The requirement to obtain prior approval of a beneficiary will significantly slow down the process of online payments that have evolved in the direction of real-time transfers.
Online Banking: The Narendra Modi government has proposed a major change in the online transfer of funds as it looks to clamp down on illegal transactions. The proposal mooted by finance minister Nirmala Sitharaman will require banks to obtain prior approval of account holders before money is credited to their accounts. At present, any body can register another person as a beneficiary and transfer the money without prior approval. Banking industry experts say the proposal, if implemented, will delay online payments that have evolved in the direction of real time payments with the advent of technologies like IMPS and RTGS.
“Velocity of the payments will be reduced because you require acceptance or consent which was not there earlier,” said a top official of a Mumbai-based fintech company.
At present, there are three preferred modes of online payments that are prevalent in the banking industry. These are National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS) and Immediate Payment Service (IMPS). While RTGS can only be used for the transactions above Rs 2 lakh, NEFT and IMPS are mostly used by ordinary bank customers. In recent times, IMPS has evolved as a preferred mode of customers for routine transactions as it processes the payments in real time unlike NEFT where there can be a delay of 30 minutes to 2 hours.
Banking industry experts feel that the requirement to obtain prior approval of a beneficiary will add one more layer to the complex process of online payment settlement system.
“It is using a big hammer to drive in a small nail! Software changes will be required and it will add one more leg to online transfers,” said a former RBI official.
“It is a good measure as unwitting credit to wrong accounts and retrieval difficulties avoided. CBS software and funds transfer module in it need to incorporate this move,” he told Financial Express Online, adding that the cost will not be huge in view of other benefits and the proposal should be welcomed.
The proposal is in early stages of discussion and it is not yet clear where the money will be kept during the pendency of beneficiary’s approval.
“It is not yet clear whether the money will be kept in an interim account before its credit to a beneficiary’s account while the system awaits for the recipient’s acceptance,” the top official of Mumbai based fintech company told Financial Express Online.
In any case, payment systems are not designed to keep a large number of transactions pending. Fintech experts feel that it will put extra load on the servers.
Industry experts feel that instead of obtaining the approval of a recipient for every transaction, it would be better to obtain a customer’s approval through one time password (OTP) when he is added by someone as a beneficiary for online money transfer.