Banking Products Te cere lay The learning from this chapter will enable students |» gain insight into the role of banks in financial literacy | » knowledge about the types of banking activity » discover different types of products and services offered by banks » understand the need and methods of marketing banking products and services INTRODUCTION We are all well aware of the role bank plays in promoting financial literacy. Its efforts in promoting saving and investment cannot be emphasized enough. Banks, in the conventional sense, signified a brick-and-mortar business meant to accept deposits from and lend loans to their customers/clients. However, with the evolution of technology, increased awareness among the public, and rising concern for efficient regulations and sustainability; banks have also evolved a big time. At present, they are neither confined to the four walls of a room (in fact, not even confined to a country), nor are they restricted to only lending and depositing money. They have diversified and expanded their scope, functions, products and services to cater to the modern needs of the knowledge-based economy to facilitate banks’ development. In this chapter, we will learn about the various products and services that banks have to offer. BANKING PRODUCTS AND SERVICES Based upon the expectations of their customers banking activity itself leads to the development of new products and services. These expectations are depen- dent on their experience with their banks, which interestingly sets the standards for new experiences as well (Popescu & Rizescu, 2008). Consequently, there is 5.3boll 54 UNIT 2: BANKING AND DIGITAL PAYMENT enormous scope for innovation in the development of new Products and Services. But such innovation is restricted due to two reasons: a. The regulations in place attempt to limit the use of riskier Products and Services to protect the interests of the general public. b. Product development needs an intersection between ‘technic: and ‘commercial feasibility’. These two factors should take place simultaneously for the introduction of am Product or service. With all the deliberations held up to date, the following are the products and services that are offered to various customers depending upon their needs, al Possibility’ Types of Banking Activity Depending on the type of customers the: various categories as given below: a. Retail Banking b. Corporate Banking y cater to, banking can be classified into | c. Private Banking Provides of financial products and services Retail Banking to general public Banking : Provides financial products and services to [ Activity | Corporate Banking corporate customers pia ne Provides banking see to high net worth Retail Banking Products and Services Following are the products and services o} ffered by banks to the general public: 1. Account Management Savings Account: The most ba: count. The mo t. Dil dra ties, complimentary and Personalized international debit cards, internet banking, mobile banking,CH. 5 : BANKING PRODUCTS AND CES: a @ Current Account: Current account in retail b anking is for small business owners who wish to transact on d a ; jaily basis for their business needs. They are ra led with special Services such as limitless deposits and withdrawals, Pay or ders, cheques, and overdraft facilities to enable the smooth functioning of their businesses, 2, cards facility aTM-cum-Debit cards are issued by the bank to their clients to shop online, pay pills, and even withdraw money from ATMs. Moreover, Credit Cards, 4 post-paid money instrument that lets you pay bills or shop for utilities up to a maximum specified limit, are also issued by some banks. Borrowers, then, pay back the money to the bank along with interest charged to clear their debt. 3, Deposits Every bank offers different types of term deposits of different duration as per the client's objective. For an instance, if somebody wants to save taxes, then they can choose tax-saver fixed deposits. Similarly, if somebody wishes to deposit 75000 every month for three years, then they can choose Recurring Deposits. These types of deposits are the most conventional and relatively safer type of investment wherein you get a fixed rate of interest income. The interest income is relatively higher than what you get in a savings account because the money is locked in for the period specified in the term deposit. 4, Loan Banks provide a variety of loans for different purposes such as home loans to buy a house, car loans to buy a car, education loans for paying educational in- stitutes’ fees, personal loans for personal needs, and business loans to finance a startup or business. Banks also provide loans against any asset deposited as a security. For example, gold loans, loans against property, loans against fixed deposits, etc. In return, banks charge interest from the client depending on the credit score of the client, the type of loan taken, and the tenure of the loan. 5. Foreign exchange services Some banks provide foreign exchange services such as Foreign Currency, Trav- eller’s Cheques, and Travel Cards for foreign business and holiday trips. 6. Demat account service OA Demat account is an account which helps investors in holding securities in electronic form. Demat account service enables clients access to their Demat Accounts, Information about the holdings, transactions, bills and ISIN details an be attained by opting for the SMS service at a reasonable charge.5.6 UNIT 2; BANKING AND DIGITAL PAYMENT 7, Investment products es, banks have als introduced various investment opportunities In recent tim! 2 : for their clients. Mutual funds (SIPs especially), Bonds, Public Provident Funds (PPF), Atal Pension Yojana (APY), 1pO-related investments, Kisan Vikas Patra (KVP), National Pension Scheme (NPS) are some of the investment schemes that can be directly availed from the bank itself. Some banks have also introduced their investment schemes. For example, Axis Direct and Axis Mid Cap Fund by Axis Bank. 8, Insurance products an r customers a Wi home insurance, trave d services ide range of insurance schemes to choose from. e] insurance, health insurance, business Life insurance, z 1 insurance, and social security schemes such as Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana, and Bima Uphaar Yojana can be availed very easily by applying for the scheme in the respective bank. 9, Safe Deposit Locker Upon payment of nominal charges, banks provi bles safe in a locker. The clients, dep cility of keeping their valual requirements, can choose the size of the lockers. 10. Investment Banking and Underwriting A separate branch of banks can also act as investmen for companies planning to raise funds in the capital ma ment banker, has a very crucial role in advising, assisting, efficiently from the market. 11. Smart Banking or Digital Banking @ Opening an Account Online: Most Banks give thei de their customers with the fa- ending on their t bankers and underwriters rket. Banks, as invest- and facilitating funds of the leading banks of India give an option of opening a savings account online without actually going to a bank. A bank representative, upon filling out the application form online, contacts you for video and Aadhaar-based KYC (Know Your Customer). Video KYC entails verification of identity and documents with the help of a PAN card, Live Signature, Live Photography, and Geo-tagging. An example of HDFC’s digital application is depicted in the figure. i Open your Savings Account instantly No.1* BankCH. 5 : BANKING PRODUCT: ERVICES 7 ING PRODUCTS AND SERVICE: . Online Banking: Every bank offer its cli ts NEFT, IMPS, ign transfer services to its client base, Recently, PS, and foreign trai . with the anno he digital rupee, certain banks have also started ees ee and receive money through the digital rupee wallet, @ Mobile Banking: Banks offer smart auto-pay, and Biometric net banking payment with the help of mobile banking, Daily utilities and money transfers can now be initiated through a click on your mobile banking application. Be it GST, electricity, water, broadband, mobile recharges, or gas bills; you can pay all through your bank's mobile application. Mini statements and payment statuses can be updated in real-time with mobile banking. Some banks also provide the facility of FASTag services, wherein the toll charges are automatically deducted from the linked bank account. Interestingly, chatbots are also deployed on websites and applications to help customers with their banking queries. For example, HDFC’s chatbot EVA. services such as SMS banking, UPI bean Lala ue ee ty ee eased }: we Serces srrestoepadt | [ete cae sens ® Branchless Banking: Due to financial illiteracy and a lack of financial institutions in remote areas, India is not able to attain financial inclusion. Branchless Banking offers its banking services without any branches or borders, The most basic form of branchless banking is the launch of ATMs (Automated Teller Machines), Mobile Banking, and Net Banking. Moreover, many initiatives are taken by India’s major banks to reach the underbanked or unbanked areas of India with their Business Corre- spondent (BC) model. Under this model, banks employ an intermediary, which uses a Micro ATM/Laptop, web camera, and fingerprint-capturing Machine to enrol the customer with the simplified e-KYC norms. TheseUNIT 2; BANKING AND DIGITAL PAYMENT 5.8 on ry processin8 i r services such as prelimina' 7 rovide othe! ee counsel creating financial awareness, money ani annual and collection of small-value credit, etc. RBI's number of outlets serviced by 5 in 2021 to facilitators also P loan applications, ing, the disbursal Ret (2021-2022) states that the total the BCS increased by 114 per cent (from more than 15 lakh ie more than 32 lakhs in 2022). s are introduced to enable customers to keep their @ E-lockers: E-locker’ documents handy, online, and safe. 12. Modern banking products and services @ Cash re-Cyclers or Cash Deposit Machine: Unlike ATMs, which tradi- tionally could only dispense cash, the Cash re-cycling machine (CRM) helps customers to deposit and withdraw cash at self-service terminals without any bank or any manual intervention in real-time. An acknowl- edgement slip is generated by CRM and funds credited or debited are reflected almost immediately in your accounts with the help of CRMs. The cash deposit machine (commonly known as Automated Deposit cum Withdrawal Machine ADWM) provides the facility of depositing funds in your PP, RD, and loan accounts as well. The per transaction limit is % 49,900 for a cardless deposit (by entering the account number) and is @ 2 lakhs for Debit Card transactions. i eee me ae buzzword in the fintech industry these days is Typically, in a ly ae bank with no branch whatsoever. bank partner or a ieee i oe collaboration with a traditional Thus, they are net Bilis only-digital initiative’ of a traditional bank. 2 regulated by RBI individually. As of 2022, India has more than 35 neo-banks. Some of them a n3 . re Akudo, P. Jupiter, Digibank, Mahila Money, RazorpayX, ete, eaCH. 5: BANKING PRODUCTS AND SERVICES 5.9 Lee: ¥ " Welcome? # \/cbank eS @ Whatsapp Banking: Launched in 2020 in partnership with the National Payment Corporation of India (NPCL), Whatsapp banking is a recent ini- tiative to promote digital banking. Customers can open an account, get their account details, and get answers to banking queries by sending a simple ‘Hi’ from their registered mobile number to their bank’s Whatsapp banking number. A virtual banking chat box assists customers through simple tasks, thus providing them with a customized and contextual customer experience. @ Green Deposit Account: A very innovative product, recently launched by McKinsey is a green deposit account. This account is maintained by clients who wish the banks to invest their funds in sustainable initiatives only. @ Impact Account: Another innovation in the field of banking is the impact account. It is a special type of current account that traces the account holder's carbon footprint, provides advice on budgeting and saving, and keeps the customer updated about community-building jatives. Smart Vault: Designed with state-of-the-art robotic technology and high- end security, the automated locker, smart vault by ICICI, help customers access their lockers any time of any day. Corporate Banking Products and Services Following are the products and services offered by banks to corporate entities: ® Current Account: For corporate houses, the bank provides the facility of different types of current accounts for different objectives. There can be a trade account, special accounts for startups, escrow accounts, etc.5.10 UNIT 2 BANKING AND DIGITAL, PAYMENT Cash Management can be availed by th Ments can also be it ® Busin corpo Services: Standing order cash and collection facility © Corporates, Similarly, bulk salary and vendor Pay- nade by the bank at the corporate house's request, ess Loan: Secured and Unsecured loans are made accessible to Tates for their every need. For example, term loans, overdrafts, loans Nporters and exporters, working capital loan: Trade Services: Import and xport collection and remittances are possible through Corporate banking services, Banks also provide a letter of credit and bank Suarantees for the smooth functioning of the businesses. More- Over, overseas direct investment service is also provided to its corporate Customers, 's, equipment loans, etc, MARKETING OF DIGITAL BANKING PRODUCTS According to Tesearch published, with Tetail customers and competition in the i to capture the attention of their custom Promote their digital banking Possible. Some of the market, the plethora of alternatives available to industry, banks have merely eight seconds ers. In such a scenario, banks attempt to services in the most digital and innovative ways ing techniques used are: ® Email Marketing: Banks engage their customers by regularly sending them their statements and safe banking tips. These mails often contain Offers, information about new products and services, and relevant notice and information as well, Mobile Marketin, placed inside the mobile banking application to attra latest schemes. Constant reminder: banking products, Chatbots: Al-driven chatbots providea Personalized experience to custom- ers 24*7 on chats. These chatbots assist customers with banking-related queries and thus, improve customer Satisfaction, ® Explainer Videos: Banks have Started to increase their social media presence and customer acceptance by creating small (usually 30 seconds) explainer videos on their social media handles and websites. Such a video breaks down any financial concept into simpler terms and explains how the bank fulfils its needs with its product or service. This helps to retain the attention of the prospective customer and maybe convert him/her into an actual customer. ® Machine Learning and Artificial Intelligence Nae Various ae ne ; 50 i i artificial intelligence tec! niques are al a Al can track a person's activity across all —£—,,CH. 5 : BANKING PRODUCTS AND SERVICES 5.11 digital platforms and generate data to predict the needs of the customer in advance. @ Search Engine Optimization Techniques (SEOs): Search engine opti- mization helps to place a respective bank’s ad on the top as compared to other ads when any digital banking product is searched on a search engine. Thus, a review of all the banking products and services helps us to realize the importance of banking in our lives. Banking has become an integral part of everyone and an important segment that can make India truly ‘Digital Bharat’. REVIEW QUESTIONS 1, What are the two necessary factors for the development of banking products and services? . Explain the different types of banking activity. . What are the banking products and services offered by retail banks? _ What are the banking products and services offered by corporate banks? ar wn . List out the popular methods used by banks for marketing digital banking products. 6. List out the modern banking products offered by banks in the current world. PRACTICAL EXERCISES 1. Mr Harsh is starting a business, and for that, he wants to open a current account. The business is of a nature which involves frequent inflow and outflow of cash. He also wants to raise a loan for the same. He asked you for your help. You are required to conduct a study comparing current account facilities and corporate loans offered by different banks and provide him with the best option. 2. Talk to people of different age groups. Gather the information about the banking products and services they use frequently and prepare a com- parative chart. You will get to know which type of products are popular among which age group. You can also see how willing are old age people to open up to new-age banking products and services.Digitization of Finan- cial Transactions LS OUTCOMES the learning from this chapter will enable students > get familiarized with the impact of digitization of financial transactions » discover the numerous opportunities and challenges offered by the digitization of financial transactions > learn about different digital payment initiatives like card-based, bio- metric-based, internet-based, etc. > get accustomed to the concept of UPI and digital wallets INTRODUCTION In the previous chapter, we discussed various banking products and services available to business and retail customers in traditional and in modern times. In this chapter, we will shed light on the impact of digitization on the banking industry. In the age of the digital revolution, each sector of the economy is collaborating with fintech companies to transform their businesses to gain a competitive advantage. To facilitate the digitization of businesses and due to the demand of tech-savvy consumers, the need for digitization of financial transactions has been necessitated as well. In recent years, this need is fulfilled by the introduc- tion of debit cards, credit cards, UPI, internet banking, and digital wallets. India, Now, has a vast digital infrastructure catering to every need of consumers and businesses, thus, transforming the financial industry entirely. 6.16.2 UNIT 2: BANKING AND DIGITAL PAYMENT Digital Payment Infrastructure as on Nov. 2022 at | crm | Pos | Micro | Bharat] uPIQR | creat | pebit ATMs QR Codes Cards Cards | ee Codes _| a ee 4346| 64546: 5983 9203] 161585] 1582977) 8391448] 19054346| 645463460 tor Banks eal ae private See- | 39768) 35741] S488090| 154627) 3z06ase| 189494323|53833094| 212970801 tor Banks Foreign [esa 1084 53438] 326627 1 2812| 7418546 5512162 [Banks | Payment 1) 63) 530347] 326627 0] 30744529 0| 5712824 Banks |Small Fi- 2624 —23/ 20603] = -3353| 3s4z8| 1654185] 357802| 28068452 nance Banks | Source: Monthly ATM, Acceptance Infrastructure and Card Statistics ‘for the Month of November 2022, Reserve Bank of India. IMPACT OF DIGITIZATION ON FINANCIAL SERVICES The evolution of digitalized financial transactions has tremendously affected financial services, giving rise to automated services. Not only the volume and value of the financial transaction have increased multi fold, but the application of the latest technological means such as artificial intelligence, biometrics, big data, and distributed ledger technologies such as blockchain has paved the way for the advancement of innovative and unique means of carrying out services in the finance industry. Some of the applications of digitization of financial services are discussed below: ® Credit scoring based on payment data: Credit rating agencies can as- sess the credit score of individuals and businesses based on their digital payment data. Smart contract: Introduced to reduce intermediaries and minimize trans- action costs and frauds; smart contracts are computer codes that enable the execution of any transaction automatically upon the occurrence of a specified event, without human intervention. @ Peer-to-peer lending: Digitization has led to the development of a to-peer digital lending where the demanders of funds can directly get in touch with suppliers of funds, without requiring a bank at an effective rate of interest and terms. Critical Analysis of Digitization of Financial Transactions Fn , . ities and chal- Digitization of financial transactions poses numerous opportunit lenges for consumers, businesses, and providers.CH. 6 : DIGITIZATION OF FINANCIAL TRANSACTIONS 6.3 Weaknesses * Delayed transaction * Cyber crimes * Digital literacy * Transaction limit Strengths « Accessibility « Contraction of parallel economy . simplified payment system + Multiple payment alternatives « Safe and secure payment « Multiple payment through single platform TsTeTy Transactions Opportunities | « Scope of service | Direct bank transfers « Cashless economy. + Innovative business prospects | « Strengthened banking network Threats * Cash is preferred + Awareness * Service-sector based economy * Increased unemployment SWOT Analysis of Digitization of Financial Transactions Strengths @ Accessibility: Consumers and businesses at every level can access digital transactions from anywhere and at any time. Even small business owners and rural people can accept or pay using digital means. This is especially important for areas where payment infrastructure is poor. Earlier, people used to wait for banks to open every morning to withdraw cash for ex- penses or used to keep a large amount of cash in their homes. However, with digital transactions, cash is no longer the only means of payment. Payments are subject neither to the availability of cash nor to the opening of banks. Contraction of the Parallel Economy: The emergence of digital trans- actions enabled all the transactions to be routed through the bank and formal means of payment. Thus, there has been a significant contraction of the parallel economy and a fall in corruption. Simplified Payment System: Digitization has simplified the payment system throughout the globe. International and local payments can be made at the convenience of your home with a single click. * Multiple Payment Alternatives: Suppose it is a bright Friday and suddenly you get a call at 4.30 pm that your daughter is selected for admission to esteemed Delhi University and the fees of % 30,000 were to be deposited by the next morning 9 am. You are bound to experience happiness, but unfortunately, the banks must have been closed by now. The only option you are left with is to leave this opportunity. Thanks to the digital payment system, this scenario is no longer experienced. You= SS 64 UNIT 2: BANKING AND DIGITAL PAYMENT i jJable. he help of various alternatives ee on ‘king due to a technical glitch or a s such as Internet banking, you the flexibility to can deposit the fees online with t Even if your debit card is not wor' accepting, you can go the other option: card transaction, etc. Thus, digital transactions give pay via many alternatives at any time and any place. uous measures are adopted by the n in online banking and ‘ometric system are €x- itional methods, digital ash around @ Safe and Secure Payment: Contin government and regulators to increase protectio! online payments. Two-step authentication and bi amples of the same. Even when compare transaction remains relatively safer than cal with you or keeping it at home. @ Multiple Payments through a Sin, paid through the single payment sys can be used to pay the electricity bill, water all in one place in a single application. d to trad rrying huge piles of c gle Platform: Many utilities can be tem. For example, the Bhim UPI app bill, gas bill, and DTH bill Weaknesses @ Delayed Transaction: Technology, itself, has many limitations. Some transactions might not take place due to technical glitches and may result in delayed payments. line banking and online payment have opened up nu- @ Cybercrimes: On! rs to dupe innocent people merous opportunities for hackers and fraudste! of their hard-earned money by deceptive tricks and persuasion skills. There has been an increase in online fraud with an increase in digital transactions. Digital Literacy: Digital literacy is a prerequisite for making an online payment. A person should be well versed in the operations of laptops or mobile phones or debit cards to conduct a smooth and secure online payment. o Transaction Limit: Sometimes, the bank or the service provider applies a transaction limit of 7 25,000 or @ 1 lac on certain transactions online and UPI transactions on a particular day or during a certain period. This period is called the cooling period and is a major drawback of digital transactions, Opportunities action Systems @ Scope of Service: The sco) igital payment and tran 7 pe of digital Bl ‘ n small vendors can be expanded to every area and service. Nowadays, ev@ accept payment by Paytm or PhonePe. . a Bank Transfers: Government and institutions a" athe bane the benefit of any scheme of the government (€8" ait ne“- CH. 6 : DIGITIZATION OF FINANCIAL TRANSACTIONS 6.5 ficiary’s account. This helps to verify the identity of the beneficiary and reduces the time required to release the subsidy, scholarship, or grant, @ Cashless Economy: With the emergence of the digital economy, our economy has the perfect opportunity to transform itself into a cashless economy: _» Innovative Business Prospects: Innovative payment applications and business ideas have emerged with digital payment. For example, Paytm gives you various discount coupons on every online payment done with Paytm. Some apps also give points for every transaction, which can be redeemed in the form of cashback or discounts. Fintech players have also come up with innovative business prospects to expand their businesses and promoted digital payments. Strengthened Banking Network: A digital transaction is never restricted to a particular bank or location. All the players of the payment network have to synchronize their operations in order to give the customer a smooth experience, thus, strengthening the banking network as one unified system. Threats ¢@ Cash is Preferred: People are still wary of using digital modes of pay- ment due to cyber threats. And this is one of the reasons why people, still, prefer cash payment as opposed to digital payment. # Awareness: Many consumers are unaware of how to use debit cards and credit cards or internet banking. Thus, ignorance and unawareness . on the part of consumers are always a threat to our dream of a ‘cashless economy’. Service-Sector-Based Economy: India, being an agrarian economy, has always been known for its rich culture, heritage, and food. But due to the digitization of businesses and services, a plethora of new businesses and services have emerged. Now, India has transformed itself from an agrarian economy to a service economy. Increased Unemployment: Digital advancement has led to the abolition of various services and reduced the workload on human power. Thus, untrained professionals and people with routine jobs have been rendered unemployed. ° ° ° DIGITAL PAYMENT INITIATIVES The payment system in India was originally cash-based. People used to pay for i utilities in cash and receive payment for the goods supplied and services red in cash only. However, after the initiatives are taken by the government= 66 UNIT 2 BANKING AND DIGITAL, PAYMENT igi and created to promote ‘Digital India’, various modes of digttal payment errerFequired ae w, people are a rcvat en e pue papa i Ithough these modes have y for utilities. Al heir growth (i years. Some grow! n terms of number, of the digital pay- th in the financial with them to purchase or pa ry cash r quite a few years, # been existing in India fo value, and volume) can be observed in recent ment methods that are responsible for the miraculous transaction are discussed below: (A) Credit Card A credit card is a credit facility the form of a plastic or metal bank or financial institution in card to borrow funds, within the pre-approved limit, to pay for utilities and pay back later at a minimal interest rate (Annual Percentage rate). The pre-approved limit, or credit limit, is decided on various factors such as your income, credit score, etc. A typical credit card consists of the name of the issuing authority, accountholder’s name, 16-digit card number, CVV, expiry date, and signature. Credit cards are not linked to your bank ac- count; rather it is a short-term borrowing facilities available to their customers by the issuer. provided by any Name of Bank or Financial Institution issuing credit card Security Chip/ EMV Chip Card Number ‘Name of Payment Network Processor Expiry Date ‘Name of Client Sample Credit Card As sek Aan a aha network (369%) and Rupay (13%) deel cent card network share, followed by MasterCard by India. In addition to a ene Rupay is the domestic network launched at the back conforming to i IV chip, credit cards also have a magnetic strip, credit card offers vari g to international standards for enhanced security. The ious benefits to the cardholder such as no need to carry cash, cashback and dis. hdraws : counts, wi ili eee ear eee ide acceptability, easy cash withdra' al, and Legally, the intere: ; days to 1 month ee on the credit card funds is charged after 21 is collected, is called the Grace Perit This period, where no interest charge quired funds in this peri riod and it is alw: : the re cardholder. Some ae only. This helps to wes ad helen Ee card companies also charge eee pending LaCH. 6 : DIGITIZATION OF FINANCIAL TRANSACTIONS 6.7 on the clients’ credit card limit, to extend th pe extra careful in applying for a credit card fees specified in the agreement, A credit card is regarded as a ‘revolving line of credit’ as once you pay back your credit, you have more credit available to borrow again without having to process all formalities again. Suppose you are given the following information: le credit to the client. One should and must read all the terms and Cardholder Name: Mr Anil Kumar Credit Card Limit of % 20,000 APR = 10% Grace Period 1 month Expenses and goods purchased worth = 10,000 on 01.01.2023, Now, in this case, if the cardholder Pays within one month, ie, till 31.01.2023 no interest will be charged to the clien to improve his credit score. tt. This is an ideal situation as it will help ‘ains unpaid for a year, then ‘ged to the cardholder. After he pays back vailable to pay for utilities, Recently, credit cards also come with a Communication (NFC) chip) printed at the to} atures, signifying that a transaction can be initiated just by tapping the card on the machine, rather than swiping it. Reserve Bank of India has issued a circular that for transactions below @ 2,000, a PIN would not be required. Although these contactless credit cards have their own risk, no theft has been reported so far. (8) Debit Card Another type of plastic money, a debit card (also called a bank card), or metal card issued by the bank to Pay or withdraw cash for dail Debit cards are linked to your bank account, ie., whenever you pay any expense or withdraw cash using a debit card, the funds will be deducted directly from Your bank account. Unlike credit cards, no interest (APR) is charged on debit ‘ard transactions, Similar to credit cards, debit cards can be contactless. Some of the institutions may give you an overdraft facility on a debit card as well. The type of debit card and the features available will dey ank account b. 0 be complete form g Card ji is a plastic ly utilities. pend on your income, alance, past financial history, etc. There are no large formalities before you get your debit card. You simply have to apply it in a Pecifying your bank account number. And voila! You will get your debit a few days, or even a few hours. The most preferred debit card payment cessor is VISA, MasterCard, and Rupay for digital payments. * debit card also offers various benefits to its cardholders. Apart from the bene 'ts of credit cards, certain benefits such as no additional APR charged in = w———,os UNIT 2: BANKING AND DIGITAL PAYMENT urchase limit, independent of the credit debit cards, higher withdrawal and p' in the account helps you to avoid over- score, and spending limited to funds ii spending are also available in debit cards. All debit card transaction requires a PIN or an OTP (One time Password) for initiating the payment. The debit card can be used offline (at the Point of Sale by swiping/ taping), online (by entering card details on the merchant's web- site), or at the ATM to withdraw or deposit cash. Various banks and debit card providers offer different schemes, rewards, and cashback to attract customers, For example, Axis Bank offers 17 types of debit cards for business, commercial, personal, premium, and other category needs. Similarly, Bank of Baroda offers six types of a personalized debit cards for each need of their customers. Further, some debit cards charge annual maintenance fees or fees for using oth- er banks’ ATMs. Merchant Discount Rate (MDR) is the charge to the merchant for payment processing services using a debit or credit card. With effect from 01.01.2018, RBI has amended the regulations on the MDR. MDRs, based on the merchant's turnover, are now applicable for all kinds of transactions; whether online or offline. All merchants with a turnover of up to %2 million in the pre- vious financial year will be charged %200 or 0.40 per cent for online and PoS transactions and %200 or a maximum of 0.30 per cent for QR- based transac- tions. The rest of the merchants, with an annual turnover of over %2 million in the previous financial year, will be charged MDR at %1,000 or 0.90 per cent for online and PoS terminals and 0.80 per cent for QR-based transactions. What is an EMV Chip? EMV Chip cards are launched to offer enhanced security and to the cardholders. The term EMV is coined after its creator, i.e., Europay, MasterCard, and Visa. In an EMV chip, the customer's data is stored only on the microchip found on the card. This implies that | every time the card is used for any transaction, a fresh data entry will be produced which will be verified by entering the correct OTP. This process prevents online frauds such as | skimming and cloning and provides safety to the users. (C) Prepaid Cards Also known as store value cards or prepaid debit cards, these cards can be used to pay for things. Here, an individual buys the cards which are pre-loaded with | money and after the purchase they can be used for making payments. Today | many stores are offering prepaid card facilities exclusively for their stores: Moreover, many banks like SBI, HDFC, ICICI and Axis are also offering pr epaid debit cards like gift cards, foreign travel cards, meal cards, etc. Prepaid debit cards are very different from ordinary debit cards. There are not linked to any bank account ie, they will not be able to provide the services | which are specific to debit cards. Just like debit and credit cards, they have Ue—— CH.6: & DIGITIZATION OF FINANCIAL TRANSACTIONS 69 or Mastercard symbols indicatin the i eee mera respective payment,gateway they used and outlet which accepts Visa or M; " jastercard cards. panks offer virtual Prepaid cards | as well. From the name onl: it is : clear the can Ee esronine transactions and are not fit for usage in physical eared They a od pea ecause there is no credit risk involved, It is also an easy way P on ones spending as an individual can only spend up to the amount loaded on the card, ie P employee's spending. For example, if ai n in employee is travelli i cards can help in keeping track of the! 7 fe ee ir spending and limiting it. (0) Aadhaar Enabled Payment System (AEPS) The Unique Identification Authority of India (UIDAD is a statutory body estab- jished in 2016 under the Ministry of Electronics and Information Technology. The main objective of the creation of UIDAI is to issue a unique identification number also known as an aadhaar to all the residents of India. It is responsi- ble for authentication and enrolment of aadhaar applications, maintenance of complete records, development of aadhaar policy and procedure, and ensuring the security of the data of each individual received during the enrolment pro- cedure. The importance of an aadhaar number can be realized from the fact that now for each and every activity like opening a bank account, purchasing a mobile network, creating a voter id, etc., linking with an aadhaar is necessary. It facilitates keeping track of an individual's actions. Aadhaar has now paved the way for digital payment as well. National Payment Corporation of India (NPCI) has launched an aadhaar-enabled payment system, which is a biometric-enabled payment system, where people can use their sadhaar information to make bank payments from their aadhaar-linked bank account. They can use it for many other activities as well like balance enquiry, sh deposit and withdrawal, etc. It has been a great mode of digital payment and fund transfer in rural areas where regular banking facilities are not avail- able and bank correspondences are the connecting link between banks and “Ustomers, Some of the advantages of a biometric-enabled payment system are “wer chances of fraud, convenience, ease of performance and no transaction fee. The Perfect solution is Micro ATMs, which is a small hand-held device bi lows aadhaar holders to carryout banking transactions using their biome! Stmation like a thumbprint or retinal scan.KING AND DIGITAL PAYMENT 6.10 UNIT 2: BAN Micro ATM Device with Thumb Scanner (E) Net Banking Net banking also calle banking services of a bai from the convenience of their homes. ICICI Ban! i t to take the initiative to launch its net banking service for its retail customers in 1998. Every registered user, who has an account in a particular bank, can use its banking services such as statement updating, fund transfer, applying for loans and insurance, creating fixed deposits, and changing addresses easily. In case of debit card theft or loss, the card can be blocked immediately using internet banking. Upon registration, the bank provides the customer with a unique login ID and password to access their account online. Every transaction made via internet banking is to be authorized by entering OTP sent to the registered mobile number and transaction password (which is different from the login password). Internet banking has some additional benefits. d internet banking, enables customers to access all the nk or financial institution and perform transactions online k was the first financial entity Transfer funds and transact online with round-the-clock availability via NEFT, RTGS or IMPS. @ Easy and convenient fund transactions and payments. @ Tracking the transaction history is possible in net banking. @ With login passwords and t + ransaction passwi i it i enhanced security, passwords different, it provides @ Further i i initi OTP is also required to initiate a transfer or a transaction. Basic services such as obtainii wort plying fora i has obtaining a password and applying for a chequebo @ Pay utility bills such as mobile recharge, and credit card bills, buy an insurance plan, pay taxes and invest in investment schemes like PPF, NPS, et:CH. 6 : DIGITIZATION OF FINANCIAL TRANSACTIONS aa ue pia re ch AY Citibank ‘unit ea ee en a a OSB aiatows Quco sank (Q) tnion Bann ves / SANK Banks that offer net banking ni TNE a Types of Funds Transfer Available Internet banking allows the transfer of funds from one account to another through three different ways, each having its characteristics which are discussed below: ¢ National Electronic Fund Transfer (NEFT) NEFT, the most common method of online transfers, is used to transact one to one transfer without any time restriction, i.e. available 24*7*365 days on the platform. It generally takes 30 minutes to three hours to complete the transfer. Interestingly, customers can transfer up to = 50,000 even when he doesn’t have an account opened with the bank by visiting the branch personally. Real-Time Gross Settlement (RTGS) Available 24*7*365 days on the platform, RTGS is another means of carrying out online transfers. RTGS focuses on continuous transaction settlement of funds on an order-by-order basis. This necessarily means that funds are transferred almost immediately to the receiver's account. Payments and transfers done by RTGS are irrevocable once successful. The minimum amount of transaction shall be % 2,00,000 with no upper ceiling, Due to the involvement of such a huge amount (from the retail customer's perspective), the Reserve Bank of India (RBI), the central °——————__—— 6.12 UNIT 2; BANKING AND DIGITAL PAYMENT monitor the RTGS bank of India and the regulator of banks, continuously transfers. @ Immediate Payment System (IMPS) of funds. It enables customers ones, internet, and ATMs. It ly requires the ss On tion and is available IMPS also deals in the real-time transfer ¢ to transact online using their mobile ph fulfils the objective of Digitalized India as the proce beneficiary's mobile number to complete the transac 24*7*365 day S. and COVID in 2019, the (F) UPI and Digital Wallets zation in 2017 eed, however, was not Ever since India experienced demoneti: Th need for digital bankin; and payment has surge¢. e ni fully satisfied with eee Brae banking, credit cards, or debit cards as they had their severe limitations and unawareness regarding their usage In the public. Fintech companies took advantage of the situation and adapted their businesses to develop alternative modes of digital payment. ‘As a result, we got our mobile wallets and UPI (Unified Payment Interface), which is indeed a household name now, Although these forms of digital payment had already emerged in the early 2010s, the spur in the volume and the value of the transaction can be attribut- ed to measures such as demonetization and the ‘Digital India’ initiative by the Government of India. Unified Payment Interface (UPI) Corporation of India (NPCI), an initiative According to the National Payments ia Bank's Association to develop a robust by the Reserve Bank of India and Ind payment and settlement infrastructure in India, “Unified Payments Interface (UPI) is a system that powers multiple banks accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood. It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience.” Launched in 2016 with 21 bank members initially, currently, 381 banks are live on UPI as of December 2022. UPI Transaction Volume and Value Month Volume (in Mn) Value (In Cr.) No. of Bank Live Dec 2022 7,829.49 12,82,055.01 381 Dec 2021 4,566.30 8,26,848.22 282 Dec 2020 2,234.16 4,16,176,21 207 Dec 2019 1,308.40 2,02,520.76 143CH. 6 : DIGITIZATION OF FINANCIAL TRANSACTIONS ose (Month | Volume (in Mn) | Vatue (In er) No. of Bank Live _| ~ pec 2018 620.17 1,02,594.82 129 | pec 2017 145.64 13,174.24 67 - pec2016_ | 9907.93 35 april2016 | = ee ‘source: NPCI —_ yplenables real-time Payment between parties with only a UPI ID (or a QR Code) anda four-six-digit PIN, which works across all applications. It is a relatively easier WaY of transacting online as compared to other alternatives. For example, in the case of net banking, you needed the beneficiary's account number, bank pranch name, and IFSC Code to initiate a Payment. But with UPI payment, these details are no longer pre-requisite, thus, providing data security. Usually, a UPI ID (Virtual Payment Address VPA) seems like ‘Mobile Number @ Payment Service Provider (PSP) (e.g, 88000000@paytm) or ‘Name @ Bank Name’ (e.g: rajnish @ icici bank). Using this UPI ID, one can receive or make payment within a few minutes. The working of a typical UPI transaction has een illustrated with the help of the figure given below. coord Request eee tert er Lean ce) HH NPCI Response & o3 ete yes aaa ene (aye Ee hela — : PSP ‘eI Lette ns peice ene l id Ade tora y Sid teen tiie td 2} ara BANK TOU Lg Sowce: ww geeksforgerks org LL Working of UPI in Push Transactions Other characteristics of a UPI payment are: * UPI can be activated by simply registering on an authorized app and Setting up your UPI ID and PIN using your aadhaar card number. © Allthe Payments done via UPI are authenticated using biometrics and a PIN. © AUPI transaction can take place in the form of either a Push transaction (send money) or a Pull transaction (receive or request money).UNIT 2: BANKING AND DIGITAL PAYMENT there are mainly five participants Ina typical UPI transaction, tomers to ini- t service provider PSP apps that cus! @ Payer app (oF Paymen GPay, Paytm), he transaction. E, tiate or complete t @ National Payment Corporation of India (connecting link between banks and PSP), funds respectively), and Issuers and sender’s bank (to receive or send @ Payee PSP. @ To promote the digital initiative in India, currently, there are no charges or fees applicable on the UPI platforms. ® Benefits enjoyed by banks, customers, and PSP apps are given below: Benefit to Customers _ Benefits to Banks _ Benefit to Merchants @ Umbrella for access- ‘@ Strengthened bank- @ Easier fund collec- ing multiple bank ing network. tion accounts in single @ Safer and more se- @ Minimum riskofstor- app. cure. ing the customer's | @ Real time transaction Easy transactions virtual address | and 24*7 availability. @ Unique identifier. @ In-App Payments (IAP) @ Raise a complaint directly from the mobile app. @ 2-factor authentica- tion @ No fees or charges @ No sharing of bank details required. | ¢ Paymentcanbedone | with QR codes as well. @ Discount and cash- back offers Digital Wallets Digital wallet i i of the users ery software that helps to store the payment information and UPI IDs in mobile oe payment such as debit cards, credit cards, an encrypted form °s. The private financial data ‘si in an hacking Some digital elt software provides, mininaed he rf fa their app, wherei let software provides a ‘ alee pp, Wherein the customers can track and eo pinnae e igital spending.