TRANSACTION BANKING

Abstract: The study begins with what Transaction Banking is and what it

incorporates. Then the various transactions of transaction banking are studied and

how they operate. The study then moves to Payment banks and various features of

Payment banks are focussed upon and how they will affect businesses going

forward.

TRANSACTION BANKS

Transaction Banking offers innovative and customized solutions to Corporates, Financial

Institutions as well as Retail Customers. The facilities include cash management, trade

finance, Securities services, domestic and cross border payments, professional risk mitigation

for international trade and for provision of trust,agency and depository related services. The

services are meant to facilitate the Corporates to judiciously manage their liquidity by taking

care of their Payments and Collections Services and provide them with a complete set of

technology oriented products, which will increase efficiency and reduce costs.

It is essential that the banking service providers get the transactional needs of the customers

right. With little tolerance for errors, it is necessary that Banks have resilient, available and

effective transaction processing and management systems. The customers demand at the

basic level remains constant. They seek to undertake a transaction wherein they can choose

the instrument, channel and the time of the transaction. This means the ability to self-serve

and transparency of key features and information throughout the process. It also means

providing services in new channels and with new technologies such as Mobile Banking.

As the step towards achieving this, the following fundamental functions are handled by the

Transaction Banking Departments.

ATM Deployment including Managed Services

Debit Card Management

ATM Transaction Management

Internet Banking – Customer Support and Maintenance

Mobile Banking – Customer Support and Maintenance

Other products like Wealth Management, Channel Financing, Online Trading are also a part

of Transaction Banking.

Due to complexities in financial clearing systems, there are delays in realizations and

uncertainty of funds flow since banks need to process collections and payments across

dispersed business locations. This leads to additional borrowing and increased borrowing

costs.

Transaction Banking attempts to eliminate these inherent delays of the traditional funds

transfer mechanism. It further improves liquidity by optimising utilization of funds. Efficient

Transaction Banking is similar to the just-in-time management approach as it ensures quick

transfers, faster realization of local and outstation cheques.

Transaction banks require to make huge investments in technology to ensure that the systems

are synchronised and more digital so as to provide standardized reporting and liquidity

management to clients. IT infrastructure and IT initiatives are essential to popularize e-

products such as ATM Cards, Mobile Banking and Internet Banking which give a boost to

Transaction Banking.

Transaction banks provide not only cash management services and working capital products

but also other value-added services such as hedging of foreign exchange and interest rates,

trade & supply chain finance and securitization. With a view to fulfil various such needs there

are Transaction Banks. This low risk, high profit business has gained lot of focus as banks

have been pushed to look beyond traditional markets for capital sources.

TYPES OF TRANSACTIONS

Transaction banking involves a number of transactions that can be classified under various

services like cash management services, securities services and trade and supply chain

management services.

(I) CASH MANAGEMENT SERVICES

Cash Management products hitherto hinged upon the inefficiencies in the clearing system and

aimed to provide customers with visibility of funds, optimized return on funds and control

over receivables and payables. The evolution of payment and collection system especially in

Cash Management

Trade FinanceLiquidity Risk Management

Credit Management

Securities Services

Switching and onboarding

Solution modelling

the electronic platform has transformed the cash management services from a product-centric

approach to technology-oriented solutions.

Cash Management Services are mainly aimed at building and enhancing CASA (Current

Account Savings Account) through various collection, payment and debt product offering.

They increase the volume of transactions routed through the Bank by the customers. Debt

products, such as servicing of dividend, FD, bonds, interest, refund and redemption payments

are aimed at ensuring large cash flows through clients' account in the short term and residual

float in the long run.

As per clients' perspective, collection products are aimed at pooling the customers'

receivables from multiple locations into a single pooling account, disbursement products are

aimed at providing the customer various payment options through a single window. Further,

distribution of dividend / interest / refund / redemption payments, enables outsourcing of

routine tasks.

Some of the Cash Management Transactions are:

Receivables: payments from the customers.

Payables: customers’ payments to creditors and other internal processes, such as

payroll.

Making Staff Superannuation Payments: Offering solutions for staff’s superannuation

payments.

Electronic Solutions: financial reporting through electronic banking facilities.

Liquidity Management: includes

i) Cash concentration i.e. moving funds on an automated basis in accordance with

regulatory requirements. The automated investment options also allow to earn

higher yield on surplus cash.

ii) Interest Optimisation i.e. multi-currency interest optimisation solutions to provide

the best yield available, helping to lower borrowing costs in other locations.

As per the GOI Directives all Public Sector Banks (PSBs) are to deploy Cash Dispensers

through nine Vendors. Cash Management Agency will open a Cash Credit account at the

Nodal Branch. Master creation in the database for the account opening is done by Transaction

Banking Department. Branch will modify the master and fill the Know-Your-Customer

(KYC) details. The account number will be having 6 Digit Unique Numbers for each Cash

Management Agency, pan India.

Bank are responsible for supply of cash and in order to help corporate clients to efficiently

manage working capital and liquidity across all of their markets, transaction banks partner

with each other to provide bundled solutions that deliver the geographic coverage many firms

require. Such partnerships help combine expertise in particular markets to provide in-depth

services.

Payroll confidentiality is controlled through restricted access and by generating a batch of

debit transactions.

(II) TRADE FINANCE AND SUPPLY CHAIN MANAGEMENT

Banks undertake foreign exchange and related transactions for their customers. Trade finance

captures primarily short term financing and provides for imports and exports. These services

involves payments in case of letter of credits, or if the bank guarantees a letter of credit. This

reduces payment risks to buyers and sellers.

Banks participate in trade financing by providing several transactions like issuance of letters

of credits and import collections. Usually, trade financing is short-term. However, medium

term (one to five years) and long-term finances (>five years) also exist.

The major Trade Finance transactions are:

Letter of Credit ( LC )

o Inland And Foreign

o Import and Export

Negotiations of the documents under letter of credit

Import collections

Import financing - Buyers/Suppliers credit.

Standby letter of credit.

Guarantees – Inland and Foreign

o Bid guarantees

o Performance guarantees

o Financial guarantees

o Deferred payment guarantees

o Shipping guarantees

Export collections

Export Credit – Rupee and Foreign Currency

o Pre-Shipment Credit

o Post Shipment Credit

Bill Discounting

o LC Backed (LCBD)

o Non LC Backed ( Clean Bill Discounting )

Remittances – Inward and Outward

Capital Account Transactions

The Role of Banks in issuance of Letter of Credit transaction

The buyer or party applies for the issuance of a letter of credit.

The issuing bank issues the letter of credit on behalf of the Applicant.

Upon the request of Issuing bank, the confirming bank makes addition to its

commitment box, given the terms of the letter of credit.

TheAdvising Bank upon request of the issuing bank scrutinises the credit and advises

the Beneficiary.

The Accepting bank accepts a draft that dates and signs the instrument.

The discounting bank discounts a draft for the Beneficiary after it has been accepted

by an Accepting Bank.

The paying bank finally makes the payment to the Beneficiary of the letter of credit.

(III) GOVERNMENT BUSINESS

Transaction Banks provide a variety of services to Government Departments.

Government Business transactions include:

Collection of Direct and Indirect Taxes for Government of India.

Collection of state taxes like stamp duty, sales tax

Transactions of Civil Ministries and Non-Civil Ministries like Defense, Railways

Disbursement of Pension.

Apart from the above transactions they are also involved with the distribution of Government

bonds and RBI bonds and maintain the public provident fund accounts. The Banks in turn

receive fees from the Government departments.

OTHER SERVICES:

SERVICES TRANSACTIONS

Securities Services Securities settlement

Net Asset valuation

Custody

Telegraphic transfers

Supply chain Solutions A built-in open account service takes note of

purchase orders and invoice generation

activity. Based on the purchase order or

invoice, Bank understands the order-to-cash

cycle of sellers and the procure-to-pay cycle

of buyers. Supply chain solutions could

include

Documentary credits

Factoring

Invoice discounting.

PAYMENT BANKS

Financial inclusion and financial depth have been primary goals of the policy makers as

reports year after year have shown lesser links of small scale businesses with formal financial

institutions, low functional bank accounts of rural and urban population and low financial

savings.

Several measures have been taken to address this issue like cooperative banks, nationalisation

of banks, self-help groups, regional rural banks, business correspondents or other government

schemes.

Financial inclusion strategies focus less on associated risks and cost-to-serve. For example,

Priority Sector Lending (PSL) guidelines require banks to allocate 40 per cent of their lending

book to the Priority Sector and how they are implemented by the bank has a significant

impact on its performance as a whole. Priority Sector NPA ratio is close to double that of the

rest of the asset book. Unless these issues are addressed while targeting financial inclusion,

banks will always be reluctant participants.

Given this important background, the Reserve Bank of India asked the Nachiket Mor

Committee to recommend ways to boost financial inclusion within India. The report

presented by the committee attempted to redress the issues and proposed strategies for

providing better access to financial services to small businesses and low- income households.

The report provided recommendations on the following:

Framework of a comprehensive plan for financial inclusion and financial deepening.

Sufficient access to formal and affordable credit.

An efficient electronic payments network and universal access to savings.

Approaches for regulation, consumer protection, systematic risk management.

Effective monitoring of the access to financial services.

The concept of payment banks was introduced by the RBI Committee on Comprehensive

Financial Services for Small Businesses and low Income Households, headed by Dr.Nachiket

Mor in September 2013.

Based on the recommendations, the RBI issued licenses to 11 companies to start payment

bank services in India on 19th August 2015 and laid out a set of guidelines for the same.

The 11 companies are: Aditya Birla Nuvo Ltd., Airtel M-Commerce Services Ltd.,

Cholamandalam Distribution Services Ltd., Department of Post, FinoPaytech Ltd., National

Securities Depository Ltd., Reliance Industries Ltd., Dilip Shantilal Sanghvi, Vijay Shekhar

Sharma, Tech Mahindra Ltd. and Vodafone M-Pesa Ltd.

However, out of these 11, three companies dropped out. They are: Tech Mahindra Ltd.,

Cholamandalam Distribution Services Ltd. and DilipShantilalSanghvi.

Payment banks aim to target financial inclusion by way of giving access to bank accounts and

easy remittance options to primarily the low income strata of the country.

FEATURES OF PAYMENT BANKS

Payment banks can accept demand deposits but limits the account balance to Rs.

1,00,000 per customer.

While debit cards will be provided to the account holder, payment banks cannot issue

credit cards.

The primary task of payment banks is to facilitate payments and remittances.

Payment banks can act as banking correspondents (BC) of another bank, according

the guidelines laid out by RBI on BCs.

While payments and remittances are the primary focus, the payments banks can also

provide the customers with risk-free financial products like insurance or mutual fund

units.

Payment banks cannot offer lending services.

They are required to maintain cash reserve ratio with the central bank and additionally

have to invest minimum 75% of the deposits received in Government securities with

maturity less than 1 year and can hold maximum of 25% of deposits in the current and

fixed deposits (FD) with commercial banks.

OPERATIONS OF PAYMENT BANKS

Open savings bank account after KYC and pay interest on the savings account.

Issue debit/ ATM cards to be used by the customer to withdraw money from any

bank’s ATM

Offer internet banking to customers

Provide foreign exchange services at lower charges as compared to other banks.

Mobile application to facilitate transfer of funds via mobile.

OBSERVATIONS

Since the minimum 75% of the deposits received are to be invested in Government securities,

the banks can earn fees for the transactions. The features of the payment banks like small

savings account, reflect the aim to reach out to the lower strata people.

While the main source of a bank’s revenue is lending services, the payment banks are not

allowed by the RBI guidelines to enter into lending activities. The payment banks might lose

out on the major revenue source but are free from the risks associated with loan defaults and

NPAs (Non-Performing Assets). Holding current and fixed or time deposits with commercial

banks will aid in liquidity management for the payment banks.

GROWTH PROSPECTS

Since, payment banks are largely focussed upon mobile payment systems, the growth

prospects of payment banks stem from the wide spread usage of data services, introduction of

4G services and possession of smartphones, which are now easily available at affordable

rates.

Usage of mobile services for banking in the rural areas of the country requires a strong

mobile subscriber base in those areas. Provided that this is achieved, the primary target of

financial inclusion and ease of payments will be achieved by payment banks.

With the recent step of demonetisation of Rs.500 and Rs.1000 notes, by the Government of

India,and the entry and popularity of payment banks, a large number of people are expected

to make use of their services.

There are several countries that have already put into use such payment systems successfully.

Countries like Brazil and Kenya are among those who have success stories with the

implementation of such payment systems.

M-PESA in Africa also helped to provide banking services to those who didn’t have access to

bank accounts or other services.

IMPROVEMENTS FOR CORPORATES

Given various services provided by the payment banks, like optimising working capital

management with sophisticated technology and ease of payments, foreign exchange

management and other services, corporates are expected to benefit from the payment banks.

EFFECT ON EXISTING BANKS

Mobile wallets are gaining popularity and with the inflow of interest on liquid cash, people

would prefer to store their money in payment bank accounts for easy payments. This transfer

of funds might affect the existing banks.

Payment banks offer to provide foreign exchange services at lower charges as compared to

other banks and banks might lose out on fee income. They might lose out on the fees that

they derive from people requesting for cash transfers or other remittances. However, Payment

bank can act as a business correspondent, so the major banks can tie with the payment banks

to improve their reach in every part of the country.

THE NATIONAL PAYMENTS CORPORATION OF INDIA(NPCI)

The National Payments Corporation of India, set up with the support of the Reserve Bank of

India(RBI) and Indian Banks Association (IBA) attempts to create infrastructure for digital

payments in India.The NPCI has launched several products like the Rupay payments

infrastructure, Immediate Payment Service (IMPS) and Unified Payments Interface (UPI).

RUPAY

The Rupay is a card payment network that is accepted at ATMs, PoS machines and even on

e-commerce sites. Rupay has lesser charges than global payment networks like Visa and

MasterCard. The NPCI operates the Rupay payments infrastructure.

With the Pradhan Mantri Jan Dhan Yojana which was a mission aimed at financial inclusion

of all households in India, it provided the beneficiaries with Rupay Debit cards with accident

insurance cover of Rs.1,00,000.

RuPay Cards aim to fulfil the needs of Indian consumers, merchants and banks. The benefits

of RuPay debit card are the flexibility of the product platform and high levels of acceptance

in the market.

Since the processing of transactions take place domestically, the costs of clearing and

settlement are lower. Due to various advantages of the Rupay card, the card is widely

accepted and its reach will further increase with increase in digital payments.

IMMEDIATE PAYMENT SERVICE (IMPS)

IMPS helps interbank electronic fund transfer that happens immediately across India through

mobile phones, internet and ATMs. It enables Person-to-Person money transfer with minimal

requirement of details. It only requires the mobile number and the Mobile Money Identifier

(MMID) of the recipient. Transactions can also be done using account number and the IFSC

Code or even via Adhaar Card.

The facility is provided by NPCI through its National Financial Switch which is a network of

shared ATMs across India.

IMPS allows the following transactions.

Fund transfers

Remittances

Merchant/commercial transactions

As can be seen from Chart-1, the number of member banks have risen since 2013. Moreover

the number of transactions that include Interbank and Intra-bank volume have also been

increasing since September 2013- September 2016 (chart 2).

UNIFIED PAYMENTS INTERFACE

The Unified Payments System is a payment mechanism that allows transfer of money from

one bank account to the other through use of smartphones. It facilitates payments directly

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Chart 2: Total number of Transactions

from a bank account without the use of credit card details or IFSC Code or Net banking

logins.

The unified payments system is an advanced version of the IMPS.

Mobile Banking Registration is allowed only when the mobile number that is to be registered

is already linked with the Bank for SMS Alerts.

UPI is accessible through various platforms like Android, iOS and Windows. However, the

apps have been developed on Android platform for now.

Features:

The per transaction limit is Rs.1, 00,000.

Its two factor authentication makes it a secure mode of payment

The transactions can be done 24/7

Allowed to link more than 1 bank account

Transfer of money abroad is not available

Types of

Transactions that can be undertaken via UPI are:

Merchant payments

Remittances

Bill payments

The UPI app of 27 banks is available for download and the following process can be followed

to complete a transaction.

TYPES OF TRANSACTIONS

Merchant Payments

Bill Payments

Remittances

DIGITAL WALLETS

Digital wallet is a transformation in a way in which payments happen. It is based on an

encryption software that replaces the traditional cash transactions. The consumers will benefit

by the convenience and protection compare to the cash payments, while merchants benefit

out of protection from frauds. Furthermore, consumers also gain from various reward points,

cash backs and discounts that various e-wallets offer.

In terms of users, the number of users of mobile wallets have surpassed credit card users over

the years. At present there are around 10-12 e-wallet companies operating in India. Paytm is

one of the fastest growing mobile wallet companies and has nearly 20 million active users. It

was launched in India in 2014, and also received the license for payment bank from RBI in

August 2015.

Mobikwik was launched in India in 2009 that enables users to make payments in a flash for

transactions that are recurring like bill payments, recharges and merchant payments.

Mobikwik is widely accepted on popular e-commerce websites like Grofers, Snapdeal,

MakeMy Trip etc. The users of Mobikwik have also increased over the years.

Oxigen is one of the oldest players in the payment market and also entered the mobile wallet

space, providing transfer of wallet money to friends and family, pay bills, recharge phones

and also allow payments to merchants. The sharing of money can happen via desired social

networking platforms.

mRupee is another e-wallet that is licensed by Reserve Bank of India and is a semi-closed

wallet. Like most e-wallets, mRupee also allows payment of bills, recharges and transfer of

money. The wallet operates on a Customer Self -Initiated as well as a Retailer Assisted

Model thus catering to a wide spectrum of users.

• Download the app from Google Play.

• Install it.

• Set App login

Initial setup

• Create Virtual Payment Address

• Add bank Account number

• Set M pin

Enter details• Start Transacting

using Virtual address and M pin

Transact

BITCOIN & BLOCKCHAIN TECHNOLOGY

Part contributed by Amita Shah

Head of Online Investment Advisory at Investorsareidiots.com.

The new age avatar of currency is Cryptocurrency. It is a digital currency that is created and

managed through advanced encryption techniques called cryptography. Although there are

many crypto currencies, the one which is most commonly used is the bitcoin.

Bitcoin was created in 2009 and has now gained worldwide acceptance. It was created by

Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself.

Bitcoins are created or mined by people using computers that solve complex mathematical

problems or algorithms. It can also be bought and sold via bitcoin exchanges.

The primary aspect of bitcoin is that the supply of the coins is finite. The total number has

been fixed at 21 million. Currently about close to 15 million is said to have been mined or

brought into circulation. It is completely decentralised and uncontrolled by any entity. There

is acceptance of bitcoins as a currency because people accept it as money and are willing to

use it as currency.

How does Bitcoin Work?

To understand how it works without getting too technical, here is the simplified version of

how it works. Once you install a bitcoin wallet in your system or mobile phone, it will

generate your first bitcoin address or the public key; you can create more whenever you need

one. You can disclose your addresses to your friends so that they can pay you or vice versa.

In fact, this is pretty similar to how email works, except that bitcoin addresses should only be

used once.

A transaction happens when there is a transfer of value between bitcoin wallets, they keep a

secret piece of data called a private key, which is used to sign transactions, providing a

mathematical proof that they have come from the owner of the wallet.

The signature also prevents the transaction from being altered by anybody once it has been

issued. All transactions are broadcast between users and are confirmed by its internal network

through a process called mining.

What is Blockchain Technology?

The technology behind cryptocurrency is called blockchain. It is an online ledger that uses

data structure to simplify the way we transact. Blockchain allows users to manipulate the

ledger in a secure way without the help of a third party. It is anonymous, protecting the

identities of the users which make it more secure to carry transactions.

The technology works almost like a shared Google Sheets spreadsheet, allowing multiple

parties to view, edit and validate a transaction, eliminating the need for a middleman.

Blockchain enforces a chronological order in the block chain to make it completely neutral.

To confirm a transaction, it must be packed in a block that fits very strict cryptographic rules

that will be verified by the network. These rules prevent previous blocks from being modified

because doing so would invalidate all following blocks.

The way it is designed blockchain prevents any individual from easily adding new blocks

consecutively, no individuals can control what is included in the block chain or replace parts

of the block chain to roll back their own spends.

What Can You Buy With a Bitcoin?

Many merchants are using the bitcoin as an acceptance for payment for goods. A few of them

worth mentioning are Amazon,Home Depot, Expedia,Tesla Motors, Subway &

Overstock.com Some accept direct payment via bitcoins and some ecommerce sites accept

bitcoins as a payment to buy their vouchers.In fact there are stories of Lambhorginis, and

Mansions being sold in exchange of bitcoins.In India, you can use bitcoins for mobile

recharge, to buy Flipkart vouchers, movie tickets and pay utility bills.

Criticisms Against Bitcoin

The biggest criticism is its reputation for being used for illegal activities. The FBI took down

an online drug bazaar , SilkRoad where Bitcoin was the preferred medium of exchange.

Bitcoin and other cryptocurrencies are unregulated, no government backs it and once you

own it you or on your own as it exists only in your computers.

There have been number of instances of hacking. In August 2016 hackers penetrated a secure

authentication system at a bitcoin exchange called Bitfinex, and stole about $70 million worth

of the virtual currency.

Earlier in 2014, Japanese based Mt. Gox which was the largest bitcoin exchange lost USD

510 million of customer’s bitcoin to hackers and filed for bankruptcy.

Losing your bitcoin if your digital wallets or exchanges are hacked is real problem and there

is no where you can file a FIR and no cop is going to go out to retrieve them.

What is the Conclusion on Cryptocurrency and Bitcoin?

There are about twenty Cryptocurrencies in circulation, litecoin, peercoin, namecoin, ether

and primecoin to name a few. Bitcoin is the most popular one yet. There are vehement critics

calling it an evil and many ardent supporters of these currencies.

Being unregulated and open to theft is a primary risk of owning a bitcoin. Even so there is

enough evidence to support that unless a better technology surfaces and supersedes it this is

here to stay. The value can swing dramatically and optimists predict that the value of bitcoin

can go up to USD10, 000 from USD 889 as of 17th January 2017,

Blockchain as a technology has potential to disrupt banking. It can service unbanked

individuals, make it possible to transact small amounts, cut costs and make financial

transactions more efficient.

Regulation may follow technology and soon the archaic laws may be updated to formulate

laws on digital money. In fact in the US on 19 September 2016, a federal judge ruled that

bitcoin can qualify as money. This decision was linked to a criminal case where the accused

hacked into the systems of JPMorgan Chase & Co and some other organisations.

The whole idea of an asset which is not correlated with any commodity or any economy or

anything and only its demand and supply is audaciously attractive for investors/speculators.

The potential of unimaginable profits if the price gains further traction makes investors form

a beeline to buy these albeit as a small portion of their overall investment portfolio.

The prime accusation against central banks right now is that of being reckless currency

printing machines devaluing the value of currency. Cryptocurrency may start getting

preference if investors feel that there is possibility of getting insulated from the central banks

policies of negative interest rates and their race to the bottom and beyond.

Bill Gross, a noted Bond Market Guru, recently published in his October 2016 note that

Bitcoin may be better investment options than shares. To quote him “Investors/savers are

now scrappin’ like mongrel dogs for tidbits of return at the zero bound. This cannot end well.

Bitcoin is an interesting concept and only time will tell whether it turns out to be another

Ponzi Scheme or a revolutionary new order of things to come. Today the biggest problem

with the regular currencies is that there seems to be an unlimited deluge of supply which can

be provided by government; this is circumvented by cryptocurrency as its supply is capped. It

is portable, anonymous, divisible and scarce.

Like any new technology or idea it may take a while to gain acceptance but in a world which

is disillusioned with low interest rates this may well become a panacea of all central banks

ills.

This is not to say that we recommend to buy bitcoins or any other cryptocurrency but this,

like any other disruptive technology warrants a watch.

INDIA MAKING A TRANSITION

Many developed countries such as Sweden are already moving towards a cashless economy

and even developing countries such as Kenya have made immense strides in mobile

payments. India which is largely a cash dependent economy is making a move as several

measures off lately taken by the government and central bank has forced a huge shift from

cash based transaction to digital transaction and with the recent decision taken by the current

government to demonetise Rs 500 and Rs 1000 note is a major step to make digital payment

more popular.

The Rs 500 and Rs 1000 note form total of 86% money in circulation in the economy and

suddenly making these denominations an illegal tender has forced public at large to use

digital payment, which resulted in the sharp rise in online transaction. For instance, Paytm an

early mover in e-wallet segment has seen a sharp rise of 200% in their mobile App download,

a 250% surge in the number of overall transactions and transaction value post demonetisation

and now the number of people registered for Paytm e-wallets is twice the previous number as

was declared by Growth Marketing department of Paytm.

The demonetisation move has led to an increase in the number of people opting for mobile

money. Moreover, there is also increase in merchant sign ups

As a further push for mobile wallets, RBI has also increased the monthly limit from Rs.

10,000 to Rs.20,000. The doubling of the limit is applicable till 30th December 2016 for semi-

closed Prepaid Payment Instruments (PPIs). The same will be reviewed after 30th December

2016.

While e-wallets make transactions easy for consumers and small and medium vendors, there

are other firms like Happay that are trying to make business expenses cashless. Happay

provides expense reporting solutions and Visa and MasterCard integrated credit cards that

can be managed using desktop or phones and help in transacting cash-free for travel, medical,

food, petty expenses etc.

The Company allocates money on cards, then it tracks the expenses and sets spending limits

in a real time basis. Hence it helps organisations allocate and fund business expenses easily

and quickly and achieve real-time visibility and control over all business expenditure.

The spread of digital wallets, payment banks, initiatives like Rupay, IMPS, UPI and above all

the step of demonetisation has acted as a push for the rise of usage of such cashless forms of

payments.

There are some potential benefits associated with the Cashless transaction such as it will

attack the problem of black money by leaving behind a transaction trail. Second, there will be

greater efficiency in welfare programmes as money is wired directly into the accounts of

recipients. Third, there will be efficiency gains as transaction costs across the economy

should also come down

HOW MATURE SECTOR SHOULD RESPOND

A recent example is a Berger paints, the company operates in a paint industry which is 80%-

85% cash driven with the paint retailers accepting only cash payments for the sales. The

company is now asking its 3000-strong major dealers to shift over to digitised payments to

keep the business going. The Managing Director of the company is touring the country and is

also facilitating the dealers to shift over to e-payments. The company is in talks with various

agencies which install card swiping machines to install the same in the dealer outlets while it

is also roping in mobile wallet provider Paytm, to connect its dealers to the mobile payments

network.

The sectors that depend on cash for generating sales will naturally be affected by this

transition to cashless system and to cope up with the change the companies must react

proactively to reduce their dependency from the cash transaction and the one which lags will

pay the price in the form of reduce market share.