Real-time payment system IMPS - future & challenges

Term PaperByRahul Amin ChoudhuryMBA Banking Finance

Under the supervision ofDr. Sunil Joshi

School of Business Studies

AbstractIn this paper researcher has been tried to examine the developments of payment system in Indian banking system and analyzed mobile based payments and settlement service IMPS (immediate payment service). In recent years Indian banking system have been undergoing from modernization phase and implementing many innovation ideas in the system. This article focused on only payment and settlement system and it is based on secondary data sources. Data consist in it has been analyzed by the simple statistical tools. This article consist IMPS based payment system and services provided by NPCI (National Payment Corporation of India) a subsidiary of RBI, level of transaction volume, value as well as includes threats of payment system as suggest applicable measures to enhance payment system.

IntroductionEvery country has a financial system of its own that serves as backbone of its entire development. A financial system is a set of institutional arrangements through which financial surplus in the economy is mobilized from surplus units and transferred to deficit spenders. The financial system of any country consists of banking and non banking financial institutes, these institutes are providing various types of financial services to the customers. In the financial services, financial clearing and fund transfer service is most important service than other services. Payment systems improve financial intelligibility, stimulating business growth and consumption .The success of the banking system has depends upon the efficient and quality of clearing system of the industry. The system is changing drastically with technological advancements. Last few years evident that, technology have become a mean for improvement of financial system worldwide. In India, most of banks and financial institutions are using internet and mobile based financial products and services to improve their business efficiency and speed of services e.g. called e-banking, internet banking, electronic fund transfer, electronic clearing, mobile banking etc.Reserve Bank of India, after setting up of the Board for Payment and Settlement Systems in 2005, released a vision document incorporating a proposal to set up an umbrella institution for all the RETAIL PAYMENT SYSTEMS in the country. The core objective was to consolidate and integrate the multiple systems with varying service levels into nation-wide uniform and standard business process for all retail payment systems. The other objective was to facilitate an affordable payment mechanism to benefit the common man across the country and help financial inclusion.IBA's untiring efforts during the last few years helped turning this vision a reality. National Payments Corporation of India (NPCI) was incorporated in December 2008 and the Certificate of Commencement of Business was issued in April 2009. It has been incorporated as a Section 25 company under Companies Act and is aimed to operate for the benefit of all the member banks and their customers. The authorized capital has been pegged at Rs 300 crore and paid up capital is Rs 100 crore so that the company can create infrastructure of large dimension and operate on high volume resulting payment services at fraction of the present cost structure.Vision- To be the best payment network globallyMission- Touching every Indians with or other payment services

Product and services by NPCI1. National Financial Switch- The largest network of shared automated teller machines(ATMs) in India with 78 members and 166928 ATMs2. National Automated Clearing House- It is a centralized system, launched with an aim to consolidate multiple ECS systems running across the country and provides a framework for the harmonization of standard & practices and removes local barriers/inhibitors. NACH system will provide a national footprint and is expected to cover the entire core banking enabled bank branches spread across the geography of the country irrespective of the location of the bank branch.3. Cheque Truncation System4. Adhar Enabled Payment System- It is a bank led model which allows online interoperable financial inclusion transaction at PoS (MicroATM) through the Business correspondent of any bank using the Aadhaar authentication.5. RuPay- RuPay, a new card payment scheme launched by the National Payments Corporation of India (NPCI), has been conceived to fulfill RBIs vision to offer a domestic, open-loop, multilateral system which will allow all Indian banks and financial institutions in India to participate in electronic payments.6. IMPS- IMPS offers an instant, 24X7, interbank electronic fund transfer service through mobile phones.IMPS is an emphatic tool to transfer money instantly within banks across India through mobile,internet and atm which is not only safe but also economical both in financial and non financial perspectives.

Mobile Payments in IndiaMobile payments is a mode of payment using mobile phones. Instead of using methods like cash, cheque, and credit card, a customer can use a mobile phone to transfer money or to pay for goods and services. A customer can transfer money or pay for goods and services by sending an SMS, using a Java application over GPRS, a WAP service, over IVR or other mobile communication technologies. In India, this service is bank-led. Customers wishing to avail themselves of this service will have to register with banks which provide this service. Currently, this service is being offered by several major banks and is expected to grow further. Mobile Payment Forum of India (MPFI) is the umbrella organisation which is responsible for deploying mobile payments in India

IMPS-Currently majority of interbank mobile fund transfer transactions are channelised through NEFT mechanism. Under NEFT, the transactions are processed and settled in batches, hence are not real time. Also, the transactions can be done only during the working hours of the RTGS system.With the above context in mind, NPCI conducted a pilot study on the mobile payment system with the banks like SBI, BOI, UBI and ICICI in August 2010. Also the banks like Yes bank, Axis and HDFC bank joined this league in the month of september, october and november 2010 respectively. Immediate Payment Service (IMPS) public launch happened on 22nd November 2010 by Smt. Shyamala Gopinath, DG RBI at Mumbaiand this service is now available to the Indian public.IMPS offers an instant, 24X7, interbank electronic fund transfer service through mobile phones.IMPS is an emphatic tool to transfer money instantly within banks across India through mobile,internet and atm which is not only safe but also economical both in financial and non financial perspectives.This facility is provided by NPCI through its existing NFS switch.Objectives of IMPS To enable bank customers to use mobile instruments as a channel for accessing their banks accounts and remit funds Making payment simpler just with the mobile number of the beneficiary To sub-serve the goal of Reserve Bank of India (RBI) in electronification of retail payments To facilitate mobile payment systems already introduced in India with the Reserve Bank of India Mobile Payment Guidelines 2008 to be inter-operable across banks and mobile operators in a safe and secured manner To build the foundation for a full range of mobile based Banking services. The participant for IMPS- Remitter (Sender) Beneficiary (Receiver) Banks National Financial Switch NPCIPre-Requisite for Mobile Banking through IMPSRegistration for Remitter: Register yourself with the mobile banking service of the bank. Get Mobile Money Identifier (MMID) and MPIN from the bank Download Software (Application) for mobile banking (ensure the compatibility of mobile with the application) or use the SMS facility in your mobile if your bank provides IMPS on SMSRegistration for Beneficiary: Link your mobile number to the account in the respective bank. Get Mobile Money Identifier (MMID) from the bankFor Remitter (To send money): Login to the application and select the IMPS menu from the IMPS or use the SMS facility in your mobile if your bank provides IMPS on SMS Get Beneficiary Mobile number and MMID Enter Beneficiary Mobile number, beneficiary MMID, Amount and your MPIN to send Await confirmation SMS for the debit in your account and credit in beneficiary account Note the transaction reference number for any future query Share your Mobile number and MMID with the remitter Ask the remitter to send money using your Mobile number and MMID Check the confirmation SMS for credit to your account from the remitter Note the transaction reference number for any future queryServices available on IMPS Funds Transfer1. Donations2. Mobile Bill Payment3. Online ShoppingHow does IMPS work?For Customer to customer to transfer, bank account holders need to register with their respective banks first. The bank then issue issues a unique seven digit number called mobile money identifier (MMID) and Mobile Banking Personal Identification Number (MPIN) to the customer.To facilitate mobile payments, customers need to feed receivers mobile number, MMID, the amount to be remitted and MPIN. After the transaction, both parties get SMS confirmation. At present, consumers can transact up to Rs 50,000 through IMPS everyday.For merchant payment, there are two types of transactions- customer initiated transaction (P2M or PUSH) and merchant initiated transactions (M2P or Pull). In customer initiated transaction or PUSH, customer initiates transaction through the Banks mobile banking application or SMS facility provided by the Bank. Customer needs to feed parameters such as merchant mobile number, merchant MMID, amount to be remitted, M-PIN and payment reference. Payment Reference is an optional 50 character field provided to enter the unique reference for the payment, and identifies the transaction to the merchant.In merchant initiated transaction, the transaction is initiated through merchant application such as Merchant website, WAP site, IVR or mobile application. Merchants need to feed credentials such as service for which payment is to be made, customers mobile number, customer MMID and one-time Password(OTP). Customer needs to enter credentials like customer mobile number (as registered with the Bank), MMID (as generated by Bank) and OTP (One-Time Password generated by customer). OTP needs to be generated by customer for each transaction and is only valid for an hour from time of generation. If OTP is generated through SMS, the transaction limit is Rs 5,000 and if OTP is generated through mobile banking application, the transaction limit is as decided by the Bank (Rs 50,000 for most banks)MMIDThe Mobile Money IDentifier (MMID) is the key identifying detail of a user participating in a transaction. An MMID is a seven-digit number given to a customer upon registration with a bank for the service. In the seven digits of the MMID are four digits used to identify the bank of the user and three digits used to identify the account of the user.A mobile number and a MMID will uniquely identify a customers account with the respective bank. The design of the MMID allows customers to operate multiple bank accounts linked to a single mobile number; each bank account has its own MMID. Additionally, since the MMID of the payee must be entered along with the payee's mobile phone number, it serves to reduce the possibility of an erroneous transaction when the payer inadvertently enters an incorrect mobile number.The MMID is not intended to be a secret it is simply an identifier and it does not give away any sensitive information about the customer. For example, a merchant will advertise his mobile number and MMID publicly in order to receive payments from the customers.

List of IMPS Member

Sr. No.Bank NameNo. of MMID issued (in lakhs)IMPS RemittanceIMPS Merchant PaymentNational Unified USSD Platform (NUUP)

Using MMID(P2P)Using Account No. & IFS Code(P2A)Active Channels

1Allahabad Bank0.25Mobile

2Andhra Bank9.55Mobile/ ATM

3Axis Bank113.40Mobile/Internet

4Bank of Baroda7.41Mobile/Internet

5Bank of India22.87Mobile/Internet

6Bank of Maharashtra0.04Mobile

7BNP Paribas0.00Mobile

8Canara Bank4.95Mobile/ATM/Internet

9Catholic Syrian Bank0.00Mobile

10Central Bank of India0.16Mobile/Internet

11Citibank3.75Mobile/Internet

12Corporation Bank14.12Mobile/Internet

13Dena Bank0.01Mobile

14Development Bank of Singapore0.00Mobile

15Development Credit Bank0.62Mobile

16Dhanalakshmi Bank6.49Mobile

17Federal Bank1.20Mobile/ Internet

18HDFC Bank4.89Mobile/ Internet

19HSBC0*Mobile/Internet

20ICICI Bank234.40Mobile/Internet

21IDBI Bank0.00Mobile

22Indian Bank45.00Mobile/ Internet

23Indian Overseas Bank.96Mobile

24Indusind Bank0.74Mobile/ATM/Interne

25ING Vysya Bank0.11Mobile/Internet

26Jammu And Kashmir Bank0.01Mobile

27Karnataka Bank32.66Mobile

28Karur Vysya Bank0.36Mobile/ Internet

29Kotak Mahindra Bank36.95Mobile/ Internet/ATM

30Lakshmi Vilas Bank7.49Mobile/ ATM

31Oriental Bank of Commerce19.66Mobile

32Punjab and Sind Bank0.61Mobile

33Punjab National Bank4.05Mobile/ATM/Internet

34Ratnakar Bank0.00Internet

35South Indian Bank3.47Mobile

36Standard Chartered Bank0.00Mobile

37State Bank of Bikaner and Jaipur0.22Mobile

38State Bank of Hyderabad0.33Mobile

39State Bank of India64.41Mobile/Internet

40State Bank of Mysore0.06Mobile

41State Bank of Patiala0.08Mobile

42State Bank of Travancore0.20Mobile

43Syndicate Bank0.99Mobile

44Tamilnad Mercantile Bank0.27Mobile

45UCO Bank0.63Mobile/Internet

46Union Bank Of India17.02Mobile/ATM/Internet

47United Bank Of India0.45Mobile

48Vijaya Bank0.59Mobile

49Yes Bank Ltd10.81Mobile/ Internet

RRBs/DCB/UCBSr. No.RRB/DCB/UCBNo. of MMID issued (in lakhs)IMPS RemittanceIMPS Merchant PaymentNational Unified USSD Platform (NUUP)

Using MMID(P2P)Using Account No. & IFS Code (P2A)Active Channels

1Pandharpur Merchant Co-operative Bank0*Not applicable (#)

2Kashi Gomti Samyut Grameen Bank0*Not applicable (#)

3Gayatri Co-operative Urban Bank0*Mobile

4Maharashtra Grameen Bank0*Not applicable (#)

5SUCO Souhadra Sahakari Bank0*Not applicable (#)

6The Surat District Co-op. Bank Ltd0*Not applicable (#)

7Dr. Annasaheb Chougule Urban Co-op Bank Ltd0*Not applicable (#)

8Bassein Catholic Co-op Bank0.03Mobile/Internet

9Thane Janata Sahakari Bank1.85Mobile

10The A.P Mahesh Urban Co-op Bank0.03Mobile

11The Greater Bombay Co-op Bank0.56Mobile

12Cosmos Co-operative Bank0.10Mobile

13Punjab and Maharashtra Co-op Bank0.50Mobile

14NKGSB Co-operative Bank0.42Mobile

15Mehsana Urban Co-operative Bank0.01Mobile

16Kallappanna Awade Ichalkaranji Janata Sahakari Bank0*Mobile

17Janaseva Sahakari Bank0*Mobile

18Janata Sahakari Bank, Pune0.04Mobile

19Dombivli Nagarik Sahakari Bank0.27Mobile

20Gopinath Patil Parsik Janata Sahakari Bank0*Mobile

21Nainital Bank0*Mobile

22Saraswat Bank0.26Mobile

23National Co Operative BankMobile

24Pochampally Urban Co Operative BankNot applicable (#)

# As beneficiary

0* No. of MMID issued lesser than 1000.

Sr. No.Prepaid Payments Instrument Issuer (PPI)No of Subscribed Users (in lakhs)IMPS RemittanceIMPS Merchant Payment

Using MMID(P2P)Using Account No. & IFS Code (P2A)Active ChannelsUsing Adhaar No. (ABRS)

1Airtel Mcommerce ServicesMobile (Dial*400#)

2GI Technology14.31Mobile/ Internet

3ITZ Cash Card2.46Mobile/Internet

4MMP Mobi Wallet Payment Systems Ltd. (mRupee)Mobile/Internet

5Vodafone m-pesa LimitedMobile (Dial*400#)

6Muthoot Vehicle and Asset Finance LtdInternet

7Oxigen Services21.28Mobile/ Internet

8UAE Exchange and Financial Services1.4Mobile/Internet/SMS

9My Mobile Payments Limited (MoneyonMobile)Internet

Prepaid Payment Instrument Issuer

IMPS Statistics

MonthNo. of Member BanksNo. of MMIDs Issued(in lacs)Inter Bank VolumeIntra Bank VolumeTotal No. TransactionTotal(in lacs)

No. of Transactions(in lacs)No. of Transaction(in lacs)

December, 201473745.578,380,921603655.481,121,50230621.869,502,423634277.34

November, 201471704.997,090,697525901.11720,53115659.047,811,228541560.15

October, 201471685.016,508,147489880.15327,61820501.336,835,765510381.48

September, 201469670.255,862,292429463.76307,68918503.536,169,981447967.29

August, 201467632.344,797,349351974.01259,48715818.385,056,836367792.39

July, 201465629.714,260,701301864.46236,33317775.674,497,034319640.13

June, 201463618.963,706,309261005.6195,55613543.813,901,865274549.41

May, 201462606.283,296,212241600.27194,63812130.893,490,850253731.16

April, 201460595.213,114,716215724.49163,24210868.453,277,958226592.94

March, 201460584.882,998,331205002.57168,47810420.543,166,809215423.11

February, 201459581.512,227,142145560.13132,9327556.732,360,074153116.86

January, 201459568.432,030,898132027.91122,9857460.712,153,883139488.62

December,201359557.621,837,216117015.42105,7076505.071,942,923123520.49

November, 201359543.231,309,27088159.8885,5805330.651,394,85093490.53

October, 201359537.551,223,79673183.7386,9945288.451,310,79078472.18

September, 201359531.491,015,08755274.8186,3344508.631,101,42159783.44

Comparison with other payment services-NEFT v/s RTGS v/s IMPSIf you have tried transferring money electronically to an individual or an account, you wouldve come across the terms NEFT,RTGS and IMPS. Most of us are not really aware of the difference between the various models and on what occasions they have to be used.NEFT (National Electronic Funds Transfer) and RTGS(Real Time Gross Settlement) are the two main fund settlement mechanisms used by banks in India to conduct one to one transactions. These transfer protocols are maintained by the Reserve Bank of India.IMPS (Interbank Mobile Payment Service/Immediate Payment Service) on the other hand is a mobile based payment mechanism introduced in 2010 by the National Payments Corporation of India to allow customers to transfer money instantly, facilitating instant remittance across multiple platforms.Intra bank transactions are usually pretty easy as it happens without contact with an external bank. Payment mechanisms like NEFT and RTGS come into the picture when contact with an external banks is involved.NEFTNEFT transactions are usually used to transact in small amounts as there is no minimum amount, but the maximum* amount possible is Rs 2 lakhs. Also NEFT transactions are conducted between banks on net settlements basis, meaning they are conducted in batches and not at the same time as the transactions.NEFT operates from 8AM to 6:30PM on weekdays and 8AM to 12:30PM on Saturday,in hourly batches. There are twelve settlement batches on week days and six settlements on Saturdays. Timings might vary slightly from bank to bank.Transactions made during this time slot are settled within the same day and after the ones ones conducted after the end time are carried out the next day.RTGSRTGS transactions are usually to transact in larger amounts in real time, the minimum amount required is Rs 2 lakhs and above. RTGS transactions happen between banks in real time and on a gross basis. As this mechanism operates in real time, i.e sans any waiting period, and on a gross basis, i.e settled individually unlike in batches, it is the fastest way to transfer money electronically.RTGS can be accessed between 9AM and 4:30PM on weekdays and 9AM and 1:30PM on Saturdays. Timings might vary slightly from bank to bank.IMPSUsing IMPS, a relatively newer service, users can transfer money immediately from one account to the other account, within the same bank or accounts across other banks. Similar to NEFT, there is no minimum amount for transactions, but the maximum* amount possible is Rs 2 lakhs.Users can carry out Person to Person(P2P), Person to Account(P2A) and Person to Merchant(P2M) transactions from their mobile, Internet or ATM. One of the advantages of IMPS transaction is that it is available 24X7 and even on holidays. This can be payments for utility bills, mobile or DTH recharge, credit card bills, grocery bills, travel ticketing, online shopping and even educational institutes fee payments through this channel.The key features of IMPS Funds Transfer are as follows: Instant funds transfer 24-hour, 365-day availability Credit and debit confirmations to sender and receiver Simple and easy to use Fast, inexpensive, safe and secure, accessible

ChargesFor NEFT and RTGS charges vary from bank to bank, but the RBI has set a maximum limit on what the banks can charge customers. IMPS were offered free of cost in order to promote this channels, but most banks usually charge amount similar to their NEFT tariff.*The RBI has not set a value for the maximum amount possible to be transferred using NEFT/RTGS/IMPS, but RBI allowsbanks to place per transaction limits based on their own risk perception with the approval of its Board.

Reasons for Success of IMPSIndia has a vast non-banking population, most of whom reside in the rural areas. The traditional banking industry can not cater to the needs of India's large rural populace. Setting up a conventional bank branch in a rural area would require considerable amounts of money to be spent on infrastructure and additional personnel. Most of rural Indians are cut off from access to basic financial services, which include deposits and withdrawals from a trusted source.Annual growth of mobile subscriber base in IndiaHowever, India is the second-largest telecommunications market and has 970.97 million (dec 2014) mobile phone customers. Mobile phones are quite common even in the remote villages. The mobile phone industry is growing at a rate of over 200 million per year. It was expected to touch the one billion mark by 2015. The share of the urban subscribers is 66% and the share of the rural subscribers was 34%. The subscription growth rate on a monthly basis is 55% for urban segments and 45% for rural segments. Given this context, it is possible to consider the mobile phone as an economically viable instrument to enable inclusive access to financial services.Impact of mobile phones on welfareMobile telephony has had an impact mainly by allowing for agents in information restricted areas to engage in more optimal arbitrage. The adoption of mobile phones by fishermen and wholesalers resulted in a dramatic reduction in price dispersion, the complete elimination of waste, and a near-perfect adherence to the law of one price. Both consumer and producer welfare increased.Mobile payments can have a positive impact on welfare by easing operational aspects and associated costs of cash-based transactions related to cash handling, storage and transfer, and by providing a strong platform for financial inclusion.Drivers for mobile financial services High penetration of mobile subscribers. Mobile top-up services, domestic remittances and bill payments can be made very conveniently over a mobile phone. Growing demand, and an existing thriving ecosystem, for mobile services like ring tone downloads, Bollywood music, update for cricket matches, etcetera. Thus the uptake for another service, especially financial services, should be positive. Drive to be a part of the financial system for those people who currently do not have a bank account. The cost of cash handling, storage and transfer is very high in the informal sector. The ability to perform basic financial transactions over a mobile could act as a driver. There is a strong demographic dividend in India, where a large proportion of the population is very young. The young are often enthusiastic to take up new technologies and services.

Challenges for mobile financial services in India Poor levels of literacy are a problem, and voice-based services offer a potential solution. Voice-based solutions, especially in local languages, have two major benefits: they can work on all handsets and can be used by all irrespective of ones comfort level with technology or level of literacy. The mobile financial services have to be effective in terms of usability, cost, efficiency, interoperability and security for transactions of all ticket sizes. M-payments options should be available even on low end mobile handsets Though mobile payments allow payments to be made electronically, they do not enable depositing money into a bank.Conclusion-Even though mobile operators in India are not allowed to operate mobile wallets unless they become banking correspondents in partnership with banks, mobile payment in India has been becoming popular through IMPS (customer to customer) service. This can be gauged from the above spate in number of IMPS transactions in last 6 months. Undoubtedly, given the 600 million active mobile users, ease of enabling fund transfer on fingertips and low charges over transactions, the adoption of IMPS is going to get a strong leg up.

With IMPS service now opened to merchant payments, it has potential to do wonders to the way merchants receive payment. Apart from point of sales (POS) payment, IMPS could benefit e-tailers offering Cash on Delivery (COD) s a payment option to a greater extent. IMPS can be used to receive such payments via mobile phone, at the time of delivery and it will reduce the time-cycle for getting the payments for COD orders.Recommendation- Appointment of Banking correspondent (BC). The role of a BC is to act as an interface between the bank and its customers in places where traditional banking is not feasible. Banks can appoint a trusted third party as a BC in a village. All the villagers who wish to transact with the bank can get in touch with the BC. Deposit and withdrawal of money is handled by the BC. When a person deposits money at the BC, their account immediately gets credited. The person can then use their mobile phone for additional transactions. Mobile Service should be made available to all parts of the country Banks should give emphasis on educating the customers of the banks on how to use it, it will decrease their cost of operation. Affordable mobiles should be provided to economically weaker populations.

References- ELECTRONIC MODE OF PAYMENT A STUDY OF INDIAN BANKING SYSTEM- Aastha Gupta Wings of Changed Technological Payment Systems in Indian Banking An Empirical Study. http://www.npci.org.in/aboutimps.aspx http://en.wikipedia.org/wiki/Mobile_Payments_in_India http://www.nextbigwhat.com/interbank-mobile-payment-services-imps-in-india-297/ http://www.nextbigwhat.com/neft-rtgs-imps-297/ http://www.livemint.com/Money/LMY4KJcKR39hb568whDJPI/Has-mobile-payment-bug-bitten-you-yet.html http://www.slideshare.net/