Black Money in India – ePayments tricks to reduce it

Today’s Post is with reference to the White Paper presented to Indian Parliament by Finance Minister, Mr.Pranab Mukherjee.

This report has been prepared by Ministry of Finance, Department of Revenue-Central Board of Direct Taxes.

To Safe ePayments professionals, the Black Money-White Paper holds lot of promise. Some suggestions in the White Paper have the potential to boost the ePayments volumes.

The following are noteworthy from the epayments angle.

QUOTE

Para No 5.2.27- Page No 55

Another important measure in this regard could be the promotion of banking channels including use of credit and debit cards, since they leave adequate audit trails and hence disincentivise black money generation.

The opposite is true of trade practices that block the audit trail, such as cheque discounting, which can be discouraged applying the same logic. With electronic transfer facilities being available to trade, one can foresee this as one of the major thrusts towards strengthening accountability and discouraging unaccounted activities.

Towards this end, some important initiatives have already being taken which include the reduction of the validity period of cheques and demand drafts from six to three months with effect from 1April 2012, which will discourage discounting of negotiable instruments.

Payments by debit and credit cards through Indian e-service intermediaries like 'RuPay'2 can further bring down the costs of using such cards, improve their acceptability, and thereby encourage payments in these modes and reduce the cash economy.

It is imperative that payment of wages and salaries in the private sector should also be through banking channels and should become cashless, in line with the government objective of financial inclusion.

Government can also deliberate providing tax incentives for use of credit/debit cards as practiced in Republic of Korea.

Provisions for collection of tax at source at a low level on cash purchases may also be considered as a possible policy option.

UNQUOTE

Once Rupay is up and running, the transaction cost to all the participants will reduce drastically. As of now, in small/medium shops 2% excess is charged, if the customer desires to pay via Credit/Debit Card. Hence, customers do no tend to opt for the Credit/Debit card payment option.

Plus industry wide push is not still not very much visible. Continuous campaigns to educate the customers the benefits of Credit/Debit Cards will aid in increasing the volumes.

In the recent past, State Bank of India was running a TV Campaign and AXIS a Print/TV Campaign. Visa/Mastercard too run campaigns.

However, ways should be found out, to reduce the Credit/Debit fraudulent transactions. Otherwise, with the increase in the volumes, the fraudulent transactions too will increase.

SBI TRANSFER CASH -State Bank of India – Send Cash in a Flash

Today morning, while browsing through the morning newspaper, saw an attractive advertisement of State Bank of India’s advertisement.

The heading says it all - SEND CASH IN A FLASH –

SBI has opted for the ‘MasterCard® MoneySend™ CardtoCard ‘,service to offer this Electronic Funds transfer facility to all State Bank Group account holders.

Highlights:

1. The transfer is instant.
2. Upto Rs15,000/- can be transferred in a single transaction.
3. Upto Rs30,000/- can be transferred per day.
4. Upto two transactions can be done per day.
5. The service charges are NIL
6. The service is available at 26,000+ ATM’s of State Bank Group all over India.

The process flow is as under:

1. Customer to swipe debit card and select transfer option.
2. Customer to enter his/her PIN
3. Customer to select card to card option.
4. Customer to enter beneficiary SBI debit card number
5. Customer to enter the amount to be transferred.
6. The transaction is complete.
7. Sending customer and Receiving customer receive SMS messages, if they have opted for SMS alerts.
8. The Receiving customer can withdraw Cash from ATM or pay for Purchases via POS Terminals at Merchant Establishments.

Adding FreedomRewardz points to ‘SBI TRANSFER CASH’, would be a additional motivator to State Bank Group customers to experience the power of ‘Cash in a Flash’.

Safety Tips:

1. Your Debit Card should always be with you.
2. Your PIN Number should always be with you.
3. Subscribe for SMS Alerts.
4. Register your email id, for Bank Alerts.

State Bank Group, Axis Bank, IDBI Bank and Punjab National Banks have currently opted for both the’ Money Send’ options i.e Send Money and Receive Money, via the State Bank Group ATM’s.

ABN AMRO,Andhra Bank,Axis Bank,Bank of Baroda, Canara Bank,Central Bank of India,Citibank (Credit Only), Deutsche Bank,HDFC Bank,HSBC,ICICI Bank (Debit Only),IDBI Bank,ING Vysya Bank,J&K Bank,Punjab National Bank,SBI GE Cards,South Indian Bank, Vijaya Bank and Yes Bank, have opted for ‘MoneySend’, ‘receive funds’, facility only.  

Is it time for 3FA(Factor Authentication) in Indian ATM's?

The trigger for this thought is this article Economic Times article

It seems the speakers at the Meet, have a very strong mindset to blame the bankers especially bankers associated with ATM Operations for the fake notes menace.

Maybe the Speakers have not read this article Security Features of Indian Notes

The aim of this article is not to explain what is 1FA(factor authentication) or 2FA(factor authentication) or 3FA(factor authentication) but to analyze the pros and cons of 3FA(factor authentication)

3FA(factor authentication), in simple terms is the verification of the 'User's request' by three separate steps to conform that the 'request' has been raised by the correct user only and not by any 3^rd party.

3FA is not 100% secure, but 99.9999% secure. Nothing in this world is 100% secure.

ATM's in India, currently have 2FA I.e 'something which a user has – ATM card' and 'something which the user knows – PIN (Personal Identification Number)

There is a wide choice for the 3^rd FA(factor authentication),

1. Biometric (UIDAI being the best example) or
2. OTP (One time password)
3. Security Tokens or
4. Card Lock-in options
5. Transaction Authentication

The Pros and Cons of each option in brief are us under :

1. Biometric (UIDAI being the best example)--

PROS :

a) Tools exist to make this reality.

CONS:

a) UIDAI is yet to stabilize.

b) The implementation and the maintenance costs right now are substantial.

100. Biometric verfication tools on a large scale are not common in India.

2. OTP (One time password)--

PROS: -

a) OTP's are becoming common.

b) The implementation and maintenance costs are less

CONS: -

a) OTP features need to be integrated into the ATM network. This is not a big inhibitor as majority of the ATM's are part of the NFS (National Financial Switch) network now. The only factor which might be a stumbling block is the validity time period of the OTP generated I.e for how many hours the OTP generated should be live. Currently the industry average is 2 hours for netbanking non-financial OTP's.

For financial OTP's the life is few seconds.

3. Security Tokens--

PROS:

a) Proven technology

b) Costs are less

CONS:

a) Integration with the ATM's network required.

b) Who will bear the cost of the Security token?

4. Card Lock-in Options--

In simple terms, the Card Locking feature means allowing Bank consumers the option to lock and unlock their bank cards to permit or deny account use at automated teller machines (ATMs) and point-of-sale (POS) devices or on internet sites.

Some Banks have already opted for this feature. Check out at Card Lockin, Diebold cardlock in feature

PROS:-

a) Brand new concept, hence to encourage Banks to hop on to the bandwagon.

b) SMS/Branch/Phone/Net Banking channels can be multiple-touch points for this option.

5. Transaction Authentication. Transaction authentication means using an additional electronic signature generated on the basis of the amount to be withdrawn from the ATM. The electronic signature can be a OTP which is generated only after the amount tobe withdrawn is keyed into the ATM. However, the main draw back is that the time-frame to complete the whole cycle of ATM withdrawal is short and introducing Transaction Authentication in the present setup is a challenge.

Delhi Metro to Provide Smart Card Recharge Facility at AFC Gates

As the usage of Contactless Smart Cards by Delhi Metro Commuters is on the rise, Delhi Metro is looking at innovative ways to smoothen the recharge process.

Towards this, Delhi Metro is procuring the latest AFC (Automatic Fare Collection) gates, which will have the capacity of automatic top up of smart cards through the bank accounts of card holders (electronic clearance system (ECS).

The complete Press Release can be read @ http://www.delhimetrorail.com/press_reldetails.aspx?id=GpDr4c0GlYklld

As per the proposed process flow, for customers availing this facility, when the balance of a smart card goes down to the pre defined value or the minimum amount, the specific AFC gates will add pre defined amount into the card automatically.

Later on, the deducted amount will be collected from the card holder’s bank account by the Metro fare collection system. I am not sure, what will happen if there is no balance in the card holder's bank account at the time of debit.

In addition to this, DMRC is also developing a new technology through which Delhi Metro commuters will be able to recharge their smart cards through various options such as net banking, credit cards, debit cards. DMRC is also procuring Add Value Machines for recharging the smart cards at the stations through net banking, credit cards, debit cards.

'Add Value Machines', can be said to reverse ATM's, which accept Cash and credit the equivalent value to DMRC Contactless Cards.

Like all good things in life, these new features are not instantly available, but will be 'live', within this calendar year I.e 2012.

Currently, tokens and smart cards can be purchased or recharged only by paying cash at the specified counters, machines or customer care centers at Metro stations.

The Smart cards are very popular in Delhi Metro as DMRC is providing 10% discount on fares on use of the smart cards and many stations have dedicated exit gates only for card users.

Evolving Customer friendly Payment Systems in India – a continuing agenda

Today's Post is on the Inaugural address by Shri G.Padmanabhan, Executive Director, Reserve Bank of India on the occasion of the launch of Mobile Banking services by Tamilnad Mercantile Bank Ltd on 9 January, 2012 at Chennai.

The complete Speech can be accessed at http://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=652

Many new ideas in the Indian Payments Arena have been outlined in the speech.

On a quick reading, the ZERO LIABILITY/Limited Liability feature adopted by major credit card issuers in USA seems to be the highlight of the speech.

What is Zero Liability/Limited Liability feature in Credit Cards ?

In simple terms, Zero Liability can said to be a valuable benefit for consumers, virtually guaranteeing protection against card fraud.

Of course like all good things in life, Zero Liability has its own terms and conditions. The terms and conditions can said to be

1. of the Card Issuing Company I.e Visa or Master or American Express or Diners
2. of the Card Issuing Bank

There is a view that Indian credit cards holders should be offered the benefits of 'Zero Liability' feature. This has started and HDFC Bank Platinum Plus Credit Card holders and HSBC Gold Credit Card holders can enjoy this feature. It is to be noted that the 'zero liability', starts only the card holder informs his/her Bank the loss of the credit card has been reported to the Bank in writing or to the VISA / MasterCard Global Emergency Assistance Helplines.

A similar facility is offered by all Credit Cards Issuing Banks to their high-end credit cards.

To increase the confidence of the credit cards holders in credit card transactions, the speech suggests that the 'zero liability', feature be extended to all credit card holders as long as the customer has adhered to all the risk measures prescribed by the bank, but yet unauthorized transactions have taken place in his/her credit card account.

Hm, which bank will be the first one, to offer this facility.

Savings bank a/c number portability in India on anvil: Indian FinMin. This should be real by 2018

A simple definition of 'Portability' is a thing which can be carried or moved with ease. Portability in another sense is 'Capable of being transferred from one employer to another. Used of an employee benefit'.

In India, in recent times the word 'Portability', is familiar with Mobile subscribers and Health Insurance Policy Holders

Now, the word 'Portability', will be extended to the Banking Customers too. The Indian Finance Ministry is working on savings banks account number portability. Savings Banks accounts portability, will allow a customer to retain his account number while changing his bank.

Financial Services Secretary D K Mittal said, “We want to do it (savings a/c number portability). Right now there are some technical problems...we have identified them. We will overcome them soon," .

He was speaking after a meeting in the Ministry, which among others was attended by Economic Affairs Secretary R Gopalan, Finance Secretary R S Gujral and Chief Economic Adviser Kaushik Basu. He said banks would have to work on identification code, know your customers (KYC) norms and core banking solution (CBS) for implementing the savings bank account number portability.

An idealistic Savings Account Portability Scheme should have following features : -

1. There should no change in the account number.
2. The account should be transferred withing 10 working days.
3. There should be no suspension in the account operations.
4. The existing Debit Card and Cheque Book can be continued to be used.
5. There should be no disruption in related electronic payment transactions i.e., RTGS/NEFT Credits, ECS Debits, etc.
6. There should be no disruption in the credit history of the account holder.

What is required for the Savings Account Number Portability to take off in India?

a) The Banks should be 100% on CBS(Core Banking Solution).

b) There should be uniform number of digits in the account numbers across all the participating banks.

100. A third-party KYC(Know Your Customer) organization responsible for certifying the adherence to KYC norms. A beginning has been made in SEBI regulated markets towards this end.
101. A robust Identification Code to recognize the savings accounts of Participating Banks. A start can be made by incorporating the MICR Code or the Pin Code in the new account numbers. 
     
     
     d) Robust Risk Management including Fraud prevention techniques.
     
     
     
     
     
     

By 2012 in India, Send money from ATM/Internet Banking to mobile

To promote Safe ePayments in our country, NPCI(National Payments of India), is in the process of rolling out a new product.

This new product will be an extension of IMPS(Interbank Mobile Payment Service).

IMPS was launched in June 2010, and currently 30 Banks offer this service.

However, there has no spectacular growth of transactions in the IMPS Grid. On an average 12,000 transactions are being executed on the IMPS platform.

Hence, to popularise the IMPS, NPCI had requested RBI to permit transmitting of money from ATM/NET Banking  to mobile i.e MMID

MMID is a 7 digit number, to be issued by the bank to the customer upon registration

A beneficiary should have a MMID in order to receive the money to his mobile.

The MMID is in turn linked to a Bank Account.

The main advantage of IMPS is that it is instant and works 24 X 7, including holidays.

A couple of articles on this initiative can be viewed@ http://www.thehindubusinessline.com/todays-paper/tp-money-banking/article2616030.ece

http://banking-news-update.blogspot.com/2011/11/now-send-money-from-atm-to-mobile.html

However as on 13/11/2011, this new NPCI offering is not yet updated on the NPCI website.

I am sure, there will be adequate security authentications, to ensure that there is no scope for fraudulent transactions.

Working Group on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds – Part 1

Working Group on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds – Part  1

Reserve Bank of India on 21^st Jan 2011, released the Report of Working Group on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds

The Press Release can be accessed @ http://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=23789

The Press Release contains link to the Full report as well as the Highlights of the Report.

Link of Main Report @ http://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=609

Link for Highlights of the Report @ http://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=610

The report is exhaustive and is divided into 9 sections namely : -

1.     IT Governance,

2.     Information Security,

3.     IS Audit,

4.     IT Operations,

5.     IT Services Outsourcing,

6.     Cyber Fraud,

7.     Business Continuity Planning,

8.     Customer Awareness programme’s

9.     Legal issues.

The Working Group was set up, as the Governor had announced, in the Annual Monetary Policy Statement 2010-11 in April, 2010, a creation of a Working Group on Information Security, Electronic Banking, Technology Risk Management and Tackling Cyber Fraud.

The Working Group was led by  Executive Director of Reserve Bank of India, Shri.G.Gopalakrishna.

He was assisted by a group of distinguished professionals.

They  are :

A) G.Sivakumar : http://www.cse.iitb.ac.in/~siva/

Professor at the Computer Science and Engineering Department at Indian Institute of Technoly, BombayH.Krishnamurthy

B) Pavan Duggal : - http://www.pavanduggal.net/

Advocate , Supreme Court of India and President, Cyberlaws.Net.

C) Patric Kishore :

General Manager (IT) & CISO, State Bank of India

D) Nandkumar Saravade :- http://www.saravade.com/About_Me.html

·         General Manager, Financial Crime Prevention and Reputation Risk Management at ICICI Bank

·         Chairman at India Payment Card Risk Counci

E) Sanjay Sharma  http://www.tfci.com/iba_tfci/banktech08/Sanjay_Sharma.htm

Managing Director & CEO, IDBI Intech Ltd

F) Akhilesh Tuteja : - http://in.linkedin.com/in/akhileshtuteja

Executive Director with the IT Advisory practice of KPMG in India.

G) Abhay Gupte : - http://in.linkedin.com/pub/abhay-gupte/9/274/375

CEO India at Logica

H) K.Ramakrishnan : http://www.iba-banktech.com/2009/Ramakrishnan.html

Chief Executive, Indian Banks' Association

I)                   Kamlesh Bajaj : http://in.linkedin.com/pub/kamlesh-bajaj/6/557/b9

CEO of Nasscom’s Data Security Council of India

J)B.Sambamurthy : http://www.idrbt.ac.in/staff/other_faculty/Subramanyan/Subramanyan.html

Distinguished Fellow, IDRBT

K) P.K.Panda : Chief General Manager, Reserve Bank of India.

As can be seen from the above list, the committee’s combined skills are vast and the report reflects their rigid exertion.

From Safe ePayments Motivator angle, two sections immediately attracted me are

1.     

Business Continuity Planning,

2.     

Customer Awareness programme’s

All other sections revolve around the above two only.

In the coming days, there will be new posts on this Report i.e Report of Working Group on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds

I am signing off by reading Swami Vivekananda’s  Quote:

If the mind is intensely eager, everything can be accomplished—mountains can be crumbled into atoms.

Review of Service Charges for Cheque Collection – Local, Outstation and Speed Clearing

Review of Service Charges for Cheque Collection – Local, Outstation and Speed Clearing

Reserve Bank of India, DPSS has issued a Notification today, with wide reaching implications for the Cheque Collection Operations of Banks.

The Notification will be effective from 01/04/2011.

The Notification No is RBI/2010-11/377 DPSS.CO.CHD.No. 1671 / 03.06.01 / 2010-11 dt.January 19, 2011

 The complete Notification can be accessed @ http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=6228&Mode=0

The highlights of the Notification are: -

01)                       There are advantages of using electronic payments, especially for large value transactions.

02)                       RBI will continue to protect the interest of Saving Bank account holders by mandating charges for smaller value transactions relating to saving bank accounts.

03)                       Freedom is specified to Banks, to determine charges for larger value transactions i.e. collection of instruments for credit to other types of accounts.

04)                       The charges so levied, should be fair and transparent.

05)                       Board of Directors has to approve the Service Charge Structure.

06)                       The services charges should specify the maximum charges that they would have to pay, including charges if any, payable to other banks.

07)                       Freeing of Service charges will hasten the movement from paper mode to electronic mode.

The Charges Table – Reproduced from Reserve Bank of India website.

(a)  Service (Processing) Charges for Local Clearing (by Clearing Houses from Member Banks) –

System	Existing (Rs.)		Revised (Rs.)
	Presenting Bank	Drawee Bank	Presenting Bank	Drawee Bank
Clearing at MICR-CPCs	1.00	1.00	1.00	1.50
Cheque Truncation	0.50	0.50	0.50	1.00

(b) Service Charges for Outstation Cheque Collection –

Existing (Rs.)		Revised (Rs.)
	Service charge from all customers		Service Charge from Savings a/c customers
Up to and including 10,000	50	Up to and including 5,000	25^
		Above 5,000 and up to and including 10,000	50*^
Above 10,000 and up to and including 1,00,000	100	Above 10,000 and up to and including 1,00,000	100*^
Above 1,00,000	150	Above 1,00,000	Left to the banks to decide

* No change.

^ All inclusive maximum amount chargeable by banks to the customers.

(c)  Service  Charges  for  Cheque  Collection  under  Speed  Clearing  (by  Collecting  Banks  from customers) –

Existing (Rs.)		Revised (Rs.)
	Service charge from all customers		Service charge from Savings a/c customers
Up to and including 1,00,000	Nil	Up to and including 1,00,000	Nil*
Above 1,00,000	150	Above 1,00,000	Left to the banks to decide

* No change.

The implications of this Notification:

A)    Hectic strategic sessions to draw up the new Service Charge Structure.

B)    Minor Programming changes might be required, as almost all Banks are on Core Banking Solutions (CBS)

C)    Frequent revision of Service Charges depending on the competition.

D)   Accelerate the migration from Paper Mode to Electronic Mode.