Bridging the tech mile for payment banking

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.

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

The CIO’s thinking cap:

The main game changers would be to convert brick and mortar payment transactions into complete digital transactions without conventional branch banking, thus bringing in digital banking in the payment banks space. This way, it would support the GoI’s focus and interest of facilitating electronic transactions from cash to cashless economy with reference to cashless payment system in India, as per a roadmap project by IIT, Mumbai.

The future holds great potential for digital currency / virtual currency, under the efforts of high level committee for preparation of the Information Technology Vision Document 2011-2017, released by RBI in 2011, which throws light and information on CIOs for implementing IT projects / strategies. Mobile wallets on each smart phone also would be an innovative platform for these payment banks to tap today’s tech savvy generation. Disruptive technology in areas like funds transfer, foreign currency conversion, IMPS are few more thresholds for payment banks to venture into, the RBI said in the document.

Mani of Deloitte India says that CIOs will need to be in lock-step with product heads. They will need to work backwards from consumer problems/ desired consumer experience. A clear focus on the biggest problems faced by consumers in their target markets and choosing the smallest amount of functionality required to solve the same, will be an important success factor since payment banks are going to be focused on fast time-to-market.

Further, whatever the technology, it should feature high levels of availability, performance and scalability. So addressing the fundamentals in this area would be critical.

Karpe of TechProcess adds that a CIO will have to look at the security aspect of a payment bank gateway holistically. CIO’s also need to ensure a smooth interface while customers make use of remittance or deposit facilities on their on their desktops, laptops or mobile devices.

Instead of developing an in-house infrastructure, it is ideal to look for a ready-to-use application program interface (API), he suggests.

Accordingly to Nagpal, CIOs should adopt asset-light IT strategy - a variable cost model would suit best.

One of the safest jump-start strategies should be to form strategic alliances-in one form or other-with existing payment/fintech companies. One can then decide future course of action including additional investment depending upon market learning, he advises.

Vivek Dharia, CIO, NKP Securities, feels, "As a CIO, we have to look at payment banks’ mobile design which encourages development of simple, streamlined and easy-to-navigate interfaces that work well on the go it’s easier for us to maintain one system across all devices and platforms like desktops, notebooks, laptops, tablets etc.’’

Best practices:

A few principles that will help accelerate implementation for payment banks are:

• Focusing on what matters and not trying to do too much too soon
• Testing early and testing often, whether it’s customer experience, technology or operations
• Defining business requirements clearly, even if it seems time consuming, so that there’s minimal rework required
• Drawing conservative time estimates for external dependencies (such as clearances for inter-bank operations) so that there is a more realistic setting of expectations
• Starting the hiring process early on in the program so that there’s more time to get high quality talent

Conclusion:

The issuance of the in-principle nod for the Payment Bank license will drive India towards a cashless economy. For this, organizations need to look at a solution that facilitates transactions on a comprehensive multi-mode payment platform. Organizations need to opt for superior payment checkout options that enable an end consumer to complete transactions securely, and with minimal taps.

Organizations need to look at a solution that converts an existing mobile device into Virtual POS so that they can accept and deposit money easily and bring in the offline merchants online thus leading to financial inclusion.