Technological Innovations in Payment Systems - Indian Commercial Banks

*Ms.K.Susmitha, Asst.Professor, Department of Business and Management studies, Gudlavalleru Engineering College, Gudlavalleru.

** Dr.S.Madhavi, Asst.Professor, Department of Business and Management studies,

Gudlavalleru Engineering College, Gudlavalleru.

Abstract:

Increased intensity of competition in the banking sector with emergence of private

sector has direct implications for financial institutions approach to customers and how they

define their business strategy. Current economic stance embraces new approaches to the

relationship between technological innovation and financial services are essential in

achieving competitive advantage. Based on this premise, the purpose of this study is to

analyze the main effects of technological innovation on banking/financial services in both

public and private sector banks. It helps to be aware the role of information technologies in

the modernization of the banking sector.

Keywords: Information technology, Banking, Innovation.

Introduction:

Electronic banking (E – Banking) is typically an extension of conventional banking, using the

internet as the medium of electrical distribution for banking goods and services. Today's

banking is redefined and re-engineered with the use of Technology, and with constant

product and process advances it is likely that the future of banking will deliver more

sophisticated services to customers. So banks are now switching from "Conventional

Banking to Convenience Banking" and "Mass Banking to Class Banking." The study

discusses multiple relevant issues related to the role of IT in banking and suggests properly

regulating IT and other cyber laws to ensure data privacy and confidentiality.

Objectives of the study:

1. To know the different technological payment systems in the banking industry.

2. To understand the awareness level and usage of technological payment systems

3. To know the benefits of payment systems in banking industry.

Sources of Data Collection: This study is based on the secondary data which is collected

from different journals, sites and published data from various issues of RBI and different

Public and private sector banks. And I have also referred various studies done on this topic

Phases of the payment systems in India:

In 1995, the Reserve Bank of India established the Information Technology Department

(DIT) to look exclusively at the computerization and modern communications network

requirements of the Reserve Bank and also to undertake advance planning for technology

upgrading in the banking sector. DIT has achieved several of the targets set for it over a span

of fifteen years. It was instrumental in the design, development and implementation of IT-

based systems which helped to discharge the Reserve Bank's various functions. The activities

of the DIT reflect the significant changes that have occurred over the last 15 years.

These are classified into three phases:

Formative Phase (1995-2000): It is the initial time when the Department of Information

Technology (DIT) concentrated on the need to use technology rapidly and effectively in

banks. In 1999, the National Payments Council was created to map out a policy structure for

payment and settlement reforms.

Stabilisation Phase (2000-2005): Through this time, DIT's emphasis shifted towards

stabilizing its responsibilities / projects. These years saw the launch of the RTGS scheme,

raising awareness of its applicability as well as setting the legal structure for its participants

'rights and responsibilities.

Maturity phase (2005-till present): In this time, DIT's key activities are the Department of

Payment and Settlement Systems (DPSS) carved out of DIT in 2005 to oversee and supervise

payment and settlement systems that include check-based clearing systems, ECS, EFT, inter

institutional government securities clearing as well as RTGS.

The Payment system is classified into two major types. They are Paper-based payment

system and Electronic payment system.

Paper-based Payments: The payments between the banks used to be made in the early days

by exchanging information on paper payment by manual handling. The RBI study on India's

review of payment systems states that paper-based instruments play a significant role in the

Indian banking system. The use of paper-based instruments such as reviews, sketches,

accounts is almost 60% of the overall amount non-cash transactions in the country. Due to the

concerned efforts of the RBI, the electronic payment products have been popularised rather

than a preference to cash and cheques.

Electronic Payment System: In this framework, the host PCs of the instalment framework

are associated with the terminals or PCs of the members through systems. These frameworks

initially used to be classified "Electronic Payment Systems". Banking exchanges have gotten

simpler and client benevolent because of the mechanical developments and progressions in

the instalment framework. Banks furnish more items and administrations with the blend of

hardware and data innovation, for example, computerization and systems administration,

centre banking, Automatic Teller Machines (ATMs), Plastic cash for example Visa, platinum

card and keen cards, telephone banking, versatile banking, e-banking or net-banking, EFT,

NEFT, RTGS and so forth.

In the current Banking industry, we are in the phase of client driven banking rather than

social banking. At the point when we worried about the exercises, generally they are

multidimensional. During change, every known boundary of the prior system constantly

changes. The virtual financial services can be largely categorized as follows:

A. Automated Teller Machines

Cash withdrawals

Details of most recent balance of account

Mini statement

Statement ordering facility

Deposit facility

Payments to third parties.

B. Remote Banking Services

Balance enquiry

Statement ordering

Funds transfer (payment) to third parties

Funds transfer between customer’s different accounts

Order traveller’s cheques and other financial instruments.

C. Smart Cards

Stored value cards

As a replacement for all types of magnetic stripes cards like ATM Cards, Debit Cards,

Charge Cards etc.

One smart card to carry out all these functions

One smart card can contain the functionality of several different types of cards issued

by different banks while running different types of networks

Smart card a truly powerful financial token, giving user access

Debit facility

Charge facilities

Credit facilities

Electronic purse facilities at National and International level

D. Internet Banking

This is the latest era i.e; Internet Banking. Internet is an interconnection of computer

communication networks spanning the entire globe, crossing all geographical boundaries.

Touching lifestyles in every sphere the Net has redefined methods of communication, work,

study, education interaction, health, trade and commerce. The world is in stage of changing

everything either commerce or information. Being an interactive two way medium, the net,

through innumerable website, enables participation by individual in B2B and B2C commerce,

visits to shopping malls, books stores, entertainment sides, and so on cyberspace.

E. Interbank Mobile Payment Service (IPMC)

IPMC is an instant internet electronic fund transfer service through mobile phones. By using

this service customers can access mobile phones for completing their tasks like payments

done for commercial transactions, paying bills etc.. This is a safe, secure, 24 x 7, convenient

payment mechanism for Indian for domestic transactions. The customer, who is a remitter,

should enroll for Mobile Banking service with the bank where he/she has an account. The

bank provides Mobile Money Identifier (MMID) and Mobile Banking Personal Identification

Number (MPIN) to the customer. First the customer needs to download application provided

in banks service. MMID is a seven digit random number issued by the bank and it is allocated

for each account of the mobile phone banking customers. Remitter and Beneficiary both

should have MMID for doing fund transfer. The beneficiary of the transaction has to register

mobile number with the bank to link to the account.

IPMC transaction can be sent and received at any time and any day. There are no limitation

for timings or holiday restrictions on IMPS remittances. The funds are credited into the

beneficiary account within 30 seconds after doing the transaction. In case the IMPS

transaction is not completed due to any technical reason, the reversal of funds will take place

immediately. If the status of transaction cannot be determined immediately, the reversal of

funds will be done on the next working day. The limit is defined by RBI in the Mobile

Payment guidelines issued to Banks This limit amount is fixed up to Rs. 50,000 per customer

for all transactions under IMPS .

Benefits of IT in banking services

The following are the benefits extended to the various parties with the use of IT:

A. To the Individuals:

Anytime banking- e banking providers 24 hours, all day’s service to the customers for

cash withdrawal from any branch.

Anywhere banking – no matter wherever the customer is in this world, on line

banking is used to get the services.

Online purchase of goods and services and payment can be arranged for various

purposes through cards.

Customer can also make some permitted transactions from his office or house or

while traveling via mobile phone.

Customers can receive relevant and detailed information in seconds, rather than days

or weeks.

B. To the Merchants, Traders etc.

Assured immediate settlement and payment to the various transactions made by the

traders.

Providing various services to the businessmen at par with the international standards

with low transaction cost.

Avoid all the cost and risk problems involved in handling cash, which are very high in

business transactions.

Development of global and local clients’ base can be possible with the development

of the IT in Banking.

Other benefits include improved image, improved customer service, eliminating paper,

reduced waiting costs and increased flexibility.

C. To the Banks

E-banking provides competitive advantage with unlimited network to the banks.

Online banking – an effectiveness medium of promotion of various schemes of the

bank, and indeed acts as a marketing tool.

By connecting ATM and PO terminals, risk of over-drawl of cash can be eliminated

in case of ATM credit and debit cards.

E-Banking site can act as a revenue earner through promotional activity by the

consumer corporate.

Help in establishing better customer relationships, attracting and retaining the

customers.

D. To the Nation

Globalization of trade can be achieved effectively though e-banking.

Provision of global market to the domestic products and services is easy with the

development of e-banking.

E-banking promotes more exports so that the flow of foreign exchange increases.

E-banking provides more transparency in business transactions and creates good

business relations among nations.

E-banking enabled more individuals to work from home and to do less traveling for

banking, resulting in less traffic on the roads and lower air pollutions.

Usage of technological payment systems:

Volume in Millions

2015-16 2016-17 2017-18 2018-19

NEFT 1252.9 1622.1 1946.4 2318.9

RTGS 98.3 107.8 124.4 136.6

IMPS 220.8 506.7 1009.8 1752.9

Debit cards 1173.6 2399.3 3343.4 4414.3

Credit cards 785.7 1087.1 1405.2 1762.6 Source: RBI Annual Reports

Value in Billions

2015-16 2016-17 2017-18 2018-19

NEFT 83,273 1,20,040 1,72,229 2,27,936

RTGS 8,24,578 9,81,904 11,67,125 13,56,882

IMPS 1,622 4,116 8,925 15,903

Debit cards 1,589 3,299 4,601 5,935

Credit cards 2,407 3,284 4,590 6,033 Source: RBI Annual Reports

As per above data, the usage of payment system indicators increases day by day.

Amongst the Electronic modes of payments, the Real time gross settlement System

handled 137 million transactions in 2018-19, up from 124 million transactions valued

at ₹1,167 trillion in the previous year.

NEFT system handled 2.3 billion transactions valued at around ₹228 trillion in 2018-

19, up from 1.9 billion transactions valued at ₹172 trillion in the previous year,

registering a growth of 19.1 per cent in terms of volume and 32.3 per cent in terms of

value.

IMPS system handled 1753 million transactions valued around 15,903 billions in the

year 2018-19.In the same manner debit and credit cards are values as 5935 and 6033

billions respectively.

0500

100015002000250030003500400045005000

NEFT RTGS IMPS Debitcards

Creditcards

Volume in Millions

Indicators

Payment system indicators

2015-16

2016-17

2017-18

2018-19

Conclusion:

The cut throat competition and increasing expectation of customers had resulted in

increased awareness on information technology among the commercial banks in

India. The arrival of foreign and new private sector banks with their superior

technology based services has also forced the commercial banks in India to switch

over to the new technology in their day to day operations. The banks in India are

using Information Technology not only to improve their own internal processes but

also to improvise facilities and services to their customers. Indian banking industry is

greatly benefiting from I.T. revolution all over the world.

References:

1. Mahapatra, Suryananayan; socio Dabajani and Kerhwani Ankit (2015)

“Outsourcing of information technology: An Empirical study in the Indian Banking

Industry” Indian journal of Finance, July, Vol. 9

2. Rao, V. Narsimha (2013), “Technology Management in Banking: An Empirical

Study with special Reference to State Bank of India” Prabandhan: Indian Journal of

Management, February, Vol.6.

3. Malik, A.K. (2011), “Socio Economic Impact of Information and Communication

Technology: A study of Indian Banking Section” Finance India, March, Vol. XXV,

No.1.

4. Prof.H.K.Singh(2012),”Impact of Information technology on Indian Banking

Services” conference entitled as “Recent advances in information Technology”.

5. Annual reports published by RBI in the years 2018-19 and 2017-18.