Direct Debit System

Direct Debit SystemRevolutionizing the Payment Landscape in the UAE

INDEX

3 Preface

4 Evolution of Payment Systems

5 Direct Debit System

6 Direct Debit Workflow

7 Benefits of Direct Debit System

8 UAE Direct Debit System (UAEDDS)

9 UAEDDS Inward / Outward Direct Debit Cycles

10 What is the Implication of the UAEDDS to Banks?

11 Newgen Solution – Preparing Banks to Meet the UAEDDS Challenge

12 Benefits of the Newgen Solution

13 About Newgen

14 Newgen's Payment System Experience

A payment system comprises the

cultural, political, legal, economic and

business practices and arrangements

prevalent within an economy to

evaluate or exchange ownership of

goods and services. In its simplest form,

a payment either stems from a

transaction between buyers and sellers

in a market, or from a financial

obligation.

An efficient payment system

infrastructure is necessary for the

financial stability and advancement of

economic activities in an economy. A

well functioning payment system

ensures reduced financial risks by

increasing reliability and speeding

settlement of transactions. It further

facilitates effective implementation of

monetary policy by underpinning its

transmission mechanism. Central banks

thus have strong incentives to

restructure the payment system

infrastructure and ensure its smooth

functioning.

The payment system infrastructure in

the UAE has gradually evolved from the

traditional cash and paper-based

payment instruments to more

sophisticated, technology driven

image-based/electronic modes of

payment. A key development in this

process of evolution is the

introduction of a system that shall be

referred to as the UAE Direct Debit

System (UAEDDS). The UAEDDS is

an initiative of the Central Bank of the

UAE (CBUAE) to provide an

alternative method of effecting

recurring payment transactions for

utility services such as telephone bills,

electricity bills, etc., reducing the need

for issuing and handling paper

instruments.

Designed to operate on the basis of

fully automated straight-through-

processing, the UAEDDS would

require manual intervention only in

exceptional circumstances. The

system depends upon mutual trust

between all participants, and promises

significant benefits for each.

This document will not only introduce

you to the Direct Debit Payment

System, but also discuss its impact on

Consumers, Service Providers and

Banks.

PrefaceWhy Direct Debit System ?

! A simple, secure and convenient

payment system

! Peace of mind for customers with no

overlooking of payment due dates

! Quick resolution of customers'

queries and immediate refund for

undue payments made

! No need to issue a new mandate

each time the payment amount

changes

! Elimination of cheques and the

associated fraud risk

! No more queuing at banks and cash

offices to pay bills

Ensure peace of mind for yourcustomers and keep them for life

3

Evolution of Payment Systems

The first description of a form of

payment in the medieval world was

observed in the early eleventh century

by an Iranian traveler named Nasir-i

Khosrau while visiting the city of Basra

(in present-day Iraq). There he

recorded a form of payment, known as

the sakk, which was characterized as a

merchant's written instruction ordering

his bank to make a payment from his

account. This was more in the nature of

an instrument that came to be known as

a “Bill of Exchange” and was a

convenient form of payment between

local merchants. However, this laid the

foundation for the development and

progression of the modern cheque.

While the cheque remained the most

popular payment instrument for

decades, there has been a steady

decline in cheque use over the past

decade. Cheques are a relatively high-

cost payment method compared to

their electronic counterparts.

Moreover, as cheque use is declining

many of the overheads remain, meaning

that the unit cost of processing a

cheque is increasing over time.

Today, paper itself is seen as an

inconvenience in the payment process.

Just as paper money replaced precious

metals paving the way for the industrial

revolution, in the recent years clearing

of payments has evolved from exchange

of paper-based instruments to

electronic exchanges, with clearing

times shortening correspondingly.

The advent of electronic money can be

traced back to 1918, the year in which

the Federal Reserve Banks first moved

currency via telegraph. However it was

only after the automated clearing house

(ACH) was setup by the US Federal

Reserve, in 1972, that electronic

payments became widespread.

While the payment trends clearly differ

across geographies, the shift towards

electronic payments is global. Driven by

rapid technological advances and lower

costs, as well as the additional

convenience that they offer to

consumers and businesses, electronic

modes of payment, such as Direct

Debits, have gained momentum over

the past few years.

SOLUTIONS FOR BUSINESS PROCESS & CONTENT MANAGEMENT

As per the World Payments Report 2011, the global volume of noncash payments grew by 5 percent in 2009, to 260 billion transactions

4

Direct Debit System

Direct Debit is essentially a payment

system allowing a customer to make

regular payments (e.g. bills,

installments, subscriptions ...etc)

without having to visit the bank. Direct

Debits are used throughout the world

and are acknowledged as one of the

most cost effective and efficient

methods of processing regular and

periodic payments.

A Direct Debit Authority (DDA) is an

instruction from a customer to his

bank authorizing a payee, such as a

public utility, insurance company, etc.,

to collect varying amounts from his

account in settlement of outstanding

bills for goods or services provided.

Once the DDA has been signed, and

returned to the Originator, it is the

responsibility of the bank to take

care of all further payments. However,

the payer receives advance notice of

the bill amount, every time his account

is debited.

What is a Direct Debit ? What is a Direct Debit Authority ?

Key Participants

Originator

Sponsoring Bank

Payer

Paying Bank

Central Bank of UAE

The Originator or Payee, i.e. the organization (electricity, telephone, car leasing company etc.) that provides the goods or service

The Sponsoring Bank, where the Originator maintains its accounts

The Payer, i.e. the customer/service user who agrees to pay the bills using direct debit, and whose account is to be debited

The Paying Bank, i.e. the bank holding the Payer's account, which is to be debited

The Central Bank of the UAE (CBUAE), which is responsible for the governance of the scheme and the operation of the UAEDDS portal

SOLUTIONS FOR BUSINESS PROCESS & CONTENT MANAGEMENT5

Direct Debit Workflow

Fills in DD mandate form for direct debit

authorization

ORIGINATOR/ SERVICE PROVIDER

PAYER/CONSUMER

PAYER’S BANK

SPONSORING BANK/ORIGINATOR’S BANK

Sends completed DD mandate form

2

3

Invitation to make future payments using

Direct Debit (DD)

1

Intimation ofdirect debit

authority

4

Starts presenting direct debits to it’s

bank account

5

Bill amount debited from the payer’s

account and credited to the originator’s

account

7

DD instruction forwarded

to payer’s bank

6

SOLUTIONS FOR BUSINESS PROCESS & CONTENT MANAGEMENT 6

The Direct Debit System offers a simple, safe and

convenient payment option, enabling customers to pay

recurring bills as and when they fall due. The benefits to

Payers include:

! No need to remember payment due dates

! No need to write cheques, locate drop boxes, or visit

bank branches / cash offices

! On time payments – no worries about services getting

discontinued due to non-payment of bills, or late

payment penalties (subject to funds being available in

the Payer's account)

! Any queries regarding undue amount debited are

resolved quickly by the Paying Bank, with immediate

refunds where appropriate

! No need to sign a new mandate each time the amount

changes (e.g. utility bills)

The Direct Debit System offers both financial and

administrative benefits to the Originators:

! Substantial reduction in the cost of collection, with no

need for a detailed reconciliation process to check the

receipt of payments

! Originators can focus on unpaid direct debits – in other

words, they can manage by exception

! Elimination of significant paperwork and manual

handoffs

! Reduced operational expenses such as front office

administration, stationery and postage

! Greater predictability in cash flow

Benefits of Direct Debit System

For Payers For Originators

With Direct Debits your customers will have less worries and more time to themselves

UAE Direct Debit System (UAEDDS)

UAEDDS Portal

The UAEDDS will act as a Nett Settlement System, with posting of a consolidated debit/credit once every business day at settlement time


UAEDDS – Outward Direct Debit Cycle

Data Entry/Bulk file upload of DD instructions

by Originators and/ or Sponsoring Bank

Validation checks on file format, originator master and DDA master

Upload on UAEDDS Portal

Credit Posting in CBS

Reading pay/no-pay response

from Portal

Return Memos Generation

for Originators

UAEDDS – Inward Direct Debit Cycle

Manual workstep for exception handling

Validation checks on file format, originator master

and DDA master

Upload on UAEDDS Portal

Credit Posting in CBS

Reading DD files from UAEDDS

Portal

Automatic Financial Verification with

CBS

Web Referral - Empowering RMs to

take financial decision

UAEDDS Inward / Outward Direct Debit Cycles

SOLUTIONS FOR BUSINESS PROCESS & CONTENT MANAGEMENT9

What is the Implication of the UAEDDS to Banks?Introduction of the UAEDDS will cause

immense upheaval as banks realize the

need to assess the adaptability of their

existing legacy systems to the

requirements of the new payment

system. Handling thousands or perhaps

millions of direct debit instructions on a

monthly basis is no easy task. Moreover,

banks will need to prepare themselves

to address the increased financial and

administrative risks associated with the

direct debit instrument.

! Assessing prospective Originators for

admission to the Direct Debit scheme

! Briefing prospective Originators fully

about the code of practice under the

UAEDDS

! Getting completed and maintaining

the Originator's Direct Debit

Agreement & Indemnity

! Ensuring that the Originators it

sponsors comply with the terms of

the UAEDDS

! Notifying the Central Bank and the

other participating banks of the

Originator's identity as quoted in the

mandate

! Notifying the Originator regarding any

unpaid Direct Debits

! Processing appropriate refunds to the

Paying Bank immediately

! Ensuring that the Originators send the

completed mandates to the right

destination in the Paying Banks

! Accepting or declining Direct Debit

Authorities based on fulfillment of

certain pre-defined criteria; The

Paying bank may or may not provide

the customer with a reason for

rejecting a mandate

! Routing the Direct Debits to the right

bank accounts

! Verifying customer mandates for

completeness and accuracy, and

retaining mandates

! Answering queries or resolving

complaints from customers in

respect of the Direct Debit System

or individual Direct Debit

transactions

! Producing reports detailing all new

and cancelled mandates

While the Direct Debit System

represents a significant challenge for

banks, requiring them to upgrade their

legacy systems to facilitate straight-

through processing of Direct Debits, it

also presents an opportunity for banks.

Faster, safer and easier payments would

certainly result in improved customer

satisfaction and loyalty. Further, with no

more queues at branches for paying

bills, bank staff can focus on building

relationships and generating revenues.

Banks that most successfully implement

the UAEDDS can certainly transform

the direct debit payment instrument

into a significant revenue stream.

Role of Sponsoring BankRole of Paying Bank

Does your bank have a strategy in place to provide a compliant direct debit process?

Newgen Solution – Preparing Banks to Meet the UAEDDS Challenge

Over the past few years the payments

landscape, across the globe, has been

experiencing a transition from paper-

based modes of payment to faster &

more reliable electronic payment

systems. To remain competitive it has

become imperative for banks to replace

their out-dated systems with new

payment systems that can help them

adapt to constantly evolving business

needs.

Newgen offers a complete suite of

payment solutions (image and non-

image based), enabling banks to

effortlessly migrate from legacy

payment systems to Image-based

Cheque Clearing (ICCS), Electronic

(data entry / upload, data validation,

exception highlighting, batch-making /

totaling, compression and secure

upload etc.)

! Document & Records

Management – To manage both

paper-based as well as electronic

images and data for indexing, archival,

retrieval throughout its life-cycle

! Management, Monitoring &

Tracking – To monitor every step

under the EFT process for removing

process bottle-necks; comprehensive

reporting and audit trails maintained

for “who-did-what-when”

Fund Transfer (EFT), mobile capture,

etc.

Newgen's solution for Direct Debit

payments helps banks to automate

error-prone processes and efficiently

manage EFTs while reducing their

operational expenses. Further, the

system can scale up as your business

expands, to accommodate your

growing business requirements.

The Newgen solution is an integration

of following core software-based

technologies:

! Workflow – To define the routes for

incoming and outgoing direct debits

Solution Features

� Automatic receipt of Originator instructions, including registration and transaction processing

� Easy-to-use on-line interface for Originators

� Exception handling, feedback, reporting and billing

� Automatic validation for UAEDDS rules and mandate compliance

� Intuitive online interface provides real-time view of data

� Payer notification via multiple channels

� Complete range of workflow and case-management facilities

� Maintaining mandates

� Validation for UAEDDS rules and mandate compliance

� Exception notification and reporting

Newgen has partnered with 50+ banks in the last 5 years to facilitate payments (EFT and ICCS)

11

Benefits of the Newgen Solution

Your customers no more need to worry about overlooking payment due dates

! Straight-through processing

! Thin client architecture

! Browser-based access to all users

! Only server installation and updates; no installation on

client side for patches or upgrades

! Database access through web service

+ Clients do not connect to database directly

+ Database security compliance

! Better response to customer queries

! Platform-independent

+ Application built on open standards

+ App servers: Websphere, JBOSS, Weblogic

+ Databases: Oracle 11g, SQL Server 2008

+ OS: Windows Server 2008, Sun Solaris, AIX

! Real-time integration with banking applications

! Audit trail on who did-what-when concept

! Multi-currency/ multiple cycles support

! Support for value capping through the EFT process

Newgen Software Technologies Limited is a leading global provider of Business Process Management (BPM),

Enterprise Content Management (ECM) and Customer Communication Management (CCM) with a global

footprint of 900 installations in over 50 countries with large, mission-critical solutions deployed at the world's

leading Banks, Insurance firms, BPOs, Healthcare Organizations, Government, Telecom Companies & Shared

Service Centers.

Newgen Software has been positioned in the Magic Quadrant for Business Process Management (BPM) and

Enterprise Content Management (ECM). The company has been recognized by distinguished analyst firms like

Frost and Sullivan as A 'Hot Company to Watch for' in their global ECM Market report, 2009 and by IDC in its

exclusive report “Newgen Software: Global Leader in Business Process Management and Document

Management Solutions”. Newgen is the winner of prestigious awards, such as the CNBC-TV18, “Emerging India

Award 2008”.

Newgen's Quality Systems are certified against ISO 9001:2008 and Information Security Standard, ISO

27001:2005. Newgen has been assessed at CMMi Level3.

About Newgen

13

INDIAUAE

BANGLADESH

THAILAND

MAURITIUS

SAUDI ARABIA

KENYA

UGANDA

EGYPT

GHANA

PHILIPPINES

Newgen’s Payment Experience


Customers

SALES & SUPPORT OFFICES

Bangalore

Newgen Software Technologies Ltd.

FF-2, Alpine Arch, 10 Langford Road

Bangalore - 560 025

Tel: +91-80-2223 7765,

+91-80-2227 3614

Telefax: +91-80-2229 1615

Email: [email protected]

Chennai

Newgen Software Technologies Limited

Ground Floor, Quanta ZEN

38, Dr. Thomas Road, Off. South Boag Road

T. Nagar, Chennai - 600 017

Tel: +91-44-4356 0890

+91-44-4356 0891

Fax: +91-44-4356 0892


CORPORATE OFFICE

New Delhi

A-6, Satsang Vihar Marg,

Qutab Institutional Area,

New Delhi - 110 067 INDIA

Tel: +91-11-4077 0100, 2696 3571, 2696 4733

Fax: +91-11-2685 6936



Hyderabad


304/2, 3rd Floor, Block-I, White House

6-3-1192/1/1, Kundan Bagh

Begumpet, Hyderabad - 500 016

Tel: +91-40-4456 5656, 2341 6857

Fax: +91-40-4456 5666


New Delhi


E-44/13, Okhla Industrial Area Phase II

New Delhi - 110 020

Tel: +91-11-4653 3200, 2638 4060, 2638 4146

Telefax: +91-11-2638 3963


Kolkata

Newgen Software Technologies Limited

Punarnava Complex , Room No. 505, 5th Floor

13, B.B Ganguly Street, Kolkata-700012

Tel: +91-33-65340498

Telefax: +91-33-40037770

E-mail: [email protected]

Mumbai


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Off - Ranade Road, Shivaji Park,

Dadar - West, Mumbai - 400 028

Telefax: +91-22-2444 6587-89


INTERNATIONAL OFFICES

UAE

Newgen Software Technologies

Off No: 314, Building No: 3

P O Box. 500297, Dubai Internet City

Dubai, UAE

Tel: +971 44541365

Fax: +971 44541364


US

Newgen Software Inc.

1364 Beverly Road, Suite 300

McLean, VA 22101

Tel: +1-703-749-2855

Tel: +1-703-439-0703


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Direct Debit System

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