loader image
Digital wallet abstract concept vector illustration.

What is PPI? How can a business benefit from PPI?

PPI stands for Prepaid Payment Instrument, PPI is a method that facilitates the purchase of goods and services against the value stored on such instruments. The value stored on such instruments represents the value paid for the holder, by cash, by debit to a bank account, or by credit card.

 

The prepaid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, online wallets, mobile accounts, mobile wallets, paper vouchers, and any such instruments used to access the prepaid amount.

Some of the common examples of PPIs include Paytm and Gpay, gift cards, and debit or credit cards. In today’s piece, we take a look at three types of prepaid payment instruments.

  • Closed System PPIs
  • Semi-Close System PPIs
  • Open system PPIs

Closed System PPIs:

These are PPIs issued by an entity for facilitating the purchase of goods and services from that entity only. No cash withdrawals are permitted. These instruments cannot be used for payment or settlement for third-party services. The issuance and operation of such instruments are not classified as a payment system and do not require approval/authorization from the RBI.

 

Semi-Closed PPIs

These are PPIs issued by banks (approved by RBI) and non-banks (authorized by RBI) for purchase of goods and services, including financial services, remittance facilities, etc., for use at a group of clearly identified merchant locations/establishments which have a specific contract with the issuer (or contract through a payment aggregator/payment gateway) to accept the PPIs as payment instruments. These instruments do not also permit cash withdrawal, irrespective of whether they are issued by banks or non-banks.

 

Open System PPIs

These are PPIs issued by banks (approved by RBI) for use at any merchant for the purchase of goods and services, including financial services, remittance facilities, etc. Cash withdrawal at ATMs / Points of Sale (PoS) terminals / Business Correspondents (BCs) is also allowed through these PPIs.

 

How can a business benefit from PPIs?

 

Prepaid payment instruments in the form of mobile wallets, multipurpose, multicurrency, prepaid cards can accelerate sales, customer loyalty, and profitability. You can earn significant revenue for every transaction made through mobile wallet-enabled prepaid cards you issue.

Businesses must leverage PPIs to tap into the gigantic 760 million smartphone users base in India, who will most likely shop online and pay using mobile apps and wallets.

Using prepaid instruments, you can enable bank-like domestic and cross-border payments, but with greater efficiency, flexibility and security. Armed with the ground-breaking PPI reforms announced by the Reserve Bank of India (RBI), every business in India must ride the PPI wave to reap the utmost benefits.

The following are significant measures announced in the 2021 RBI monetary policy review, applicable from March 31, 2022.

  1.  PPIs can offer Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) facilities to their users.
  2. Interoperability of full KYC PPIs is mandatory.
  3. The maximum balance of mobile wallets doubled to INR 2 lakhs from INR 1 lakh.
  4. Cash withdrawals enabled for full-KYC PPIs of non-bank PPI issuers (in addition to bank issuers)

These reforms have the potential to level the playing field between banks and non-banks, incentivize full KYC PPIs, and drive greater financial inclusion. Businesses that accept payments and remittances through prepaid payment instruments will experience higher customer acquisition, retention, and loyalty, increased customer lifetime value, and long-term profitability.

 

Who can issue PPIs?

 

The following entities can issue PPIs post authorization/approval of RBI.

 

Non- Banking Entities

  • They must be incorporated in India
  • Minimum paid-up capital — more than INR 5 crores
  • Minimum positive net worth — INR 1 crore at all times

NBFCs

  • Maintain an escrow account with any scheduled commercial bank in India

Banks

  • Compliant with PPI eligibility criteria established by the RBI

 

RBI’s new addition to PPI-Small PPIs can have cash upto ₹10,000 loaded per month

The Reserve Bank of India on 27/Aug/2021 issued Master Directions on Prepaid Payment Instruments (PPIs) with the fresh classification of the instruments.

 

“Keeping in view the recent updates to PPI guidelines, it has been decided to issue the Master Directions afresh,” the RBI said.

 

 

No entity can set up and operate payment systems for PPIs without prior approval or authorization of the RBI, it stated.

 

The master directions classify PPIs into two categories – small PPIs and full KYC PPIs. They were earlier classified as closed systems, semi-closed systems, and open system PPIs.

 

“Small PPIs: Issued by banks and non-banks after obtaining minimum details of the PPI holder. They shall be used only for the purchase of goods and services. Funds transfer or cash withdrawal from such PPIs shall not be permitted,” the RBI said.

 

PPI Classification

 

Small PPIs can have cash up to ₹10,000 loaded per month, not exceeding ₹1.2 lakh in a year.

 

Full-KYC PPIs will be issued by banks and non-banks after completing the Know Your Customer (KYC) of the PPI holder.

 

“These PPIs shall be used for the purchase of goods and services, funds transfer or cash withdrawal,” it further said, adding that the amount outstanding should not exceed ₹2 lakhs at any point in time.

 

The RBI has also said that the PPI issuer shall have a board-approved policy for PPI interoperability.

 

Where PPIs are issued in the form of wallets, interoperability across PPIs should be enabled through UPI. Where PPIs are issued in the form of cards (physical or virtual), the cards should be affiliated to the authorized card networks, it said.

 

PPI for mass transit systems should remain exempted from interoperability, while Gift PPI issuers (both banks and non-banks) have the option to offer interoperability.

 

Interoperability shall be mandatory on the acceptance side as well. QR codes in all modes shall be interoperable by March 31, 2022,” it further said.

 

The RBI has also said the PPI issuer shall put in place a formal, publicly disclosed customer grievance redressal framework, including designating a nodal officer to handle customer complaints or grievances, the escalation matrix, and turn-around-times for complaint resolution.

Learn More

Everything You Need to Know About Your Card and Its Processing

It isn’t necessary to have intimate knowledge of the backend working of the back card system in order to find the best card processing system. But it’s a good idea to have a general understanding of how card processing works and the types of fees charged at various stages of the system.
This blog is on the key functionality of card processing services that will help you reach a better understanding of card processing. You’ll have in-depth details about what defines a payment solution provider, how processing works, the fees involved while doing any transaction, and the risk.

 

Actors Involved in Card Processing

 

The card processing company handles the processing and batching of purchases made with credit, debit, or gift card payments. They typically assist with technology needs and customer service, wherein they act as an intermediary between card associations and banks.

 

There are multiple stakeholders involved when a customer swipes their card at POS. The information below helps to summarize the essential roles involved in payment processing.

 

Cardholder

If you have a credit or debit card (as most of us do), you’re already familiar with the role of the cardholder. But just to give you knowledge-a cardholder is someone who obtains a card (debit or credit) from a card issuing bank which they eventually use to purchase goods or services both online or office at the store.

 

Merchant 

Technically, a merchant is any business that sells goods or services. But, only merchants that accept cards as a form of payment are pertinent to our explanation. So with that said, a merchant is any business that maintains a merchant account that enables them to accept credit or debit cards as payment from customers (cardholders) for goods or services provided.

 

Acquiring Bank (Merchant’s Bank)

An acquiring bank is often referred to as a merchant bank as they contract with merchants to create and maintain accounts that allow the business to accept credit or debit card payments. Acquiring banks provide merchants with equipment and software to accept cards and handle customer service and other necessary aspects involved in card acceptance. An acquiring bank is a registered member of the card association (Visa, RuPay, and MasterCard)

 

Issuing Bank

You have probably guessed the role of issuing banks by their name itself. The issuing bank is also a member of the card association(Visa, MasterCard, or RuPay)

 

Card Association

Visa, MasterCard, or RuPay aren’t banks and they don’t issue cards or merchant accounts. Instead, they act as a custodian and clearinghouse for their respective card brand. They also function as the governing body of financial institutions, ISOs, and MSPs that work together in association to support card processing.

 

Primarily, card associations govern the members of their association, including interchange fees and qualification guidelines, act as the arbiter between the issuing and acquiring banks among other vital functions.

 

What does card processing look like in motion?

 

Card processing basically works in conjunction with three distinct processes:

 

  • Authorization
  • Settlement
  • Funding

 

First, let’s take a look at the authorization process.

 

 

 

  • The cardholder swipes the card at the merchant POS in exchange for goods or services.
  • The merchant sends a request for payment authorization to their payment processor.
  • The payment processor submits transactions to the appropriate card association, eventually reaching the issuing bank.
  • Authorization requests are made to the issuing bank, including parameters such as CVV, expiration date, etc validation.
  • The issuing bank approves or declines the request. The transaction can be declined in case of insufficient funds.
  • The issuing bank then sends the approval (or denial) statement back along the line to the card association, merchant bank, and finally to the merchant.

That’s the card authorization process in a nutshell.

 

Now let’s take a look at the settlement and funding

 

  • Merchants send batches of authorized transactions to their payment processor.
  • The payment processor passes transaction details to the card associations that communicate the appropriate debits with the issuing bank in their network.
  • The issuing bank charges the cardholder’s account for the amount of the transactions,
  • The issuing bank then transfers the appropriate amount for the transactions to the merchant bank, minus the interchange fees.
  • The merchant bank deposits funds into the merchant account.

 

That’s the simplified card payment processing system wherein the authorization takes a matter of seconds. Settlement and funding that used to take days are now always handled overnight, helping you get your money quickly.

Learn More

Introduction of Blockchain in Fintech

Fintech being a leading light of the startup ecosystem over the years, has played crucial roles in development of the financial services industry. Strong ecosystem level changes are opening up opportunities for new business models. Introduction of blockchain technology in this evolving sector has a considerable impact and advantage.

 

Blockchain technology is a “chain of blocks” where each block holds timestamped digital data and it’s own previous blocks’ unique identity. The unique features of blockchain have potential to benefit the financial sector significantly.

 

In this blog we will cover following topics:

  • What is Blockchain?
  • How Blockchain is transforming the financial ecosystem
  • Fintech and Blockchain-Use Cases
  • Future of Blockchain in Finance

 

What is Blockchain technology and its features?

Blockchain is a decentralized database management system. The name signifies itself, a series of blocks containing transaction data, a hash identity, and node details are connected to form a chain. Blockchain is distributed ledger technology (DLT) which allows data to be stored globally on thousands of servers.

 

Below are the key features of Blockchain for its deeper understanding:

 

  • Security and Transparency

Financial services all across the world are still centralized and multi-folded. Financial data is mostly stored in centralized databases, and it has to go through multiple intermediaries like front-back offices etc which results in lack of transparency across the system, wherein safety being solely dependent on intermediaries and their level of security.

This lack of transparency within the system fosters security threats or data breaches across the organization.

With the introduction of blockchain technology, transparency and security can be ensured simultaneously. Its distributed consensus based architecture facilitates the security towards data breaches, security threats etc. 

 

  • Privacy

Blockchain system provides operable keys-a public one and a private key. Public key is available to all users in the network. However, the private key is only accessible to the stakeholders of the transaction. This enables transparency wherein the transaction will be visible to all users in the network with public key whereas the stakeholders and the transaction details will only be visible to those who have access to the private key. This process enables transparency within the system while securing the confidential information of the stakeholders.

 

How does Blockchain work?

Blockchain records validate and store the data in its database. So, it leverages to validate a transaction happening across the network. Each block in the block chain contains follow information

  • A hash pointer (link to previous block)
  • A timestamp
  • Transaction data

 

Future of Blockchain in Fintech Technology

Andy Martin, a world-class blockchain expert, recently forecasted market changes based on the token economics forced by blockchain and described what exactly it provides:

 

Decentralized communities provide certainty of identity, “who am I dealing with”, the certainty of provenance, “what am I buying” and smart contracts give certainty of execution, “if I do this, then I get paid” in these new marketplaces.”

 

Let’s understand better how Fintech and Blockchain can be chained together to build a FinBlock ecosystem.

 

Blockchain in the fintech industry can provide us a more seamless and effective way to banking, built around concepts of equity and decentralization. Blockchain-based fintech enables seamless transfer of funds, top of the line security and transparent financial tracking.

 

Reduced Costs and Transactions in Minutes

 

With blockchain integration in fintech applications, sending money, regardless of the amount, is much faster. Blockchain-based transactions occur in real time, so the recipient will not have to wait for days or weeks to get the money.

 

In addition to this, fintech applications powered by blockchain technology can drastically reduce the transaction costs enabling direct, P2P transactions that eliminate any middleman, meaning all unnecessary expenses and fees.

 

Use Cases of Blockchain in Fintech

 

Some use cases of blockchain in fintech services are: Cross Border Payments, Lending Platforms, Credit Score, Invoice Management and Billing Solution, Fund Investment, Government Expenses, Financial Record Keeping, Stock Exchange and Initial Public Offering

Let’s discuss Cross Border Payments and Lending Platforms use case in details:

 

Cross-Border Payments

Banks always charge an additional fee for every transfer or payments across borders, which in a way becomes expensive and slow. 

E.g If you want to transfer money from India to the USA, the transfer goes through one or more financial institutions before it reaches the receiver.

Introduction of Blockchain allows individuals to send and receive money with minimum interference of different intermediaries, which enhances the payment settlement quickly and efficiently.

 

Lending Platforms

When it comes to lending, one is required to establish trust and make a transaction happen. However, with blockchain technology in fintech, borrowers can directly deal with the lenders on the rate of interest, installments, and duration of the transaction with the help of immutable smart contracts.

 

Conclusion:

Blockchain in financial services can offer multiple benefits, which can help transform the finance industry. According to KPMG, “blockchain can reduce errors by up to 95%, increase efficiency by 40% and reduce capital consumption by up to 75%”. Blockchain in finance is an exciting concept with the potential to transform the finance industry.

Blockchain can help different financial institutions and government entities to improve trust, bring transparency and cut down costs. 

Learn More

Data monetization concept vector illustration.

THE ALCHEMY OF PAYMENTS BY-PRODUCTS- DATA MONETISATION

What is data monetization?

 

Data Monetization refers to the process of using data to obtain quantifiable economic benefits. Earlier, payment providers were making money from the fees charged to merchants for accepting payments from their customers. But data monetization has become a new business model which generates customer insights from data via advanced analytics to monetize the data itself. 

 

Let’s get started with example and understand how payment data can be a next big pay off for payment providers-

 

For example,  large ecommerce companies like Flipkart,Amazon or Myntra, n number of transactions are happening in fraction of seconds. These ecom companies can use their transactional data and create highly differentiated advertisement offerings in real-time bidding situations. Informative data about customer demographics and activity will allow the company to offer differentiated prices.

 

Another example is, an online classified portal uses algorithms to spot when customers move to a new location. This information can be used by businesses to business partners to offer targeted services.

 

These examples highlight  how these platforms are taking advantage of new approaches and how they created value for customers along with new revenue streams in a world shaped by technology and data.

 

 

For payment providers, this shift towards holistic patterns of payment acceptance, including new softwares and financial services enabling the payment processing fast and are in a step to become a commodity. Leveraging data is a first step in the direction of redefining business models to add new value to their business. 

 

From payment gateways to issuers, today’s payments providers have a treasure of data at their fingertips.  Data monetization ensures that you get the most value from your data by increasing profit, decreasing costs, and optimizing opportunities for the business.

 

Data is not the business in the payment industry. However, it’s a resourceful by-product of a business.

It is an asset- which has untapped potential to positively affect your bottom line.

 

 

You even have the opportunity to utilize your data to streamline operations, enhance your services and goods, cut costs, and identify new opportunities. Or you can use this data as a new revenue stream, wherein it has its own right that you can sell access to.

 

 

How can you monetize data?

 

As our world has become increasingly data-driven, there has been development of different ways to monetize data. Payment providers are in a distinctly powerful position to capture emerging opportunities as they have deep stats of merchants as well as of the consumers, wherein they can merge these two borders by providing a lucrative incentive to influence consumer’s choice of merchants to extract value through monetized data or through third parties.

 

Payment providers seek new high revenue streams, many are moving into consumer finance, offering cash advances to merchants, or developing their own business management solution. Payment providers nowadays are filling the gap between merchants and consumers by providing both parties lucrative incentives.

 

The question arises, how can you monetize the data? One can create revenue from data stats with providers by first identifying what type of data they have, understanding the value of that data of merchants on customers and building sustainable business models to build go to market strategy.

 

Payment providers that can find ways to monetize their vast wealth of transaction data can seize a powerful opportunity to differentiate.”- Christian Low

 

Transactions build great insights around purchasing patterns

 

Data is created whenever a customer uses a digital payment method, either shopping online or in store purchase. In fact, this transaction data generates variable data points like:

  • How much was paid in total?
  • How many items were  purchased?
  • Where did the transaction take place?
  • Total transaction at that store? etc.

 

Payment providers can also create multi-faceted data which includes detailed analysis of each merchant and its transactional ecosystem.  

 

Together this collective information from thousands of transactions, conducted by thousands of customers every day, forms a pool of rich connected data points. This entire data set can be used in real time depending on a provider’s infrastructure.

 

 

What can be a successful data monetization model?

 

Payment service providers can improvise the solution using the data of the sector that are currently improving at a radical pace. Fashion is an industry judiciously using these data points. Using the user transaction and order data, they can build a financial scoring model of their customers. This is provided to BNPL (Buy Now Pay Later) companies to facilitate them making decisions on providing deferred payments to customers. In another example, online classifieds use algorithms on data points to spot when a customer moves to a new city, which in turn can be used by their B2B partners to offer targeted services, like offers from local businesses. 

 

Learn More

Open banking platform vector concept metaphor

OPEN BANKING- Is India ready to enter banking 2.0?

What is open banking? 

 

Open banking is nothing but a payment system that works on an application programming interface (API).  Let’s understand it better with the help of an example.

 

In India, how long does it take to open a new bank account? How many times do you need to verify your documents? If you want to apply for a loan, how much time does it take to get it approved?

 

I am sure you all can relate to how much effort it takes to complete each task mentioned above. If you talk about applying for a loan, let alone from a different financial organization, you need your bank account details, a good credit score, and a valid KYC document to even be approved.

With the introduction of open banking in India, everything will be possible within a few minutes and with a few clicks.

 

Open Banking and its status in India

 

Open Banking in India is still in a nascent stage and awaits a mass adoption wave. The reason behind this could be that the traditional Indian banking systems are extremely manual and system-based. Currently, even the adoption of net banking is not ubiquitous. The system focuses more on security and privacy, thereby compromising its efficiency. However, open banking has lots to offer when compared to traditional banking systems.

 

Is India ready for open banking? Prima facie the thought seems like a no-brainer. It is possible, as today we make payments using our phones for everything, be it an electricity bill or grocery bills, you name it! And you are doing it via phone.  A final noteworthy feature of India’s approach to open banking is that the perimeter of data subjects is broader than in most other jurisdictions.

 

Many open banking approaches are focused on consumer data and access to financial services. But India’s approach extends this to include small businesses also, who can be a part of this payment ecosystem and add one more layer to the data stack and have the access to improved financial services and their offerings

 

The progression of India with open banking principles can only be achieved through interoperability and data sharing in the financial sector. If you bring banks and non-banks together under the same infrastructure or common ecosystem, this architecture will facilitate financial inclusion, as can be seen by the increase in a high volume of low-value payment transactions, which further leads to digital transformation and development.

 

Open banking adoption accelerates or not?

 

In my opinion, the banking system has been transforming with each passing day. From an individual standing in long queues to just open an account in one tap, we have evolved. Whether it is physical banking or digital banking, individuals choose convenience and variety. 

 

There are many successful open banking stories. M-Pesa in Kenya, Alipay in China, and Paytm in India- their adoption indicates that there had been a certain digital drift that led to the success of these platforms. This indicates that traditional banks should change the way they have traditionally approached customers and should adapt to the new world of open banking. Digital banking or open banking systems can give them access to innovative ways of implementing digital technologies within the system, which in the future will help them to provide personalized customer services which will help them in retaining their market share and reduce capital on research and development of services.

 

How secure or safe is my data?

 

Every new technology in the market comes with new risks and uncertainties. However, with open banking platforms, they have the potential to rewrite the relations between a bank and its customers. When we talk about a consumer, a consumer is someone who prefers convenience packaged with security and safety. So, open banking will enhance or enable the management of money more securely, more convenient, and customer-focused.

 

At last, I would like to conclude that with every step in the future or tomorrow something or the other is changing. Change is inevitable, and it comes with a mixed bag of offerings. Here, in the case of open banking in India, the future is going to be collaborative and interconnected.

Learn More

NFC: What is it?

Ever wondered what happens in the background when you say my card has a“Tap & Pay” feature? 

It’s because of a technology called NFC or Near Field Communication.

 

NFC or Near Field Communication is a contactless communication technology based on a radio frequency (RF) field using a base frequency of 13.56 MHz NFC technology is perfectly designed to exchange data between two devices through a simple touch gesture. 

NFC is a form of communication between two devices, which makes transferring data more secure, convenient, and easy.

 

How does it work?

 

NFC works just like Bluetooth and Wi-Fi, NFC works on the principle of sending information over radio waves. With the introduction of NFC, a user can share data, make payment without any manual hassle has turned out to be more important than any other technology in recent times, particularly in terms of mobile payments with simple operation. 

  • With the mobile based payment app on your phone, you will just need to Tap the phone on the POS machine and a connection will be established utilising the NFC feature which is secured with password authentication or scanning your finger which makes it more secure. 
  • Further, the transaction is then approved by a different chip called the SE (secure element), which transfers the transaction for approval back to the NFC modem. 

Currently, in India NFC-embedded cards are in the market with the imposed limits on the transaction sizes that it can process for NFC based card transactions.

 

With the introduction of NFC compatible smartphones like Samsung’s Galaxy Series, Google’s Nexus Series, and the iPhone in India we are stepping into a more cashless payment’s era. 

 

Is NFC Payments secure or not?

 

Are NFC payments secure or not? Most of you were wondering the same. However, the answer is NFC based payments are secure and safe. 

 

 For e.g A consumer who is interested in making payment via NFC based mobile application, due to the imposed limits on the transaction size on consumers cards the data cannot be stored in any of businesses NFC based terminals. In Addition to this, for instance, if a business’s NFC enabled terminal had been compromised but still the customer’s card details cannot be accessed. Likewise, tokenization makes NFC based payments so secure that there’s no decipherable information to steal from NFC terminal.

 

With the introduction of a process called tokenization, both NFC enabled merchants and the customers can feel reassured that contactless payments will provide end to end data security. For customers, card numbers are never stored in the application or anywhere in the operating system but in fact they are replaced with “token”. Furthermore, two-factor authentication like Face ID, passcode or touch ID within our smartphones enable a second layer of encryption and makes it more secure and safe for payments. On the merchant side NFC terminals and readers also use tokenization technology to encrypt sensitive information.

 

Contactless payments and its evolution in India

 

India’s journey towards a cashless economy can be judged by the impact of demonetization (2016) and COVID-19. Back in 2016, the government announced demonetization to convert India from cash-based economy to cashless economy. India had shown a gradual progress with the digitisation followed by ATM, credit and debit card, digital wallet, prepaid cards, recharge vouchers etc. payment solution helped India to build a cashless economy.

 

On 24 May 2021 – NPCI (National Payments Corporation of India) partnered with Turkey’s global payment solutions company PayCore as one of the certified partners for RuPay SoftPOS to drive cashless payments across the country. RuPay SoftPOS allows retailers to easily accept payments from contactless cards, mobile wallets, and wearables using only their phones. With the usage of RuPay SoftPOS, millions of merchants can now transform their NFC smartphones into POS machines to accept contactless payments. 

 

Under this association, NPCI mentioned that they have authorised the SoftPOS solution developed by PayCOre for RuPay. This solution can be integrated into bank or aggregator acquiring systems to enable acquiring of RuPay using mobile phones enabled with NFC capability. 

 

With PayCore’s SoftPOS solution, which enables smartphones and tablets to be used as POS terminals without any additional devices, investment costs required by banks to reach out to over 63 million micro-, small-and medium-sized businesses will significantly reduce, said Ali Kancha, chief executive of PayCore”.

 

According to Nalin Bansal, “chief of fintech’s, corporates and new initiative at NPCI, the launch of RuPay SoftPOS is aimed at supporting small merchants which form the backbone of our Indian Economy and is one of many in the series of launches starting with its open-loop transit program.”

 

With the introduction of eye-popping innovations and technologies like UPI (scan & pay), FASTags, NFC payments, interoperability etc it certainly holds a promising future in India. In addition to these NPCI initiatives to introduce SoftPOS to support small merchants and provide one step towards a cashless economy. Recently, Google Pay is offering the NFC feature for android phones that support NFC to make payments at NFC based terminals. 

 

Apart from the list of Pros and Cons of NFC as a technology in the payment sector. One of the major challenges I came across is the  transaction limit of Rs 5000 set by RBI for NFC payments. However,  in the future it will prove to be a big step towards a cashless economy where NFC based terminals or POS will provide seamless payment experience to the end user and the receiver.

 

Learn More

Fintech APIs are changing the landscape of financial services

Over the past decade, technology has shown tremendous impact in many industries. With the change of customer behaviour and the emergence of regulatory compliances, the landscape of the financial industry is changing. Customers are demanding a multi- and cross-channel experience, which is real-time as well as available round the clock. Thus, Banks are changing their approach from traditional product-centric to a customer-centric approach. This has resulted in banks looking for new age solutions to redefine customer experience. Earlier if a customer wanted to send money abroad, then they might have to go to the bank or financial institution branch and it took 2-3 days to get funds credited to the receiver’s account but now money can be transferred at any time by just a few clicks using a mobile phone.

 

Consumer’s appetite has been ever increasing for high-end digital experiences including seamless and easy accessibility of all financial products at their fingertips. Responding to these demands, Fintechs are building revolutionary financial products and experiences by using APIs to quickly deploy a suite of advanced financial services and products.

 

What is an API and how does it work?

 

API stands for an Application Programming Interface. It’s a digital interface which acts as an intermediary to allow two different systems to talk to each other. 

 

A very prominent example of API usage which most of us have seen on many websites nowadays – “log-in using Google/Facebook/Twitter”. With just one click we automatically login on to the website or app but have you ever wondered how it works

 

It looks very easy and simple for users. Every time the application loads, it uses the API to check whether the user is already logged in using any social media platform. If not, when the user clicks the “Log-in Using google” button, a pop-up opens where the user is asked for confirmation to log in with the selected google profile. After the confirmation, the API interacts with the google system and provides the application with identification information to provide auto-login.

 

Digitalisation has fastened the transformation of the banking industry globally in the last few years. APIs are playing a very important role in the field of payments, Peer to peer management, Insurance, trading and many more. Fintech APIs are creating financial products and services faster and in more cost-effective than ever before. Now Banks, financial institutions and merchants can easily connect with third-party service providers and expand their products and services very quickly. Online shopping of groceries and household goods is a new trend all over the world, merchants are providing seamless payment experience with various payment methods to customers. Customers can easily transfer funds, make purchases, buy insurance, take loans and perform personal banking tasks on the go.

In short, APIs have transformed Financial institutions and Banks as a platform that offer customer-centric products and fill the gaps of legacy banking practices.

 

Fintech APIs provide access to data among the parties involved in financial transactions, including banks, third-party providers, websites and consumers.

 

Nowadays a new concept of Open APIs is on the rise. Open APIs allows third-party service providers to access the data and services of an organization in a controlled environment. It provides opportunities to create new products and adds new functionality to its core offering. 

 

Benefits of Fintech APIs 

 

  • Real-Time Access: APIs have achieved real-time money transfer globally with minimal effort and are available to customers 24/7. APIs are changing how we interact with the world, and all these actions happen in real-time.
  • Revenue Opportunity: Earlier banks were quite secretive about their client information due to security concerns. With APIs, the financial institutions can provide easy accessibility of big data which can help them in creating highly personalized financial services and enhance the decision capabilities of the business. 
  • Cost-effectiveness: Instead of spending high cost in developing the system from scratch, the financial institutions can use these Fintech APIs and significantly reduce development costs.
  • Accelerated time to market: By using fintech APIs Financial institutions can spend more time and resources to focus on innovation instead of repetitive development tasks. Create fully functional digital services within days instead of months.

To compete with the currency digitalisation banks and financial institutions need to transform their existing core banking services using Fintech APIs. Fintech APIs help in bridging the existing legacy gap between the financial institutions and customer’s requirements. Features and functions from legacy applications can be easily pulled out and combined into processes that authorised users and other applications can access from anywhere, anytime.

Learn More

Embedded Finance: Changing the landscape of Financial Industry

In today’s tech savvy world, customers want everything at the right time in the right quantity with minimal efforts and a seamless experience. Every Service provider is trying to provide financial products at the fingertip of the customer. This is a game changing opportunity for fintech to offer the unique, agile and ease to use next generation technology. 

 

Embedded finance is a buzz in the fintech industry and is growing at a tremendous rate. Covid-19 pandemic has accelerated the customer base and their engagements on these platforms.

 

What is Embedded Finance?

 

Embedded finance is a seamless integration of financial services with non-banking solutions. Customers can access financial products and services through mobile apps. Embedded finance can help businesses gain customer loyalty, increase customer base, better product offerings and more revenue opportunities. For Instance, Ola cabs is offering cab rides embedded with financing solutions such as wallet services (post-paid or limit based).

 

Embedded finance is also known as embedded banking. To provide financial services to customers. Businesses need to start exploring the opportunities of enabling embedded finance through a partner ecosystem which will significantly reduce their time of market time as well as low cost. 

 

In this customer centric world, embedded finance can provide significant advantages to businesses over their competitors. Previously, there was a gap between consumer requirements and the service offered by the seller. Embedded finance understands the gap and eliminates the need for a third party between consumer and seller. It is transforming the financial services distribution model and creating a revenue opportunity for businesses. 

 

Here are a few major manifestations of Embedded Finance:

 

Embedded Payments

Embedded payment means providing integrated services of payment processing within the app or platform itself. For e.g. Post-paid wallets or Payment Infrastructure offered by Ola or Amazon. While booking a cab from the Ola app, customers can easily make the payments by Ola wallet without the worries of carrying change to pay cab drivers on completion of ride.

 

Embedded Lending

Embedding credit offerings within the customer journey of non-financial digital apps or platforms. For Example, customers can now purchase any home appliance from the mobile app and convert the payments into easy EMI options on the same app.

 

Embedded Insurance

Embedded Insurance means bundling of Insurance along with the purchase of the products and services. Platforms partner with external Insurance companies to offer embedded insurance services for their customers. Online vehicle selling platforms, also enables customers to buy Car Insurance products while purchasing the vehicle.

 

Embedded Investment

Platforms integrate with the brokerage firm to offer investment services to their customers on their platform. Platform uses APIs of the brokerage firms for offering microservice ranging from opening an account, funding, trading, portfolio management, and market data.

 

Key players and their role in Embedded Finance Ecosystem

There are three main players working in the embedded finance ecosystem to offer better services and create new revenue opportunities.

Digital Platform

Customer facing digital platforms like mobile apps or desktop platforms who have a better understanding of customer needs.

 

Financial Institutions

Financial Institution like Bank, NBFC who provides financial services and manage all regulatory and compliance.

 

Embedded Finance Infrastructure Company

Fintech companies which act as a bridge between Digital platform and financial institution to offer end to end APIs, SDKs or software solutions thus enabling the embedded finance in the digital platform. With this, customers can enjoy the financial service within the same platform.

 

In India, UPI has transformed the payments landscape and made it simple for technology companies to become payment providers. To compete with the fast-changing digital world and rising demand for embedded finance, financial institutions are increasingly offering banking as a service (BaaS)—bundled offerings, often white-labelled or co-branded services, that nonbanks can use to serve their customers. 

 

Learn More

SWIFT gpi- Future of Cross Border payments

Cross-border payments have traditionally remained a mystery for most users except the participating banks. These payments go through a series of banks before getting credited to the recipient’s account.  SWIFT is the primary method of communication used by banks in processing international payments.


In the era of the global digital economy, cross border payments are still felt backward and rigid. One of the most common challenges of cross border payment today is that it takes several days or a week for funds to reflect in the receipt’s account. This can be due to several reasons such as compliance requirements, regulatory differences, or high number of intermediary banks. Each participant of the entire value chain of the transaction is limited to its own data environment. Lack of visibility of payments status and control on payments affects both the parties involved in the transaction and their banks. Additional challenges in terms of High cost and uncertainty of fees to be charged leading to reconciliation issues also leaves bad customer experience. 

To solve the challenges faced by banks and cater to the changing need of corporates, SWIFT has launched new initiative- SWIFT global payments innovation (SWIFT gpi)

 

SWIFT gpi at a Glance

 

With SWIFT gpi financial institutions can send or receive funds quickly and securely across the world, with full transparency and traceability over the payments at any point in time. It aims to improve the cross-border payments across the correspondent bank and introduce a new market standard by connecting all the participants of the payments in the value chain.

 

How does it work?

SWIFT gpi is a cloud- based database that is hosted at SWIFT, designed to provide complete end-to-end visibility of the payments status until it reflects in the receipt’ account. SWIFT gpi seeks to meet the changing needs of corporates – faster transactions with full transparency and complete end to end traceability, without compromising banks’ ability to meet compliance obligations and market, credit and liquidity risk requirements.

 

To track the transaction payment, the initiating bank can assign a unique tracking code corresponding to that particular transaction. This unique code is 32 hexadecimal characters. This code is used further to track the status of the payment in the payment value chain using SWIFT gpi.

SWIFT gpi combines traditional SWIFT messaging and banking systems with new business rules. To ensure consistency, SWIFT gpi operates based on business rules captured in the multilateral service level agreements (SLA) between participating banks.

 

Benefits to corporates

SWIFT gpi is an initiative to improve the customer experience in cross-border payments by connecting all the stakeholders of the value chain. Its design helps banks to complete the international payments faster and without friction which will indirectly help the corporates to expand and grow their business globally. Main benefits for corporates:

  • Same day transaction which was almost a week earlier.
  • Transparency in the fees charged with respect to commission and exchange rates.
  • End to end tracking of payment status at any point in time via the cloud using a Unique reference number.
  • The transmission of full and unaltered remittance information which will ease the reconciliation of payments for the corporates.
  • Cloud improves the communication between all the parties involved in the value chain.

Benefits to Financial Institution

With the implementation of the first phase of SWIFT gpi, banks can provide better end to end experience to its customers which will improve bank’s relationship with its clients and motivate these clients to increase their volume of transactions with SWIFT gpi banks only.

 

Cloud technology has eased the bank’s workload in terms of engaging employees for tracking the payments for clients and improving the operational efficiency of the bank. In the long run SWIFT gpi will help banks achieve higher cost saving and operational efficiencies from enhanced compliance practices and optimised intraday liquidity flow.

 

Correspondent banks benefit strategically by leveraging the end to end digital ecosystem provided by SWIFT gpi and connect all the parties involved in the value chain of international payments. 

 

Roadmap for Implementation

 

For smooth adoption of SWIFT gpi, it is being rolled out in three phases. First phase was launched in Feb 2017 with a new set of standards in cross-border payments to improve speed, transparency over fees and end to end tracking of payment information to all stakeholders. Second and third phases would be related to high cost and operational inefficiency in the current cross- border payments landscape.

 

In the second phase, more control will be given to banks on payments. In case of any fraudulent activity, the bank can immediately cancel the payment regardless of the status of payment in the payment chain. Also, participants can send additional information along with the payment if required.

SWIFT has introduced SWIFT gpi tracker to improve transparency and traceability in the international payment value chain. This tracker can easily be integrated with back-end systems of banks.

These phased rollouts and the approach taken should make it easier to adopt across banks and payment networks resulting in unravelling the mystery around cross-border payments.

Learn More

Necessity of Revolution in Cross Border Payment process

E-Commerce has broken the political borders and offers products & services across different country borders. This has resulted in a high volume of cross-border goods and payment flows. 

Cross border payments have become an integral part of the day-to-day activities of global businesses. Small Businesses’ zeal to expand their business beyond their country boundaries has been well supported by ongoing digitalisation and high-end technological capabilities across multiple sectors and industries. However, it continues to face significant challenges owing to complicated cross-border mechanisms. The Small businesses face challenges in making or receiving payments internationally because of dealing in different currencies and country specific rules and regulations for international payments. This has created a need for a more agile and frictionless cross border payment framework making cross-border payments as simple as domestic transactions.

 

What are Cross-border payments?  

 

Cross-border payments are defined when both the parties i.e. buyer and sellers involved in the transaction are registered in different countries. Most popular cross border payments methods are wire transfer, credit cards and alternative payment methods- mobile wallet, low value payment method. All interaction for payments happens between buyers and sellers through their respective Banks. The Banks communicate with each other through the SWIFT mechanism when it comes to international transactions. 

In Traditional cross-border payments of correspondent banks, the number of intermediary banks depends on the relationship of the buyer’s and seller bank’s with the correspondent bank. As the number of intermediary banks increases, costs associated with fees and commissions also increase. A Bank can track the transactions till its immediate bank. It becomes difficult for the originating bank to track the transaction once the payment goes to the next bank in the sequence. There is no standard procedure for cross-border payments due to different rules and regulations of each country.  Evolving customer requirements, instantaneous fund transfer, cost reduction, complete transparency and technological innovation has initiated the process to improve cross-border payments as a whole.

 

Cash Flow in Cross-border Payments

 

When a customer makes a purchase, there’s a complete back-end process wherein money gets transferred from the buyer’s bank account to the seller’s bank account. This process becomes very complex when it comes to cross-border payments. In international transactions, currency exchange rates and foreign transaction fees are also involved along with the fees or commission charged by the different bank in the value-chain. In cross border payments domestic and international financial institutions are working together to make the transfer of funds.

 

When a purchase is made, if the buyer’s and seller’s bank have a direct relationship payment is done very easily and seamlessly but in the absence of direct relationship intermediary bank’s role becomes important. These intermediary banks are called correspondent banks.

 

Major Banks across the globe have their own branch or correspondent bank’s branch in another city. In such cases, the funds will first move from the Buyer’s bank branch to the Bank’s own branch or its Correspondent bank’s branch in the seller’s country. This fund is further transferred to the seller’s bank who will then credit the seller’s account. There are many entities, different currencies, exchange rates and transaction fees involved in the single international transaction which make the process slow and opaque in nature. The more the number of correspondent banks in the chain, cost and complexity of transaction keeps on increasing

 

In the Era of Globalised Digital Economy, international payments still felt backward and analogue.

 

A Revolution in Cross Border Payments  

The future of cross-border payments is clear wherein the world requires ability to move funds instantaneously, seamlessly with full transparency and 24*7 access. As the payment industry started moving forward on this journey, an array of new industry initiatives and emerging technologies are transforming the payments process. Fintechs using emerging technologies like blockchain, artificial intelligence, machine learning have started offering faster, agile and seamless solutions to the financial institutions to cater the emerging needs of customers.

 

Currently multiple paths are being used by the payment service providers such as Real-time payments, SWIFT gpi, SWIFT’s transaction manager, artificial intelligence, blockchain and digital currencies- cryptocurrency, central bank digital currency and stable coins. These new ways in cross-border payments would provide opportunities to make cross-border transactions faster, more frictionless, efficient, transparent and cost-effective like domestic transactions. Fintechs act as catalysts for innovation and bring global payments together through various approaches. Banks have started collaborating with fintech to mend their strengths and optimize their offerings by enhancing the payments infrastructure with latest technologies.

 

This revolution will transform the landscape of cross-border payments and empower the end user with full control on sending and receiving international payments at any point in time with complete transparency related to fees/ commissions charged and traceability of transactions in the system.

 

As per Deloitte report – B2B and P2P payments with blockchain would result in a 40% to 80% reduction in transaction costs and take an average of four to six seconds to finalize (compared to two to three days using the standard transfer process).

Learn More