The next salvo in digital payments

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SummaryProjected to cost R1.20 per bill compared to the R20 incurred per cheque clearing, the Indian Bill Payment System offers a bouquet of benefits

Central to RBI's vision for a less-cash society is the effective and steady substitution of cash—the dominant mode of transaction becoming non-cash or electronic modes of payments. While the adoption of electronic payments has risen sharply in the business-to-business space (electronic modes accounted for 52% of non-cash payments in 2012), retail payments still largely use cash and cheques, which are more expensive apart from being inefficient. RBI estimates that in 2012, more than 30 billion bills representing over R6 trillion were generated in India's top-20 cities, of which more than 90% were settled by cash and cheque.

What has impeded the adoption of electronic payments in the retail space? To begin with, the absence of an acceptance infrastructure to accept and authenticate third-party payments, and distorted incentives. At the moment, consumers have to deal with each biller's captive acceptance points separately, thus engaging in multiple visits and transactions. A third-party infrastructure to accept any bill would enable optimisation in bill payment queues. Secondly, cheques can only be presented at a payee’s/payer’s bank and not at third-party banks/outlets. Cheque collection costs, borne by the banks, range from R24 to R40 per leaf, making up a serious amount with most cheques being for amounts less than R10,000. Add to that the free-riding credit on cheques issued on due dates but hitting the payee’s account days or weeks later.

RBI proposes to address these problems through an Indian Bill Payments System (IBPS) network—essentially, India's General Interbank Recurring Order (GIRO) network, involving billers, aggregators, customer service points, banks, mobile networks, ATMs, outlets and customers—to facilitate payment instruction from one bank account to another bank account, initiated by the payer.

How does it work? Typically, a customer would visit an IBPS point with details of the bill or simply look up the reference number, besides his own ID associated with the biller. A validation request is sent online to the biller, for verification before initiating the transaction. Upon successful payment authorisation (card, electronic forms), the IBPS delivers a payment confirmation on the spot, with a consumer receipt confirming the fulfilment of the payment. Separately, the biller, too, can send the customer a confirmation receipt for the transaction through the agreed notification channels—email/SMS, etc.Central to the IBPS architecture will be a centralised database and a reference index number for all bills and participant billers, aggregators and service points. Most important, there will be a guaranteed

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