. Further, all Indian companies with annual turnover exceeding Rs. 50 Crores have been asked to offer rupay payment services to their customers.  

We will discuss and explain remaining reforms in upcoming articles of the Indian Digitalization Reforms series.