Mission Statement
<<< The establishment
of safe, secure, sound and efficient payment and settlement systems for the
country >>>
Part I
Payment Systems – Vision 2005-08
1. Introduction
The primary goal of any national
payment system is to enable the circulation of money in its economy. It is recognised
world wide that an efficient and secure payment system is an enabler of economic
activity. It provides the conduit essential for effecting payments and the execution
of monetary policy. Payment systems have encountered many challenges and are
constantly adapting to the rapidly changing payments landscape. More recently,
the proliferation of electronic payment mechanisms, the increase in the number
of players in the financial arena and the payment crises in quite a few countries
and regions in the 1990s have focused attention on public policy issues related
to the organization and operation of payment systems. Three main areas of public
policy have guided payments system development and reform: protecting the rights
of users of payment systems, enhancing efficiency and competition, and ensuring
a safe, secure and sound payments system.
Electronic commerce and finance
are growing rapidly. New payments mechanisms designed to aid electronic commerce
have become routine. Predictions abound about the capabilities of the information
and communication technology to bring forth important tools for conducting electronic
commerce and payments. We are in the midst of a wave of innovation and change.
In a dynamic economy, markets need
to play a key role in guiding the development of infrastructure, including mechanisms
like payments systems. This means that innovation and competition will be central
to the future development of the payments system - as they are in other areas
of the economy. Strategic planning and investments by market participants will
be shaped by views about the future. Public policy should assist them in shaping
their views by pronouncing its vision and intentions clearly and well in advance
so that the market participants can face the challenges and take advantage of
opportunities. This Vision helps in charting out a course to purposeful and
orderly change.
For such policy pronouncements,
a country can opt for a strategic approach, where the state of the payment system
is established, its weaknesses and strengths determined and a way forward charted,
giving due regard to the country’s environment and the strategic direction of
the payment technologies and practices. This approach enables one to have a
holistic vision of the entire payment system, and leads to the development of
a Strategic and Implementation Plan that is well structured, appropriately phased,
properly sequenced and convergent in perspective.
India adopted this approach in
the year 2001 when it came out with its ';Payment Systems – Vision Document';.
It detailed, in the Document, the strategies and implementation plan for the
payment system arena for 2001-03. As we completed this period, it is time for
taking stock of the plan, review its implementation, list and assess achievements
and shortfall, learn lessons and re-plan for the next period. This document,
';Payment Systems – Vision 2008'; is the result of that exercise.
2. Components
of the Payment Systems Mission Statement:
The four broad tenets of the mission
relate to the Safety, Security, Soundness and Efficiency. Called the ‘Triple
S + E’ principle in short, each of the principles, which have a synergistic
inter-relationship, would specifically address the following:
- Safety will relate to addressing risk, so as
to make the systems risk free or with minimal risk
- Security will address the issues relating to
confidence, with specific reference to the users of these systems
- Soundness will be aimed at ensuring that the
systems are built on strong edifices and that they stand the test of time
- Efficiency will represent the measures aimed
at efficiencies in terms of costs so as to provide optimal and cost effective
solutions.
3. Vision
2001-03: Accomplishments
The Reserve Bank had earlier in
December 2001 published its ';Payment Systems – Vision Document'; detailing
its vision, goals, objectives and proposed measures relating to the payments
systems in India for a three years period. An evaluation of the results of the
steps taken as per the broad directions contained in the Vision statement for
the period 2001-04 reveal that most of the goal sets outlined have been met
while a few are at various stages of implementation.
Under the approach to computerization
and networking, with the definitive role of technology in facilitating large
scale developments in payment and settlement systems, the main requirements
of INFINET becoming the secure, dedicated communication backbone for the banking
and financial sector, a generic architecture model for connectivity, standardization
of hardware, operating systems, systems software, application software and messaging
middleware, prescribing a Common Minimum Requirement Level for hardware and
networking requirements for payment gateways, secured connectivity between internet
and INFINET, link between SWIFT and INFINET have all been achieved; facilities
for e-mail, and secured file transfer are now available on INFINET; applications
for ATM transactions, intra-bank transactions like remittances and foreign exchange
transactions do use INFINET.
As regards designing, developing
and implementation of critical payment system projects, Real Time Gross Settlement(RTGS)
System, Negotiated Dealing System/Securities Settlement System(PDO/NDS/SSS),
Structured Financial Messaging Solution(SFMS) and Centralised Funds Management
System(CFMS) have been implemented; scope and coverage of ECS (both Credit and
Debit versions) have been increased; centralised ECS has been implemented; scope
and coverage of EFT has been enhanced through the Special EFT and the proposed
National EFT; many banks have integrated EFT with their own product offerings;
a few banks have initiated EDI; smart cards are being used; pilot project of
multi-application smart cards has been initiated as a prelude to setting standards;
ATM clusters have come on the scene; and the National Financial Switch has been
established for inter-connecting ATMs. New systems introduced included the Special
Electronic Funds Transfer System (SEFT), Cheque Truncation Pilot Project and
the pilot Multi Application Smart Card Project. Facilitating initiatives included
extension of MICR based clearing to cover 39 centres in all and the removal
of the per transaction limit for ECS and EFT transactions, apart from making
these transactions PKI based for better security. Risk mitigation got a shot
in the arm in the form of the establishment of the CCIL for Settlement of Government
securities trading and for foreign exchange transaction settlement on a fully
guaranteed basis.
For the customer too, there have
been definitive benefits. Internet based banking which was one of the goals
to be achieved has been implemented in 26 banks. The need for core banking solutions
at banks which is at the base of many centralised initiatives such as Internet
and mobile banking is also being implemented by banks and as many as …. banks
have implemented core banking solutions while ….. are at various stages of implementation.
The delivery channels for customers have also improved with ATMs taking over
a large number of cash related functions. Recognising the potential of this
delivery channel, the Reserve Bank not only set the direction for banks to share
ATMs but also helped the settlement process in the form of an ATM switch which
has been set up and operated by the IDRBT, Hyderabad. Thus, card holders of
any bank among the group can use their cards at the ATMs of any bank in the
group.
With regard to upgradation of processing
environment, banks are undertaking BPR as a part of implementing core banking,
security standards have been prescribed, PKI based Digital Signatures are used
for security and legal protection, On the legal front, a Payment and Settlement
Systems Bill has been drafted forwarded to government for adoption; at the implementation
level, the setting up of a Board for Payment and Settlement Systems has been
approved by the government; the Negotiable Instruments Act has been amended
to enable cheque truncation and to define e-cheque.
4. Payment
Systems – Current Status
There are diverse payment systems
functioning in the country, ranging from the paper based systems where the instruments
are physically exchanged and settlements worked out manually to the most sophisticated
electronic fund transfer system which are fully secured and settle transactions
on a gross, real time basis. They cater to both low value retail payments and
large value payments relating to the settlement of inter- bank money market,
government securities and forex transactions.
The retail payment systems in the
country comprise of both paper based as well as electronic based systems. These
systems typically handle transactions which are low in value, but very large
in number, relating to individuals firms and corporates. These transactions
relate mainly to settlement of obligations arising from purchase of goods and
services. In India there are about 1050 cheques clearing houses. These clearing
houses clear and settle transactions relating to various types of paper based
instruments like cheques, drafts, payment orders, interest/ dividend warrants
etc. In 39 of these clearing houses, cheque processing centres (CPCs) using
MICR technology have been set up. In the coming months in 5 more clearing houses
MICR cheque processing systems are scheduled to be set up. The clearing houses
at 16 places including the 4 metros are managed by the Reserve Bank which also
functions as the settlement banker at these places. In other places the clearing
houses are managed by the State Bank of India and certain other public sector
banks and the settlement bank functions are also performed by the respective
banks. The clearing houses are voluntary bodies set up by the participating
banks and post offices and they function in an autonomous manner. The Reserve
Bank has issued the Uniform Regulations and Rules for Bankers’ Clearing Houses
(URRBCH) which have been adopted by all the clearing houses. These regulations
and rules relate to the criteria for membership/sub-membership, withdrawal/removal/suspension
from membership and the procedures for conducting of clearing as well as settlement
of claims between members.
There are various types of electronic
clearing systems functioning in the retail payments area in the country. Electronic
Clearing System (ECS), both for Credit and Debit operations, functions from
45 places (15 managed by Reserve Bank and the rest by the State Bank of India).
The ECS is the Indian version of the Automated Clearing Houses (ACH) for catering
to bulk payments. The Electronic Funds Transfer (EFT) System is operated by
the Reserve Bank at 15 places. This is typically for individual/single payments.
These systems are governed by their own respective rules. A variant of the EFT,
called the Special Electronic Funds Transfer (SEFT) System is also operated
by the Reserve Bank to provide nation-wide coverage for EFT. All these electronic
fund transfer systems settle on deferred net settlement basis.
There are a few large value payment
systems functioning in the country. They are the Inter-Bank Cheques Clearing
Systems(the Inter-bank Clearing), the High Value Cheques Clearing System(the
High Value Clearing), the Government Securities Clearing System(the G-Sec Clearing)
, the Foreign Exchange Clearing System(the Forex Clearing) and the Real Time
Gross Settlement(RTGS) System. All these systems except the High Value Clearings
are electronic based systems. These mostly relate to inter-bank / inter-financial
institutional transactions except the High Value Clearing where high value customer
cheques are cleared. The Inter-bank clearing functions in 7 places and the High
Value Clearing in 13 places. Both are managed by the Reserve Bank or the State
Bank of India. The G-Sec Clearing and the Forex Clearing are managed by the
Clearing Corporation of India Limited (CCIL). The RTGS System is operated by
the Reserve Bank. All these are deemed to be Systemically Important Payment
Systems (SIPS) and therefore the Reserve Bank has, in line with international
trends, moved them (except the Inter-bank Clearings at other than Mumbai and
the High Value Clearings) to either secure and guaranteed systems or the real
time gross settlement system.
5. Payment
Systems Vision 2005-08: Perspectives
The approach to be followed for
payment and settlement systems is best captured in the Mission Statement which
encompasses Safety, Security, Soundness and Efficiency (the triple S and E)
as its vital components.
Safety in payment and settlement
systems relate to the avoidance of risks in these systems. Payment Systems,
by their nature are risk prone and the need for addressing these risks assumes
significance. Sound designs, rules, and risk-management practices promote the
safety of payments for users and their financial institutions Effective entry
and exit criteria, regular monitoring, guaranteed settlements, introduction
of central counter parties, risk mitigation measures and effective loss sharing
procedures in the unlikely event of any eventuality are the standard ways to
ensure safety of payment systems.
Security pertains to the confidence
among the users of the payment and settlement systems. Public confidence in
the payments system is a closely related concern. Confidence in the integrity
of our basic paper payment instruments and payments systems was built up over
a very long period of time. New systems based on technology are increasingly
being implemented. Prudent users will require new systems to earn confidence
with strong evidence that these systems will meet their needs in both normal
and exceptional circumstances. The process of building confidence can take years,
and payment service providers realize that confidence is an asset to be guarded
vigorously.
Soundness, which indicates the
well rooted foundation for the payment and settlement systems is another pillar
in the payment systems edifice. All the systems are envisaged to be on sound
footing, with adequate legal backing, firm operational procedures, transparency
norms and with well laid out error handing processes.
Efficiency is the key word for
all the new initiatives and this would be achieved by leveraging the benefits
of technology so as to result in cost effective solutions, and optimal turn
around timings for the systems.
Thus the payment system policy
goals will continue to be ';to foster a safe, secure, sound and efficient
payment systems for the country';. Keeping this in view, for the period
2005-08, the focus will be on the following major themes:
- A new organizational structure for retail
payment systems
- Sound legal base
- Continuation of risk mitigation efforts
- Efficiency enhancements
- Rural Sector facilitation
- Customer facilitation and protection and
- Regional co-operation and co-ordination.
Details of the approach and the
measures proposed to be initiated to achieve the above goals are given in Part
II of this document.
6. Conclusion
Substantial progress in bringing
forth reforms in the payment and settlements systems has been achieved under
';Payment Systems – Vision 2001-03';. Encouraged by this, ';Payment
Systems – Vision 2005-08'; attempts to carry forward the efforts to complete
the agenda of establishing a safe, secure, sound and efficient payment system
for India, matching international standards and best practices.
Part II
Strategic Approach
1. New Organisational Structure
for Retail Payment Systems
Today, Payment and Settlement system
of the country includes retail and large value payments in the form of variety
of paper based and electronic payment instruments. As detailed in the earlier
section, there are a large number of institutions operating with different ownership
pattern having varied types of functions including processing, clearing, management
and settlement.
Due to multiplicity of operators,
local practices which vary from place to place, determine the conduct of clearing
and settlement and important aspects like safety, efficiency and better customer
service are often compromised at the altar of operational convenience. There
is lack of coordination among the organisations which leads to inconsistency
in the operations. This results into the wastage of available resources and
also limits the scope of implementing innovations in the systems.
The system in other countries differs
from Indian system in the sense that the ownership of the retail payment systems
in other countries rests with a separate legal entity, whereas in India they
are voluntary associations. The single entity conducts clearing for the entire
country in the countries studied, where as in India there is no country-wide
system. Settlement is done in central bank money, whereas in India only in 15
places it is done in central bank money.
In accordance with the international
scenario, the Indian Retail Clearing function, in its entirety,
could be entrusted to a separate legal entity and Reserve Bank can
remain the settlement institution for all
the clearing systems, besides being the regulator and supervisor
of the payment systems.
The advantage of setting up of
this single entity for running all clearing activities will be that this entity
will have uniformity in the structure, operations and procedures. The local
practices and bank specific practices / procedures which impede safety, security
and efficiency in the functioning of the clearing operations would be effectively
neutralized. This single entity would deploy professionally competent and suitably
trained personnel to manage and run clearing operations. The operational drawbacks
can be considerably reduced by setting up an all-India entity. It will create
enabling environment for bringing out innovative products. It will facilitate
the option for conducting all clearing at national level, leading to better
information dissemination and better customer education on various payment services
and systems. The system will also have an effective Customer Redressal mechanism.
Moreover, It will help Reserve Bank to focus more on its regulatory
and oversight role.
Keeping the above in view, it is
proposed to initiate the following steps towards a new organizational structure
for retail payment systems during 2005-08:
1. Setting up of a single organisation at national
level which will operate all retail payment systems of the country.
2. Reserve Bank to focus on
regulation and supervision of payment systems and be freed from operational
functions
3. The existing large value
system such as the Negotiated Dealing System (NDS) will be hive off from being
operated by the Reserve Bank.
4. All settlements to be in
central bank money
5. Reserve Bank to establish
a National Settlement system
2. Legal framework
for payment and settlement systems
The Negotiable Instruments Act,
1881 (N. I. Act) continues to be the predominant legal base for all cheque-based
(instrument-based) payment systems in India. It has been amended time and again
to legalise new requirements and policies. The latest amendments to the definition
of cheque by inclusion of the ';electronic image of a truncated cheque';
and a ';cheque in the electronic form'; have opened up avenues for introducing
new methods of processing paper-based payment instruments. Simultaneous amendment
to the Information Technology Act, 2000, making it applicable to N.I. Act, has
brought about legal status to usage of electronics-based payment systems in
Indian banking.
However, the electronic payment
systems like ECS, EFT, NDS, RTGS, etc. work on the basis of agreements made
specifically for each one of them which are of contractual in nature between
the participant and the manager of the systems. The process of netting of payables
and receivables is adopted by all payment systems except RTGS where the settlement
is on gross basis. Existing legal structure does not explicitly cover ‘netting’
and ‘finality of settlement’. Some countries have legislated ‘netting’ and ‘finality
of settlement’ and also built regulatory structures within the central banks
or through established quasi-judicial institutions to oversee payment systems.
The growth and proliferation of
existing and new payment systems has necessitated central banks to move away
from operating retail payment systems. Management and operations of payment
systems are being taken over by consortium of banks, trusted central counter
parties, authorised private service providers, etc. Lack of an apposite provision
in law for regulation and supervision of these entities reduces the scope of
having a monitoring mechanism leading to apprehension of participants and end-users
on the safety and security of the payment systems.
The ‘Payment and Settlement Systems
Bill’ has been propounded with the view to receive legal definition of ‘netting’
and ‘settlement finality’ and also to create a regulatory framework for the
payment and settlement systems.
The shift towards electronic modes
of payments has created large gaps in the legal structure and consequently there
is lack of clarity about the products designed on information technology. This
issue becomes more pronounced in the ‘instruction’ based payments, i.e. the
now prominent ‘credit transfer’ systems. The United Nations has published an
UNCITRAL Model Law on International Credit Transfers (1994) to cover payment
instructions which are originated by the payer through a banking system to pay
into a beneficiary’s bank account. Such a law will have to be put in place in
India too as trends indicate a bias towards the more risk-free credit transfer
mode of payments.
Keeping in view the possibility
of dishonour of instructions, on the due date, legality of action required to
be taken against the defaulters has to be addressed. Such instructions of payment
are in the nature of non-negotiable standing instructions. These types of instructions,
not being instruments, are not covered under the existing laws. Therefore, there
is a need to examine this issue to provide desirable level of robustness.
Keeping the above in view, it is
proposed to initiate the following steps towards building a sound legal base
for payment systems during 2005-08:
Action Points:
1. The Payment and Settlement
Systems Bill to be enacted;
2. Regulations for authorised
payment and settlement systems to be framed
3. EFT regulations to be notified
4. Initiating the process of
legislation for credit transfer transactions;
5. Examine and draft provisions
for bringing non-negotiable, non-instrument based instruction type payment
products such as, ECS (Debit).
3. Risk Mitigation
in Payment Systems
Safe, secure and efficient payment
systems are critical to the effective functioning of the financial systems.
Payment Systems face various risks like credit, liquidity, legal, operational
and settlement risks. However, systemic risks by far outweigh other types of
risks. In case of systemically important payment systems, failure of one or
more participants could lead to a domino effect, leading to settlement failures
in other payment systems as well and could result in instability in the entire
financial system. Over the past few years an international consensus has developed
on the need to strengthen the payment systems by promoting and adopting internationally
accepted standards and practices. The Committee on Payment and Settlement Systems
of the G-10 countries (CPSS) set up under the auspices of the Bank for International
Settlements (BIS) has formulated such best practices in the form of Core Principles
for Systemically Important Payment Systems (SIPS). The CPSS has also specified
the responsibilities of the central banks with regard to the payment systems
in their respective countries.
India has, by March 2004, made
all the systemically important payment systems(SIPS) compliant with the Core
Principles, except the Inter-bank Clearings at places other than Mumbai and
the High Value Clearing Systems. There is a need to complete this process in
the near future.
Keeping the above in view, it is
proposed to initiate the following steps towards risk mitigation in payment
systems during 2005-08:
Action Points:
To address Systemic Risk:
1. Interbank transactions at
all places to be migrated to RTGS System
2. High Value Clearing
Systems to be made secured netting systems by introduction of guarantee funds
To address Liquidity Risks:
1. Implementation of National
Settlement System for clearing systems
To address Operational and Legal
Risks:
1. For enhanced security of
messages, PKI based digital signatures to be introduced.
2. Credit transfers to be encouraged
and in an electronic mode
3. Provide for high availability
of all systems
4. Efficiency
Enhancements
Cheques continue to be the dominant
retail payment instruments. To enhance efficiency in this system, India has
embarked on Cheque Truncation to quicken the realization of proceeds of cheques.
During the currency of the new vision document, cheque truncation will be operationalised
in the four metros and some of the other major cities like Bangalore and Hyderabad
where high bandwidth availability is there. On a long term basis a national
centre for clearing to route intercity cheques through this single hub to offer
customer credits on a T+1 or even T+0 basis.
India has introduced MICR processing
in 39 places and another 9 are in the offing. With this about ---- % of the
country’s volume of cheques will stand MICRised. In order to bring in uniform
standard for cheques and to facilitate cheque truncation nation-wide, the remaining
small number of non-MICR cheques can be completely replaced with MICR cheques.
The rationalisation of the Clearing
Houses is another key activity that should occupy the attention. This is in
tune with the new organisational structure suggested earlier. Consolidation,
Merger & Amalgamation of the Clearing Houses and establishment of new Clearing
Houses in the geographies where they are required under the overall single entity
shall be the desired objective. Another significant area of enhanced efficiency
and customer service is the increase in the geographical jurisdictions of the
Clearing Houses so that more and more number of bank branches and customer are
catered to.
The High Value Clearing districts
which are currently limited to a very small portion of the city shall be expanded
so that fast track facilities available under the window percolate to a larger
customer base.
The Order Matching System for Government
Securities Market transactions being put in place will take the processes of
fairer and transparent trading further by ensuring better Price discovery for
the customers.
Integration of the message transfer
facilities within the country (Structured Financial Messaging System) with that
of Society for Worldwide Interbank Financial Telecommunication (SWIFT) for ‘Straight
Through Processing’ by inter-connectivity between SWIFT and INFINET to allow
for seamless integration with the banking applications with SWIFT will receive
a high priority in this phase.
The regulatory structure shall
encourage the use of alternate and innovative modes of payment tools including
the smart cards and other cards with integrated memory capabilities - all to
be based on uniform standards and inter-operability.
CLS aims at achieving payment versus
payment in foreign exchange transactions eliminating, in the process, Herstatt
Risk in such transactions. Indian rupee, so far, is not a currency eligible
for CLS settlement. However, for the cross currency trades undertaken by authorised
Indian entities, CLS can be very effectively used.
Requisite environment and infrastructure
for end-to-end straight through processing from the customers’ to banks end
should be created. Initiatives such as allowing customers to upload/download
their transactions files shall be pursued forward by enabling PKI security features
on them. Standardisation of account numbers, standard message format framework
for the banking applications are some of the other initiatives to ensure that
STP becomes an industry practice.
Keeping the above in view, it is
proposed to initiate the following steps towards efficiency enhancements in
payment systems during 2005-08:
Action Points:
1. Implementing Image Based
Cheque Truncation with a long term objective to evolve it into a National
Truncation System
2. Rationalisation of Clearing
Operations by setting up new Clearing Houses, expanding the geographical jurisdiction
of the Clearing Houses, merging and amalgamating Clearing Houses etc.
3. MICRisation of every cheque
– every cheque issued to follow MICR standards
4. All Payment and Settlement
Services to be available on a national level- National ECS, National EFT,
National CTS,
5. Encouragement, facilitation
and removal of impediments for the introduction of innovative products for
banks, customers and government- e.g. e-purse, integration of SWIFT and SFMS,
straight through processing capabilities from the customer end itself
6. Enhancing the efficiency
of Systemically Important Payment – Order Matching for Government Securities
Market, Linking Forex Settlement with CLS
5. Rural Sector
Facilitation
Recognising the importance ascribed
towards ensuring that the benefits of improvements in payment and settlement
systems should be fully available for the rural population of the country also,
initiatives are also planned for products and services for this sector of the
economy. While the general thrust of all the overall action points would encompass
the requirements of the rural populace, special focus would also be ascribed
in the form of specialised, tailor made offerings.
The efforts aimed at addressing
this area would take into account the characteristics of the rural sector of
the Indian economy and the attendant environmental factors such as wide spread
geographical coverage, infrastructural disparities and deficiencies. The differing
expectations of the rural folk of the country will also form part of the foundation
on which the initiatives would be built.
Keeping the above in view, it is
proposed to initiate the following steps towards customer facilitation and protection
during 2005-08:
Action Points:
1. Improving the availability
and coverage of the new delivery channels. This would be in the form of extension
of facilities such as the Automated Teller Machines for cash payments.
2. Facilitating the large
scale deployment and use of multi application smart cards which would also
be used for storage and transfer of small value payments in an electronic
mode. This would be achieved by means of introduction of easy to use, small
and cost effective hand held devices for transfer of value between cards in
a secure manner.
3. Increasing the reach of
electronic modes of funds transfer at rural areas by providing variations
of the various electronic modes of funds transfer, but with a rural bias.
4. Increasing the reach of
payment services by means of tie up and collaboration with other large coverage
entities such as the Post Offices.
5. Providing support for new
modes of traditional facilities such as ATM based Kisan cards.
6. Customer
Facilitation and Protection
The Indian payment systems have
evolved over a period. To facilitate customer convenience has been the underlying
goal. For deficiency in service, under the existing framework of Indian Law,
the bank customers have the following remedies: To approach civil courts by
way suit for damages, injunction or specific performance; To approach Consumer
Forums established under the Consumer Protection Act; To avail Customer Grievance
Redressal Machinery provided within the banking system(such as the Banking Ombudsman
and Customer Grievance Cells in banks etc.). However, all these mechanisms are
found to be time consuming. Therefore, for quick and effective resolution, Customer
Facilitation Cells will be created within each payment system.
Clarity and certainty about the
terms on which payments are effected and about the liabilities and responsibilities
of the payment service provider go a long way in furthering customer confidence
and protection of their rights. Therefore, banks will be encouraged to publicly
and prominently disclose their payment service policies and the terms and conditions
of effecting payments through them, the rate and fees, compensation for deficiency
in service, the compensation procedures etc.
As innovative and new type of payment
services and instruments are a reality, there is a corresponding need for making
the customers aware of the benefits, and the possible risks in using them. Customer
education and awareness campaign should be periodically and regularly conducted
through the media by the banks, bankers’ association and the Reserve Bank.
Keeping the above in view, it is
proposed to initiate the following steps towards customer facilitation and protection
during 2005-08:
Action Points:
1.Each Payment System to have
Customer Facilitation Centre for providing assistance to customers to get
their problems resolved
2. Each payment service provider
to disclose publicly its standards, terms and conditions under which the payment
will be effected and also compensation policy for deficiency in services
3. The Reserve Bank, the Indian
Banks Association and the banks to undertake Customer Education efforts with
regard to features and risks and liabilities of various payment services including
electronic payment products, new products and services.
7. Regional
Cooperation and Coordination
A robust payment system not only
helps domestic economic activities but also the country’s regional and international
trade and commerce through cross border payment arrangements. While India has
trade relationship throughout the world, recent focus has been on the Asian
region. India is a member of the Asian Clearing Union(ACU) and South Asian Regional
Cooperation(SARC). As economic co-operation with these regional organizations
grows, the need for regionally integrated, inter-operable and harmonised payment
systems to support efficient and safe cross-border payments becomes a strategic
imperative. Such cooperation stimulates trade and spurs economic growth within
the region, facilitates expeditious transfer of value, makes the regional payment
systems sound, minimises the chances of a country becoming a safe haven for
fraudsters and provides opportunities for exchange of experience and technical
knowledge.
The nature, scope and depth of
cooperation and coordination depends on a number of factors, including the state
of the physical infrastructure, socio-economic indicators, state of the national
payment systems and the level and sophistication of fraud. In general, the areas
of cooperation and coordination can cover standards for various payment instruments
like cheques, credit transfers, direct debits, cards and e-cash, development
and use of common payment system infrastructures and utilities and harmonization
of legal and regulatory framework and risk management measures.
It is recognized that we may face
considerable challenges like differences in the levels of economic development
and technical capacity, the dilemma of domestic vs. regional interests, differences
on the role of Payment Systems, funding the development or update of systems
to regional levels and legacy systems vs. development of superior standards.
However, the common benefits far outweigh the problems and therefore efforts
should be initiated to pass over the hurdles on the way.
Keeping the above in view, it is
proposed to initiate the following steps towards regional cooperation and coordination
in payment systems area during 2005-08:
Action Points:
1. Establishing liaison with
the central banks of the ACU & SARC countries for coordinated approach
on payment systems
2. Promoting a Regional Council
on Payment & Settlement Systems for the ACU & SARC regions
3. Promoting SFMS as the messaging
platform in the countries of ACU, & SARC
4. Facilitating sharing of payment
system infrastructure and utilities like clearing and settlement services,
ATM networks, Card clearing and settlement arrangements in the ACU & SARC
countries.
8. Other initiatives
Besides the measures under
the above themes, certain additional measures as detailed below will be taken
to ensure synergy:
1. Publishing by the Bank for International Settlements
the Red Book on Payment Systems in India
2. Government payments and receipts to be made
through electronic mode for e-governance