chapter- 6 payment and clearing system in banking...
TRANSCRIPT
165
CHAPTER- 6
PAYMENT AND CLEARING SYSTEM IN BANKING SECTOR
6.1 Sample Period
6.2 Computerization of Clearing and Settlement Operations
6.3 Electronic Payment System
6.4 Payment System in US
6.5 Initiatives Taken by the Reserve Bank of India for Effective Electronic
Payment and Banking System
6.5.1 Electronic Clearing Services (ECS)
6.5.2 Real Time Gross Settlement System (RTGS)
6.5.3 Electronic Fund Transfer (EFT)
6.5.4 Credit Cards
6.5.5 Debit Cards
6.6 E-payment Method Adoption in the World
6.7 Payment System in India, its Attributes and Participants
6.8 Growth of E-payment Services in India
6.9 Comparison of Paper Based Transactions with Electronic Transactions
6.10 Real Time Gross Settlement System
6.11 Impact of E-banking on Payment and Clearing System
166
CHAPTER-VI
PAYMENT AND CLEARING SYSTEM IN BANKING SECTOR
The banking sector is considered to be the back-bone of Indian economy. The
economic reforms and the various e-banking techniques followed by the banks during
the last decade strengthened their financial position. The adoption of IT and
communication made the things easier for the banks. It made the flow of information
smooth. The payment and the settlement system led to greater efficiency and financial
stability. E-banking services benefited the customers also. In India, implementation of
Magnetic Ink Character Recognition (MICR) based clearing in 1986 and other payment
systems like card based payment systems, ECS, EFT, RTGS, NEFT and CTS have
offered a variety of services to the customers. The study on the performance of Indian
payment system during the last three years indicates that in India, all electronic modes of
payment have shown better growth than the physical cheque based system. The Reserve
Bank of India is, therefore, taking necessary steps to provide efficient and integrated
payment and settlement system in the country and also taking steps to mitigate the loss
and risk. Development of electronic banking is facilitating the processing of large
volume of transactions in an efficient and reliable manner. The payment and settlement
system is part of basic infrastructure needed for the proper functioning of market-
oriented economies. They are indispensable for the efficient flow of payment for goods,
services and financial assets and their smooth functioning is crucial for the effective
implementation of the central bank’s monetary policy and stability in the economy. So,
Reserve Bank of India has recognized the payment and settlement system to be critically
important for broadening and developing the financial system.
6.1 Sample Period
The present chapter is based on the growth of various electronic banking modes
in India. The time chosen for the objective is 2002 onwards as most of the banks started
implementing these modes after 2002. The data has been compiled from Trends and
Progress Reports of Reserve Bank of India and various RBI Bulletins. The chapter has
been divided into two parts. Part-I emphasizes on the conceptual framework of payment
and transfer system. Part-II reflects the growth and trends in electronic payment and
transfer system.
167
6.2 Computerization of Clearing and Settlement Operations
Computerization of clearing operation was the first major step towards
modernization of payment system. The introduction of technology for clearing
operations began with the setting up of ‘Claim based settlement system’ at Mumbai,
Chennai, Calcutta and Delhi in early eighties. The system was used for generating
settlement reports on the basis of input statements containing the aggregate value of
claims (cheques presented) of one bank over the other banks in the clearing house. So,
clearing, balancing and settlement which used to take a long time due to differences and
errors in manual balancing were reduced.
The next important milestone was fully automating the clearing operations. Rapid
growth of cheque volumes in the ’80s made the tasks of manual sorting and listing very
difficult. Banks were unable to cope with huge volume of cheques which have to be
physically handled prior to their presentation in the clearing house.
Though the clearing and settlement became easy because of computerization, the
heavy volume of paper that had to be processed, introduced delays in presentation,
resulted in delayed credit to customers. So, the growth in volumes could be managed
only by mechanization of entire clearing process. This problem was solved by the
introduction of MICR based cheques processing technology. The cheques were to be
redesigned incorporating a MICR codeline which could be read by document processing
machines called reader sorters. The RBI introduced two types of reader sorter- the
medium speed reader sorter that was capture of processing 300 instruments per minute
for inter-city and the high speed reader sorter system (HSRS) with speed of 2400
documents per minute for clearing of local instruments.
So, computerization of service branches accompanied by computerization of the
clearing houses at banking centres handled the large volume of business and created a
base for the introduction of automated clearing operations at other centres. This enabled
the introduction of electronic payment services so that the future expansion of these
services using the clearing infrastructure is possible.
6.3 Electronic Payment System
The above discussion shows that by early’90s MICR computerized cheque
clearing operations at 4 metropolitan cities were introduced. However, the volume in
cheque clearing continued to follow an upward trend and also creating a pressure on the
168
existing work flow processes. Most of the items in clearing consist of paying interest/
dividend to the beneficiaries, and real beneficiaries were not getting that due at all.
So, in all the cases such a system was needed that would (1) decrease the value
of paper instruments in MICR clearing, (2) improve customer service by ensuring
prompt and secure interest/ dividend to the beneficiaries. Such a system was needed
which was to be cost effective, low value, greater transparency and accuracy in handling
the transaction. Further for new electronic payment system to be attractive for the
consumer and business, it should save money and reduce the cost current system. To
make e-payment system more adaptable it should be convenient, reduce the cost and
should increase the confidence of people.
6.4 Payment System in US
The pattern of payment system followed in US has been changing during the past
15 years. It has been through papers, cards and electronic media. The paper based
transactions have decreased from 69 per cent in 1999 to just 36 per cent in 2010.The
payments through cards are increasing which were just 28 per cent in 1999, 39 per cent
in 2005, and these increased to 49 per cent in 2010. The share of electronic transactions
also showed an increasing trend from 3 per cent in 1999 to 15 per cent in 2010. So,
overall payment system of US shows that paper based transactions still constitute 36 per
cent of the payments in 2010 though this trend is decreasing. But e-payment system is
becoming popular to serve the customers at minimum cost. Further, the data pertaining to
the period from 2003 to 2008 regarding the online payment system has shown a great
variation. The customers who paid online were just 50 per cent in the year 2003, 57 per
cent in 2004, 64 per cent in 2005, 71 per cent in 2006, 78 per cent in 2007 and 85 per
cent in 2008. It is evident that only 15 per cent people use any other mode of payment. It
confirms that there has been tremendous growth of online banking services.
6.5 Initiatives Taken by Reserve Bank of India for Effective Electronic
Payment and Banking System
An efficient payment and settlement system is essential for the efficient
functioning of a modern financial system. To promote a safe, secure, sound and efficient
electronic payment system, the Reserve Bank of India has taken several initiatives in this
regard. The Reserve Bank introduced the system of electronic clearing services (ECS)
and electronic fund transfer (EFT) in 1995, RTGS in March 2003, NEFT in November
2005, and cheques truncation system in February 2008’. These have been discussed in
the following paragraphs.
169
Figure 6.1
Modes of E-payment System
6.5.1 Electronic Clearing Services (ECS)
In order to bring the payment system at par with the international standards, the
Reserve Bank took several initiatives which include the introduction of ECS services in
India which is the counterpart of the automated clearing house. It is an electronic fund
transfer mode from one bank account to another bank account using the services of a
clearing house. This is used normally for bulk transfers from one account to many
accounts or vice-versa. This can be used for making payments like distribution of
dividend, interest, salary, pension, etc. by institutions or for collection of amounts for
purposes, such as payments to utility companies like telephone, electricity, charges such
as house tax, water tax, etc. or for loan installments of financial institutions/banks or
regular investments of persons. Clearing services are of two types:
(i) Electronic Credit Clearing
(ii) Electronic Debit Clearing.
CREDIT CARDS
DEBIT CARDS
ECS
DEBIT & CREDIT
RTGS
EFT
MODES
OF E-PAYMENT
SYSTEM
170
(i) Electronic Credit Clearing
It is a simple, reliable and cost effective solution for bulk and repetitive payment
transactions like salary, pension, interest, commission, dividend, etc. by public or private
companies and government departments through banks. Under the said system,
companies who have to make bulk payments to a large number of beneficiaries, prepare
the credit instructions on the magnetic media and submit the same to RBI through their
bankers. RBI processes the data, arrives at inter-bank settlement, and provides bank and
branch-wise reports containing the details of payments to facilitate fast payment to the
beneficiaries. The institutions which want to avail ECS facility have to get them
registered with sponsor bank. The sponsor bank will forward a copy of registration form
to RBI after allotting a registration number. The institution that has to make payment to a
large number of customers has to prepare the payment data on a magnetic media and
submit it to the bank. The bank would present the payment data to the local clearing
house through its service branch in a sealed cover duty encrypted in consultation with
RBI. The clearing house debits its account and credits the banks where the beneficiaries
of the transaction maintain their accounts. There is no limit for making ECS credit
payment. The scheme benefits to all the users especially to corporate bodies who have to
print and dispatch numerous paper instruments in reconciling the figures (Sudhakar,
2006).
Benefits to Corporate Body/Institution
• Loss of instruments in transit or fraudulent encashment thereof totally eliminated.
• Reconciliation of transactions is automatic. By the time the ECS cycle is completed,
the user institution gets an electronic data file from its bank with the date of payment
and banker’s confirmation thereon.
• Cash management becomes easier as arrangement for funds is required to be made
only on the specified date.
• Ensuring better customer/investor service.
(ii) Electronic Debit Clearing
Electronic debit clearing covers the payment to utility companies like telephone
and electricity boards. Utility service providers include MTNL, Telephone/Mobile
companies, Telecom Departments, State Electricity Boards, Banks, LIC, Housing
Finance Companies, Intermediaries, Clubs, etc. (for collection of credit cards dues). These
171
companies collect their periodical bills from customers. Under the said scheme, the
customer on the receipt of bill from the utility company and having satisfied himself for
its correctness, can approach his banker and authorize the bank branch to debit his
account for the amount of the bill and transfer the amount to the bank account of the
utility company.
Benefits under ECS (Debit)
• Faster collection of bills by the companies and better cash management.
• Eliminates the need to go to the collection centres/banks by the customers and no
need to stand in long queues for payment.
• Automatic debiting to the accounts, to that effect cuts down the procedural delay.
6.5.2 Real Time Gross Settlement System (RTGS)
RTGS was introduced by RBI on 26 March, 2004 as the ultimate architecture for
online real time inter-bank payment and settlement for large value funds. The payment
instructions are received online from participants and are processed individually on gross
basis throughout the operating day. RTGS system operates in a credit push environment.
It means transaction will take place only if there is a sufficient balance in the account of a
sender. In RTGS, the customer of one bank branch can transfer the money to customer of
any other branch. RTGS settles the payment on transaction by transaction basis. But it
should be noted that RTGS system requires large amount of intraday liquidity for the
settlement of payments. The cost of liquidity depends on the variables such as amount
required, opportunity cost of maintaining liquid balances and cost of intraday credit.
Salient Features of RTGS
• Payments are settled transaction by transaction.
• Settlement of funds is final and irrevocable.
• Settlement is done on real time.
• Funds settled can be further used immediately.
• It is a fully secured system which uses digital signatures and public key encryption
(Jain 2006).
Payment transaction processed by RTGS is done on the First In First Out (FIFO)
basis. The transactions are maintained in RTGS in order of priority. Payments received
are immediately settled. No transaction can be cancelled once it has been settled.
172
Kinds of Transactions
• Customer to Customer Account transfer, for example, Customer A of Bank X to
Customer B of Bank X.
• Inter Bank transfer, for example, Customer A of Bank X to Customer B of Bank Y.
• Own Account transfer, for example, Customer A of Bank X to Customer A of Bank
Y.
• Multilateral Net Settlement (Kalpana 2006).
RTGS and its Effects on the Bank
RTGS improved the service quality with immediate credit, transparent pricing and
faster access. This is the fastest mode of fund transfer, which is secure and irrevocable.
This adds to the present fund transfer channels available to the customers like EFT, ECS,
SEFT, DD, etc.
The usage of RTGS is less than its potential as most of the customers are not
aware about this system. Moreover, the banks charge high rates while transferring funds
under RTGS. So, RBI has now made it mandatory that only the high value transactions
will be processed through RTGS.
6.5.3 Electronic Fund Transfer (EFT)
Electronic Fund Transfer (EFT) System was established by RBI for carrying
out inter-bank and intra-bank fund transfers within India, through EFT centres connected
by a network and providing for settlement of payment obligations arising out of such
funds transfer between participating banks or institutions. Every participating bank and
admitted institution shall open and maintain in every EFT centre, a settlement account
for settlement of payment obligations arising under the funds transfer executed under the
EFT system. Payment obligation between the participants shall be settled on by debiting
or crediting the settlement accounts maintained with the EFT centre. This function of the
EFT centre shall be discharged by the Deposit Accounts Department (DAD) on receipt
of advices. Whereas the sending banks' settlement accounts would be debited on the day
of transaction (Day-One) at the originating centre, the beneficiary banks' accounts would
be credited on Day-Two at the destination centre.
The EFT system, presently, covers all the branches of the 27 public sector banks
and 55 scheduled commercial banks at the 15 centres. Funds transfer is possible from
any branch of these banks at these centres to other branch of any bank both inter-city and
173
intra-city. There is one EFT settlement every day at 2 P.M. There is no value limit for
individual transactions (Sudhakar 2006).
Benefits of EFT System
• The number of outstation cheques issued by customers and consequent service load
on banks may decline over a period of time.
• Reconciliation is automatic.
• Banks can make use of the EFT infrastructure for introducing new payment/cash
management products to their customers.
6.5.4 Credit Cards
Credit cards constitute an important part of e-payment system and have shown a
tremendous growth in retail e-payment system. The transactions to the tune of 60 per
cent in volume are held by credit cards (RBI, 2008). It is an arrangement which enables
the customer to obtain the goods and services through various shops those having the
arrangement with issuing agency even though the customer does not have any balance in
the customer account. It is equivalent to the loan sanctioned by the bank to its customers.
Credit Card facilitates and makes possible to “use first and pay later”. The amount of
credit varies from bank to bank. It provides the opportunity to customers to do shopping
even without carrying the cash. The facility is provided to customer based upon the net
worth of a client. The credit card can also be used to withdraw cash from ATMs within
the cash limit approved to that client.
6.5.5 Debit Cards
A Debit card provides for online electronic payment from saving or current
accounts of the cardholder for purchase and access to ATMs for cash withdrawals and
enquiries. ATM-cum-debit card is used both as an ATM card and as a method of
payment other than cash or cheques when purchasing goods and services in India and
overseas. A person desirous of getting issued an ATM-cum-debit card (smart card) in his
name is required to have a savings bank account or a current account in bank whose card
he intends to obtain. Thereafter, a customer is required to fill in an application form for
the purpose which contains terms and conditions on which ATM-cum-debit card is
issued.
6.6 E-payment Method Adoption in the World
Following methods of e-payment are adopted worldwide; and these have been
successfully adopted in different parts of India as well:
174
1. Western Union Money Transfer: It provides consumers and small business persons
a simple and effective way to pay online from their Accounts/
2. Octopus Card: It is used in Hong Kong for making transportation services in the
country. This card can be used to make payment for subway train or bus. It can also
be used at a public booth, buying soft drinks and making a local call.
3. Health Card: This card was launched in UK in 1999 for the benefit of particular
community care. It helps in cutting cost of processing claim insuring patient privacy
and patient records.
4. Contactless Payment: In this, there is no necessity to swipe the card on reader
physically. It helps in handling very high volume of transactions per unit of time.
5. Micro Payments: Credit cards and debit cards are used for micro payment. For
increasingly small payments, merchants are feeling pressurized to accept plastic
cards for purchases.
17
5
6.7 Payment System in India, its Attributes and Participants
Table 6.1
Types
Attributes
Amount
Restrictions
Location Covered
Participants
Large Value Payment Systems-Physical (Paper based and Electronic Systems)
Inter-bank Clearing
Pape
r ba
sed
debi
t
inst
rum
ent,
Def
erre
d ne
t
settl
emen
t sy
stem
.
Val
ue s
ame
day
No
rest
rict
ions
All
15 R
BI
cent
res
Onl
y fo
r in
ter-
bank
tra
nsac
tions
cle
ared
on
an in
tra-
city
bas
is.
High Value Clearing
Pape
r ba
sed
debt
inst
rum
ents
, de
ferr
ed
net
settl
emen
t. Sa
me
day
valu
e
INR
1,0
0,00
0
and
abov
e
15 c
entr
es o
f R
BI
Ava
ilabl
e to
who
lesa
le a
nd r
etai
l cus
tom
ers.
Real Tim
e G
ross
Settlement (R
TGS)
Ele
ctro
nic
cred
its,
inte
r-
bank
or
in
tra-
bank
tran
sfer
tran
sact
ions
.
No
rest
rict
ions
Ove
r 70
0 ba
nkin
g
cent
res,
10
00+b
anks
&
20,0
00
bran
ches
ba
sed
on b
anks
dec
lara
tion
of
part
icip
atin
g br
anch
es.
Ove
r 16
,000
bra
nche
s of
ove
r 10
0 ba
nks
cove
ring
ov
er
700
bank
ing
cent
res
and
expa
ndin
g.
A
vaila
ble
to
w
hole
sale
cust
omer
s an
d re
tail
cust
omer
s.
(C
ontd
.)
17
6
Retail Payment Systems-Physical (paper based)
MIC
R clearing
(Cheques, Drafts
and O
ther
Instruments)
Pape
r ba
sed
debi
t
inst
rum
ents
,
defe
rred
net
settl
emen
t va
lue
in
T+
2.
No
rest
rict
ions
39
+cen
tres
(a
ccou
ntin
g of
70
per
cent
fo
r ch
eque
vo
lum
e
tran
sact
ions
)
All
mem
bers
of
lo
cal
clea
ring
hous
e.
Cle
ared
on
an
in
tra-
city
basi
s.
Thi
s w
ill
be
mad
e m
ore
effi
cien
t with
the
impl
emen
tatio
n of
CT
S in
Dec
embe
r 20
06.
Thi
s w
ill
brin
g ab
out
effi
cien
cy i
n ou
twar
d
colle
ctio
ns.
Ava
ilabl
e fo
r al
l.
Non M
ICR
(Cheques, Drafts
and O
ther
Instruments)
Pape
r ba
sed
debi
t
inst
rum
ents
,
defe
rred
ne
t
settl
emen
ts.
Val
ue
date
var
ies.
No
rest
rict
ions
10
20 c
entr
es
All
mem
bers
of
lo
cal
clea
ring
hous
e.
Cle
ared
on
an
in
tra-
city
basi
s. A
vaila
ble
for
all.
Retail Payment Systems-Electronic Data Transfer Based
Electronic
Clearing
Services (ECS)-
Credit
Ele
ctro
nic,
bu
lk
tran
sfer
s (1
to
m
any
tran
sfer
s),
valu
e in
T+3
. D
ate
to b
e fi
xed
in
adva
nce
for
bulk
INR
5,
00,0
00
and
belo
w
43 c
entr
es-1
5 m
anag
ed b
y R
BI.
All
bank
s an
d br
anch
es in
thes
e
loca
tions
ar
e m
anda
tory
part
icip
ants
.
All
mem
bers
of
clea
ring
hou
ses
at
the
citie
s w
here
E
CS-
cred
it is
offe
red.
T
he
cred
it ha
s to
be
initi
ated
by
a w
hole
sale
par
ticip
ant
who
ha
s th
e ne
ed
to
dist
ribu
te
(Tab
le 6
.3 C
ontd
.)
17
7
paym
ents
. The
fin
ality
of s
ettle
men
t co
uld
be
know
n on
ly a
fter
the
cycl
e is
com
plet
e.
fund
s to
la
rge
set
of
cust
omer
s’
sala
ries
, di
vide
nd c
redi
ts a
nd I
PO
refu
nds.
Ben
efic
iari
es a
re t
ypic
ally
reta
il cu
stom
ers.
T
here
is
a
sim
plif
ied
info
rmat
ion
exch
ange
requ
ired
fo
r cr
edit
to
happ
en,
basi
call
y ac
coun
t de
tails
/MIC
R
deta
ils.
Cen
tral
ized
de
bit
faci
lity
avai
labl
e fo
r R
BI
clea
ring
loca
tions
.
Electronic
Clearing
Services (ECS)-
Debit
Ele
ctro
nic,
bu
lk
tran
sfer
s (m
any
to
1
tran
sfer
).V
alue
in
T+3
. Dat
es to
be
fixe
d
in
adva
nce
for
bulk
debi
ts.
The
fin
ality
of
the
settl
emen
t co
uld
be
know
n on
ly
afte
r
the
cycl
e is
com
plet
e.
INR
5,
00,0
00
and
belo
w
43 c
entr
es-1
5 m
anag
ed b
y R
BI.
All
bank
s an
d br
anch
es in
thes
e
loca
tions
ar
e m
anda
tory
fo
r
part
icip
ants
.
All
mem
bers
of
clea
ring
hou
ses
at
the
citie
s w
here
E
CS
debi
t is
offe
red.
The
ini
tiatio
n is
req
uire
d
from
w
hole
sale
cu
stom
ers
who
have
to
rece
ive
fund
s fr
om r
etai
l
cust
omer
s.
Cen
tral
ized
de
bit
faci
lity
avai
labl
e fo
r R
BI
clea
ring
loca
tions
.
(Tab
le 6
.3 C
ontd
.)
17
8
Electronic Funds
Transfer (EFT)
Ele
ctro
nic,
one
to o
ne
tran
sfer
s. D
efer
red
net
settl
emen
t sys
tem
.
Val
ue in
T+0
or
T+1
,
one
cycl
e a
day.
Fina
lly, o
nce
the
tran
sact
ion
is
uplo
aded
to R
BI
syst
em, i
f no
t
retu
rned
, the
n th
e
settl
emen
t is
fina
l.
No
rest
rict
ions
,
bank
s m
ay
impo
se
limit
for
per
day
tran
sact
ions
fo
r
secu
rity
rea
sons
.
15
RB
I cl
eari
ng
cent
res.
A
ll
bank
s an
d br
anch
es
in
thes
e
loca
tions
ar
e m
anda
tory
part
icip
ants
.
Inw
ard
EFT
is
man
dato
ry f
or a
ll
bank
s,
whi
le
EFT
is
op
tiona
l.
Ava
ilabl
e fo
r an
yone
. N
o si
gn u
p
proc
ess
and
can
be
initi
ated
by
anyo
ne.
Special
Electronic Fund
Transfer (SEFT)
Ele
ctro
nic,
one
to o
ne
tran
sfer
s. D
efer
red
net
settl
emen
ts (
thre
e
settl
emen
t cyc
les
per
day)
val
ue in
T+0
or
T+1
.
No
rest
rict
ions
,
bank
s m
ay
impo
se
limits
fo
r pe
r
tran
sact
ions
/ pe
r da
y
tran
sact
ions
fo
r
secu
rity
rea
sons
.
2312
bra
nche
s of
29
bank
s in
127
citie
s. S
peci
fic
bank
s ba
sed
on
thei
r ab
ility
to
re
ceiv
e
paym
ents
cen
tral
ly.
Inw
ard
EFT
is
man
dato
ry f
or a
ll
bank
s,
whi
le
outw
ard
EFT
is
optio
nal.
Thi
s sy
stem
w
as
intr
oduc
ed b
y R
BI
in 2
006
and
is
bein
g re
plac
ed
by
NE
FT
with
sim
ilar
capa
bilit
ies.
National
Electronic Fund
Transfer (NEFT)
Ele
ctro
nic,
one
to o
ne
tran
sfer
s. D
efer
red
net
settl
emen
t of
each
No
rest
rict
ions
.
Ban
ks
may
im
pose
limits
fo
r pe
r
24 b
anks
and
mor
e th
an 3
800
+
bran
ches
in o
ver
100
loca
tions
.
Rep
lace
men
t fo
r SE
FT.
Mul
tiple
settl
emen
ts i
n a
day
mak
e it
idea
l
for
reta
il cu
stom
ers
for
smal
l va
lue
(Tab
le 6
.3 C
ontd
.)
17
9
batc
h. M
ultip
le
batc
hes
in a
day
.
Val
ue in
T+0
or
T+1
.
Fina
lly, o
nce
the
tran
sact
ion
is
uplo
aded
to R
BI
syst
em, i
f no
t
retu
rned
, the
n th
e
settl
emen
t is
fina
l.
tran
sact
ions
/ pe
r da
y
tran
sact
ions
fo
r
secu
rity
rea
sons
.
paym
ents
.
Source: R
BI
Bul
letin
, Mar
ch 2
006.
(Tab
le 6
.3 C
ontd
.)
180
PART-II
6.8 Growth of E-payment Services in India
Here an attempt has been made to study the growth of various e-payment systems in
India during the period 2003-08. However, the data for cheques clearing system relates
to the period 2001 onwards. The volume-wise and value-wise growth of each method has
been presented separately in the following table.
Table 6.2
Volume-wise Growth of E-payment Services
Year ECS (cr) ECS (dr) EFT Credit
Cards Debit Cards
2003-04 20,300 7,900 819 1,00,179 37,757
2004-05 40,051
(97.29)
15,300
(93.67)
2,549
(211.23)
1,29,472
(29.24)
41,532
(9.99)
2005-06 44,216
(10.39)
35,958
(135.02)
3,067
(20.32)
1,56,086
(20.51)
45,686
(10.00)
2006-07 69,019
(56.04)
75,202
(109.13)
4,776
(55.72)
1,69,536
(8.61)
60,177
(31.71)
2007-08 78,365
(13.54)
1,27,120
(69.03)
13,315
(178.79)
2,28,203
(34.60)
88,306
(46.74)
2008-09 88,394
(12.79)
1,60,055
(25.90)
32,161
(141.54)
2,59,561
(13.74)
1,27,654
(44.55)
Source: Compiled from Trends and Progress Report from 2003-04 to2008-09
Note: The figures given in parentheses shows the growth percentages
There has been a tremendous growth of electronic payment system during the
period 2003-04 to 2008-09. The volume-wise ECR (cr) growth was 97.29 per cent in
2004-05 which showed a downward trend registering a growth of present only 12.79 in
2008-09. So, although the volume of ECS has constantly increased, but the growth is
less. ECS (dr) recorded a maximum growth percentage of 135.02 whereas ECS (cr) was
minimum with a percentage of 10.39 per cent in 2005-06. Similarly, electronic fund
transfer services (EFT) showed a tremendous growth of 211.23 per cent in 2004-05
181
which declined to 20.32 per cent in 2005-06 and then increased to 55.72 per cent, 178.79
per cent in the year 2006-07 and 2007-08 respectively. The growth of Credit Cards
services was less as compared to other modes of payments. It was 29.24 per cent in
2004-05 and 20.51 per cent in 2005-06 which further declined to 8.61 per cent in 2006-
07. It increased to 34.60 per cent in 2007-08. Debit card services showed an increasing
growth trend till the year 2007-08, but the growth rate declined from 46.74 per cent in
2007-08 to 44.55 per cent in 2008-09.
So, the analysis provides that Reserve Bank of India has tried to develop and
strengthen the electronic payment system by introducing services like ECS, EFT, Debit
Card and Credit Card. The system has been quite useful in the faster collection of bills to
the companies and in providing better cash flow management.
Following table shows the value wise growth of e-payment services
Table 6.3
Value-wise Growth of E-payment Services
Year ECS (cr) ECS (dr) EFT Credit
Cards Debit Cards
2003-04 10,228.0 2,253.58 17,124.81 17,662.72 4,873.67
2004-05 20,179.8 (97.29)
2,921.24 (29.62)
54,601.38 (218.84)
25,686.36 (45.42)
5,361.04 (10.00)
2005-06 32,324.4 (60.18)
12,986.50 (344.55)
61,288.22 (12.24)
33,886.47 (31.92)
5,897.14 (9.99)
2006-07
83,273.1 (157.61)
25,440.79 (95.90)
77,446.31 (26.36)
41,361.31 (22.05)
8,171.63 (38.56)
2007-08
7,82,222.30 (89.35)
48,937.20 (92.35)
1,40,326.48 (81.39)
57,984.73 (40.19)
12,521.22 (53.22)
2008-09 97,486.60
(N.A) 66,975.89
(36.86) 251,956.38
(79.55) 65,355.80
(12.71) 18,547.14
(48.12) Source: Compiled from Trends and Progress Report from 2003-04 to2008-09
Note: The figures given in parentheses show the growth percentages.
As is evident from the above table that value-wise ECS (cr) transactions have
shown the highest growth percentage of 157.61 in 2006-07. The growth increase in value
was higher than volume transaction. However, the growth of ECS (dr) was maximum
i.e., 344.55 per cent in 2005-06. Both the volume and value-wise, the growth in ECS (dr)
was maximum in 2005-06. However, the growth in ECS (cr) was maximum in 2006-07.
As far as EFT is concerned, there was a tremendous growth of 218.84 per cent in 2004-
05 but it declined drastically to 12.24 per cent in 2005-06 as during this period the
182
clearing services were maximum. Value transactions show a substantial increase in debit
cards. The increase in value was less as compared to volume transactions. However,
growth showed an increasing trend from just 10 per cent in 2004-05 to 53.22 per cent in
2007-08, but it further declined to 48.12 per cent in 2008-09. So, there was an overall
increase of more than 50 per cent during the five years period. As regards the growth of
credit cards, it decreased from 45.42 per cent in 2004-05 to 31.92 per cent in 2005-06
and further declined to 22.05 per cent in 2006-07. Thereafter, it increased to 40.19 per
cent in 2007-08 registering a wide fluctuation in value-wise growth trend of credit. The
respective growth rates are more apparent in the charts given below.
Figure 6.2
Volume and Value-wise Growth ECS (cr)
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
ECS Value
ECS Volume
Figure 6.3
Volume and Value-wise ECS (dr)
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
VOLUME
VALUE
183
Figure 6.4
Volume and Value-wise Electronic Fund Transfer (EFT)
0
50000
100000
150000
200000
250000
300000
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
EFT Value
EFT Volume
Figure 6.5
Volume and Value-wise Growth of Debit Cards
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
VOLUME
VALUE
Figure 6.6
Volume and Value-wise Credit Cards
0
50,000
100,000
150,000
200,000
250,000
300,000
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
VOLUME
VALUE
184
Table 6.4
Cheques Clearing Data
Year Total MICR Centres Total Non-MICR Centres
2001-02 5,377.0 3,638.0 2002-03 5,980.0 4,159.0 2003-04 6,241.0 3,987.0 2004-05 9,414.0 2,253.0 2005-06 10,318.0 2,549.0 2006-07 11,441.0 2,231.0 2007-08 12,229.0 2,376.0 2008-09 11623.0 2335.0
Source: Compiled from Trends and Progress Report from 2003-04 to2008-09
The above table shows the total number of Magnetic Ink Character Recognition
(MICR) and Non-MICR centres in India during the period 2001-02 to 2008-09. Non-
MICR refers to those centres where paper based clearing is done, and MICR centres
follow electronic based clearing. It is evident from the data that MICR centres increased
from 5377 in 2001-02 to 12229 in 2007-08, Non-MICR centres decreased from 3638
centres in 2001-02 to 2335 centres in 2008-09. The analysis reveals that retail electronic
payment system is becoming more poplar in India as compared to paper based clearing
system.
Figure 6.7
Total MICR and Non-MICR Centres
0
2000
4000
6000
8000
10000
12000
14000
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Total MICR
centres
Total Non MICR
centres
185
6.9 Comparison of Paper Based Transactions with Electronic
Transactions
Figure 6.8
Retail Electronic Transactions: Volume in Percentage
7%
24%
8%
36%
25%
ECS(cr)
ECS(dr)
EFT
Credit cards
Debit cards
Source: Compiled from Trends and Progress Report from 2003-04 to 2008-09
Figure 6.9
Retail Electronic Transaction: Value in Percentage
18%
12%
56%
10%4%
ECS(cr)
ECS(dr)
EFT
Credit cards
Debit cards
Source: Compiled from Trends and Progress Report from 2003-04 to 2008-09
A comparison of paper based system and electronic payment system in volume
and value based transactions is presented in the above diagrams. Diagram-1 clearly
reveals that 36 per cent transactions are conducted through credit cards followed by 25
per cent by debit cards, 24 per cent by ECS (dr), 8 per cent by EFT and just 7 per cent by
ECS (cr). So, the maximum contribution has been registered by credit cards, while the
minimum by ECS (cr). Diagram-2 highlights the retail electronic value transactions.
Here, EFT constitutes the largest share of 56 per cent followed by ECS (cr) 18 per cent,
186
ECS (dr) 12 per cent, credit cards 10 per cent and debit card by 4 per cent. So, the
analysis presents two different observations in volume and value transactions. Credit
cards constitute the maximum in volume but a sma
ll share in value transactions. Similarly, fund transfer was just 8 per cent in volume
transactions and 56 per cent in value transactions.
6.10 Real Time Gross Settlement System
Real Time Gross Settlement System (RTGS) has been in operation since 2003-
04. Any transaction having a minimum threshold of Rs.1,00,000 is routed through this
channel, and the one below this amount is routed through NEFT. It mainly consists of
customer remittance, inter-bank remittances and inter-bank clearing settlement. RTGS
services were offered by more than 1000 banks and 20,000 branches based on banks’
declaration of participating branches, and the services were available for wholesale and
retail customers during the period under study
Table 6.5
Customer Remittance and Inter-bank Remittance in RTGS
(Number in lakh)
Year
Customer
Remittances
Inter-bank
Remittances
Inter-bank
Clearing
Settlement
Total
Inter-bank Total
2003-04 – 0.001 – 0.001 0.001 2004-05 0.68 3.92 – 3.92 4.604 2005-06 7.13 10.54 – 10.54 17.67 2006-07 24.82 13.94 0.04 13.98 38.80 2007-08 41.46 16.94 0.14 17.08 58.54 2008-09 112.34 21.32 0.19 21.50 133.66
Source: Compiled from Trends and Progress Report from 2003-04 to 2008-09
Table 6.5 shows that the customer remittance and inter-bank remittance was nil in
2003-04 but then increased to 41.46 lakh in 2007-08 and 112.34 lakh in 2008-09.
Clearing between one bank to other also increased by 0.001 per cent, 3.92 per cent, 10.54
per cent, 13.94 per cent, 16.94 per cent, 21.32 per cent during the period 2003-04 to
2008-09 respectively. Various factors have contributed to this settlement system. RTGS
is very much prevalent for inter and intra-bank settlement among different banks in India
for various reasons. Firstly, RTGS facilitates continuous settlement of payment on an
individual order basis without netting debit and credit across the books of RBI. Secondly,
it is a good source for improving non-interest income. Thirdly, RTGS has generated an
additional source of revenue. Since the funds are transferred through electronic system, a
187
lot of back end work and manpower involved in such work can be utilized for other
productive purposes.
6.11 Impact of E-banking on Payment and Clearing System
To know the impact of e-banking on payment and clearing system, the response of
customers has been also taken into account. An attempt has been made to know the satisfaction
of the customers regarding e-payment system. The system has been beneficial in handling large
volume of business payment/ remittances. It also provides alternative for faster delivery of
banking services acceptable to wide range of customers.
Table 6.6
Mean and Standard Deviation of Customers Perception Regarding Payment System
Statements Mean S.D.
E-payment handles a large volume of business/ payment/ remittances.
3.97 0.892
E-payment provides alternative for faster delivery of banking services acceptable to wide range of customers.
3.96 0.800
It provides convenient service to customer and reduces the chances of frauds.
3.88 0.821
It has reduced the substantial risks involved in payment system. 3.55 0.964 E-payment solves the purpose of online purchasing, online shopping, and e-commerce.
3.92 0.840
The transactions made through e-payment are faster, more accurate, secure and user-friendly.
3.81 0.903
Fees charged for e-payment are affordable. 3.81 0.865 E-payments are growing at faster speed than paper based instruments.
4.06 0.870
E-payment has helped to reduce the costs. 3.99 0.762 Customers are aware of emerging e-payment options. 3.85 0.815
Mean and standard deviation scores of all the dimensions of e-payment were
calculated. The highest mean score ,i.e., 4.06 was found for the dimension called ‘e-payment
growing at much faster speed than paper based instruments’ (4.06) followed by the ‘cost
involved in payment system’ with a mean score of 3.99. Customers also agree that ‘e-payment
handles a large volume of their payments’ and provides them ‘faster delivery of banking
services’. So, the respondents are agreeing with all the benefits facilitated by the e-payment
system.
188
Table 6.7
KMO and Bartlett's Test of Sphericity
Kaiser-Meyer- Olkin Measure of Sampling Adequacy 0.629
Approx. Chi-square 335.973
d.f. 45
Bartlett's Test of Sphericity
Sig. 0.000
The above table mentions the KMO measure of sampling adequacy and Bartlett’s test of
sphericity. The value of KMO is greater than 0.5, hence, all the factors are not considered
equally important for the study. Further, Bartlett’s test of sphericity shows the significance at
0.000 levels.
Table 6.8
Factor Loading on the E-payment Dimension
Dimension Initial Extraction
Volume 1.000 0.706 Fast delivery 1.000 0.676 Frauds 1.000 0.568 Risk reduction 1.000 0.695 Online 1.000 0.346 Convenience 1.000 0.573 Affordable 1.000 0.607
Growth 1.000 0.261 Cost 1.000 0.538 Awareness 1.000 0.653
The above table shows the initial communalities of all the various dimensions. Some of
the extractions are closer to one, while some are very less. For further study, only the factors
having loadings greater than 0.4 will be considered. Out of ten factors, there are only two
factors, namely, growth and online which have loadings less than 0.4. So, these will not be taken
into consideration.
18
9
Table 6.9
Total Variance Explained Regarding E-payment Dim
ension
Initial Eigen Values
Extraction Sums of Squared Loadings
Rotation Sums of Squared Loadings
Component
Total
Per cent of Variance
Cumulative
Per cent
Total
Percent of
Variance
Cumulative
Per cent
Total
Percent of
Variance
Cumulative
Per cent
1 2.
137
21.3
67
21.3
67
2.13
7 21
.367
21
.367
1.
714
17.1
36
17.1
36
2 1.
289
12.8
90
34.2
57
1.28
9 12
.890
34
.257
1.
413
14.1
27
31.2
63
3 1.
148
11.4
83
45.7
40
1.14
8 11
.483
45
.740
1.
387
13.8
65
45.1
29
4 1.
049
10.4
89
56.2
29
1.04
9 10
.489
56
.229
1.
110
11.1
00
56.2
29
5 0.
909
9.09
0 65
.319
6 0.
885
8.84
6 74
.165
7 0.
809
8.09
2 82
.257
8 0.
705
7.04
9 89
.306
9 0.
607
6.07
2 95
.378
10
0.46
2 4.
622
100.
000
T
he a
bove
tab
le m
entio
ns t
he t
otal
var
ianc
e ex
plai
ned
and
the
eige
n va
lues
of
all
the
vari
able
s. O
nly
thos
e fa
ctor
s w
ill b
e ex
trac
ted
whi
ch a
re h
avin
g ei
gen
valu
es g
reat
er th
an 1
. The
re a
re f
our
fact
ors
extr
acte
d w
hich
exp
lain
ed 5
6.22
per
cen
t of
the
data
. So,
thes
e fo
ur f
acto
rs
will
exp
lain
the
com
bina
tion
of a
ll th
e va
riab
les.
190
Table 6.10
Rotated Component Matrix
Component
Statements 1 2 3 4
Volume 0.830 0.012 0.084 0.096 Fast delivery 0.815 0.032 0.055 -0.088 Frauds -0.082 0.073 0.746 -0.007 Risk reduction -0.025 0.827 -0.062 -0.080 Online 0.399 0.392 -0.043 0.177 Convenience 0.093 0.712 0.226 0.081 Affordable 0.039 -0.151 0.392 0.655 Growth 0.298 0.149 0.182 0.342 Cost 0.303 0.068 0.661 0.068 Awareness 0.052 -0.111 0.374 -0.705
With the help of principal component analysis varimax with Kaiser
Normalization, four components were extracted:
Component 1: Volume and Fast delivery
Component 2: Risk reduction and convenience
Component 3: Frauds and Cost
Component 4: Affordable
As is evident from the above table that all the statements cannot justify the
electronic banking impact on payment and clearing system. So, to reduce the data for
further analysis, factor analysis was done to know which statements are more relevant
and depict the impact of e-banking on payment and clearing system. The KMO measure
of sampling adequacy and Bartlett’s test of sphericity were used to check the reliability
and validity of data. The value of KMO is greater than 0.5, hence, all the factors are not
considered equally important for the study. Further, Bartlett’s test of sphericity shows the
significance at 0.000 level. With the help of principal component analysis varimax with
Kaiser Normalization, four components are extracted. First component is the
combination of ‘Volume’ and ‘Fast Delivery’ as e-payment has reduced the large volume
of transactions through online settlement of funds and fast delivery of funds through
RTGS. Second component is the combination of ‘risk reduction’ and ‘convenience’.
Third component is having two variables, namely, ‘frauds’ and ‘cost’. It helps in
reduction of the cost as well as control over the fraudulent activities. Fourth component
is having only one factor, that is, ‘affordable’ which means that fees of e-banking
services can be easily affordable by all the customers.
191
Table 6.11
Level of Satisfaction over the E-banking Services
Perception Frequency Valid Per cent Cumulative
Per cent
Very uncomfortable 10 2.5 2.5 Somewhat uncomfortable 21 5.2 7.7 Neither comfortable nor Uncomfortable 49 12.2 19.9 Somewhat comfortable 141 35.3 55.2 Very comfortable 179 44.8 100.0 Total 400 100.0
Table 6.11 carries the data showing the level of satisfaction of the customers over
the e-banking services available in the banks under study. As many as 44.8 per cent of
the respondents agreed that they feel very comfortable while using the e-banking
services. However, 35.3 per cent customers admitted that they feel somewhat
comfortable using such services. There were another 12.3 per cent customers who
explained that they feel neither comfortable nor uncomfortable while availing the e-
banking services offered by the banks. However, small proportion of the customers, i.e.,
5.3 per cent and 2.5 per cent were found to be somewhat comfortable and very
comfortable respectively while availing the e-banking services introduced by the banks.
Table 6.12
Level of Awareness among Customers
Perception Frequency Per
cent
Valid Per
cent
Cumulative
Per cent
Very Unsatisfied 13 3.3 3.3 3.3 Somewhat Unsatisfied 21 5.3 5.3 8.5 Neither Satisfied nor Unsatisfied
35 8.8 8.8 17.3
Somewhat Satisfied 195 48.8 48.8 66.0 Very Satisfied 136 34.0 34.0 100.0
The date showing the awareness level of the respondents under study about the e-
banking system introduced by the banks has been presented in table 6.12. An attempt has
been made to know whether this system would gain momentum in future or not. It is
evident from the table that only 34 per cent customers are found to be very satisfied with
their present level of awareness about the system, whereas 48.8 per cent customers are
somewhat satisfied with their current level of awareness and they need to add more to
their knowledge. However, 8.8 per cent respondent customers could hardly say anything
about it. However, 5.3 per cent are found to be somewhat satisfied, and 3.3 per cent very
192
unsatisfied with their present level of awareness about the new e-banking system
introduced by the banks. Most of such customers are either uneducated or belong to the
rural segment. Hence, in order to increase the awareness level of these customers, there
is need to organize some special training programmes by the banks for them.
Table 6.13
Usage of E-payment Techniques
Time Period Frequency Per cent Valid Per cent Cumulative
Per cent
Less than 6 months 38 9.5 9.5 9.5 6-12 months 74 18.5 18.5 28.0 1-2 yrs. 85 21.3 21.3 49.3 2-4 yrs. 98 24.5 24.5 73.8 More than 4 yrs. 105 26.3 26.3 100.0 Total 400 100.0 100.0
The data presented in the table 6.13 reflects the period for which the respondent
customers have been using the different modes of e-payment. As many as 26.3 per cent
customers have been using the system of e-payment for the last more than four years,
21.3 per cent customers for 1-2 years, 18.5 per cent customers for 6-12 months and 9.5
per cent customers for less than six months.
Table 6.14
Improvement in Quality of Service
Perception Frequency Per cent Valid Per
cent
Cumulative
Per cent
Strongly Disagree 3 0.8 0.8 0.8 Disagree 14 3.5 3.5 4.3 Neutral 80 20.0 20.0 24.3 Agree 153 38.3 38.3 62.5 Strongly Agree 150 37.5 37.5 100.0 Total 400 100.0 100.0
In table 6.14, an attempt is made to know whether e-banking has improved the
quality of service. The table reveals that 37.5 per cent respondents strongly agreed and
38.3 per cent respondents agreed that e-banking has certainly improved the quality of
service. The response of 20.0 per cent of respondents was neutral in this regard.
However, a small proportion of respondents, i.e., 3.5 per cent disagreed and 0.8 per cent
strongly disagreed with the statement that e-banking has improved the quality of service.
The analysis provides that a large proportion of respondents (75.8 per cent) agreed that
193
introduction of internet banking; mobile banking and ATM services have improved the
quality of service to a large extent.
Table 6.15
Comparative Analysis of E-payment Impact on Payment and Clearing System
Statements Public Private t-value p-value
E-payment handles large volume of business/ payment/ remittances.
3.69 4.00 -3.463 0.000**
E-Payment provides alternatives for faster delivery of banking services acceptable to wide range of customers.
3.96 3.98 -0.247 0.804
It provides convenient service to customer and reduces the chances of frauds.
3.82 3.88 0.715 0.475
It has reduced the substantial risks involved in Payment system.
3.27 3.79 -5.529 0.000**
E-Payment solve the purpose of online purchasing, online shopping, E-commerce.
3.77 4.02 -2.938 0.003**
E-Payment provides accuracy, security, transaction speed, user friendliness to customers.
3.65 3.94 -3.288 0.001**
Fees charged for e-payment can be easily affordable.
3.92 3.62 3.428 0.000**
E-Payments are growing at much faster speed rate than paper based instruments
4.14 3.98 1.821 0.069
It has reduced the cost involved in Payment system.
4.00 3.95 0.649 0.516
Customers are aware of emerging E-Payment options
3.82 3.89 -0.825 0.409
** Significant at 5 per cent level of significance
The statistical difference in e-payment system existed in the following
statements:
• E-payment handles large volume of business/ payment/ remittances (p=0.000)
• It has reduced the substantial risks involved in payment system(p=0.000)
• E-payment has solved the problem of online purchasing, online shopping and e-
commerce (p=0.003)
• E-payment provides accuracy, security, transaction speed, user friendliness to
customers (0.001)
• E-payment charges are affordable (p=0.000)
194
Table 6.15 indicates statistical difference between public and private sector with
the help of t-test. Private sector banks are holding large volume of payments for the
customers comparative to public sector and value is significant at 5 per cent level. In
online shopping, online purchasing, e-commerce, convenient service to customers
(0.003) and regarding accuracy, security, transaction speed, user friendliness to
customers; mean score of private sector is high and significant at 5 per cent level. There
is only one service in which public sector banks are better than private sector banks that
is ‘fees charged by the banks for e-payment and clearing system are easily affordable’. It
means the service charges of the banks in public sector are less and convenient to
respondents. Therefore, out of ten services, statistical differences found in five services
in which private sector banks are leading in four services and public sector bank in fees
charges service.
Table 6.16
Perception of Customers’ Regarding Level and Quality of Service
Statements Public Private t-value p-value
Level of comfort in choosing e-payment services
4.10 4.27 1.785 0.005**
Current awareness for usage 4.14 3.90 -2.461 0.014**
Time period of using the services
2.89 3.84 7.991 0.000**
Improvement in quality of service
4.01 4.22 2.378 0.017**
** Significant at 5 per cent level of significance
Table 6.16 highlights the level of awareness and comfort among customers for e-
payment services, and a statistical difference was observed in all the above statements in
both public and private sector banks. As far as the level of comfort is concerned, the
customers from the private sector banks (4.27) are more satisfied as these banks offer
advanced and more facilitative services through internet and mobile banking. However,
awareness about usage is high in public sector banks (4.14). Further private sector bank
customers have been using the e-banking services for a longest time period (3.84) as
compared to those from the public sector banks (2.89). the efforts made by the private
sector banks (4.22) in improving the quality of service have been greater as compared to
the public sector banks (4.01).
195
E-banking through various modes of payment has made it easier for the
customers to transact from anywhere and anytime. Although the faster and cheaper
movement of funds with the fast realization of cheques proves to be beneficial for the
customers but for banks the electronic movement of funds mean less funds available for
floating and they will left with lower levels of float funds. E-payment system in India has
shown a tremendous growth but still there is a lot to be done to increase the usage of e-
payment. Still 90 per cent of transactions are cash based. So, there is need to widen the
scope of e-banking. Innovation, incentive, customer convenience and legal framework
are the four factors which can contribute to strengthen the e-payment system. We can
have optimal use of available funds of the banks only through this system.