Threat of digital payment channels on Credit Cards in India
The payments ecosystem is evolving at a very rapid pace in India. With the advent of digital payment channels like Google Pay, Samsung Pay, Amazon Pay, Pay Pal etc. a large volume of transactions is getting routed through these channels. These new channels have started challenging the more traditional credit cards in various ways. In the below section we have tried to evaluate the threats posed by the digital payment channels to credit cards under the categories – ease of use, acceptability, ancillary benefits and security.
Ease of Use
Unified Payments Interface (UPI) in India has enabled digital payment channels to provide a seamless payment experience to their customers. The customers can simply select the payee from their contact list or add a mobile number and initiate the payment which gets reflected on their bank accounts immediately. This has not only allowed customers to make payments but also to receive payments. For example, a small-time carpenter/plumber can now deliver his/her services at the customer’s door steps and receive payments instantly on his/her bank account. Similarly, a landlord can now receive the rent for the rented property directly in his accounts through such channels without the tenant having to login to his net banking portal, adding payee and waiting for 24 hours to transfer the rent. These have opened up new avenues for performing business. Now anyone with a mobile phone and linked bank account is able to make/accept payments.
The credit card ecosystem on the other hand has evolved with contactless payments to provide a tap and go experience to its customers. But the penetration of contactless payments has still remained relatively sparse in India. The merchants accepting credit card have to register themselves with the banks before they can accept the payments. Small and medium sized merchants have stayed away from accepting credit cards till now.
Digital payment applications have an edge over credit cards in terms of acceptability. As mentioned above anyone having a bank account and a linked mobile phone can now accept payments. Digital payment channels have been able to penetrate one of the most unorganized payment sectors (peer to peer) and brought it under the digital ambit. According to recent trends UPI transactions by volume have clocked almost 800 million transactions in March 2019. This has increased from 178 million transactions in the same period in 2018. This trend clearly shows how the acceptance of digital payments is increasing at a rapid pace in India.
Credit cards on the other hand are accepted mostly at medium and large merchants. Also, the usage of credit cards in tier-2 and tier-3 cities are relatively low. As per RBI data, the volume of transactions done on credit cards at ATM and POS terminals was almost 175 million in May 2019 which has increased from 145 million in August 2018. Although the growth is significant, it clearly looks dwarfed when compared to the transactions performed on digital channels.
Credit cards offer a huge range of supplementary benefits to its customers. Loyalty points, cash back offers, movie vouchers, air miles, co-branded cards, lounge access and a host of other benefits are now part and parcel of a credit card offering. These definitely help issuers to attract new customers. The customers can also benefit a lot if they choose the right card and make optimized use of their credit card.
Digital payment channels on the other hand have mostly depended on cashback feature to attract new customers. The initial days of digital payments saw a huge volume of cash back transactions when the service providers invested heavily on acquiring new customers. These have gradually dried up as more and more customers have started using these digital channels for making payments. Digital payment channels will have to come up with some innovative perks for its customers to ensure customer loyalty in future.
Security is another aspect where the digital payment channels are scoring big time over more traditional methods of credit cards. Banks issuing and acquiring credit cards have to undergo PCI DSS compliance which is mandated by the card associations like MasterCard, Visa, AMEX. The compliance to PCI DSS ensures that the card data stored at the host are secured using stringent rules. However, this is still not full proof and a lot of frauds are reported for credit cards on a daily basis. There are multiple points in the card transaction life cycle where data leakage is possible. Sealing all these points with stringent rules becomes a big challenge for the card issuers. Now a days some banks are introducing virtual cards to eliminate these risks.
Digital payment channels are relatively more secure as these platforms ride on the security infrastructure provided by UPI and also use tokenization during the transaction processing. With tokenization, the customer’s account number is never visible to any third party. This makes the system less vulnerable and hence more secured.
With the push from government to promote a cashless economy, a lot of customers are moving towards non-cash mode of payments. Post demonetization the number of credit cards issued had seen a sudden spike. But with more and more digital payment options coming into the market, customers have gradually started moving towards these channels. Banks, credit card issuers and card associations have to start taking these threats seriously and disrupt themselves with new offerings to stay relevant in the near future.
As the world is moving faster with emerging new technologies the need of improving Test automation also grew. Now when large data is required for testing within less time latest technologies such as Data science and AI can be helpful to improve Test Automation. Where data science can help in generating data from different sources AI can help in creating codeless automation based on data generated.
What is Data Science and AI?
Data Science is a blend of various tools, algorithms, and machine learning principles with the goal to discover hidden patterns from the raw data. Data Science is primarily used to make decisions and predictions making use of predictive causal analytics, prescriptive analytics (predictive plus decision science) and machine learning.
Artificial intelligence (AI) is an area of computer science that emphasizes the creation of intelligent machines that work and react like humans. Some of the activities computers with artificial intelligence are designed for include: Speech recognition. Learning, observation.
Need of Data Science
Traditionally, the data that we had was mostly structured and small in size, which could be analysed by using the simple BI tools. Unlike data in the traditional systems which was mostly structured, today most of the data is unstructured or semi-structured. This data is generated from different sources like financial logs, text files, multimedia forms, sensors, and instruments. Simple BI tools are not capable of processing this huge volume and variety of data. This is why we need more complex and advanced analytical tools and algorithms for processing, analysing and drawing meaningful insights out of it. Let’s dig deeper and see how Data Science is being used in Banking domains.
How about if you could understand the precise requirements of your customers from the existing data like the customer’s past browsing history, purchase history, age and income. No doubt you had all this data earlier too, but now with the vast amount and variety of data, you can train models more effectively and recommend the product to your customers with more precision. Wouldn’t it be amazing as it will bring more business to your organization?
Let’s take a different scenario to understand the role of Data Science for Fraud Detection. What if customer who always makes transaction less than 500 rupees per day and suddenly his transaction spikes to 10000 a day isn’t is suspicious. In such case Data science can help in early prediction and restrict the account from making such transactions . Based on customers previous transaction history, location history, income history and data from other sources like social media will help data science to predict and act against the fraud.
How Data science and AI will improve Test automation?
Traditional testing techniques still rely on humans to source and analyse data. But let’s just say that humans are not infallible and are quite prone to making poor assumptions.
The less time there is for handling data, the greater the chance that testing will produce skewed results with overlooked bugs in the software. Before you know it, consumers will pick up on these bugs, which usually leads to frustration and undermines the brand’s reputation.
That’s why machine learning, which teaches systems to learn and apply that knowledge in the future, makes software testers come up with more accurate results than traditional testing ever could. Not to mention that the probability of error is not the only thing that gets reduced. The time needed to perform a software test and find a possible bug is also shortened, while the amount of data that needs to be handled can still increase without any strain on the testing team.
In Traditional Testing process human creates the test scripts on the assumption and understanding of the application but with help of Data science System can gather the real-time data from different sources identify the hidden pattern and provide new rare critical scenarios also which could help in improving the quality of Product.
With the help of data generated from Data Science Predictive analysis AI can build the test scripts Based on this AI can start creating test cases on real user data. It is smart enough to identify commonly used actions such as logging in/out of the application and cluster them into reusable components. Then it injects these newly created reusable components into our tests as well. Now, all of a sudden, we already have actual tests written by the AI based on real data, along with reusable components that can be used within other tests as well.
Some of the biggest obstacles keeping companies from moving forward with automation is the amount of time and effort it takes to write and execute tests with the chosen tool or framework and the availability of skilled resources to do this task. There are some AI tools that overcomes this issue. Test that use to take multiple weeks can be done now within few hours of time. This is achieved by creating reusable components, run test quickly integrate CI/CD with different grids.
As the test time is reduced the productivity of the test automation is increased and also non-technical person can perform the automation with help of AI.
One of the most common problems with test automation is maintenance. For example, say we have 100 automated tests running on a daily basis to ensure the main functionalities of the application are still stable. What if the next day we come back to work and find that half of the tests have failed? We would need to spend considerable amounts of time to troubleshoot the failures and investigate what actually happened. This involves figuring out ways to fix the failures and implement the fixes. Then, we re-run the automated tests to ensure everything passes.AI can help here:
Resultant tests are modelled and thus maintained by the combination of an exhaustive and autonomous set of data points, such as the size of element, location on a page, previously known size and location, visual configuration, XPath, CSS selector, and parent/child elements.
Root cause analysis highlights all potential causes for test failure and provides a path for one-click updates.
Selector maintenance should be eliminated by having elements identified by hundreds of data points that are rated and ranked instead of a single selector.
Machine learning gives testers the opportunity to better understand their customers’ needs and react faster than ever to their changing expectations. In addition, testers now also need to analyse more and more data and they are given less and less time to do that, while their margin of error decreases constantly. Data Science and AI offer a way to address these challenges. This approach is set to fill the gaps of traditional testing methods and make the entire process more efficient and relevant to the users’ needs.
Blockchain is a buzzword which is creating a hype now a day. This technology was first introduced by Satoshi Nakamoto in a paper published in 2008. It’s like the internet in the early 90s but can be as big as same. Blockchain is not a use case of internet like retail or ecommerce, in fact its parallel to internet. It’s simple yet powerful and has the potential to change our life like internet has changed in past 20 years. Most of the people think blockchain as Bitcoin, but then it’s like using the internet for sending mails.
What is Blockchain?
Blockchain is a distributed, peer to peer technology that allows the data to be stored globally on thousands of services while letting anyone on the network to see everyone else entries in real time, which makes it difficult for one user to gain control of and hack the network. Every time a set of transactions is added, that data becomes another block in the chain (hence, the name). Blockchain can only be updated by consensus between participants in the system, and once new data is entered it can never be erased.
There are 3 key technical aspects of a blockchain
1) Maintain a Replicated Ledger: Record a history of all transactions details, append-only with immutable past transactions, and can replication and distribute to all participants.
2) Cryptography: Use of cryptography in the ledger to guarantee the authenticity of the transactions, the privacy of the transactions and confirms the identity of the participants.
3) Consensus Logic: It’s an algorithm that confirms the validity of all the transactions happening on the network and produce the relevant block to the network chain.
The blockchain data structure is time stamped, non-repudiable transaction list of the entire systems history. Blockchain utilizes a distributed network of nodes that stores and maintains a copy of a “public ledger” containing a full list of transactions. A group of these transactions referred to as a “block,” are encrypted and added from top-to-bottom in the order that they occur. A block adds to the end of each “chain”. Once a block adds to the chain, it becomes a permanent record and data in that block is never modified. Blocks are connected through hash chaining, utilizing a cryptographic hash. Blocks connect through hash chaining. Blocks contain a header; headers chain, therefore blocks chain. The Merkle root relates the transactions in the block to the header, creating a logical combined unit. Blockchain does not allow an arbitrary block to attach to an arbitrary header. Each header only attaches to one set of transactions.
The Merkel tree is the consensus protocol used by blockchain and is an essential part of blockchain’s data integrity. The Merkel Tree detects any changes to any data within a block, by rerunning the process for each transaction—and comparing the results to the original hash. Transactions propagate across the network where the Merkel Tree consensus algorithms check whether a node copy of the ledger matches the copy of other nodes. This continuous verification circumvents falsification of data anywhere within the chain, and the process is known as a consensus protocol. Each node keeps a copy of the block to give to other nodes when requested. Every block after that relies on that hash, and that hash relies on the Merkel Root, and the Merkel root relies on the hash of the transaction data. Altering the data within a chained block will cause that copy of the chain to no longer match the other nodes, thereby causing that node to be corrupt. The Merkel Tree allows nodes with matching ledgers continue to process, while nodes with mismatched ledgers are marked as corrupt. Transactions can be “pruned” from blocks, therefore removing the corruption.
Benefits of Blockchain
- Greater Transparency – Since blockchain worked on distributed ledger technology, all participants in the network share a copy of the documentation. The data on a blockchain ledger is easily accessible for everyone to view. If a transaction history changes, everyone in the network can see the change and the updated record.
- Enhance Security – Blockchain works on the consensus algorithm. Thus any update/modification in the data over the blockchain requires the agreement from other participants. When a new transaction is approved its encrypted and connected to previous transaction and data is stored across a network of computers making it very difficult for hackers to compromise the data.
- Improved traceability – With the use of Blockchain, the exchange of data is added and recorded by adding new blocks to previous one. It gives an audit trail to understand the source of data, increasing the traceability of source to avoid fraud.
- Reduced cost by avoiding 3rd parties – As blockchain eliminates the need for third-parties and middlemen, it saves enormous costs for businesses.
- Increased data integrity – Accessing and modifying the data stored on the blockchain is nearly impossible without notifying and seeking consensus from the entire network. Thus, blockchain can be used as the source of truth by participants and drive a secure ecosystem that can function in a trustless manner, i.e., without requiring any trust or even familiarity with the other party.
Why blockchain is not yet evolved in market?
Creating a robust blockchain implementation requires integrating a wide variety of systems: homegrown application systems, databases, files, and networks that businesses rely on. For years, businesses have struggled to integrate their information assets and systems within a single enterprise. A network of blockchain participants, each having its own interoperability challenges, poses even greater obstacles. The scale of the integration needed to implement even a small private blockchain can be complex, time consuming, and expensive.
Scalability is another problem blockchain is facing. The early blockchain protocols are quite constrained by the number of transactions they can process concurrently, and the cost for committing a transaction on the blockchain network is too high.
The current blockchain systems are complex to understand. If we consider from payment card industry point of view, a mass adoption would require for a system as seamless as a card payment, or mobile wallets. Shoppers and even merchants often aren’t too familiar with what is going on in the background. They wouldn’t have to understand the technology; it would just have to be much more accessible. This is another reason why blockchain hasn’t quite disrupted the industry just yet.
Blockchain has the potential to satisfy requirements for protection of sensitive information within a transaction. However, to be useful, it must transform or extend to the degree that it can be applied, and implemented by mainstream business in manufacturing, supply chain, food industry, healthcare, Banking and Financial services including issuing banks, acquiring banks and endorsed by card schemes, payment processors and card networks.
Digital Wallet as a concept has evolved over time since its introduction from 2007. It started getting more traction with big players like Google, Apple and Samsung etc. joining the band wagon. If we go by the predictions of domain experts and industry leaders, it is one of the top trends to reshape the payment space in this decade. However, as per the 2018 world payments report, the market share for digital wallets of total global non-cash payment is still less than 10%. Also, the penetration of digital wallet among its potential customer base has been quite stagnant at close to 26% for last 2 years.
This trend raises a few questions:
- Why is Digital Wallet not growing at the predicted rate?
May be the answer to this lies in another question: “What’s the problem that Digital Wallets are solving for the customers?” If we analyze only the technology, Digital wallet is just another payment instrument for customers. It is convenient and fast compared to any other payment instruments, especially when used for Online payment and In-app purchases. Apart from that Digital wallet technology doesn’t provide any tangible benefits to customers. In fact, the convenience factor in a physical payment scenario is similar to that of using a contactless card. Moreover, it can’t completely replace the Physical wallet, yet.
- Why Digital Wallets are still considered a game changer for business?
Though, digital wallet is not the most preferred payment method for customers now, it has a lot of future potential. In the current form it provides better cart to sell conversion for merchants, makes the payment quicker and frictionless. It also has potential to provide better insight to customer behavior and provide targeted cross-selling options for the merchants. So digital wallet is more beneficial to merchants and service providers. Therefore, there will be a considerable push to encourage customers to use digital wallets instead of other payment instruments
- What can be done to expedite customer adoption rate?
- Improve customer awareness: There is not much of awareness in the market about wallet services. Customers most of the time are either not aware of the wallet services or don’t have full understanding of its capabilities. Therefore, building a good awareness around the services that a wallet can provide will be beneficial to increase penetration.
- Incentivize usage of wallet: Cashbacks and discounts are still the top drivers for influencing customer behavior. Service providers in association with merchants should incentivize the usage of wallet through various offers.
- Improve acceptance of Digital wallet payments: More and more merchants should enable acceptance of payments using Digital wallet. Banks and Technology providers can also play a role here by playing the role of an aggregator and making it easy for merchants to accept payment from any digital wallet without going through a lot of technology changes. With improve in acceptance, the ease of usage will also increase. Thus, giving customers required confidence to move to digital wallets.
- Build customer confidence in technology platform: Data security is one of the prime concerns for most of the customers who are aware of wallet services but have never used it. Though current customers’ data is being stored and transmitted using industry accepted security standards, a few stray incidents of data theft are enough to shake customer confidence. Keeping the platform secure and spreading the safe usage awareness will help service providers improve higher customer participation
- Provide customer more control and insight: The wallet should provide users more insight into their payment and usage patterns. It should provide users to control spends on different accounts, different channels and different period of week/ months. It should also help in automating some mundane tasks as bill payment for utilities, credit cards, etc.
For payment instruments, the last major shift in customer usage pattern was observed when payments through Debit cards surpassed payments through Cash. Banks, Service providers, and Payment Interchanges achieved this through a lot of focus on improving customer convenience, customer awareness, global acceptance, interoperability and payment platform security. Regardless of all this push, it took some time to attain any significant change in customer usage pattern. So, digital wallet also must go through the same cycle. Digital wallet can achieve similar changes in customer usage pattern by focusing on constant improvement of its value proposition i.e. easy, swift and secure.
MasterCard is enhancing the charge-back process by making it easier and faster to handle disputes. It’s called the MasterCard Dispute Resolution Initiative and it will be a rules-based charge-back decisioning process.
The aim from MasterCard is to improve the dispute handling process by automatically detecting invalid disputes, shortening dispute resolution time-frames and updating some dispute reason codes and their conditions. This will decrease the charge-back volumes and allow for faster resolution of disputes.
The Dispute Resolution Initiative will roll out in phases, according to the below timelines:
- First phase: October 12, 2018 (No development changes required)
- Second phase: April 12, 2019 (The announcements in this phase are subject to change by MasterCard)
- Third phase: October 18, 2019 (Impact will be further clarified by MasterCard)
- Fourth phase: April 17, 2020 (No development changes required, however the announcements in this phase are subject to change by MasterCard)
First phase: October 12, 2018
Issuers will be required to request more information from their cardholders so they can file charge-backs for the following reason codes:
- 4863 – Cardholder does not recognize
- 4853 – Cardholder dispute (for recurring billing and digital goods)
- 4834 – Point of interaction error
- 4831 – Incorrect Transaction Amount/Transaction amount differs
By requesting this information at the first charge-back stage, MasterCard aims to reduce invalid charge-backs raised without the necessary information. Our customers don’t need to take any action regarding this change.
Second phase: April 12, 2019
As of April 12, 2019, if acquirer initiates a refund after the charge-back has been reversed and the issuer files a second charge-back, it will result in a double loss. Acquirer don’t recommend to initiate refunds once a charge-back has been reversed.
As a best practice, communicate clearly with the shopper if acquirer do perform a refund after the first charge-back has been reversed.
As always, if a refund is issued before the first charge-back, acquirer have one opportunity to provide the refund information to the cardholder, which is in the response/defense to the first charge-back.
Issuer have automated dispute defense for fully refunded transactions and will always send the refund details to cardholders.
To support faster resolution of disputes, MasterCard has reduced the timeframe to file a charge-back for reason code 4834 – Point of Interaction Error from 120 days to 90 (counted from the transaction date). The customers won’t need to do anything here if they are an existing one.
Lastly, the below charge-back reason codes will be removed from the rules and issuers will no longer be allowed to file a charge-back:
- Charge-back reason code 4840 – Fraudulent Processing of Transactions
- Charge-back reason code 4863 – Cardholder does not recognize
Third phase: October 18, 2019
MasterCard has announced they are planning additional changes effective in October 2019.
Fourth phase: April 17, 2020
MasterCard will not send a second charge-back for the following reason codes.
- 4837 – Fraud (excluding 4870 – Chip Liability Shift and 4871 – Chip/Pin liability shift charge-backs)
- 4853 – Cardholder Disputes
- 4834 – Point of Interaction Error
Instead, for these reason codes the issuing bank will be able to send a pre-arbitration charge-back.
MasterCard will align with the Visa collaboration charge-back process (the consumer dispute category) whereby issuers can continue the dispute with a pre-arbitration charge-back.The pre-arbitration chargeback is initiated by the issuing bank, when the cardholder does not agree with the defense information provided by the merchant.
Based on the current information MasterCard has provided that there will not need to be any development work, as the new flows should match the ones currently used for Visa VCR. Merchants should keep in mind that MasterCard is only removing the second charge-back cycle for the above-mentioned dispute reason codes.Dispute reason codes that do not fall in these categories (for example, 4808 – Authorization related disputes) can still receive a second charge-back.
MasterCard’s dispute process Life cycle:
Stage One: First Presentment
First presentment transaction is when the transaction has been processed and is settled. The funds are in the merchant’s account, and the cardholder received a withdrawal and merchant descriptor on their account statement.
Currently, the MasterCard Dispute Resolution Initiative does not appear to make any significant changes to this stage. The only phase that will affect First Presentment is the first phase, where Late Presentment will be a new condition under Dispute Reason Code 4808.
The thing to remember is Late Presentment will still be a reason for a potential dispute, even if this reason no longer has a distinctive code. The best way to protect your business from late presentment is to settle funds before the Approved authorization expires. The authorization time limit will vary from business to business, and it can range from 24 hours to 31 days
Stage Two: Charge-back
The cardholder submits a claim, and the issuer believes it is valid to file as a dispute. As a result, the merchants receive a dispute. And the disputed funds are withdrawn from their account and transferred back to the cardholder’s account. This of course is a simplified explanation of the charge-back process.
At this point, MasterCard’s charge-back time limits are still 45 days from the charge-back date. But there is a possibility that the network will want to reduce these time limits and streamline its dispute process. This is based on the actions Visa took under the VCR. It will not be surprising if the MasterCard Dispute Resolution Initiative does something similar.
But even when MasterCard rolls out a more streamlined dispute process, merchants won’t receive the full benefit when their dispute workflow is manually-driven.In short, a streamlined dispute process will involve automation in order to pull and format data into a response document. That is what makes dispute management software more of a necessity to catch up with these upcoming changes.
Stage Three: Second Presentment (a.k.a, Pre-Arbitration)
The cardholder and/or issuer challenge the merchants’ argument for successfully initiating a chargeback reversal during the Chargeback stage. They do so based on one of two conditions:
- The cardholder and/or issuer believes the merchant’s response did not fulfill the requirements of the dispute reason code
- Can provide information that addresses the original reason for the dispute
Stage Four: Arbitration Charge-back
It is too soon to extract insight that gives some notice of potential changes in Arbitration Charge-back.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 of India, engaged in the business of loans and advances, acquisition of shares, stock, bonds, hire-purchase insurance business or chit-fund business but does not include any institution whose principal business includes agriculture, industrial activity or the sale, purchase or construction of immovable property.
A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).
The World Bank has endorsed the use of reported non-financial data in the credit origination processes and considers it a powerful tool for driving financial inclusion in emerging markets. More recently, in the Financial Inclusion 2020 (FI 2020) roadmap, Accion highlighted the great value of alternative data as an instrument to increase financial inclusion and help achieve their FI 2020 objectives.
Salient features of NBFCs:
- The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand.
- NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests.
- NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
- NBFCs (except certain AFCs) should have minimum investment grade credit rating.
- The deposits with NBFCs are not insured.
- The repayment of deposits by NBFCs is not guaranteed by RBI.
- There are certain mandatory disclosures about the company in the Application Form issued by the company soliciting deposits.
Types of NBFCs in India:
- Investment Company: IC means any company which is a financial institution carrying on as its principal business the acquisition of securities
- Loan Company: LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company
- Asset Finance Company: An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipment’s, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively
- Infrastructure Finance Company: IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of ₹ 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.
- Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC): IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
- NBFC-Factors: NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 50 percent of its total assets and its income derived from factoring business should not be less than 50 percent of its gross income.
- Housing Finance NBFCs: It is a form of non-banking financial company which is engaged in the principal business offinancing of acquisition or construction of houses that includes the development of plots of lands for the construction of new houses.
Residuary Non-Banking Companies (RNBCs): It is yet another form of a financial institution engaged in the principal business of accepting deposits, under any scheme or arrangement or in any other form and not being asset financing, investment, Loan Company. The Residuary Non-Banking Company primarily deal in accepting deposits in any form and investing these in the approved securities. The operations of such company are regulated by RBI and in addition, to the liquid assets, it maintains its investments as per the RBI directions.
Todays generation is an evidence of revolution which’s taken place under the tag of Digital India. So far, face of the Payment industry is changed drastically and that too within last few years. And a good thing is, uprising phase is still in-process.
One of the positive and important outcomes of this is, rise in the Technological awareness within common man. Trust towards technology has grown within Indians. Day by day people are becoming more comfortable with digitalization. Result of which, people have understood the importance of cashless transactions. Per individual average usage of a card or mobile phone to make any payment is now increased. Matter of fact is, people are avoiding cash transactions wherever it’s possible.
Bill payments, Fund transfer, ATM transactions, POS purchase, recharge and top-ups of mobile/DTH, E-commerce, Online Ticketing of movies, transit etc. can be easily done by using any of the options from Cards (Debit, Credit, Prepaid, Gift, Transit etc.), UPI, Online/Digi Banking, e-wallets etc. But each payment method requires its respective product to be used to perform a transaction. Like one cannot use a bank issued standard debit/credit card on all transit systems, a transit card cannot be used at fuel stations, prepaid cards cannot be used everywhere and so on.
National Payment Corporation of India (NPCI) identified this gap and came up with a solution of having a ‘single card’ which can support maximum possible payment methods and channels.The card got its name as ‘National Common Mobility Card (NCMC)’ aka ‘RuPay Contactless Card’.
It is based on qSPARC specification, which is NPCI’s Dual Interface Open loop payment specification with the feature of loading multiple payment applications on a single card. This card is supported by diversified sections like retail shops, restaurants, retail outlets, ATM/Kiosk, Vehicle Parking stations, Buses, Cabs, Metros etc.
Some more information like, how to get it? other aspects? pros & cons? etc.
The card can either be a Debit, Credit or Prepaid card. To get this card, one will need to make an application at Bank. One can apply for a new card or an upgrade for existing one.
As of today, these cards are available with below banks.
- Debit Card – PNB, BOB, Saraswat, TJSB and UBI
- Prepaid Card – ICICI, Axis, HDFC, SBI, CSB, YES, Paytm, Andhra
NCMC card can be issued by any member authorized by RBI. Near future, this card will be available with some more banks as well.
This card can be used at all those channels on which the existing cards are being used in traditional ways. For example, at ATMs, POS & online (ecommerce) payments etc.
On top of it, this card can also be used at additional services such as transit, toll, parking & other small value merchant payments where a traditional bank issued Debit/Credit fails to work.
As the NCMC card is based on qSPARC specifications, this card comes which a unique feature of storing values on card.
It enables Acquirers or Operators to own independent blocks on the payment card. These blocks are referred as ‘Service’.
An acquirer who wishes to implement special function along with the EMV based payments on specific terminals can do so using empty storages area called as ‘service compartment’ or ‘service area’.
Service compartments may contain data which is specific to a particular operator.
Single card is capable of supporting multiple services for payment and non-payment capabilities.
Service area activation:
- To use these additional services, a card needs to have the service areas activated into it.
- There are two ways by which the service areas can be activated.
- Pre-issuing: Service can be personalized on a card by bank while personalization of card.
- Post issuing: User can have services personalized on card by writing desired services on it. This can be done using special Terminals which are capable of writing services on card. Please check below flow diagram.
Card Top up or recharge:
Top up is purely categorized on the basis of types of services.
Let us assume that one wants to use the card at metro station. Then the person will need to top up the card for its respective supported service area like ‘Transit’. Later on, the same topped up amount available on card can be used for other services as well, which falls under same service area.
Below are the options by which a top up can be done.
- Online using card
- Internet banking
- Over the service counter using Cash
- Auto top-up
Comparison between NCMC and Other Proprietary prepaid cards:
|Concern||NCMC – Open loop smart card||Proprietary – Closed loop smart Card|
|Customer Friendly||Customer can use the same card for Metro and Bus travel in all the City and States within the country.||Customer need to buy different cards for transport Systems.|
|Convenience||Customers will use their bank issued NCMC card for fare payment rather than waiting in a queue for card/token/ticket issuance.||Customer may require to stand in queue for card issuance, Top up etc.|
|Loyalty Points||Consumer may benefit from loyalty/reward points from partner banks, as provided in case of Debit and Credit cards.||No such provision. Any such loyalty and discount are cost to the Public Transport Operators.|
|Minimum Infrastructure||Public Transport Operators can minimize their cost involved in maintenance of infrastructure and manpower for card issuance, Top-up, card replacement and refunds, as open loop cards can be issued by multiple partner banks.||Each Public Transport Operators need to bear the significant expense for maintenance of infrastructure and manpower for card issuance, Top up, card replacement and refunds.|
|Negotiating Power||As open loop acceptance devices are based on open interoperable standards, there are multiple vendors available for payment acceptance devices, which provide an opportunity for cost and service negotiation.||Closed loop cards may be of proprietary standards, leading to vendor lock in for subsequent purchase and renewals of acceptance devices.|
|No vendor lock in||Open standards-based payment acceptance devices provide the freedom for subsequent purchase and renewals of devices.||Proprietary standards may lead to vendor lock in for subsequent purchase and renewals of acceptance devices.|
|Ease of Implementation||Well standardized payment acceptance devices and availability of multiple vendors provides ease of implementation. Payments related scope of work to be taken care by partner bank and hence PTOs may focus on their key activities.||PTOs need to evaluate multiple proprietary specifications leading to difficulty in implementation.|
|Fast Deployment||Due to similar implementation process, best practices and reference implementation guidelines, there will be standardized procurement practices, and RFPs. This considerably expedites the deployment of digital payments in Public Transport Operators.||Each deployment will have specific requirements and considerable expertise is required by each Public Transport Operators for selection of appropriate solution.|
|Retail acceptance||NCMC open loop card offers acceptance at all the existing retail POS devices.||Closed loop cards can only be accepted within their operating environments.|
Now let us see what are the Pros and Cons:
- No need to keep multiple types of cards in wallet (Like debit, prepaid, transit etc.). As one card supports maximum services.
- Supports online as well as offline payment modes with minutest risk of fraud.
- Motivates customers for cashless payments and provides a mechanism of including Low Value Payments (LVPs) into cashless. Result of which, customers end to end everyday needs would shift from cash to cashless transactions.
- Supports EMV based contact and contactless payment transactions with standard guidelines.
- Supports both Account based and Card based payment models.
- Supports cashless and contactless ticketing across various transit operators.
- Reserved space on card for acquirer or operator specific program implementation. Supports Closed, Open and Semi-closed loop environment.
- Multi-level wallets: qSPARC specifications supports creation of wallets in card at two different levels – Global and Local.
- Other benefits:
- Open Standards
- High Security
- Vendor Agnostic
- Data storage
- Stored Value
- Presently the number of merchants who are supporting qSPARC cards is very less.
- Certification will be applicable for Acquirer, Issuer and Terminal vendor. Which involves both the factors ‘time and money’.
- Cost is involved to replace already issued RuPay cards with new qSPARC cards. Hence either issuer Bank or customer has to bear the cost.
- People are not yet very much aware about this card and its features. A strong product marketing will be needed to promote this card.
Future of NCMC:
- Understanding perspective: Looking at the pace of digitalization towards cashless transactions in the era of Digital India, we know very well that how people have managed to utilized services made available so far. NCM card and its features not being exception, people should not find it difficult to understand.
- Card issuance view point:Issuer would prefer to re-issue an expired card with new NCMC. Techno-savvy’s and exited ones would not think of bearing cost to go for this new card. Reaching up to large number of card base would take some time.
- About transaction volume:
Projects like smart cities would accelerate the future of NCMC. Apart from this, many other types of acquirers are supporting NCMC card.Looking at overall market available, if the supported platforms are made available in decent numbers then, it will be a definite addition to the list of NPCI’s successful products.
QR Code: A QR code, also known as a Quick Response Code is a 2-D (two dimensional) barcode. A QR code usually contains information pre-programmed by the originator. It could be a URL, text, image or general information. To reveal the information, the user will require a mobile phone software with the ability to scan and understand the code using the mobile phone’s camera.
A QR Code is an ISO 18004-compliant encoding and visualization of data.
QR Code Based Payments: The Visa QR Payments Code is a form of barcode that has the merchant’s information (merchant name & account details) required for bill settlement. To make payments, all that is required is for the customer to scan the merchant’s QR code by selecting Visa QR on his/her mobile banking app.
The new world of commerce with the QR code can be conducted anywhere there is an outlet — you can stand on the surface of the planet and get a cell phone signal. It is quite likely, in many of these markets, that plastic and legacy POS will leapfrog almost entirely. The standard must also be capable of enabling a secure payment via a static QR code on a merchant placard.
A QR code is a pointer to an underlying credential to initiate and receive a payment. The pointer now is a QR code — I don’t know if it will always be. But, in these markets, QR is about getting credentials in everyone’s hands and getting the usage understood. From there, is it is an easier evolution to provide other use cases to people based on something beyond QR.”
Visa QR is an innovative way to make payments with your mobile phone. There is no need to carry cash everywhere you go. Just select Visa QR on your mobile banking app and scan the merchant’s QR code to make payments.
How Do QR Code Payments Work?
Customers simply need to scan the QR code and enter the transaction amount. The amount gets transferred directly from the bank account without the need of a swiping machine. It eliminates the need of entering the merchant’s ID or phone number to make payments.
For those using mobile banking apps for scan and pay, the app acts like a virtual debit card that can be used online or offline.
1.Buyer-to-Large Merchant Transactions – Buyer Scans
This system of QR Code payment applies to large retailers such as supermarkets. Let’s assume they have barcode scanners at every POS.
This is how it works:
- Let’s say customer picks up items worth INR 500 at Merchant shop and goes to the cashier for checkout
- The cashier scans each item and generates a bill of INR 500. He generates a unique QR Code on a screen near the POS
- Customer opens the payments app on her smartphone, scans the QR Code, and authorizes the payment
- The cashier gets a notification that customer has made the payment and prints the sale receipt.
2. Buyer-to-Large Merchant Transactions – Merchant Scans
There is another variant to this QR Code payment method:
- Instead of scanning a QR Code generated on the cashier’s screen, customer generates a QR Code on her app or Customer owns a card with a QR Code
- The cashier then uses his barcode scanner to scan this QR Code and complete the payment.
3. Buyer-to-Small Business Transactions
This mode of QR Code payments applies to small businesses and retail outlets. Let’s assume they do not have barcode scanners at POS.
This is how the process works:
- Customer picks up items worth INR 100 at a small store
- The cashier requests her to make a payment and points at a printed QR Code near the POS
- Customer opens the payments app, scans the QR Code, enters the amount, and authorizes the payment
- The cashier gets confirmation via SMS
Note that in this case, the buyer enters the amount and the merchant has a permanent QR Code. This QR Code helps the buyer app to identify the merchant account.
4. Peer-to-Peer Transactions
This mode of QR Code payment applies when an individual needs to pay another. For example, friends, family members, or self-employed professionals.
What is Scan and Pay?
It is a mobile-based payment facility that enables fund transfer by scanning a quick response (QR) code using an app which supports this feature. It can be used for making payments at merchant outlets, e-commerce websites and grocery stores, among others.
How did it evolve?
Visa introduced mVisa, a QR code-based payment facility for Visa cardholders only.
In November 2016, MasterCard launched an interoperable Masterpass QR which could be used with other networks.
In India, E-wallets companies like Paytm, Mobikwik and FreeCharge also enable transactions through QR code, but both the receiver and the sender of money needs to have these mobile wallet apps.
However, QR code-based acceptance systems in the India country were largely closed until the launch of Bharat QR, a common QR code jointly developed by four major card payment companies—National Payments Corp. of India (NPCI) that runs RuPay cards, MasterCard, Visa and American Express—under instructions from the Reserve Bank of India (RBI) on 20 February.
It was a revolutionary step because of interoperability. The merchants could be identified by one QR code whether the payment is through MasterCard, Visa or RuPay. Bharat QR payments can also be made through account number with IFSC code, UPI (Unified Payments Interface) payment address or Aadhaar number.
Lending is simply the act of giving money on credit to another person called the borrower. The borrower repays the money to the lender with interest over a defined time-period. Lending is a widely understood concept. However, the traditional approach to avail loans is fairly long and complex. Therefore, Banks and financial institutes as part of their Digital strategy trying to digitalize the lending process as well
However, today’s challenge is not digital technology; it is the enterprises’ ability to re-imagine how businesses run by harnessing digital’s power to adapt and compete.
Digital lending can start as basic as an online loan application offered by a bank or credit union on its website. It can also be as comprehensive as an entirely automated platform that includes a full suite of software, such as an online loan application, document capture, electronic signatures, credit analysis, loan pricing, loan decisioning and loan administration.
A few drivers for Digital lending adoption:
- Loan Origination Costs: Application for a new loan comes with a high loan origination cost. These costs are incurred due to handling the physical records, paperwork and background checks involved in approving the loan. Most of the time these costs are passed on to customers in form of processing fees
- Turnaround Time: The paperwork is not known for its speed and things move at their comfortable speed. Most of the cases loan disbursal using conventional lending method takes around two to three weeks, sometimes might have wait even longer
- Manpower Requirement: Document collection, Data entry into system, data storage / archival and retrieving documents require a lot of man power
- Location Constraints: Lender needs to be present at the same location to process any conventional loans, which can be a needless restriction
Therefore, most of the Banks and financial institutions have undertaken digital lending initiative in one form or other.
As mobile technology penetrates every aspect of the customer’s daily lives, banks and finance institutes are now focusing their strategy on creating mobile applications to acquire new and serve existing customers.
In these cases, the entire loan processing lifecycle (from the application boarding, supporting documents submission, real time data verification, eligibility calculation using scoring model, loan disbursement, loan repayment till loan closure) is managed through Customer Mobile application.
A few Benefits for Digital Lending:
- Minimal operational Requirement: Digital lending transforms the traditional process as there is minimal paperwork involved also distribution cost of physical channel gets reduced.
- Self- Serving channel: Bank can reach to higher number of potential customers thus increasing addressable market
- Quick Disbursal: The loan disbursal process has been upgraded with digital tools, As soon as the application processing is complete, the loan amount is transferred to the applicants bank account
- Alternative Credit Models: A lack of historic credit data makes lenders skeptical, in Digital Lending; however, your digital life is your history. Social networking profiles like Facebook, LinkedIn, and other channels may serve as surrogates for credit history.
Although Mobile app lending is a fast-growing platform, there are a few risks involved in adopting such technology. For example: Since it is a fully automated process there are possibilities of fraud injection in the process by exploiting the vulnerabilities of the application. There are also possibilities of providing fraudulent documents as verification process for documents doesn’t always involve authentication against a central database. Moreover, banks have to make a lot of changes to their existing policy and processes to implement digital lending. These challenges are delaying adoption and progress to complete digitalization.
Mobile lending application are helping banks, financial institutes and consumers equally. These applications are effective as it saves time, cut short many processes, includes features like list of other products of banks which might interest customers. Therefore, digitalization is the future for lending. The technology industry should enable quick adoption of digital lending by all Banks and Financial institution by addressing the challenges of implementation time, fraud risks and process changes through building secure applications which are highly customizable and easy to implement and at the same time highly secured with streamlined processes and improved document verification methods.
Evolving technology and a highly competitive market are pushing organizations to embrace advanced software systems to run their business and stay relevant against their competitors. Banks and financial institutes are no different to this phenomenon. The existing software & systems used for processing various business functions poses certain limitations as the business requirements evolve over time. For some software products they may be able to quickly upgrade to handle the changing requirements or need to be gradually being phased out in order to make way for a better system. Core systems are relatively difficult to replace compared to satellite systems mainly because of the involvement of huge volume of data. The core systems are already highly customized as per the business needs and also due to multiple interfaces with other systems. This system design and architecture become extremely humongous to manage which is a necessity to fulfill day-to-day business requirements. So, Migration projects becomes a critically important project by Banks and financial institutions,
While undertaking such a core migration project, business has to perform a lot of tasks. Some of these tasks are listed below:
- Identifying existing core functionalities
- New functionalities requirements
- Interface requirements
- Environment setup
- User Acceptance Testing
While performing these tasks, invariably, Reconciliation activities gets lesser importance but which is one of the most critical tasks to ensure success for the project. It has been observed that in almost 90% of migration projects, planning is not done for reconciliation activity in advance.
The lower priority for this critical task causes stress in the system during the final stages of the project. The go/no-go decision for a migration project is also dependent on successful reconciliation which adds to the stress and leads to failure in most cases.
Reconciliation comes out as the biggest challenge in a migration project mainly because of the following reasons:
- Volume of data to be reconciled
During a core migration project, the reconciliation needs to be performed between the source & destination data. That is double the volume of data that the core system handles. In the first stage, reconciliation is performed based on the reports generated from the source and destination system. A match in this stage is taken as a successful indication for the migration. But in 99% of the cases the first stage fails. In the second stage the data from source and destination are compared to find out the exact issues causing the mismatch. This is a tedious activity considering the volume of data from the two systems. Finally, the identified issues are resolved & reports are re-generated which is used for signing off the project.
- Multiple input formats
The data from source and destination are provided as inputs in different formats – fixed length files, delimited files, database, reports etc. The data needs to be converted to a format that can be processed easily. The conversion jobs are created to handle such data. It also requires pre-validation on the data to ensure correct data is used for comparison.
- Dependence on spreadsheets to perform reconciliation
Most business teams are dependent on spreadsheets to perform reconciliation. However, spreadsheet is a slow and non-reliable method of performing reconciliation. When the volume of data is huge, spreadsheets fail to process them and leads to lot of errors. Some organizations use database to handle the huge volume of data. But this involves creating queries which are technical and introduces dependence on IT teams.
- Time critical
Last but not the least, reconciliations in migration projects are time critical. The entire go/no-go decision is dependent on the outcome of this activity. Any error in this process leads to additional downtime and loss of business. Most migration projects have to roll back to older systems when the reconciliation fails. Hence the success of this process is most critical and should receive its due importance.
As per Gartner 83% of migration projects fail to achieve their target. This can be reduced to a great extent if banks plan their migration reconciliation in advance and identify the points of failure well before the actual migration. The reconciliation activity is a specialized task which requires a great understanding of the data and hence business plays the most critical role in this activity. But without the use of technology it becomes the most difficult task for any business to complete this activity with an acceptable outcome.
Having executed significant number of data migration projects in the past, Verinite understands the challenges involved in the reconciliation process and is in a better position to assist banks to fulfill this task as per their expectation. Please get in touch with us at [email protected] if you want to know more about our capabilities in this