Let me reproduce a decade-old statement of one of the top bank executives from my archives. While discussing customer segmentation, the top bank boss in an interview expressed his wish to see even a shoe shiner in the ambit of the formal banking system. “That would be my happiest day as a banker when I would be able to deliver banking services to a shoe shiner and help him to grow,” he said. That was a time, when the digital banking services, especially the electronic payments, were not so popular and even banks were not ‘comfortable’ to promote the culture of e-payment methods. Precisely, the ‘Digital India’ campaign was yet to be born.
You must be thinking about the relevance of reproducing an old statement of a banker at a time when financial inclusion and digital banking practices stand revolutionized and have become a norm. To make things clear, let me share a small incident which I observed just a few days back at a busy marketplace.
A small child stopped near a street vendor selling Singharas (water chestnuts). He insisted his mother to buy some Singharas for him. The mother tried to avoid buying the Singharas, but his child was adamant with his demand. She tried to make her child understand that she was not having small denomination currency notes to buy the Singharas and she had guessed that the street vendor wouldn’t be having too much cash in hand to complete the transaction. Most probably she was having Rs.500 currency notes and the payment to be made was not more than Rs.20. But the child insisted that she make the payment through mobile phone. She again tried to make the child understand that it was not possible for an ordinary street vendor selling stuff like Singharas to be acquainted with e-transactions.
Interestingly, the street vendor was listening to the child-mother conversation. He intervened and told the lady to make e-payment through UPI. The vendor gave his mobile number to the lady and got the amount of Rs.20 transferred to his account through the digital transaction. Actually, the lady had no idea that the use of e-payment methods is now so vast and is used extensively even for small payments.
Today, we are in a digital era. Over a period of time, the use of electronic transaction (e-transaction) methods have grown manifold. With the new innovations and modern technology, conducting financial transactions at the click of a button has become a norm and there are various online payment modes in place which make transfer of money at a lightning speed.
What I am trying to convey is that the nature of financial transactions in day to day purchases is changing fast. People are fast shifting to digital mode and are losing love for carrying physical cash. Now people, irrespective of their status, fearlessly use digital modes to conduct a financial transaction. Even the banks are continuously engaged in upgrading their IT infrastructure to match the market needs - a robust network having lightning speed and simultaneously ensuring security in transactions.
Today, the most popular modes of online transactions are UPI (Unified Payments Interface), NEFT (National Electronic Fund Transfer), IMPS (Immediate Payment Service), and RTGS (Real-Time Gross Settlement). It is very important for individuals as well as businesses to understand the multiple payment methods before choosing a particular e-payment platform.
What is NEFT (National Electronic Funds Transfer)?
Introduced in the year 2005 by the Reserve Bank of India, National Electronic Funds Transfer (NEFT) allows the transfer of money online from one bank account to another. It is among the most secured, economical, reliable, and efficient modes of fund transfer. The receiver and sender of the funds get notified instantly upon completion of the transaction. You can transfer any amount through this mode with minimum Re 1. The payments are settled within half an hour. The channels of using NEFT as fund transfer mode varies from bank to bank. It could be through Internet Banking, Mobile Banking, Branch, and Internet Banking facility for corporates. It can also be used to pay loans, installments, credit card dues, EMIs, etc.
What is the IMPS method of e-transactions?
Immediate Payment Service (IMPS) helps customers to transfer money instantly from one account to another, including both inter and intra-bank transfers. Transactions initiated through this mode are done in real time, which means that the credited amount will reflect in the beneficiary account within seconds. The customers are not charged for conducting transactions through this mode. There is no minimum amount limit for the transactions of funds and is available 24 hours.
Notably, fund transfer through this mode can be carried through Mobile Money Identification Number (MMID), Aadhaar number, or mobile number. The transaction does not require the beneficiary’s Account number, IFSC code, or other bank details.
What is the RTGS fund transfer system?
RTGS (Real-Time Gross Settlement) fund transfer system, introduced in 1985 and adopted by the RBI in 2004, allows the instant transfer of large-value interbank funds transfers. However, transactions once made through RTGS are final and irrevocable. There is no maximum transaction limit, but the minimum transaction value needs to be equal to or higher than Rs. 2 Lakh. Some of the advantages of this system are:
- It carries both intra-bank transfers and customer transactions.
- It facilitates an option to schedule transactions.
- The one-to-one crediting system is exceptionally reliable.
What is UPI (Unified Payments Interface)?
The UPI is a single-interface payment system, developed by the National Payment Corporation of India (NPCI). It is regulated by the RBI and is a mobile based, 365x24x7 ‘fast payment’ system wherein users can send and receive money instantly and the user is not required to share account or bank details to the remitter. It supports person to person (P2P) and person to merchant (P2M) payments. Earlier, its use was mostly limited to smartphone users and merchant locations, the launch of UPI123pay version now allows the feature phone users to use the facility without having an Internet connection.
In other words, it facilitates immediate money transfer through pull and push payments, merchant payments, utility bill payments, QR code (scan and pay) based payments, etc. Non-financial transactions such as mobile banking registration, balance enquiry, etc., can also be carried out using UPI. It powers multiple bank accounts into a single mobile application of any participating bank / non-bank Third Party Application Provider (TPAP). Funds can be transferred using Virtual Payment Address (VPA) or account number with bank code (IFSC).
The upper limit per UPI transaction is Rs.1 Lakh. The facility is free of cost.
What is the primary difference between UPI, NEFT and RTGS?
Actually, there are two primary differences between UPI, NEFT, and RTGS. The first is the amount of money you can transfer at a time. Typically, most banks allow NEFT and RTGS transfers of up to Rs2 -10 lakh. Some banks, as per banking experts, may waive off an upper limit for RTGS entirely, while others may allow customers to set their specific third-party transfer limits for anything between Rs25 lakh to Rs2 crore via internet banking.
The second difference is the time taken. The transfer of funds through UPI mode happens in a few seconds. RTGS takes longer at times as much as half an hour. NEFT, on the other hand, is processed in batches. So the time taken to process the transfer may be longer.
(The views are of the author & not the institution he works for)
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.
The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.