Payments and transaction processing systems - Global and Indian Overview

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  • A payment system is a configuration of institutions supported by a technology infrastructure and driven by processes to facilitate financial transfers between payer and beneficiary. Payment systems have increasingly come into the fore with the advent of global business transactions and increasing consumerism. The gamut of payment systems ranges from traditional payment instruments such as Cheques and Bank Drafts to the relatively contemporary Credit/Debit Cards, RTGS, SWIFT and finally the latest Mobile Payments.The purpose of this study is to deep-dive into select payment and transaction processing systems to understand how these systems deliver value for the global business community and the consumer with a network of interdependencies and complex business models. Additionally, the study shall focus on the new & upcoming game changers in the payment systems arena.
  • The table gives an idea about the preferentialusage pattern of financial products powered by modern payments systems
  • Payments and transaction processing systems - Global and Indian Overview

    1. 1. Payments & Transaction Processing Systems<br />Global and Indian Overview<br />
    2. 2. AGENDA<br />Introduction<br />Global regulatory framework<br />Regulatory framework in India<br />How banks transact?<br />How customers transact?<br />Specialized companies operating in each area<br />Market share<br />Critical success factors<br />Risks<br />
    3. 3. AGENDA<br />Introduction<br />Global regulatory framework<br />Regulatory framework in India<br />How banks transact?<br />How customers transact?<br />Specialized companies operating in each area<br />Market share<br />Critical success factors<br />Risks<br />
    4. 4. INTRODUCTION<br />Payment Systems: A configuration of institutions supported by a technology infrastructure and driven by processes to facilitate financial transfers between payer and beneficiary<br />Bank B<br />Bank A<br />Messaging and Routing Platform<br />Securities Clearing & Settlement<br />Large Value Clearing & Settlement<br />Retail Clearing & Settlement<br />
    5. 5. AGENDA<br />Introduction<br />Global regulatory framework<br />Regulatory framework in India<br />How banks transact?<br />How customers transact?<br />Specialized companies operating in each area<br />Market share<br />Critical success factors<br />Risks<br />
    6. 6. BIS-CPSS – Standards set by PSDG via World Bank<br />Source: World Bank<br />
    7. 7. Global Regulatory Framework<br />Payment, Remittances & Securities settlement systems represent a basic infrastructure for the functioning of market economies<br /><ul><li>Sound PRSS are Essential for Financial System Stability & Development
    8. 8. Large value payments in a year - more than 50 times global GDP
    9. 9. Growth in total amounts settled by RTGS - 86% between 2002 and 2006 and 82% of the value of total payments
    10. 10. Safe PRSS Mitigate Risks in Financial Markets
    11. 11. Financial market crises reflect first in payment systems
    12. 12. Interbank money market relies heavily on ability to transmit funds
    13. 13. Efficient PRSS Lead Countries to Huge Savings
    14. 14. Progressive shift from paper-based to electronic payments can produce a potential saving to the country of 0.7% of the GDP per year
    15. 15. PRSS are Key in Developing More Inclusive Financial Systems
    16. 16. Enhances access to financial services
    17. 17. Retail payments services first entry point of underserved into financial sector</li></ul>Source: World Bank<br />
    18. 18. AGENDA<br />Introduction<br />Global regulatory framework<br />Regulatory framework in India<br />How banks transact?<br />How customers transact?<br />Specialized companies operating in each area<br />Market share<br />Critical success factors<br />Risks<br />
    19. 19. Regulatory Framework in India<br />Regulatory Acts & Provisions:<br /><ul><li>The Payment and Settlement Systems Act, 2007 – (PSS)
    20. 20. Board for Regulation and Supervision of Payments and Settlement Systems Regulations, 2008
    21. 21. Payment and Settlement Systems Regulations, 2008 </li></ul>The PSS Act stipulates that no person other than the Reserve Bank of India shall commence or operate a payment system, except under and in accordance with an authorisation issued by the Reserve Bank of India as per the provisions of the PSS Act<br />RBI is empowered to prescribe:<br /><ul><li>Format of payment instructions
    22. 22. Size and shape of instructions
    23. 23. Timings to be maintained by payment systems
    24. 24. Manner of funds transfer
    25. 25. Criteria for membership </li></ul>Source: Reserve Bank of India<br />
    26. 26. AGENDA<br />Introduction<br />Global regulatory framework<br />Regulatory framework in India<br />How banks transact?<br />How customers transact?<br />Specialized companies operating in each area<br />Market share<br />Critical success factors<br />Risks<br />
    27. 27. How Banks Transact and Settle with Each other? <br />Interbank funds transfer systems are arrangements through which funds transfers are made between banks for their own account or on behalf of their customers<br /> <br />Different systems for different purposes:<br /><ul><li>Fund transfer systems for Large Value transactions
    28. 28. Fund transfer systems for Large Volume of low value payments </li></ul>Key elements of fund transfers:<br /><ul><li>Transfer of messages (information) between the banks
    29. 29. Settlement – Actual transfer of funds between the payer’s bank and payee’s bank</li></li></ul><li>RTGS / NEFT <br /><ul><li>Gross Settlement System
    30. 30. Processing and final settlement can take place continuously
    31. 31. Real time settlement transactions are final once they take place
    32. 32. Ability to limit system risks. Reduces the duration of credit and liquidity exposures
    33. 33. Intra-day Liquidity requirements: Central banks of each country need to define how intra-day liquidity for banks will be covered. Most central banks have a policy to cover short-term credit requirements for the banks in case of insufficient funds</li></ul> <br /> <br /><ul><li>Net Settlement System
    34. 34. Batch programs run at definite points on a business day
    35. 35. Transactions are bunched and sent over to the other banks
    36. 36. Typically low value and high volume transactions
    37. 37. Amounts less than Rs.1,00,000 in India are to be routed via NEFT and above by RTGS</li></li></ul><li>SWIFT – Society for Worldwide Interbank Financial Telecommunication<br /><ul><li> SWIFT operates a worldwide financial messaging network which exchanges messages between banks and other financial institutions
    38. 38. The majority of international interbank messages use the SWIFT network. As of September 2010, SWIFT linked more than 9,000 financial institutions in 209 countries and territories, who were exchanging an average of over 15 million messages per day
    39. 39. SWIFT established common standards for financial transactions and a shared data processing system and worldwide communications network</li></ul>Source: SWIFT<br />
    40. 40. AGENDA<br />Introduction<br />Global regulatory framework<br />Regulatory framework in India<br />How banks transact?<br />How customers transact?<br />Specialized companies operating in each area<br />Market share<br />Critical success factors<br />Risks<br />
    41. 41. How Customers Transact?<br />Conventional Mode<br /><ul><li>Involves the Buyer & Seller to have a Bank A/C and transact via it
    42. 42. In cash payment a buyer withdraws from his/her account, transfer of cash to the seller, and the seller deposits the payment to his/her account</li></ul>Electronic Mode<br /><ul><li>Assuming a customer does ticket booking online using his card
    43. 43. The Buyer has A/C with Bank A & Seller with Bank B
    44. 44. In the above scenario be a payment gateway will be hosted by an intermediary
    45. 45. This intermediary acts as the gateway between the Seller / Buyer & Bank A / Bank B</li></li></ul><li>Popular Modes of Transaction<br />
    46. 46. Future Payment Options – UID + Mobile Banking<br />
    47. 47. Current Environment for mBanking<br />Barely 34% of the Indian Population is formally banked<br />The Balance population sits above the poorest of the poor and just below the customers targeted by most banks<br />34%<br />India has second highest number of unbanked households in the world About 135 Million households<br />The current pool of financially excluded population has a huge potential to become viable banking customers with the proper business model and governmental support<br />40%<br />40% of Indians who have a savings account use it less than once a month<br /><ul><li> With 550M active mobile subscribers, far more than banked population. There is a huge market which can be tapped through mobile banking
    48. 48. Under the UID initiative of Government of India, it can be possible to provide mobile banking to the people with access to Mobile phones </li></li></ul><li>Bank led models<br />Operator led models<br />Hybrid models<br />mBanking - Business Models<br />Person 2 Person<br />Domestic remittance<br />Merchant Pay<br />Bill Pay<br />PrePaid Top Up<br />Micro Lending / Insurance<br />Mobile Check out<br /><ul><li>Currently mobile banking is very popular in Japan, South Korea, Philippines and Kenya.
    49. 49. All these countries have one thing in common, the largest operator (>60 per cent market share) has in some form tied up with a large national bank to offer mobile banking services. This kind of a relationship provides sufficient leverage in creation, distribution and maintenance of services.
    50. 50. Goods purchase through mobile phone. The payments are either debited from their pre paid cards or charged to the customer in their post paid bills.
    51. 51. Usage of talk time as currency
    52. 52. Focus on Banking
    53. 53. Focus on Transactions</li></ul>Services offered<br />Source: Obopay<br />
    54. 54. AGENDA<br />Introduction<br />Global regulatory framework<br />Regulatory framework in India<br />How banks transact?<br />How customers transact?<br />Specialized companies operating in each area<br />Market share<br />Critical success factors<br />Risks<br />
    55. 55. Companies in the Industry<br />Source: Wikipedia<br />
    56. 56. Companies in the Industry<br />Source: Wikipedia<br />
    57. 57. AGENDA<br />Introduction<br />Global regulatory framework<br />Regulatory framework in India<br />How banks transact?<br />How customers transact?<br />Specialized companies operating in each area<br />Market share<br />Critical success factors<br />Risks<br />
    58. 58. Market Share of Customer Payment Modes<br />Source: Reserve Bank of India<br />
    59. 59. Market Share of Each Payment Mode – Macro Economic Level - India<br />Source: Reserve Bank of India<br />
    60. 60. AGENDA<br />Introduction<br />Global regulatory framework<br />Regulatory framework in India<br />How banks transact?<br />How customers transact?<br />Specialized companies operating in each area<br />Market share<br />Critical success factors<br />Risks<br />
    61. 61. Critical Success Factors of Payment Systems<br />
    62. 62. AGENDA<br />Introduction<br />Global regulatory framework<br />Regulatory framework in India<br />How banks transact?<br />How customers transact?<br />Specialized companies operating in each area<br />Market share<br />Critical success factors<br />Risks<br />
    63. 63. Risks in Payment Systems<br />
    64. 64. Akshay Kaul <br />Nitesh Chadha<br />Pradeep Ravichandran <br />

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