The Revolution Of Payments - A P Hota, MD & CEO, National Payments Corporation Of India

Could you please guide us though a brief history of NPCI? 

The National Payments Corporation Of India (NPCI) was conceived in 2005 by the RBI. The basic idea behind the same was to help the RBI focus on regulatory framework, regulatory supervision and innovation, while work of an operational nature should be left out to a specialist organisation.

After taking a while for things to shape up, January 1, 2010 was the day of the commencement of NPCI’s operations. During these three and a half years, we have grown from just seven people coming on deputation from seven banks to 415 people. Starting with a very few transactions, we are now processing around 10 million transactions a day. 

We are a utility for the banking industry. All the banks are our customers whereas the customers of these banks are not our direct customers. We are in the middle of all interbank transactions. So whenever an inter-bank transaction appears, then it is routed through us. With multiple transactions happening and multiple parties involved, there has to be a clearing house in between. So we are a payment system clearing house for all the banks at the national level. 

Our focus is on retail payments. The large value transactions continue to be processed through RBI. We operate all low value transactions of cheques, credit cards, ATM transactions, small money transfers and Aadhar-based electronic benefit transfer transactions. All the transactions are small, but the number is very large. So for a large number of transactions, we need to have big processing capability. Our job is to process such large volume, low value and repetitive payment transactions.

So here the focus is not the risk (as focus on risk is always there), but the focus is customer service, resilience in operations and large volume transaction processing. So our system should be functional at all the times, with no breakdowns; so that banks in turn are able to provide better services to their customers.

What is the kind of technological advancement you have under-gone? Considering NFS (National Financial Switch), is there any revenue generation for you when customers use ATMs for interbank withdrawals?

National Financial Switch is used for interbank ATM transfers. Previously, the daily average volume of transactions was 1.8 million. Since the NPCI has begun operations, average volumes have moved up to 7 million a day. We have upgraded the system to handle up to 20 million transactions per day. The system’s availability time is 99.99%. We have done a lot of work on the resilience of the system by increasing the capacity, decreasing the down time and ensuring the existence of related software like those of dispute management system, analytics and fraud mitigation systems.

As far as the financial part is concerned, NPCI charges 50 paisa per transaction. Now, 50 paisa per transaction makes sense because international cards charge more than a rupee per transaction. This 50 paisa charged per transaction, provides room to undertake research and innovation activities.

There are around 125000 ATMs in the country which are the part of the network. We take pride in saying that India is one of the few countries where all the ATMs are inter-operable. In Singapore and US interbank ATM transactions are possible only with bilateral agreements.

Can you explain what IMPS is?

IMPS stands for Immediate Payment Service. IMPS is a money transfer system which supplements RBI’s money transfer systems of RTGS and NEFT. The speciality of IMPS is that it is immediate, instant and is available 24/7. Most of the transactions are initiated by the customers themselves, through the mobile or internet. In fact, the original name of IMPS was Interbank Mobile Payment Service. We started as a mobile channel service, but now it has become a channel-independent service. It means IMPS instructions can be initiated on the mobile, internet and even through ATMs.

What is RuPay chip card and what are its benefits?

RuPay is positioned by the NPCI as a domestic payment card and as alternative to banks for the issuance of domestic and international cards. As per the direction of the RBI, all international cards should be chip and PIN enabled. RuPay is primarily a domestic focused card, but we also have international offers where we have made RuPay cards chip and PIN enabled. We have started this as a pilot project with two banks i.e. Bank of Baroda and Saraswat Bank.
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We are talking about financial inclusion since long. However the results are not as per expectations. How do you feel NPCI’s Rupay would help in financial inclusion? 

Rupay is to be seen as a payment instrument. The Rupay card facilitates technology-based transaction processing. A variant of a Rupay card is an Aadhar-based Rupay card. With the Aadhar-based Rupay card, the withdrawal of money or use of the card at micro-ATMs is easier. It is only to that extent that the Rupay facilitates financial inclusion. The primary goal of the Rupay is not financial inclusion but in indirect ways it is aids financial inclusion.

How useful is technological advancement here?

Adoption of new technology is a must to make the service delivery faster. But along with the deployment of the technology, we will also have to take up a lot of literacy initiatives. For instance, we keep hearing how mobile banking would take off in a big way in rural areas. Mobile hand-sets are there in every family and are capable of performing transactions. Technically it is feasible. However, I think mobile technology is not friendly enough. The technology would have to be made simpler and user-friendly. Unless we do that, technology would be a drag and would be a cost on us.

How much are you spending on technology?

In NPCI we are spending a good deal of money on technology. And I feel that it is a must. In NFS, we are processing 7 million transactions a day. Obviously the technology has to be a robust one. We have invested Rs 40 crore in the last three years on NFS alone. We have invested around Rs 30 crore in NACH, in building the system which can replace the ECS system. For CTS, we have invested Rs 35 crore and another. Here we would be spending an additional amount of Rs 15-20 crore for archival of cheques - a utility that would be commonly used by all the banks. Investments in technology are necessary. If you do not invest adequately, a lot of things would have to be done manually and again there is cost to that. Making marginally higher investment on making things simpler yields rich dividends.

Aadhar-based payment is taking on a large canvas. How is NPCI looking at this opportunity? 

We are looking at Aadhar as a financial address. If money is sent to an Aadhar number, then that Aadhar number, in the backend, is mapped with a bank and an account associated with it. It is with this that we have started the Aadhar payments bridge. This payment bridge is used by many state governments, central govern- ment and now for LPG gas subsidies. The scheme started on January 1 with a very small number and the number is improving. In last month, July 2013, we had 2 million such transactions. So, Aadhar as a financial payment mode is now a reality and it has proved extremely beneficial as the government is now been able to plug leakages like bogus payments or money going to the wrong person, etc.

Second part is about using Aadhar as an authentication through the card. The way we authenticate ourselves at the ATM by using a four digit PIN, in the case of Aadhar, we can identify ourselves by giving our biometric signature. And that biometric signature is verified by the UID. With these two factors, we are facilitating electronic fund transfer and we are managing the Aadhar authentication of day to day transactions.

The third service, which is in the pipeline, is electronic KYC. If banks or mutual funds or telecom companies want to open a new account, they can get customers authenticated by sending an Aadhar number and Biometric signature. The service will start shortly. The technical feasibility is over and we are waiting for RBI authorisation to provide the services. All of these projects are commercially viable.

Any new product you are currently working on? 

The one product which is at a conceptual level is "Tap and Go". This will facilitate all the large number of micro payments that we see at smaller shops like kirana stores. How can you eliminate the element of cash? The only solution to that is tap and go. It would be a kind of smart card mechanism or a smart phone based application we can use. So that is the new thing we are considering.