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Developments in Payment and Settlement Systems

Developments in Payment and Settlement Systems. Introduction of MICR Electronic Funds Transfer Retail EFT Electronic Clearing Services (ECS) Credit Debit Real Time Gross Settlement (RTGS) System Cheque Truncation System. RBI Payment System Vision. Mission Statement

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Developments in Payment and Settlement Systems

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  1. Developments in Payment and Settlement Systems • Introduction of MICR • Electronic Funds Transfer • Retail EFT • Electronic Clearing Services (ECS) • Credit • Debit • Real Time Gross Settlement (RTGS) System • Cheque Truncation System

  2. RBI Payment System Vision • Mission Statement • Safety-Security-Soundness-Efficiency • Card system represent change from cash based system to a safer, more efficient and convenient system

  3. Vol (crores) Val (Rs crores) Paper-112.46 110,47,052 EB - 42.02 109,57,341 Tot - 157.48 220,04,393 Cds - 36.20 77,120 Note –EB includes card Cards and Indian PS-2004-05

  4. Card Systems • Debit Cards (31.1 million) • Credit Cards (12.2 million) • SMART Cards (Few) • Total Volume and Value Period Volume (crores) Value (crore- Rs) 2002-03 14.57 26951 2003-04 18.55 35870 2004-05 36.20 77120

  5. Growth in card payments • Convenience of ATMs and POS terminals - debit cards • Higher disposable incomes • Retail boom– both in goods and services • Higher merchant acceptability • Growth in technology –new card products

  6. Issuance of Cards • Banks issue cards in affiliation to Visa, Mastercard etc • 44 banks issued cards as on July 2005 • 37 banks issued Debit Cards • 23 banks issued Credit Cards • 1 banks issued SMART Cards • Co-branded Cards • Cards issued by non-banks

  7. Legal Base Relationship between card companies and card issuing banks • Procedures • Guidelines • Terms and Conditions Relationship between card issuing banks and cardholders • Terms and conditions of card issue and usage

  8. Card issuing banks have own policies on disclosure, transparency, customer grievances redressal • Methods of working vary– foreign & new private banks more likely to outsource work- -marketing of card products and recovery/ collection • Marketing techniques -foreign/ new private banks - more aggressive

  9. Regulatory Mechanism • CREDIT CARDS • Banks with Networth of Rs.1000 million and above • Banks can issue by credit cards by themselves or in tie-up with another bank • No prior approval of the Central Bank is required • The banks issuing need the approval of their Board • RBI has laid down broad guidelines • Customer selection • Sharing of information • Fraud Control • Transparency in fees • Account processing • Recovery of dues

  10. DEBIT CARDS • Banks can issue on-line debit cards/ smart cards without prior RBI approval - Board approval adequate. Post issue reporting to RBI. • Off-line debit cards issue requires prior approval of RBI.

  11. Issues for Regulator • Commercial banks are subject to stringent regulation and supervision by the RBI • Complaints against card issuing banks • Unsolicited phone calls-marketing cards • Lack of transparency in terms &conditions • Unsolicited cards/ unauthorised activation • Wrong billing /delay in credit of payments • Harassment / coercion by recovery / collection agents • Divulging customer information/ misuse of info

  12. Working Group • Members from major card-issuing banks, Indian Banks Association, and also consulted consumer organisation • Working Group submitted report in March 2005. • TRANSPARENCY AND DISCLOSURE • CUSTOMER RIGHTS PROTECTION • CODE OF CONDUCT

  13. RBI draft guidelines for cards • Issued on 28th June 2005 • Incorporates WG recommendations • Addl guidelines- • Bks to have well documented guidelines &fair practices code • Cards for persons with independent financial means (add- ons exempted) • Maximum credit limit • Sufficient time for bill payment • Wrong billing complaint-bks to provide explanation and doc evidence • Complaints redressal machinery

  14. Frauds • Frauds in India mainly emanate from • Account use • Counterfeiting • Stolen / lost cards • Multiple imprints • Fraud application • Interception of cards sent by post / courier, cross-border use • Card frauds as a percentage of transactions varies approx. 0.1% to 0.3% in India

  15. Frauds…..contd • Banks in case of misuse of stolen / lost cards limit the cardholders liability to amount spent till the card issuing bank is informed about the theft / loss • Many countries limit the cardholders liability to a particular sum incase of theft / loss • Merchants rarely check the signatures of cardholders • Frauds could be substantially reduced by giving cardholders secret PIN to be punched before every transaction • Use of smart cards

  16. It is RBI’s endeavour to see that healthy growth of the card payment industry in the country while at the same time ensuring that payment risks are suitably mitigated, customer interests protected and highest standards of customer service maintained

  17. Thank you

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