Banking in any Bank, Digital Banking Simplified

Introduction

Banking has evolved from manual banking to computerized transaction processing, home branch to core banking where transactions can be processed from any of the bank branches. Additional channel offering allows self- care customer service and transaction processing through ATM/Internet banking/Mobile banking etc. It has been more than a decade where customers visit any branch of the Bank and complete their transactions such as receipts, payments, funds transfer from one account to another account, remittances etc., However there is always a home branch/home bank linked for any transaction.

How different is the concept of Bank anywhere? For example, “A customer who holds account with X Bank Branch can visit Y Bank Branch and complete basic transactions such as cash withdrawal, cash deposit & funds transfer in online mode”

This sounds really interesting – but how is that possible as the Banks are completely different and might be working on different applications.

This blog is introducing the concept of inter-operability between banks enabling Banking anywhere irrespective of the home Bank where the customer is associated, with more focus on rural and semi urban Centers. With technology enablement, customer need not be restricted to a single Bank/Branch and the financial ecosystem should enable transacting from any bank branch, with proper security checks and controls.

Need for Banking anywhere in any Bank

The modernization of payment systems enabled customers to transfer funds across customers in any Bank. Technology has paved the way enabling transactions to be processed by customer without visiting a branch. But there are limitations in withdrawing amount beyond a certain limit in ATM’s, Cash deposits through ATM, issuance of drafts etc.,

The customers in Metro and urban areas are more literate and empowered comparatively, to do transactions by themselves through various customer touch points such as ATM’s, internet banking, mobile banking, using various payment system such as RTGS, NEFT, IMPS, UPI etc., (In India). Using the channels/ATM’s and the payment system infrastructure the customers are able to perform transactions such as withdrawals, funds transfer to a large extent with some limitations on the transaction amounts. But in the rural/semi urban centers the customers do rely on the physical bank branches/employees to service them. Though there is a need for Banking anywhere in metro and urban centers also the emphasis is more on the rural/semi urban centers.

The number of Bank/branches and ATM’s spread across in rural and semi urban centre’s are significantly very low when compared to metro and urban centers. With the growing emphasis on Banking in the rural centers and the education levels being relatively low in these centers, it is very important to have a wide reach of Bank/Branches to service the customers. At the same time, it may not be viable for Banks to open multiple branches as the business may not be very prosperous/profit making in these rural/semi urban centers.

To overcome the challenges and meet this requirement the idea of Banking anywhere is getting evolved wherein Banks/Branches can form a cluster and offer basic services to start with, to their customers such as cash receipts, payments, funds transfer, issuance of drafts etc., from any of the Bank/Branches irrespective of the Bank where the customer account is held. Going forward the banking services may be extended for accepting cheque book requests, statement requests, outward clearing cheques etc.,

Proposed Innovation:

The proposed innovation aims at Bank’s forming a cluster/group and having a tie up with the intermediary institution for authenticating/processing the Banking anywhere transactions. For example, the customer might have an account with X Bank/Branch and they visit Y Bank/Branch for withdrawal transaction. The customer would capture the details such as Account number, amount of withdrawal, Bank/Branch code/ISFC code in the KIOSK and provide biometric thumb impression, at the other bank where customer does not hold any relationship. The kiosk would generate a reference number and also generate a payment message which would be sent to payee bank for authentication via the intermediary institution and Switch. Along with this, biometric authentication details are also sent wherein authentication can happen either at the intermediary institution level or through a central organization. Once the biometric thumb impression is authenticated and the transaction at the Home Bank/Branch level gets processed, the withdrawal transaction would be processed by the originating Bank/branch. This feature can be extended on the mobile device/app also in the subsequent phase.

The intermediary institution would be involved for passing and reconciling the necessary accounting entries for Banking anywhere transactions. The transactions would be passed at the home bank/branch as well as at the originating Bank/Branch level.

Similar infrastructure can be used for facilitating other bank account transactions such as Cash deposits, cash payments, funds transfer and issuance of demand drafts/Bankers cheque to start with.

The basis for any of these transactions would be the transaction reference number which would be unique across the Bank and can be referred for future reference. The transactions would be validated without any human intervention.

The intermediary institution would do the necessary settlement between different banks which are part of Bank Anywhere transactions, the way it is done for payment system transactions.

This blog is more aligned to Indian context.

National Payment Corporation of India has done innovation in Financial Inclusion space under AEPS – Aadhaar Enabled payment system wherein it allows the customer to do interoperable financial inclusion transaction at POS/Micro ATM, through Business correspondent of any bank. However, the business correspondent should have an agreement with the respective banks. This blog concentrates around providing anywhere banking facility across different Bank’s branches.

Reference: https://www.npci.org.in/product-overview/aeps

Pre requisites: 

Banks need to share the Biometric thumb impressions of their customers with the Intermediary institution along with the account details who would act as an intermediary between the Banks. Alternatively, if the biometric impression of the customer is available with any central organization in the country and the customer links the biometric impression Id with the account, the same can be referred to the central organisation for authentication – for example Aadhaar in India. The various prerequisites could be:

• Cluster/group of Banks have to be identified for offering Banking anywhere transaction services and necessary memorandum of agreement etc., have to be entered
• Intermediary institution needs to be identified who can act as an intermediary/regulator for processing, accounting and settlement of transactions.
• Intermediary institution should be able to store, authenticate the biometric thumb impression of the customers of various Bank’s/Branches. Biometric thumb impression details have to be shared by Banks with the Intermediary institution on a regular basis. Alternatively, the authentication can happen through a central organization which has the repository of all the citizen’s biometric impressions. (Those who registered with the central organization and in the Bank account)
• A log of the all the success and failure messages have to be retained for future reference.
• Pass consolidated net settlement transactions in the respective Bank accounts based on the batch process run at the end of the day
• The net settlement amount has to be passed on to the Central Bank of affecting the transaction in the respective Bank settlement accounts.
• Provide detailed reconciliation report/details at any point of time
• The Kiosk’s should have the necessary infrastructure to capture the required details, take biometric thumb impression and generate unique reference number for each of the “Bank anywhere transaction”. This feature can be extended to mobile device in a phased manner.
• The banks need to create the settlement account for passing the accounting entries.

Positives of the Innovation:

• It would set a new trend in the Banking Industry
• It will help the customer’s in the rural areas to have a better reach of the Bank/Branches.
• Customer delight whereby the customers can approach nearest Bank/Branch where such facility is available and complete their transactions
• This facility might be very useful for the customers - for example when the customer is travelling to some remote location and would like to do some urgent transaction and the customer’s Bank/Branch is not available in that location.
• The transactions can be done seamlessly without any human intervention
• The transactions are authenticated based on the biometric thumb impression hence there is no room for any fraudulent transaction.
• Customer visiting other Bank Branches may be impressed with the customer service and this may result in cross selling some other products.
• Banks offering such services would be preferred by the customers
• Bank branches can be rationalised 

Challenges of the Innovation:

• Bank’s/Intermediate Institution need to have an infrastructure wherein KIOSK, Bio metric, network etc., should be in place.
• From a cost perspective this may be a costly affair for the Banks and this may be passed on/charged to the customer.
• The customers in rural/semi urban centers may not be educated and may face challenge while performing the transactions/operating the KIOSK’s.
• Banks needs to reconcile the transactions on a regular basis.
• Some Banks may not provide effective customer service for such transactions as they are other Bank customer’s.
• There is a chance that the other Bank may lure the customers to open accounts with them.
• Liquidity may be an issue as Banks cannot predict the transactions of other Bank customers. 

Security checks and Controls:

Security checks and controls would play a vital role in Banking anywhere transactions. It is very important that the Bank tellers should not have direct access to other Bank customer’s accounts. They should be able to process the transactions based on the successful reference transaction id only. The message transmission from Kiosk to the intermediary institution and the home Bank branch through the switch and update of the transaction reference id should be completely automated and there should not be any room for any fraudulent bank anywhere transaction in the customer’s account. The customer should be updated with the status of the reference transaction id on mobile/email based on the need.

Advantages over ATM:

There are limits on withdrawal transactions in ATM’s and also sometimes a time lag for cash deposits done through ATM. Moreover, in ATM the deposit and funds transfer can be done only by/for the customers who hold an account with them. In some countries there are limits on the number of ATM withdrawal transactions done on Bank’s own ATM’s/Other Bank ATM’s, beyond which the customers are charged.

Conclusion:

To counter the limitations, the following guidelines can be proposed by the regulators:

• Depending upon the infrastructure, Regulators/Banks can decide the scope/limits for such transactions.
• Bank can offer such facilities to specific segment of customers and also for some selective Bank/Branches initially to start with.
• The intermediary institution can act as a regulator and resolve the disputes between the Banks in case of any issue in the transactions.
• The message flow/information flow would be seamless and there would not be any human intervention.
• With proper infrastructure in place, the tellers would not be able to do any kind of fraudulent transactions/obtain any account or personal details of the other Bank customers.
• Customer awareness programs can be set up to educate the customers on this facility
• In the subsequent phase instead of depending on Kiosk for transaction processing, it can be enabled on mobile device/app also.
• It can be rolled over across the country in a phased manner 

The customers in rural and semi urban areas have least access to Banks compared to metros and the urban centers.

There are various reasons which can be attributed for low unbanked population in the rural areas such as large area and population, low financial literacy, low income & savings, lag in technology, internet access etc., It is financially unviable for each Bank to have a very large number of Branches to service the customers.

This initiative/innovation would help Banks in the rural/semi urban centers to service their customers and help them in access their accounts across any of the Bank/Branches. It would be a very customer friendly initiative which will help Banks to increase their overall business. The Banks/regulators/intermediary institutions can arrange for educating the customers through various awareness programs on these initiatives which would go a long way in “Banking the Unbanked customers”

Once this model is successful for a small cluster the same infrastructure can be extended across the country for various other services.