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Is your bank slowly dying?

Without relying specifically on a bank, transferring money to another individual is possible. All can transfer money online, or cash in, using the mobile wallet or non-bank agencies via Real Time Gross (RTGS), NEFT, and the Reservation Bank of India’s Centralized Payment Systems (CPSs). In short, non-banks in this conventional banking sector are widening their footprint.

To encourage this, what has RBI done?

Last week the RBI recommended that payment system operators such as the Central Bank’s mobile wallets should be allowed to participate directly in RTGS and NEFT on a phased system. This is intended to minimize the financial system settlement burden and increase the reach of all customer categories of digital financial services. However, these companies would not have the right to allow the settlement of their transactions on these CPSs for any liquidity facility from RBI. For non-banks, the facility – information that is still not disclosed – will be subject to an overall Rs 2 lakh quota.

What exactly are the ramifications?

Experts claim although the use of UPI has grown over the last 4-5 years, opening it up to third-party aggregators will mean a major rise in numerical transfers and purchases by opening the payment mechanism for non-banks. In a way, it will provide a data trail that will support the overall financial environment for all entities that transact digitally on channels outside the banking sector. To date, the credit history of an applicant was largely open to banks. This credit profile can also be monitored by taking a loan from, saving, or spending on a financial technology (FinTech) firm. Based on all your financial points, a credit score will be created.

Although banks perform credit assessments based on their reserves, credit refunds, credit card payments, etc., companies in FinTech are reviewing the credit judgment assets payments. Young people who use FinTech services have no or fewer capital reserves and still invest and invest. This enables them to have a digital trial along with a well-recorded credit history. One, therefore, needs to be vigilant in borrowing and reimbursing even outside of the usual banking networks, said Srinath Sridharan, Member of the FinTech Consumer Enabling Association’s governing board.

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Who is eligible to make online transactions now?

Non-bank companies, such as PPI issuers, Card Networks, White Label ATM operators, and TReDS platforms, will now be allowed to join the CPS. Customers can use NEFT and RTGS via mobile wallets such as Google Pay, Mobikwik, PayU, Ola Money, PhonePe, and Amazon Pay. Only KYC-compliant entities will be allowed to transfer funds.

How can people withdraw this cash?

Another bank monopoly is about to be demolished. The RBI has now suggested allowing non-bank organizations — full-KYC PPIs issued by non-bank PPI issuers — the ability to withdraw currency, subject to a cap. Cash withdrawal is now restricted to full-KYC PPIs issued by banks and are only available from ATMs and point-of-sale terminals. Given the assurance of being able to withdraw cash, holders of such PPIs are less likely to bring cash and, as a result, are more likely to engage in digital transactions.  PPIs issued by banks are only available from ATMs and point-of-sale terminals. Given the assurance of being able to withdraw cash, holders of such PPIs are less likely to bring cash and, as a result, are more likely to engage in digital transactions. The RBI has now allowed non-banks to withdraw cash (up to a cap of Rs 2 lakh), reducing reliance on banks. The fine print on cash withdrawal is also being worked out. PPIs issued by banks are only available from ATMs and point-of-sale terminals. Given the assurance of being able to withdraw cash, holders of such PPIs are less likely to bring cash and, as a result, are more likely to engage in digital transactions.

How will this increase in digital cash affect the industry?

RBI agreed to extend the existing amount of Rs 1 lakh to Rs 2 lakh for the non-banks PPIs outstanding balance limit. This facilitates and encourages online transfer and withdrawal of cash from non-banks and allows them to ensure complete KYC conformity and interoperability. The RBI claims that there was no major migration to full-KYC PPIs and therefore interoperability. The PPI wallet’s interoperability would broaden the market and benefit end-users. The RBI has also eased the requirements for joining Central Payment Systems, which were formerly limited to banks and a few other institutions. PPI issuers will be able to offer RTGS and NEFT services to wallet customers, which will open up new markets for them. Overall, this will expand financial inclusion in the region, according to RapiPay FinTech CEO Yogendra Kashyap.

Are non-banks a banking threat?

The opening of the transfer and withdrawal of funds by non-banks represents an indication of a change in the banking horizon. With non-banks entering the space, traditional brick and mortar banks are slowly disappearing. The RBI says India is about to become the top FinTech hub in Asia with an acceptance rate of 87% for FinTech as against the global average of 64%. The finTech market in India was estimated at Rs 1.9 lakh crore in 2019 and is projected to hit Rs 6.2 lakh crore by 2025 across diverse areas including digital banking, digital loans, and peer-to-peer lending (P2P), and crowd finance. In a world where FinTech firms lead in digital transactions and play a more active role in the banking and finance industries, commercial banks must adapt to and work along with technological changes such that in the future they will not compete with FinTech companies for businesses rather than for ecosystems, RBI Governor Shakti.

How influential is the present digital payment ecosystem?

In 2019-20, large-value credit transfers through RTGS have dominated the overall digital payments environment, accounting for over 80% of all digital transactions. Credit transfers through multiple channels such as UPI, NEFT, and Immediate Payment Service (IMPS) were, however, the most common in terms of number. Debit card purchases increased by 35.6 per cent in March 2020, compared to 21.1 per cent for credit cards. Due to the need for social distancing during the pandemic, digital transactions were favoured over currency, even though the valuation and amount of the latter were somewhat reduced due to the downturn in economic activity before the epidemic. According to the RBI’s Report on Trends and Progress in Banking in India, growth in UPI-based transactions, as well as total retail digital transactions, has been impressive in terms of both value and volume.

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